Boomer 9-1-1

boomer1

Now here’s an interesting divide. Not between urban and rural. White or blue collar. French or English. But between generations – at least when it comes to the current predictably weird real estate market.

On one hand, entry-level houses are shooting up in value with owners enjoying a flood of multiple offers. Mortgage brokers have gone from being scum-sucking bottom feeders to friendly facilitators, as newbies gorge on 3% money. Developers, ready to demolish their sales trailers four months ago, are back selling unbuilt houses to untested buyers who want everything.

But at the same time, in a different segment of the market, a bunch of people who have real estate – usually too much of it – are waking up sweaty. Boomers in particular (at least judging from my email and all the guys down at the Angels clubhouse) now realize having the bulk of your net worth in property in, say, ten years could be a frigging disaster. And they’re right.

But being worried does not always equal being wise. Here’s a note from Shauna:

I just finished reading your book “Greater Fool.” Even before reading it, I was having a gut feeling to sell our house. We are your typical baby boomers who want to downsize in 10 years. I am a 46 year old stay at home mom. My husband is 57 with his own small business which was doing quite well until the last 8 months. We are losing money but still have some money in reserve after laying off people and going to a 4 day work week.
We have a beautiful 3,600 square foot home with a pool in Cambridge, Ontario. We bought in 1996 for $389,000 and it could probably sell now for $600,00 unless things are going downhill that I don’t know about yet. We were planning to wait another 10 years to sell because we enjoy the space, but I am rethinking this. In 10-15 years we would want to downsize and retire anyways, but considering the markets what would you advise?
I was thinking of buying a condo and renting it out until we would want it later on, but who knows what we will be doing then? If we bought a Condo, should we pay full price or get a mortgage? Condo’s are selling here at between $159,000 – $200,000. I can’t see moving in so I would rent it out. Should we sell our Cambridge home and rent with three kids or buy a smaller house and then sell that in 10 years? This is a dilemma for my husband as he had kids later in life.
We also have a cottage at which would sell now at $500,000, which we bought at $275,000. I am tired of travelling back and forth but my husband wants to keep it as an investment, or wait until kids move out to use it more. With teenage kids working, we are only going there 3 weeks this year, compare to May June weekends and being there the entire summer.  We don’t plan to retire there. It also was paid for in cash. Should we try to sell that now?  Then that would leave us with no properties. Are we too late to try and sell both our house and cottage? Does Cambridge have a different trend then other city centres? Have we missed the boat? I keep hearing that Cambridge is immune to lowering housing markets because we are the fastest growing area in Canada as the technological triangle with KW and Guelph. I would really appreciate your insights.

Well, Shauna, let’s summarize: You are a one-income family with five dependents. Hubby’s business is dumpster-diving and your cash flow has actually turned negative. At the same time, you own two properties without financing worth (maybe) $1.1 million. Hmmm.

Now you wonder about selling out ten years earlier than you planned, and your big solution is to… buy more real estate, this time in the form of a cheap condo that you don’t plan on living in. You have a half million dollar cottage that you don’ visit 49 weeks of the year, and you think that Cambridge – strategically placed in the epicentre of Ontario’s automotive and manufacturing rust belt – is ‘immune’ from real estate forces.

Boomer babe, time to wake up!

This is a recession, and you’re a victim. If your family business is still losing money after slashing hours and staff, then alarm bells should be ringing. What’s your plan if the business is still tanking in a year, when the malaise lingers, when interest rates have started to creep relentlessly higher, when you’ve dug into a LOC to finance those damn teenagers and this little real estate, first-timer, gang offer thingy is history? As you know, Shauna, every year that passes is one more that nine million Canadian boomers move towards the same conclusion – dump the house or run out of cash.

You have but one reasonable path: List both properties this week after getting three professional opinions on each (and don’t go with the realtor who says he or she can get you the most). Ditch that stupid condo idea. Wait and see what sells, ask for a 90-day close, then plot your next move. If the cottage goes, get some solid financial advice, and invest the money in a diversified portfolio. If the house sells, move into the cottage for the summer, and similarly invest the real estate proceeds.

