House junkies

junkie1

This blog’s a strange place. I should have called it ‘Obsession.ca’. Most people here are terminally addicted to real estate.

Sure, they might run it down, trash young buyers and dump on realtors, but they still lust after property. It actually all comes down to price. If houses were affordable, this site would not exist. But because real estate is an overvalued, unstable and emotional asset, it keeps the juices flowing. Quite telling this weekend was the angst poured out by forty-somethings as they blamed Baby Boomers for screwing up the market.

In fact, housing is far more cultural than we like to think. Newly-marrieds believe they’ve consummated nothing until they set foot in a home of their own. Parents and grandparents push children into a lifetime of mortgage debt convinced it’s in their best interests. Most Canadians react to renting like it causes testicular cancer. We’ve come to equate address with social status, granite countertops with taste while spawning an entire television network on houses.

Gone is the idea of a ‘starter home’ since almost anyone can buy a new house without money. And ingrained in our psyche is an idea so monumental and unshakeable that even the worst economy since 1932 cannot dislodge it – that houses are assets which always rise in value. They want to go up. In the absence of any reason not to, they will go up.

And for that fundamental reason, we must have them. The people who come to this wretched blog are no exception, believing in their secret place that once the smoke clears, we will all party like it’s 2006.

Cue Greg. He writes:

I am a 25 years old university graduate with no debt (as of two weeks ago) and I am lucky enough to have a very stable job making roughly $75,000 a year. Three months ago I was convinced that I was going to be purchasing a home with a basement suite to help pay off my larger than life mortgage. I was convinced that my home will only go up in value because of the city I live in and I was always told real estate is a good investment.

Being young and excited to purchase my new home I did not realize the pitfalls of a $350,000 to $400,000 mortgage. One day I crunched the numbers and budgeted how much of my net income would go to mortgage payments, car payments and general bills (grocery, phone, taxes etc). I was astounded to see that at the end of every month I would only have $115 of disposable income. I have elected to rent instead of buy in order to still have some disposable money to take my girlfriend out and she was happy.

This cold dose of reality gave me some perspective into our housing market. If I am essentially priced out of the single family dwelling home market (and almost out of the condo market) how are people who make less then me affording homes? How do people actually afford to live with a mortgage like that? Will homes ever be affordable again for the average person? The news is claiming that house prices have ‘rebounded’ in April. I sure hope not.

Well Greg, you are one smart young little dude. No wonder they pay you seventy-five large.

The trouble is most people allow their real estate hormones to overtake reason and logic, opting for home ownership at any price. Worse, homebuyers lie to themselves. They count as cost only the mortgage (and today’s temporary cheap rates help the fiction) while ignoring everything else from land transfer tax to insurance premiums, property tax payments, utilities, maintenance, lawn care, snow removal and the lost earning power of the thousands handed over as a down payment.

This means almost all homeowners who have bought within the last five years could live more economically, in exactly the same house, if they let somebody else worry about that stuff. Renters also have liquidity, since they do not have 80% of their net worth deposited in one asset which can be tough to unload. Especially in the next few years.

So, if you really want to gain wealth and financial independence, putting your money into a diversified portfolio of other assets – commodities, equities, near-cash investments, debt securities, rare motorcycles – might be one heck of a quicker route. Feeding a house and praying for a capital gain (and a greater fool to buy it from you) hardly seems scientific.

Which, of course, it’s not. Like I said, real estate junkies are addicted. They think this recession, debt crisis, government nationalization, corporate bankruptcy, economic meltdown thingy will just blow over. Sad. Track marks. Hollow eyes. Drool.

Greg, you’ve learned a life lesson well. Now get the hell out of here.

And the joke’s on you…

Hi Garth,

I know you must hear it a lot but man, you’re a hero to many of us for telling it like it is.  I’ve been following your blog for a couple years now and even though I don’t add my comments, I’m one of those silent fans (1000’s I’m sure) who just keeps coming back because of the sensibility.

I know you’re a busy man but here’s a link to the homemade youtube cut of my brother, who lives in Hamilton and is surrounded by lots of the ever compounding misery … also telling it like it is. Thought you might like it.

Cheers!
Scott

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xurbia-banner1

For today’s blog, ‘ROI on the sun’, go here.

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94 comments ↓

#1 Charles T. on 05.09.09 at 9:36 pm

The following link will take you to an article which was posted yesterday on the times online web site (United Kingdom). The article is titled “Blame this crisis on the myth of inflation”. The subtitle is “Debt and house prices were shooting up. But keep one thing under control, we were told, and everything would be fine.”

Blame this crisis on the myth of inflation

The following is a snippet from an article titled “Government counterfeiting”. This article was posted yesterday on the daily reckoning web site.

“We begin by going back half a century. America emerged the world’s biggest, strongest, most innovative and dynamic economy after WWII. Then, it went from strength to strength…to weakness. Gradually, Americans turned their attention away from production and towards consumption. And gradually, America’s most profitable businesses shifted from making things to financing them. That’s why GM created GMAC…and why GE staked its future on GE Finance. And it’s why the center of American economic power moved from the manufacturing hinterlands of Detroit and Cleveland…to the financial centers on the coast…notably the big one in Lower Manhattan.
The financial sector boomed by supplying credit. Americans borrowed. And so, their debt increased. From being the world’s leading creditors in the ’50s and ’60s…they became the world’s leading debtors in the ’80s and ’90s. Gradually, the consumer economy required more and more debt to produce an extra unit of output. Debtors had to borrow not only to buy…but also to pay back, or pay the interest on, previous borrowings.

In the Eisenhower years, it took only an extra $1.50 or so of debt to spur an extra dollar’s worth of GDP. By the end of the century, the cost had risen to over $4…and then to $6 a few years later. Total debt, which had been about 150% of GDP before Ronald Reagan took office, shot up to 370% in the final years of G.W. Bush.

By the late ’90s and early 21st century, the American economy had entered the Bubble Epoque. The financial industry – aided and abetted by the Fed – was providing so much ‘liquidity’ it was causing asset prices to bubble up everywhere. Of course, bubbles always blow up – without exception. And when the dot.com bubble exploded in 2000, at first, we thought that was the end of the Bubble Era. Little did we realize, the biggest bubbles were still to come. Then came the bubbles in housing, art, emerging markets, oil, and commodities. All blew up. But the biggest bubble of all – the bubble in credit – blew up too, bringing the Bubble Epoque to a close. Capitalism giveth. Capitalism taketh away. The process of what Schumpeter called “creative destruction” continues.”

If anyone wishes to read this entire article, the following is the link to it:

Government Counterfeiting

P.S. POL-CAN (#124 – Garth’s last blog post) Good post re: Bob Chapman’s article.

#2 Chris L. on 05.09.09 at 9:47 pm

It’s takes a long time to train sheep to move in different herds. It’s coming, but it’s a slow process. Get this, multiple offers on my brother’s house. All 30k below asking on 230k house. He cut that in half and exited stage left. He still got a good deal. His duplex only broke even. Purchased for chump change a few years ago and gutted, he should have sold in a few years back. Never keep property as an investment if it doesn’t make you money today. Never. Good thing he has a good brother to advise him. Next step is to swap to a house with a basement apartment that he can buy with cash. Now he will have choices with a few hundred a month positive cashflow and options to toss a tenant out if he chooses, or collect rent for living expenses or vacations, whatever. Had he listened to me he’d be up 250k because he would have started off with an inlaw and would have flipped sooner getting into something that had positive cashflow. He figured it didn’t cost him any money so no sense in selling it. That’s wrong though, it cost him opportunity. Can’t wait to start seeing some positive cashflow properties, but it won’t matter much, a few more thousand k’s and I’m into apartment buildings anyway, these smaller houses are too much hassle.

#3 M R Ducks on 05.09.09 at 10:05 pm

Not in the home buying market nor addicted to real estate at all… I just enjoy your great writing!

bill (in washington, dc)

#4 905er & Spouse on 05.09.09 at 10:52 pm

Greg….we felt the exact same things you did.

Reading this blog helped us see the light. Thanx Garth!!!

We realized that owning the “big dream house” was going to cost us our lives.

We were planning on moving in the next few years anyway so we sold our house now, are renting and will wait for a small house in the area we want. We want one that is affordable enough that we can pay it off quickly and be debt free. We don’t want a mortgage hanging over our heads into retirement. Maybe something with a basement suite that we could rent if things got worse.

#5 905er & Spouse on 05.09.09 at 11:03 pm

I live in Brampton and boy do I have a story to tell you folks……

Went to NoFrills (near the Bramalea Crysler Plant) today they had a 1/2 price sale (next 2 weeks) on some items. Only a few good deals the rest were just average sales…I went at 7pm Saturday and the store looked like it had been ransacked. There were whole rows of empty produce bins. As I was leaving someone came in a blurted out “What the hell happened here?”