Keep at it until you sell them both. The prospects for suburban Boomer palaces with pools outside of the GTA are dismal. Almost as bleak as upscale cottages. Get out now, while cheap mortgage money and the delusion of a quick economic recovery have grown scales on the eyes of the masses.

You can rent. You can downsize. You can beat the wave.

And trust me, Shauna, it’s right behind you.

110 comments ↓

#1 Nostradamus jr. on 05.18.09 at 10:54 pm

Dear Shauna…

1/
Garth forgot to add that you should seriously consider relocating to the Pacific Northwest.

2/
Garth, why do you overlook the safe haven of the Pacific Northwest?

…No need for bunkers out here…

#2 Paul on 05.18.09 at 10:55 pm

90 day close? Close as quickly as possible you say in GF to try and avoid the buyer from backing out.

#3 Big Picture Guy on 05.18.09 at 10:59 pm

knock knock hello????? She reads Garth’s book ; visits this blogg; and still needs Garth’s personal attention and validation to sell?

That’s how hard it is to change ingrained behaviour that houses go up for forever.

#4 Roger on 05.18.09 at 11:12 pm

Why cant you rent out the cottage. Ive been looking for a decent cottage and would have to pay $1000 a week. Even if you rented it for lets say 25 weeks of the year thats 25000 income. Both properties are paid for why not invest any other income into different funds. I agree the condo is a bad idea but the house you are living in is a home that is paid off and will be in the next 15 years. How can you move a family in a cottage for the summer and move where after that. It would take at least 90 days to move and the summer is almost over and no place to live. Why not enjoy your principal residence for the next 10-15 years and make the cottage into an income property renting it out and using that money to pay for taxes, insurance, utilites, etc…
Sometimes you forget your house is not just an investment its actually a home.

#5 Steve on 05.18.09 at 11:17 pm

I think half the problem is the refusal, and that is the only way to put it, that boomers will be adamant on not lowering their lifestyle that they have grown used to. Shauna must, as Garth has pointed out get rid of the liabilities that the value of sinking real estate will be. Now will she actually persuade her husband and subsequently her teenagers that they have to downsize AND take understand why? Possibly.

All I know is that I have been shown that I can do a lot more with my money than to sink it into RRSPs and real estate. Trust me, I’m going to take advantage of it.

#6 Justin on 05.19.09 at 12:15 am

Cheap money is giving Shauna a second chance to unload her real estate. SELL SELL SELL!!!!!!!!!!

#7 squidly77 on 05.19.09 at 12:37 am

the monster thats not yet visible

you dont even want to know how much the big banks are on the hook for..its trillions and it wont be paid back
eat that citi bank

#8 . . . fried eggs and spam . . . on 05.19.09 at 1:21 am

A number of years ago, a neighbor (builder) sold their house and rented it back for two further years while he completed their new (and bigger) home.

If the couple featured in your post are able to sell both homes, pay off all debts then rent one of the homes back, they should be relatively okay.

Put the proceeds into a few long-term Cdn. equities, wind-up the business and study other options.

If we were going to sell (we may), renting a place makes sense to us.
——
Further to JO at 9:14 am yesterday, and to complicate matters even further! — http://tinyurl.com/r63tu9 /\ http://tinyurl.com/pyovj4
——
From the stuff I’ve read about GM foods, they don’t sound very appealing. — http://tinyurl.com/r4rq6e

#9 Glenn on 05.19.09 at 1:24 am

Wait…is that a divorce lawyer lurking in the bushes?

“Divorce to soar as economy plummets — Lawyers are ‘swamped’ by anxious spouses seeking to protect wealth”

http://www.independent.ie/national-news/divorce-to–soar-as-economy-plummets-1393862.html

He will never know what hit him, poor sap.

#10 Soylent Green is People on 05.19.09 at 1:29 am

Don’t let your husband lead on this one, listen to Garth, a rare man who knows how to manage money.

I totally agree with his advice, sell everything and rent a house for you and your kids.