The store clerk told me that he had to lock the doors twice today as the store was at max capacity. People in Brampton are becoming desperate…..real desperate if they need to save like $15 by stocking up on semi-cheap food.

Maybe we need to talk about a run on the grocery stores instead of the bank….I’m just glad I’ve been feeding the squirrels. They will be nice and plump for the fall harvest.

#6 Keith in Calgary on 05.09.09 at 11:20 pm

25 year old Greg clears about $40K out of that $75K after taxes and other deductions………so $3,500 a month net.

$400K at 5% over 25 years is $2,326 P+I per month……property tax is easily $150-200 a month…….insurance $75…….utilities $300-400…….maintenance ??……etc…..etc…..

Rent…..$900 +/- for a one bedroom apartment.

‘Nuff said.

#7 hobbygirl on 05.09.09 at 11:38 pm

I have a question I hope someone here can address.

What is an ideal square footage per person to live in? I see everything from McMansions that are 1 person per 2000 sq ft down to 1 person per 250 sq ft where I grew up (total 750 sq/ft home).

Instead of the new marketing ploy of selling RE by square footage cost which looks ‘affordable’, we should be focusing on how much room a person actually needs.

#8 dave on 05.09.09 at 11:41 pm

Best Blog entry yet!
Filled out proof of income letters for our young employees for the same situation here in Calgary. Same mortgage amounts and even less income.(Newly weds and common law couples) Explained the same basic facts – none listened.

I call it a Mind-Virus.

#9 Munch on 05.10.09 at 12:11 am

Brilliant, Garth!

#10 Sean in E-Town on 05.10.09 at 1:14 am

Definitely correct Garth, and I’m one of them property junkies jonesing for a fix. Own a one bedroom apartment free and clear in a market that rents for 700 a month and I spend 180 a month on fees, 20 a month on insurance, an average of 50 a month on maintenance, and 60 a month on property tax. 700-310 is 390, or $4650 a year. That’s a fine, fairly stable, dividend return if the place sells for 70 grand, which is what it’s worth, but it’s a huge money pit if it’s selling for 105, which is what I can get it for in this market. So yeah, find me a 600 square foot box and I will happily plunk 20% down on it, desperate for a hit of housing, and paid off before my term expires, and enjoying a 7% dividend, tax free, just as good a preferred shares of Loblaws.

#11 Mark on 05.10.09 at 1:44 am

DO NOT OPEN the first link in comment No.1 (of Charles T.’s) – it is infected by a Trojan virus. I had to abort the connection in a hurry and perform the system check as soon as I clicked on it.

Charles T.: Please invest in a good firewall and an antivirus program before posting again. Otherwise you may be responsible for infecting thousands of machines (if posting other links).

#12 victoria reader on 05.10.09 at 2:53 am

Let me get this straight then. Because of the easy credit it has prolonged the real estate crash from happening in canada. Stock markets are up cause they are riding the good news that the recession is going to be over soon. But if housing crashes and employment lowers further wont that make the stock market fall so it isnt even safe to put your money there? Or will oil and metals still do good cause the rest of the world needs that stuff.

#13 Zoronqueen on 05.10.09 at 3:01 am

The trouble is that most people allow their real estate hormones to ovetake reason and logic……

In this era of cosumerism, gone are people who used to frugal, everyone is in house lust especially now that the prices have supposingly gone down…..

We can’t take it with us mentallity is previlant. For example, we used to live in a simple house making 200K per year. Yes we have a nice life style and at that rate we would have paid our house in another 5 years. But no, we had be be greater fools, Of course we deserved the granite tops, garage ( we had none before) and the extra large soaker tub….
Now we are in debt to the banks….

So we do have to fool ourselves to cope…. For now we only have another 19 years to commit ourselves to these 4 walls…. so of course we lie to ourselves that maybe hyperinflation will save us, maybe it’s not so bad afterall….

#14 sss on 05.10.09 at 3:53 am

Garth said: “Gone is the idea of a ‘starter home’ “. Greg it is about you. If you can’t afford house, start with condo or appartment – and you will be fine. After about 10 yars sell the starter home and buy your dream house. I’ve gone through this and it works perfect.

#15 David Bakody on 05.10.09 at 6:03 am

If young people were offered a job in NYC, London, Paris or Rome and found a nice a flat to rent …. they would think they had died and gone to heaven. This is my analogy to living and working in large Canadian cities ….. married with children is called survival, new ball game.

#16 SaraBeth on 05.10.09 at 6:59 am

Garth ~ I have written you twice before… and yet you have failed to mention the pit falls of renting… like when the landlord threatens to sell the house you have been living in for 30+ years out from under you…and your fixed income won’t allow you to rent anywhere else that is less than a slum…and even then you might not be able to afford it…

Not to mention the expenses of moving…

Having to move once in 30 years? Get serious. Tenant protection legislation in general does not allow for such situations unless the landlord moves in himself (or his family), or the building needs to be substantially renovated. In fact, tenants now have more rights than the owners enjoy. You are on the wrong blog, babe. — Garth

#17 miketheengineer on 05.10.09 at 7:21 am

Comments on EI

The place I work at is trying to implement the work sharing program, where you work 3 or 4 days and EI pays you some money. But it only works if you are less than 55k….otherwise you get nothing or have to pay it back at tax time.

EI is one screwed up system. When you are down, the government will screw you. How to make your payments? Everyone in the office gets screwed and the plant people get money (they make a bit less). We all pay in to the program and the office guys get to loose. This is discrimination. It ain’t fair. This is why I hate this program and I hate paying into it.

Heaven forbid you loose your job. You go on EI. You paid money into the program (that money you paid income tax on). At tax time, you have to declare the EI as taxable income. The government gets to take the tax twice from you. I hate the EI system. Don’t even talk to me about part timers….They get screwed even worse….

That’s my rant for today.

#18 miketheengineer on 05.10.09 at 7:39 am

Food:

I noticed the same thing, during the last 1/2 price sale. I go early in the morning. I saw one guy wheel out an entire cart of canned soup, all at once.

Some of these guys have stores, or restaraunts, etc.

Other people see that the food stores are “screwing” us on price. Everything has been pumped up by this “food MAFIA”. These companies don’t care about you and me. All they care about is the $$$$$$ and profits.

The only way to win in this game is to buy stuff on SALE and to only buy it on SALE. Once you get it on sale, buy lots of it, so you are not stuck paying 150% for something.

Screw the stores….they are milking us dry. Them and the MAFIA that owns the oil companies and gasoline suppliers. They are the ones that are killing this country, making us broke.

Have you noticed the price of gas is about buck a litre. Why? Because the oil companies what to make a billion dollars profit and screw me and you. I say park your car for the next 2 weeks and go no where. Once the demand is down they have to drop prices…There is no shortage of fuel, never has been. Only media hype and pure greed by the oil companies. What is oil, like 60 bucks a barrel….when it was 150 we we paying like 150. This is just plain ripping off the consumer. I say stay home on the long weekend, don’t buy any gas. Keep your money in your pocket. They are banking on everyone going out and filling up their tanks on Friday and filling up all weekend. Don’t do it.

Don’t believe everything that is hyped on CNN.

#19 john m on 05.10.09 at 7:45 am

#7 hobbygirl on 05.09.09 at 11:38 pm

I have a question I hope someone here can address

Instead of the new marketing ploy of selling RE by square footage cost which looks ‘affordable’, we should be focusing on how much room a person actually needs———-i agree homes are far too big and too much seldom used space,with wages dropping,taxes and utilities destined to go up etc,i believe compact homes will be the future for people to maintain a standard and quality of life.

#20 pjwlk on 05.10.09 at 8:34 am

Garth, you’ve just proven the point that being a contrarian puts you on top more often than not. Hardly a day goes by when I’m not asked by someone if I’m looking at buying a house yet. Everyone wants to help save me from myself and get me back on the merry-go-round… and yes it’s pathetic that we are viewed like lepers because we rent.

What most people don’t see is that the return on our investments, even now in these tough times, are enough to pay for our rent, which includes everything except internet and phone. We have no debt, not even for our vehicles. HA!

#21 CalgaryRocks on 05.10.09 at 8:37 am

Greg should dump his car payment. Hopefully he’s not leasing. There is no bigger waste of money.

Someone once said to buy the biggest house you can afford and the cheapest car you can get away with. I see a lot of renters thinking they can’t afford a house but driving leased BMWs & Audis.

#22 Bill-Muskoka (NAM) on 05.10.09 at 9:18 am

And ingrained in our psyche is an idea so monumental and unshakeable that even the worst economy since 1932 cannot dislodge it – that houses are assets which always rise in value. They want to go up. In the absence of any reason not to, they will go up.

Well, one has to be like Carl for their house to go UP nowadays. LOL

#23 Jake on 05.10.09 at 9:35 am

Zoronqueen,
Why don’t you unload that place now while the media and realtors spin the market here in Edmonton. This “recovery” or bottom, or whatever the realtors are calling it is probably a pretty good time to get out if. Get into a semi attached or something more modest and enjoy your freedom once again. At the end of the day, peace of mind and a paid for place to sit and read Garth blows granite and soaker tubs out of the water. We had a big jacuzzi in one of our places and I think we used it at the most once a month. Those were expensive baths!

#24 Ted on 05.10.09 at 10:29 am

If rates will stay low until Q2 2010, and combined with the irrational obsession of real estate, is it not likely we could see a substantial rise between now and Q3 2010? Not saying it makes any sense (I’ve been a bear for a long time) but prices made no sense in 2006 and increased at double digit rates. I think there is a small window of opportunity to flip over the next 12 months.

Basing an investment decision on a predicted outcome 5 years from now (locked in 5 year term) when your talking about your principal residence seems a bit risky. After all if housing provides even a nominal increase over that time you are ahead with the huge leverage available. It would be foolish to base an investment in a stock on a five year time horizon so why is housing apparently so easy to predict that far into the future?

#25 Nostradamus jr. on 05.10.09 at 10:36 am

#12 victoria reader wrote…

>>>Let me get this straight then. Because of the easy credit it has prolonged the real estate crash from happening in canada. Stock markets are up cause they are riding the good news that the recession is going to be over soon. But if housing crashes and employment lowers further wont that make the stock market fall so it isnt even safe to put your money there? Or will oil and metals still do good cause the rest of the world needs that stuff.<<<

…This is the question that everyone is asking…SO WHERE, WHERE, WHERE, DO WE INVEST OUR SAVINGS?

1/
…Garth bought a bunker…and is renovating it too!

Is it just me or is the “”right kind of Real Estate”” still makes a great investment…doesn’t it.

2/
Location, Location, Location should have been Garth’s first consideration, not his second.

A Power of Sale made sense, but he should have bought it in Vancouver/Hongcouver, the next Financial/Trade/Culture/Leisure capital of North America and likely the world.

The world’s $$$ is relocating to Vancouver Proper…City’s population is still well under 1 million citizens.

…You keep hearing it first…

#26 timbo on 05.10.09 at 10:45 am

Something to read before the all clear horn is sounded and we go back to normal.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5301123/bEnjoy-the-rally-while-it-lasts—but-expect-to-take-a-sucker-punchb.html

#27 Rhino on 05.10.09 at 11:03 am

A brief comment on “starter homes”…

When we were starting to look for a home, we went after “starter home” prices. What we found, was these were in such demand, that there were bidding wars, and absolutely no bargains to be had. Some of these were real “fixer-uppers”. At the time, about 15 years ago they were listing $70-80k.

So, we bumped up “one level”, and started finding better deals. At the time, they were listing $80-100k.

One more “step up” to $110k which was still affordable. and we found our home – not house – which is more than we needed, but nice to have the extra space. It has since better than doubled in value, as now McMansion seekers seem to need THEIR “starter homes”.

It is all well and good to suggest “starter homes”, but sometimes the reality is they are often less value for your money.

BTW – we bought a HOME – not an “investment property”. In 18 months, it will be MINE!!!! Glad we did, as I can no longer afford “rent”… Thank you modern Canadian economy – where paper financial management trumps manufacturing.

#28 LS on 05.10.09 at 11:04 am

Anyone else think the picture in Garth’s post looks like Bubbles from The Wire?

Great show that.

#29 64 bits on 05.10.09 at 11:04 am

#11 Mark –

Or better yet, get a real computer system, and avoid that buggy microsoft crap forever.

http://software.opensuse.org/

#30 Rhino on 05.10.09 at 11:11 am

#1 Charles T. on 05.09.09 at 9:36 pm

Charles… that is one powerful posting. “Virtual wealth vs actual wealth” is the way I see it. I have known so many people who feel rich when their paper goes up, and feel robbed when it goes down, it is scarey.

What ever happened to “real goods”? Is our society now so seduced by the virtual reality that we have forgotten that it is not the paper that is important, it is the things you create that are.

Almost like the death or decline of radio due to t.v…. We are now losing theatre to CGI special effects, and good writing in movies to glamorized unreality.

This recession will bring a few back to reality. Though, some may be happy driving their Ferrari on some computer simulation and forget they cannot even afford a Lada…

I must be getting OLD!!!

#31 Ted on 05.10.09 at 11:23 am

The market is always right, regardless of how irrational that may be. Constantly waiting to be right despite what the market means you’re wrong.

#32 Munch on 05.10.09 at 11:24 am

Garth

here’s a serious suggestion for you – to widen your scope (beyond just Canada) and start writing into a broader context – maybe not the whol World but at least beyond your suothgern borders – you have a talent which is being wasted – that’s my suggestion, please do consider it.

Regards

Munc

#33 Doug from Calgary on 05.10.09 at 11:43 am

Finally, some great recession inspired music!!

#34 jess on 05.10.09 at 11:44 am

interesting point of view

Japan: A Story of Love and Hate
A look at Japan’s ‘working poor’ through the experiences of one couple.
http://www.cbc.ca/documentaries/passionateeyeshowcase/#

#35 Real Estate Deal or No Deal on 05.10.09 at 11:46 am

Hey Garth,

Whether addicted to real estate or not, I think a lot of people like me keep coming back to your site for the following:

– reassurance that renting still … is the best financial decision currently
– insight to areas we haven’t thought about
– re-affirmation that our 6th sense was right about the economy and home ownership
– and to read a good laugh from your slightly caustic, critical analysis

For these reasons, I return yet another day to see what you are thinking as I value your opinion, analysis and enjoy your wit.

#36 taxpayer like you on 05.10.09 at 11:58 am

Zoronqueen – $200K /yr? At 30% means you
can “afford” $5000/mo. At 6%, 19 years that’s $700k mortgage. Ouch! Yes you are addicted.

If you were paying that $5000/mo on old house for 5 years that gives a little under $300k mortgage left when you moved up.

Where do you live if I may ask, and can you give a few details on the two houses (size, age, rooms)? Thanks.

#37 Boombust on 05.10.09 at 12:05 pm

“The market is always right, regardless of how irrational that may be.”

Nonsense. If that was the case all the “players” would be rich.

#38 Got A Watch on 05.10.09 at 12:10 pm

#11 Mark – I saw no problem with # 1’s link that I saw. It is to the ‘Times of London’ website, which I look at fairly often. I have AVG, it sees nothing wrong.

Open DNS indicates no problems with that URL.

A free, top notch upgrade to your PC security is to switch your DNS (Domain Name Service = translation of www names to numeric IP addresses) to Open DNS which is a secured DNS server.

They will not connect your PC to any known hacked or malicious website, you will get a message that the site is “unavailable” if it was known to be compromised. Much more secure than your own ISP’s DNS server, which simply connects every working IP address without regard for security.

Set it as your DNS Server on PC’s, and in your router settings. They have also have ways to do parental control on your internet connection, to block adult websites etc., if you have young children.

A free and easy way to improve your internet security significantly. For everyone. Instructions on the site. Very highly recommended.

#39 R on 05.10.09 at 1:12 pm

#7,#19,#27 Square footage, Starter homes, Etc.

In probably less then a year Mcmansions will drop in price more then they already have. Who wants them? Who can afford them? Not good as a rental . Ever tried heating,cooling,cleaning, one of those suckers? Been there done that and never again. My guess is that the small starter home and condo market <1000 s.q. will boom. You can always reno a small starter and make room for the kids, cat, and stuff. If anyone out there has to buy because you refuse to rent then you might want to take a closer look at this market. In 5 years time you will be the winner and not the greater fool.

#40 $fromA$ia on 05.10.09 at 1:31 pm

How the hell are homes expected to drop when they are still lending cheap money???

I can borrow $500k for $70k of income.

Theres no deflation here Garth.

This Government wants inflation so it can help home owners and itself pay of debt easier sustaining prices.

The bar has been set. Houses may drop 10% more but inflation will make up for the boom.

Therefore perhaps buying assets with your savings is the smart thing to do?!?!!

#41 $fromA$ia on 05.10.09 at 1:33 pm

Therefore perhaps buying assets with your savings is the smart thing to do?!?!!

Otherwise your money may be devalued in the upcomming inflation.

I seriously doubt there governments will start to take money off the table when the black holes have been filled.

#42 john m on 05.10.09 at 2:03 pm

Just finished reading “sheeple” Garth excellent book and a great vision for the future.I got a good chuckle out of how you ended it and how very true.Thanks for bringing honesty to the people.

#43 Grumpydawgs on 05.10.09 at 2:25 pm

I had a talk with a banker friend at a local branch today and he said something interesting when I asked him how businees was. He said that it had really picked up in the past two weeks, but when I asked if the surge was from new mortgages he laughed and said no, refinancing. he went on to further say that the average sucker was paying between 20,000 and 40,000 to refinance at the new rates because of the intrest rate differential in thier contracts and on the massive amount they owe.

These people were paying big money and taking on more debt for a longer period in exchange for a short term lower payment.

Kaflushhhhhhhhhh , no equity, just a really long payment period. 40, 000 is an insane amount to sign away to save a few hundred a month. But thats how big mortgages are these days

#44 Charles T. on 05.10.09 at 2:38 pm

(# 11 Mark)

You posted the following:

“DO NOT OPEN the first link in comment No.1 (of Charles T.’s) – it is infected by a Trojan virus. I had to abort the connection in a hurry and perform the system check as soon as I clicked on it.

Charles T.: Please invest in a good firewall and an antivirus program before posting again. Otherwise you may be responsible for infecting thousands of machines (if posting other links).”

Mark, pleased be advised I get a complete internet security software package from one of the big name companies. Just to be safe, after I read your comment, I went to the web sites of two other big name internet security companies and used their “free scans” to check out my computer for viruses, spyware, etc. Both of the free scans said my computer was clean.

Also this web site “moderates” readers comments before they get posted onto the site. I think it is probably a safe bet that part of the moderating process involves checking out readers comments (and any links which they may provide) for any signs of malware (with a fairly sophisticated internet security system) before posting them onto this site.

P.S. # 26 Timbo. Great link in your post.

#45 Ted on 05.10.09 at 2:52 pm

I’ve got access to MLX through a Realtor friend and it appears a big number of sales get entered into MLS at one price and recorded at another for tax. I would guess that tax is going to be the more reliable figure because there is a penalty for misrepresentation. How much are the Real Estate markets being manipulated in this country? Some of the things going on would be fraud if you tried it in the securities world.

#46 CinToronto on 05.10.09 at 2:56 pm

I come to this site every day. I agree with almost everything Garth says. But I have to add my voice to SaraBeth’s above, and to respond to Garth’s comment about tenant’s rights. I have been watching the TO housing market for about 5 years. I refuse to participate in bidding wars, or buy some crap house for $400,000. However, renting is NOT great.

Several years ago, I had an older landlord who thought it was OK to walk right into my apartment. One time, he came in when I was sleeping, and waited in the hall until I was dressed. His behaviour had nothing to do with sex; he was just expressing his proprietary “right” to come into his apartment. I warned him that this was illegal and threatened to call the police, but eventually I realized I had to leave, a mere 4 months after I moved in.

It is not that easy to obtain justice at the Landlord Tenant Board. I won my claim hands down, but the landlord’s lawyer immediately appealed to Ontario’s Superior Court. They are allowed a full year to file their papers. Once the year had elapsed and they had lost their right to file, I was allowed to try to get money out of him. It is virtually impossible to make someone pay if they don’t want to, and if they have a good lawyer. I eventually got a measly $1500 from him after putting a lien on his house.

For those of you who think that $1500 is pretty good, ask yourself whether you would be willing to move if someone gave you $1500. Oh, and you’ll only get that money 3 years after you move, take several day off work to file papers, attend a tribunal and various court offices, and face the general stress of legal action.

After that disaster, we decided to find a more professional type of landlord. Next up was the charming AC. We rented her cute apartment for 5 years, adding perennials, tending the lawn and snow, and in general being excellent tenants. However, AC realized that renting wasn’t making her the fortune she deserved, so she kicked us out, claiming that her husband was going to move in! We knew, however, that she had discovered “executive accommodation,” where Toronto landlords are charging about $2000 per month to rent to visiting film people, academics, etc. I wanted to go to the Board again, and I’m sure we would have won. But it really, really isn’t worth the stress.

Next up. We rented 1/2 of a large house, a first floor and a basement. Again, very professional landlord. Three days after we moved in, the basement flooded. Now, things like this can happen, but the landlord quickly made it clear that he didn’t have time to deal with our little problem. We were left to pull the stinking carpet off the floor, call the carpet place, and meet the carpet people for appointments. More to the point, we slept on the floor upstairs for 7 weeks. I eventually squeezed a whole $500 out of the landlord. What were we to do? Move again?

There is no really satisfactory answer to landlord tenant issues. While there are great landlords, and lousy tenants, the business does attract a lot of people who want to make quick money with very little of their own effort or expense. I have NEVER had a landlord who put any maintenance into a property. This affects the tenants and everyone living on the street. If things are bad, you have to move, which is a crappy solution.

#47 gold bugger on 05.10.09 at 3:00 pm

It’s one thing to make a point about the high cost of real estate, but let’s compare apples to apples here.

Keith in Calgary divines Greg’s net pay (badly, I might add), overprices his mortgage (v today’s posted rates) and then compares a house that a wage-earner of Greg’s level could afford to Keith’s own 1BR grotto.

Also, Boombust, you need to brush up on economics. Ted’s point is that the value of an asset is what somebody is willing to pay for it in a mutually agreeable exchange. If the buyers in a city want to keep paying $500K for a box in the burbs, that’s what it’s worth at that given time.

If you want to argue that that price might go down in the future, fine. But there is no inherent “correct” price. That’s one of the key delusions of many people on this blog.

The other thing the purchase-fearful don’t account for is governments’ willingness to inflate the money supply. All that free money, being printed and put into circulation by the million of dollars per minute, has to go somewhere.

That new cash is pouring into the stock market and it’s being used to prop up property prices. Is it justifiable policy? Debatable. Does it put the fork in savers? Definitely.

There aren’t too many things that are certain in life. But the closest thing to certainty is that cash hoarders are getting killed right now. You people are fooling yourselves if you think your purchasing power, accrued through savings and your return on savings, is going to outpace the corrosive effects of inflation.

There are WAY more votes in bailing out the indebted than there are in protecting savers. So your friendly local parasite can be counted on to vote for policies that perpetuate this reality.

Those things considered, it’s perfectly reasonable for house purchasers to look at permanent and semi-permanent bears and wonder how you all can be so willfully blind to the world around you. Maybe get out of those 900 sq ft coffins once in a while.

#48 RKR on 05.10.09 at 3:45 pm

Garth I think you’re *seriously* overreacting here, infact, I think you’re almost paranoid. Real estate has hit rock bottom and now it’s on the rise again, especially with the low rates readily available. I suggest you get up to date with the real world and watch Brad Lamb in the weekly “Big City Broker” series ;) Then you’ll see how the real pros are dealing with the market and then you’ll realize there’s neither a crash nor any form of depression looming. True – there’s been a ‘slight’ adjustment, but nothing more than that which is why it’s a perfect time to buy and double your investment over the next 5-8 years.

#49 albertaguy on 05.10.09 at 3:47 pm

#7 hobbygirl

Its not about amount of space, but the quality of the space…

visit http://www.slowhome.com

#50 albertaguy on 05.10.09 at 3:48 pm

Oops disregard previous

#7 hobbygirl

Its not about amount of space, but the quality of the space…

http://theslowhome.com/

#51 Dee on 05.10.09 at 4:14 pm

Charles your computer is fine. Mark just doesn’t want anyone to read that article @ the Times site.

#52 catamaran guy on 05.10.09 at 4:22 pm

Not real estate obsessed either(I like my boat)but it’s a great blog.(and touches on more than just housing)

But pleease!!Could we all agree to go after the invasive gray squirrels first before the indigenous red ones??

cheers from the shoreline.

#53 nonplused on 05.10.09 at 4:27 pm

Actually, the market is almost never right. That’s been widely acknowledged by economists and traders for years. Even Keynes is credited with saying “The market can stay irrational longer than you can stay solvent” but the message there is not that the market is always right, but that it is too big to fight. “Don’t fight the tape”.

The real estate market is slowly coming off a bout of irrational exuberance, to steal another now famous phase describing how people interact with markets. But how could it have not gone crazy? The central banks were, through their intermediaries, giving unlimited money at practically no charge to people who had no idea. Only one way prices can go when that happens to any market.

People who bought a house after 2005 will not likely see their equity recover for 10 to 20 years unless we have hyper inflation, which would cause a bunch of even more serious problems so let’s hope the gold bugs are wrong.

Anybody follow Rosenberg at Meryl Lynch? He had a good point this month. Basically, 2 months ago when the markets were at their lows, if someone had offered most participants a 40% premium for their stocks almost everyone would have hit the bid. But now that the market is showing a 40% premium 2 months later, all the sellers are backing up. (Except insiders who are dumping like crazy). In short, people are crazy. (Except insiders.) They desperately wanted to sell at a short term bottom and now that they have a short term top they won’t.

Sell, you fools! This is an engineered reprieve that can’t be maintained.

Here are the facts, mangled as they may be, as to what the Fed has thrown at this thing in the last 2 months:

– Stress tests of big banks, that used as a worst case scenario something closer to what is actually happening already than a further deterioration in the economy. But yet everyone got an “A” and investors were encourages to be hopeful.

– Congress forced regulators to relax Fair Market Accounting rules, which allowed the banks to revalue a bunch of junk upwards and post phoney baloney profits.

– The Fed started outright purchases of Treasury debt, as not enough purchasers showed up. They call this “Quantitative Easing” but it is otherwise known as “debt monetization” or “printing money”. It will lead to either high interest rates or high inflation if pursued relentlessly. It would be nice if we could have unlimited money and low prices in this universe but unfortunately, no. Prices are always a function of the amount of money divided by the value of goods in trade.

But in the longer term, the headwinds are going to be:

– Continued breath taking unemployment

– Insolvent zombie banks. PS anyone with money in a US bank might want to reflect on the fact your money would have been long gone had Paulson not stolen almost a trillion from the US tax payers in bailouts to said banks. That’s all that is keeping it together at this point.

– Corporate earnings in the tank and plunging

– Food and energy prices still rising at the consumer level

– New taxes popping up all over the place

– Asset bubble corrections eliminating trillions in notional wealth. The wealth never existed (there never was a way to monetize any of it) but believing we had all this money made the world happy.

– Plummeting tax receipts at every level of government. This will bring layoffs to the public sector shortly so brace yourself for some interesting times as the unions attempt to force the public to insulate them from economic reality but the public doesn’t have the money to do it and can no longer borrow it.

This thing is no where near sorted out. The rally is “Hope” based. There is nothing else behind it. All that hope and $2.50 will get you a cup of coffee at 7-11. Everyone who wanted one last chance to get out, well hear it is. Real Estate too.

#39 R

I quite like renting a McMansion. But unfortunately my kids and I are accumulating a lot of toys that I may have to liquidate if and when I am forced back into a city lot.

#43 Grumpydawgs

That is actually kind of disturbing. If people are willing to take on $20,000 more debt to lower their current monthly payment household budgets must be under a lot of strain.

Garth,

Why can’t we keep whining about boomers? What fun would that be? And are we going to stop hearing about how indulgent, entitled, lazy and stupid generation X through infinity is? Fair is fair. Be nice because we’ll be pushing your wheel chair one day.

My chair has a 1300cc in it. — Garth

#54 nonplused on 05.10.09 at 4:29 pm

RKR – “Rock Bottom” ha ha that’s funny. It’s easy to tell when a realturd swings by for some trolling.

#55 Live Within Your Means on 05.10.09 at 4:59 pm

I don’t think anyone believes their cellphone conversations are safe, but this is scary. I’m one of the unusual ones who don’t have one & have rarely wished I had.

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

#56 Glenn on 05.10.09 at 5:05 pm

“I have elected to rent instead of buy in order to still have some disposable money to take my girlfriend out and she was happy.”

Kid sounded pretty smart till that line. If she cant be happy with you if all you can afford is a walk in the park together, just wait till divorce court!

None are more hopelessly enslaved blah blah blah…

Anyhow,I think Ill got for a walk with my wife after she is finished cleaning up the house and making dinner.

#57 Just a Carpenter on 05.10.09 at 5:24 pm

#25 Nostradamus jr.

The world’s $$$ is relocating to BC

Pixar is coming to Vancouver http://www.vancouversun.com/entertainment/movie-guide/Hello+Pixar+Animation+giant+opening+studio+Vancouver/1577187/story.html

Disney is moving it’s online support to Club Penquin in Kelowna (inside info). That’s the kids website they paid 700M for. Disney started making money the first day they bought it, and according to Eisner, they have not been able to duplicate their success in any of their other online ventures!

During the broadcast of the Rockets, Hitman WHL final game they interviewed a former NHL player now scouting. They asked him why he choose Kelowna as his “home”. After giving the announcer his “are you serious” look he began listing all the reasons why he, as well as many other retired players are already here or heading here. When you work on the road it don’t matter where you call home.

Young couple just moved in behind us. Originally from Europe, his work takes him all over the world. She got to choose where to call home.

just a few examples to back up your claim!

As for property values. Yes we are overpriced. Inventories are at an all time high and building starts are almost at zero. Speculators are in a panic. Dropping prices will only make it more attractive to move here. Just bring lots of money, or live here and work somewhere else! Self employment works but it is very much a “who you know, not a what you know” town.

Condos owners are going to get hit the hardest. Way too many on the market (most held on speculation) and people are realizing that apartment living in 900 sq ft really sucks. Add the out of control strata fees and suddenly single family homes with revenue potential (suites) are looking very attractive. Others my age are talking about partnering up with their kids. Properly designed secondary suites sure do beat condos and have no strata fees.

Garth relocating here? He would have to lose the tie and jacket, formal here means clean shorts and a golf shirt.

#58 ts harpoon on 05.10.09 at 5:36 pm

#48 RKR

You made me laugh! What tree have you fallen out of and what in the HELL have you been smoking???? Invest a few minutes and get informed. Man, I feel sorry for you – You actually referenced Brad Lamb!!.Priceless.

#59 Bill-Muskoka (NAM) on 05.10.09 at 5:43 pm

#46 CinToronto

I can relate to your story quite well which is why, even though we had a good landlord and personal friend, we bought a home of our own last Fall.

We could see the situation coming soon one day when she would retire, sell the property, and we would be at the mercy (there is none with most RE investors, just GREED) of whoever bought the prime residential/commercial property.

She also was ‘afraid’ to deal with other neighbors who were a complete Pain In The Ass, and we, too, experienced flooding of part of our place due to half-assed construction by the former owner. The Black Mould and mildew were literally killing me due to my allergies.

We lived in the main street of a town and the noise from traffic and ‘establishments’ was unbearable.

The Landlord and Tenants Board should be properly named to the Landlord’s Board the way most enforcement if handled by them.

The illegal dwellings that are offered on the market are unbelievable. Where are the Building Code Inspectors? Probably still at Tim’s talking about how the Leafs will someday win the Stanley Cup! The ‘granny apartment’ market is beyond belief. Nothing but death traps if there was to be a fire.

Much of that market was/is driven by ‘speculators’ in RE who could care less about people, just their damn precious ‘investment.’ There are laws, but like Frank Zappa said about the U.S. ‘We are a nation of laws, randomly enforced!’

#60 Steve on 05.10.09 at 6:13 pm

” I was astounded to see that at the end of every month I would only have $115 of disposable income. I have elected to rent instead of buy in order to still have some disposable money to take my girlfriend out and she was happy.”

Let’s all be glad Greg decided to rent instead of buy, if all he had let at the end of the month was $115 of disposable income.

Someone please explain to me how the hell this economy is going to turn around if all of our money is sunk into homes and nobody can afford anything else than house payments and food!!!

#61 dd on 05.10.09 at 6:23 pm

#48 RK

… you’re *seriously* overreacting here … hit rock bottom and now it’s on the rise again … it’s a perfect time to buy and double your investment over the next 5-8 years…

You missed the boat on this one. Real estate was yesterdays investment. And RE is still not cheap enought. Fundamentals … cost of real estate in any larger city is still over 3x salary (not good). Now if it were under 2x salary then maybe it would be time.

#62 Kurt on 05.10.09 at 6:29 pm

#7 Hobbygirl – differentiate between living and storage space. I once lived in a 1200 sq ft main floor by myself and found I actually used only 600 sq ft. My GF and I now rent a 1000 sq ft bungalow with partially finished basement, and between the two of use actually use only 700 sq ft – the rest is basically storage. This house once was considered ample for a family of four, and without the accumulation of stuff that is now so common, it still would be.

#63 dd on 05.10.09 at 6:29 pm

#40 $fromA$ia

… How the hell are homes expected to drop when they are still lending cheap money … Therefore perhaps buying assets with your savings is the smart thing to do…

Ya, there will be a rise. Just like the market the past little while. But has anything changed since the meltdown? Why did the meltdown happen? Too much debt in the system … so much that assets prices went to the moom. Then a lot of people could not afford to pay off the loan.

This cheap money will not be cheap for long. It will turn expensive in 5 years time. It was too.

As for buying assets. Sure, however, not all assets or asset prices are fundamentally sound today.

#64 dd on 05.10.09 at 6:36 pm

#31 Ted

“The market is always right, regardless of how irrational that may be. Constantly waiting to be right despite what the market means you’re wrong”

What? Constantly waiting …. ya maybe. Sometimes the best thing to do is do nothing. Assets or the market always come back to earth. Going against the crowd is not wrong … buying a house without a solid foundation is risky … just like this rally. The world economy is still getting worse … and what green shoots? Hope is all this market has at the moment.

#65 john m on 05.10.09 at 6:47 pm

Mcmansions versus the future,energy conservation is the future and i think its only a matter of time till building codes will change to reflect that with much more stringent guidelines (my thoughts). Energy efficiency is expensive and will drive up square footage costs considerably,the cost to update a 2500 sq.ft mcmansion versus a 900 square ft home will be staggering .As the big “old boat gas guzzling auto” are no longer a status symbol nor will the drafty energy consuming mcmansions be either. Watching the thermostat in a huge drafty living space versus living in a warm and comfy affordable living space is the future i think. Our Government has been very generous with our tax dollars and its inevitable that our lifestyle will suffer because of it. As the old song “signs,signs,signs,” goes it will be rules,rules,rules, and its going to cost us to follow them ha,ha.

#66 sutluc on 05.10.09 at 6:48 pm

Nothing wrong with #1’s links. One of them does attempt to open a non malicious pop-up within the page.

#67 Second World Guy on 05.10.09 at 6:55 pm

Garth,
Your entire pitch about the future decline in real estate prices is built on one main assumption – that the percentage of income that Canadians pay for housing will remain the same (~30%), thus house prices must lower.

I’m living in a second world country. The first thing one learns outside of the first world, is that they typically pay 50%+ for housing.

There is a reasonable chance that first world countries will increase their spending to 50%+ for housing.

#68 Da HK Kid on 05.10.09 at 7:00 pm

#48 RKR, you came to the right place pal! Get Schooled!

#41 $fromA$ia deflation is continuing 2010-2011. Buy into this bear market rally next step down. If you think inflation is coming which it is but at a snails pace 2012 then save until then BUT there will be a lot more return on other investments then RE this next go around. RENT, stash cash, search for high returns.

As for Garth’s article, he’s 100% correct. The stupidity re-entry is occurring and re-inflating the bubble and the Psyche of the Jones’ is still alive and well in most, with that signing device at arms length.

Barton Street! Oh yes, those again who want that $1.99/min advice from my Father, he and my mom lived on Barton Street through the 40’s. It was tough times post Depression Recovery. He joined the Barton Street Bullies as protection of families and food was of the utmost importance.

Saved and bought a house in Burlington in 1954 with Cash! They still both live in that house today in their 80’s!

Garth, human nature unfortunately ‘especially’ in today’s world of super consumption leaves only the pain of hitting the bottom to cure the common RE bug.

We have created likely a whole decade of super savers so this is our REAL evidence of deflation continuing.

Re-inflation of this bubble will only feel like Japan!

#69 . . . fried eggs and spam . . . on 05.10.09 at 7:07 pm

#151 Bill-Muskoka (NAM) on 05.10.09 at 11:13 am — Afternoon Bill.

“. . . that North America, i.e., U.S.A./Canada/Mexico are in the process of creating our own version of the EU.”

Agreed, but therein lies the doublespeak of govts. Supposedly, the US is closing illegal immigration outlets, mostly from Mexico yet there are more and more illegals (Mexicans) flooding the States.

Canucks (usually druggies and dealers) are frequently taped, using night-time film technology crossing over unchecked. Maybe the various govts. can put some of the newly unemployed to be Border Patrol Guards, paying minimum wage?

With NA in an economic tailspin, there is little left in Mexico, not much more in the US but here there’s plenty of land, jobs are few and far between, almost everyone is up to their necks in debt with no hope of ever paying it off and it’s bloody cold here. Me no comprende! :-)

“. . . The only continent left out, at this point, is Africa. The LARGEST of ALL continents.”

There are tons of resources in Africa, not including wild animals. Except for gold in S.Africa, not many of said resources have been tapped out, but soon will be.

There are two great places left to rob, pillage, rape and steal from — Africa and South America. The Mayan, Aztec and Incan calendars all finish between 2012 – 2018.

“. . . Harper is . . . an intellectual dinosaur, and Ignatieff is not really any better. they are just opportunistic politicians serving a small elite group . . .”

Themselves and followers. which leads to . . . Shooplerooms. New moniker replacing Sheeple?

Sheeple becomes Shoople, and dark, nay, black sticky manure fungi — mushrooms hidden in dark places — are now ‘rooms’.

Hence, Shooplerooms. Whaddya think? :-D
——
Yesterday I posted a link which showed the US is building a rather large ‘MASH’ type outfit in Af’stan. In combination with ever-increasing ‘bombings’, usually being blamed on Islamic fundamentalists in AfPak, because they are the most convenient and expendable.

This link — http://tinyurl.com/o6bnn9 — with comments from wrh.com, gives a possible explanation why.

“Provoking Russia right now is a particularly bad idea. Unfortunately, there are those in the west who see a war, any war, as the only way out of the economic mess we are in.”

‘Economic mess’ — a more realistic expression of describing the situation this continent, and the west is in.

Plus, it’s a whole lot closer to Iran, with their new-found oil and gas deposits and their fictitious nookular weapons, same as Iraq.

#70 eddy on 05.10.09 at 7:28 pm

Greg asks:”Will homes ever be affordable again for the average person?”
eddy says: “no”

greg, if you qualify on paper, hook up with a good agent, one who will submit low ball offers for you, and try and get a deal. rent out the basement, rent out rooms to students, pay down the loan. or buy a junker and fix it up. Be a vulture. the Canadian real estate market is receiving price support from the federal government via the BOC’s quantitative easing and low mortgage rates, that should continue until the crisis is over (ha ha ha) i predict that Toronto prices will inflate faster than most folks can save. i bought my first house at 30, i wish i had done it at 25. even if it costs more than rent it’s OK. that equation is not going to change. history is full of losers saying ‘Prices are too high, I’ll wait till they drop’ you should buy if You think the deal is right, or if You think you can make money on it. there are no absolutes, Garth is an established, respected expert, but he has a house- you don’t.

#71 Nostradamus jr. on 05.10.09 at 7:45 pm

#65 john m

>> ….Energy efficiency is expensive and will drive up square footage costs considerably,the cost to update a 2500 sq.ft mcmansion versus a 900 square ft home will be staggering.<<

…Correct me if I’m wrong please but 5,000 sq ft is a Mcmansion not 2,500 sq ft.

A 5K home may have a below grade level which can be converted to a rental unit but the main and 2nd floors w/ cathedral ceiling and huge single family living space is not conducive for conversion to two family units.

#72 Nostradamus jr. on 05.10.09 at 7:52 pm

****WHAT HAPPENS IF…..****

…Canada considers switching to ALLOWING mortgage interest write off against personal incomes of Primary Use Homes as they do in the US with a base value of say ….tomorrow?

The trend is beginning in Ontario with all them new ridiculous taxes.

Garth, what are your thoughts?

tia

#73 CinToronto on 05.10.09 at 7:59 pm

Thank you, Bill-Muskoka, for acknowledging this situation! I know that there are landlords who have lost money to horrible tenants. But there is something about the nature of the business that attracts slightly unsavoury people.

#74 Grumpydawgs on 05.10.09 at 8:01 pm

#53 Non plussed, in Garths example above there is the kid who realises that after his house support expenses he has little or no disposable cash left over. he’s a smart one for recognizing the trap before stepping into it. Many don’t.

I know for a fact that many people enter into this buying arrangement unawares when in the process of purchasing and then find out after the fact that they can’t afford a pizza on Friday night. There are plenty of cases where parents have to pull thier kids out of sports and after school activities and programs because they no longer have the money left over after the mortgage etc. There are charity funds now in schools for the kids who can’t raise the twenty five bucks for a baseball program etc.

I know a lot of people ( and see on the TV news) who have found that the increase in food prices alone are driving them to eat an endless pot of soup seven days a week because of accomadation prices. The food banks all have long line ups of working homeowners now who can’t make ends meet without assistance.

The people who are biting the bullet and refinacing by paying the 20 to 40K intrest rate penalty differential payment are the people who have fallen intot he homeowner trap and barely make it through the month.

The number of people I see in the grocery store now paying for groceries with a credit card is shocking. When some is using a card and has three snot nosed kids in the buggy is not saving up for travel points to Hawaii, to be sure.

These people are MAXED out, and really getting squeezed into shitty deals like eating 40 grand to save two hundred a month on thier death grip mortgages. This is all showing up in the bankruptcy stats. I believe we’re on the leading edge of the storm on that front.

The government ‘renaming’ the people who’s EI has run out as ‘self employed’ was sadly hilarious. The Feds have been creating ‘busy work’ jobs painting highways and cleaning parks to tone down the unemployment numbers but the reality was understated by Minister Flaherty when he said ” I won’t read too much into the one month numbers” , he has a head for survival obviously.

Lets see how nay of these newly minted entrepeneurs blow off the last of thier savings and go instead straight onto welfare, which is not counted in the EI stats either. LOL.

#75 Another Albertan on 05.10.09 at 8:42 pm

53+Garth:

“Slow down…smell the pine.”
“THAT’S NO PINE…THAT’S WHEELCHAIR EXHAUST!”

With apologies to the Canadian classic movie “Meatballs”.

#76 rory on 05.10.09 at 8:50 pm

#67 Second World Guy you said:

“I’m living in a second world country. The first thing one learns outside of the first world, is that they typically pay 50%+ for housing.”

Not a big time economist (or even a little time) but maybe they are 2nd world for a reason …no disposable income because of high RE…places we are headed for without a cleansing…IMO.

#77 rory on 05.10.09 at 9:09 pm

#71 Nostradamus jr.

Junior, your missing the point while being a little too concerned with numbers.

Even 2500 is too much …actually…600 sq ft per person max and less per each if you add in your own kids.

My 2500 definition is a 1250 main with a 1250 basement …I can live with this as the new norm…and this is not a starter home (900 to 1000 w/o attached garage) …top of the line would be around 1750…anything else is just an expense and/or ego.

#70 eddy

As to Garth owning a home(s) and the application of the 3x to 4x rule …I am sure he meet the criteria…Greg does not so caution is warranted.

#78 . . . fried eggs and spam . . . on 05.10.09 at 9:10 pm

#72 Nostradamus jr. on 05.10.09 at 7:52 pm — “…Canada considers switching to ALLOWING mortgage interest write off against personal incomes of Primary Use Homes as they do in the US with a base value of say ….tomorrow?”

Good question. Mortgage interest write-offs, via income tax credits, means less revenue flowing to the banks, and someone has to make that ‘lost’ money up to keep bankers employed.

If Ottawa makes that money up, it puts the country further in debt which we, and our descendants (and following) are saddled with. Besides, we can’t afford it.

A few years ago, I read an article about “The Coming Death of the RRSP”. It wouldn’t affect people who already have RRSPs, simply those who don’t, so a non-registered (open) plan is better, as any amount can be deposited. NOT the TFSA, as that is limited to $5K / yr.

In any case, there is no such thing as a free lunch. What the govt. giveth, the govt. taketh away whether any of us like it or not.
——
#48 RKR on 05.10.09 at 3:45 pm — “. . . there’s been a ‘slight’ adjustment, . . .”.

Not as funny as Monty Python, but close. Keep working and you’ll hit the big time!

BTW, does this include all those who had their homes foreclosed, both in the US and here, and are now living in shelters or on the streets?
——
Addendum to Bill: For me, the two best ways are (1) cut spam into medium slices, and b-b-q ’til well done (or slightly burnt); then a little Dijon mustard or Oyster sauce — really good;

(2) fry (little or no oil) until the above, then the same. I prefer Dijon. Both fried eggs and spam can be eaten anytime!

#79 Another Albertan on 05.10.09 at 9:34 pm

This is a complete aside to today’s main topic, but I haven’t had a good anecdote to share in quite a while…

I was chatting late last week with a colleague at an oil and gas company. They just secured a new $100M credit facility from a bank. He was shaking his head at the level of contortion of the deal, so I asked for the Reader’s Digest version.

Simply put, the term sheet was a maze of conditions so complex that the only way to describe the deal was “this will allow the banks to show the public that they are lending, but also allows them to bring in the maximum on fees”.

So what kind of conditions? Well, minimum draw-downs are required of minimum duration, as a basic start. Ok, so $50M minimum at 6% is going to be roughly $3M/yr in interest… no so fast… the delta between the used and unused amounts is charged interest as well… 4%. So that unused $50M will cost ~$2M… for an annual total of about $5M in total in overall interest.

Buddy was continually shaking his head. “Do you know how difficult it is now to get a good deal in place with terms like that hanging over your head?” I nodded my head. “And when we asked the bank about the terms, the curt response was ‘Be happy you have a credit facility at all. These are much better terms than others are getting.'”

A mutual colleague’s response was “This is why we don’t bother dealing with anyone in Calgary or Toronto. It’s a total waste of time when people who should know the business the best imposed the most punishing terms. This is why we only raise money in New York City and Greenwich.”

Everyone else’s mileage may vary, but if this is an indication of the mechanisms Canadian companies are going to face in order to grow in the medium term, this could be a rough ride.

#80 My_view on 05.10.09 at 9:36 pm

“BRICKS & MORTAR”

#81 My_view on 05.10.09 at 9:42 pm

Option A

Rent-for 5 years=$75k (Own nothing, zilch, zero)

Option B

Buy-for 5 years=$150K (half to bank & half to principle)

I take option B.

BRICKS & MORTAR

#82 JoeCalgary on 05.10.09 at 11:26 pm

The slight uptick at the end of this shipping chart shows what effect the various worldwide stimulus packages might be having:

http://www.dryships.com/images/graph/chart1.jpg

Another view, showing Baltic Dry Index:

http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm

If the ships aren’t moving, neither are the goods.

#83 PeakOil on 05.10.09 at 11:54 pm

#6 Keith in Calgary

Single person after tax/CPP and EI making 73K

Ontario = $4,795/mth not $3,500
Sask = $4,592/mth not $3,500
Alberta $4,828/mth not $3,500

From http://www.walterharder.ca/T1.html

#79 Another Albertan

That’s that way it’s always been for O&G companies. That’s why they use equity financing. The only time the banks will give good terms is when they are at the production stage and some times even that isn’t enough. ie. Oilexco, at billion dollar company to almost zero in a blink of the eye.

#84 LS on 05.11.09 at 12:08 am

@grumpydawgs

“The number of people I see in the grocery store now paying for groceries with a credit card is shocking.”

That would be the smart thing to do. Dunno about you, but I get 2% back from my credit card towards the balance, so everything I buy is on the credit card. Then there’s no fees (unlike Interac), and no hassle (unlike cash). Credit card is the way to go, provided you’re not a complete moron and don’t leave a balance on it.

#85 nonplused on 05.11.09 at 12:59 am

Well Garth, I have my own 1300 cc wheel chair and I am not pushing or towing yours. Too heavy. But while it still goes under it’s own power let’s go for a ride!

#86 Bill-Muskoka (NAM) on 05.11.09 at 9:22 am

Hence, Shooplerooms. Whaddya think? :-D

#69 . . . fried eggs and spam

It has possibilities. Something seems missing however?

I remember when the Olymypics were held in Atlanta, GA, and the common line in the U.S. was ‘Mexico was going to send a team to compete but then they realized that everyone who could run, jump, or swim was already here!’ LOL

As to the Border and drugs…The U.S. has a series of Fat Albert Balloons along the U.S./Mexican Border that are the size of a 747 on 10,000 Kevlar tethers. They use millimetre RADAR and can see anything in the air or the ground coming into the U.S. Their main limitation is stormy weather which requires they be hauled down to protect them. I am surprised they haven’t put out some along the U.S/Canadian Border whereas we are such a haven for terrorists? ;-)

Maybe we can develop a little better security ourselves that mandates vehicle/person searches to prevent former NFL players from coming in with guns and assaulting our police officers?

Man faces gun charges after traffic stop

The man, who is 6-foot-8, tried to fight off two officers when they went to arrest him but was eventually overpowered. Police then seized a 40-calibre semi-automatic handgun with a full magazine in it.

Brenton Edwards is charged with two counts of assault with intent to resist arrest, failure to comply with probation and several weapons charges.

South America is not going to be easy to take over simply because the Anglos aren’t worth a damn in jungles. Besides the Mayans and Aztecs still know their poisons quite well and that little ‘pfffft’ may be the last sound you hear! I suggest reading the Cuban paper Granma to get the news of what is happening down there. They have formed their own cooperative of Latin countries and will not be door mats. Like Hugo Chavez accurately said of Bush ‘I can still smell the brimstone from when the Devil was standing here.’

Africa is so fractured with War Lords that trying to take it over would make Viet Nam and Afghanistan look easy. Watch the Nicholas Cage flic ‘Lord of War’ to grasp how the real world works.

As to breakfast I will stay with fried eggs and HAM! LOL Darn, there I go again humming the SPAM tune. LOL BTW, I think SPAM is an acronym for ‘Secret Piggyparts And Muchmore’. Hormel created it to use up the unusable parts they had left over. Like the Ragu commercial says ‘It’s in there!’ :-(

Hence, Shooplerooms. Whaddya think? :-D

#69 . . . fried eggs and spam

It has possibilities. Something seems missing however?

I remember when the Olymypics were held in Atlanta, GA, and the common line in the U.S. was ‘Mexico was going to send a team to compete but then they realized that everyone who could run, jump, or swim was already here!’ LOL

As to the Border and drugs…The U.S. has a series of Fat Albert Balloons along the U.S./Mexican Border that are the size of a 747 on 10,000 Kevlar tethers. They use millimetre RADAR and can see anything in the air or the ground coming into the U.S. Their main limitation is stormy weather which requires they be hauled down to protect them. I am surprised they haven’t put out some along the U.S/Canadian Border whereas we are such a haven for terrorists? ;-)

Maybe we can develop a little better security ourselves that mandates vehicle/person searches to prevent former NFL players from coming in with guns and assaulting our police officers?

Man faces gun charges after traffic stop

The man, who is 6-foot-8, tried to fight off two officers when they went to arrest him but was eventually overpowered. Police then seized a 40-calibre semi-automatic handgun with a full magazine in it.

Brenton Edwards is charged with two counts of assault with intent to resist arrest, failure to comply with probation and several weapons charges.

South America is not going to be easy to take over simply because the Anglos aren’t worth a damn in jungles. Besides the Mayans and Aztecs still know their poisons quite well and that little ‘pfffft’ may be the last sound you hear! I suggest reading the Cuban paper Granma to get the news of what is happening down there. They have formed their own cooperative of Latin countries and will not be door mats. Like Hugo Chavez accurately said of Bush ‘I can still smell the brimstone from when the Devil was standing here.’

Africa is so fractured with War Lords that trying to take it over would make Viet Nam and Afghanistan look easy. Watch the Nicholas Cage flic ‘Lord of War’ to grasp how the real world works.

As to breakfast I will stay with fried eggs and HAM! LOL Darn, there I go again humming the SPAM tune. LOL BTW, I think SPAM is an acronym for ‘Secret Piggyparts And Muchmore’. Hormel created it to use up the unusable parts they had left over. Like the Ragu commercial says ‘It’s in there!’ :-(

Provoking Russia at ANY TIME is a BAD IDEA! They simply do not have the same set of ethics or morals we are accustomed to. While I support us protecting our Arctic 100%, I also laugh when I see Harper and MacKay postering like they could do Jack Squat if the Russians decided to get nasty. They would be on the phone to President Obama in a heartbeat out of necessity pleading ‘Help!’. Then the U.S., if Obama was not the POTUS, would ‘gladly’ come to our rescue and take over the Northwest Passage as their own claiming they are there to ‘protect us and support democracy’. Sound familiar?

#87 to_guy on 05.11.09 at 9:24 am

” 25 years old university graduate ….very stable job making roughly $75,000 a year”

What job do you have? All the univ grads i know are lucky to be making 40,000 a year?

A bank branch manager makes that much .. (after 25-30) yrs of kissing rears and climbing the corporate ladder.

#88 Bill-Muskoka (NAM) on 05.11.09 at 9:36 am

#73 CinToronto

You are most welcome. Truth needs to be gotten out so people are informed. That, IMO, is still the best ‘law’ we can have to protect ourselves and others against the unscrupulous assholes in our society.

#89 Bill-Muskoka (NAM) on 05.11.09 at 9:40 am

#62 Kurt

Hence George Carlin’s routine on ‘Stuff!’ LOL

#90 Dan in Victoria on 05.11.09 at 12:44 pm

Post#19 John M,Small compact homes,Do you remember the old A.H.O.P.program from the early seventies?I can’t count how many of those houses we worked on.We called them”Breeding Boxes”.They went for $45000 back then and were around 1200 sq.ft..When we were building spec houses I used a modular type design,instead of the rooms being 11′ 5” for example we made them 12 feet,that way 12 foot carpet could be used,along with 12 foot sheets of drywall,no waste.Kitchens were always 12 feet wide,most lino is 12 feet wide,again no waste. We looked at it from a diffrent point of view,cut the waste not the quality.Some of these designerer plans that I have seen the last few years just make me shake my head.They draw up these things with no thought to the waste of materials and efficent use of space.With some simple design changes,they could elimante some of these massive beams and expensive engineering that goes with it.Also placement of the bathrooms is another one, they have them scattered all over the place we always tried our best to bunch the plumbing up,eliminating drops,and extra excavating in the slabs.All that type of design adds time and money to the house.

#91 Bill-Muskoka (NAM) on 05.11.09 at 2:49 pm

#1 Charles T.

You have that right, or at least whoever said it did. Thanks. I saw this fiasco coming back in the late ’70’s. Then came the infamous 1980 Credit Control act and the following years of Pawn Shop level interest rates. I am still distressed that Paul Volcker is back in the fray in Washington, D.C. His FedRes policies were not good. Not good at all, except for the elite and already wealthy.

#92 Bill-Muskoka (NAM) on 05.11.09 at 3:37 pm

#90 Dan in Victoria

I think part of the problem is the use of CAD nowadays? I have seen major FUBARs on drawings because some designer (usually an architect) failed to add up their stacked dimensions.

One prime example was a commercial building where the span distance was shown, but failed to incorporate the concrete block exterior walls. Result: steel trusses were 16 inchess too SHORT! A very costly mistake to say the least.

Such errors are the result of people not being able to read the drawing at full size on the computer.

Another classic was in Phoenix, AZ where the survey crew misplaced the stakes for an interstate interchange resulting in a $500,000 pier being built in the WRONG location. The contractor discovered the mistake when they went to place the pre-curved steel beams. Nice little 30 inch thick ones. The reason for Errors & Omissions insurance. That mistake cost three times what the pier originally cost.

You idea is excellent to say the least. Materials come in standard sizes, but designers add thousands in material and labour costs unnecessarily.

When I was a Project Management Engineer in civil engineering for a rather large organization the one constant we found was that architects insist on putting 10 pounds of building on a five pound lot. No room for roadways, easements,, etc. That is why Engineers do the site plans and civil engineering part.

Oddly, today, many graduate engineers and architects are clueless about about standard sizes. They simply do not receive the training in such, nor have the experience to know. I suppose they still have Sweet’s Catalogues to reference?

The materials manufacturers have put lots of time and money into standardizing sizes, and then the contractor still ends up making ‘custom cuts’ with the associated waste of time and materials. The owner still pays for it all.

Like the old saying goes ‘Measure twice and cut once!’ Oh, and above all READ the contract. that applies to all involved. I had one project where the PEng. failed to read the contract and it costs the firm another $10K because he did not include the ‘Specifications’ in the project costs.

May all time favourite was a contractor who failed to read the Bill of Materials and failed to include 80,000 cubic yards of granular backfill for a State Highway. OOPS! He already had the contract and had to eat the costs.

Engineers used to use a safety factor of four in design. Nowadays they use about 2.5. No wonder things are falling down. remember the Kansas City sky bridge failure? The 2 inch square steel plates pulled right through the concrete killing many people who, like idiots, were dancing on the sky bridge. Harmonic oscillations set up and down they came.

One of the biggest problems I dealt with was the division of labour between the field and office pros. Neither knew what the other was doing a lot of the time. I made it a point to go out and personally inspect the project site before the design was begun. Inspection during and after was mandatory.

#93 Dan in Victoria on 05.11.09 at 6:00 pm

Post#92Yeah Bill, you understand exactly what I am talking about.The waste is inexcusable.Also a lot of these guys don’t understand the nuts and bolts,they think a design program is infallable.I’m just not as eloquent as yourself and Garth,I prefer just to cut to the chase in my explanations.As far as computers,tried that a couple of times for estimating,not my cup of tea.We’re seeing a change here now where you used to just throw a high price at it and if you got it, well you would make a killing on it.Now its whoever misses the most on the quote gets the job.Before long it will be back the way it was before,the smart guys survived.(Nice post there Bill shook my head yes a few times)

#94 Bill-Muskoka (NAM) on 05.12.09 at 10:56 am

#93 Dan in Victoria

I started out learning drafting and surveying at about age 10. My dad, as was his dad, was a professional engineer and a former national construction manager and custom home builder.

Basic drafting skills are almost lost nowadays because of CAD. CAD is great, I even helped develop a quite serious 3D CAD program as a consultant. The problem is that people have lost the artistry of drafting which is how design concepts were transferred to a visual means. There is still something beautiful in the human hand and mind creating a drawing that details the concepts versus doing it on a computer. The concept goes millenia back in history.

Granted the computer can calculate everything far more accurately, but as the old saying goes GIGO (Garbage In/Garbage Out).

The ability to scale a drawing is also being lost as too many now simply say ‘Do Not Scale’ because some of the CAD programs take a weird approach to sheet size versus scale.

As to calculating costs. I know from having been a specialty custom contractor what a PIA (Pain In the Ass) Ontario’s PST (RST actually) is. A contractor has to pay the GST/PST when they buy the materials. However, if the materials will become a permanent part of ‘real’ property then the PST is included and the customer never sees it charged.

If the materials are part of ‘tangible’ property, i.e., can be readily removed or altered, then the contractor must charge PST to the customer, or if any service work is done in the contractor’s shop. The PST then becomes Double Dipping by the government at that point being charged TWICE.

Likewise the dipsticks that run around auditing shops nailed many for not charging PST on consumable materials like solvents.

Now McGuilty wants to ‘harmonize’ the GST/PST and really screw things up.

No wonder contractors just ‘guesstimate’ a project, rather than actually do the math required. I had to develop a spreadsheet for each project just to handle the damn PST. If the ‘guesstimators’ ever get audited they will be screwed royally.

Good business practice requires knowing the tax laws and abiding by them. Otherwise you are playing Russian Roulette.