Sell sell sell

#11 Across The Fence on 05.19.09 at 1:36 am

Shauna, it’s all about who is coming behind you, the piece below is USA, but it’s the same demographic here….

“Dearth of Births.” Only 44 million people were born into Generation X. There are currently 19 million empty homes in the US. That means that if Gen X pairs up through marriages, cohabitation or roommating, they can live in the empty homes without ever buying a new one.

#12 Munch on 05.19.09 at 2:05 am

Brilliant!

#13 Mike (authentic) on 05.19.09 at 2:10 am

Garth – “As you know, Shauna, every year that passes is one more that nine million Canadian boomers move towards the same conclusion – dump the house or run out of cash.”

So very true. A flood of them too.

A question you can ask yourself to determine of we are
“going back to normal”

Q. Has the main problem that started this recession(individual/corporate/gov’t debt been solved?

Only when it has been solved can we as a global economy confidently start to move forward.

Mike

#14 gold bugger on 05.19.09 at 6:10 am

That was the biggest head-shaker yet.

I now believe that real estate isn’t an asset class, it’s a disease.

#15 David Bakody on 05.19.09 at 6:15 am

And remember ….. once you sell do no go back to cottage country nor your old neighbourhood …… move on and up Boomer Babe keeping a very close eye on your investments. Nothing wrong with renting a nice place especially from someone who really thinks that property going to skyrocket ….. My dear mother made her last move to a nice older home in Waterdown at age 84 because she want to closer to town and lived to age 99! So do not think for one moment this is last move and their are not better days ahead ….. planning on real estate prosperity 10-15 years down the road in this new world order is setting your family a road of heartaches. Live and enjoy life one day at a time knowing you have sound investments, a roof over your head and food on the table.

#16 Chris on 05.19.09 at 6:54 am

Even other bear bloggers are falling to this dead cat bounce insanity. http://www.victoriastruth.blogspot.com/ Or maybe insane prices are just the new reality and only the rich and privileged shall be granted the luxury of owning their own shack ala the feudal days. I for one welcome my new landlord/overlord and hope that this years harvest shall be sufficient to pay him and still feed my family.

#17 pbrasseur on 05.19.09 at 7:03 am

I think the worst divide in our society is the one between those who have a defined benefit retirement plan, mostly government workers, and those who don’t (but still have to finance through taxes and fees the plan of others…).

This injustice and social divide is a plague that is going to affect the whole western world, we have yet to see how it’s going to turn out but maybe the social unrest we see in Europe already provides a hint.

#18 molson cdn on 05.19.09 at 8:08 am

i agree with garth on most points:
getting rid of the cottage (no brainer – why support the OPP on the weekends and can anyone relax with mosquitos and black flies everywhere).
sounds like the business is losing money–so is eveyones business.
i live in the big smoke and cambridge is just a speed bump in the way. does cambridge have a starbucks? where is it anyways?
3500 sq ft? give me a break; sell the house to the city and they can convert it into a museum/roller rink!–by the way how much does it cost to heat/cool this thing?

travel to figi and enjoy a month in paradise?

#19 Bill-Muskoka (NAM) on 05.19.09 at 8:37 am

Oh my, what a poor, poor family situation their lust for money has created. Let us all pray for them as they have to make hard decisions about which property they should sell or keep. Weep! Weep! Weep!

Above all do escape to your ‘cottage’ where there is probably no high speed internet or reasonable travel time to where the income producing work is located and you will be isolated from any painful reality.

#20 David Bakody on 05.19.09 at 8:41 am

…. news from South of the Border is States are raising taxes on goods and services up to 23%! Hello? home ownership is going to be more costly as was predicted even before the great recession. Could cuts in social benefits be far off ? Harper’s Afghanistan Conflict extended to 2015 ? adding more deficit spending causing more strain on provincial coppers. And who pays? Home owners, that’s who. And do not look for a company raise and sudden rush in employment and lower interest rates.

#21 Jim on 05.19.09 at 8:48 am

Real estate has always been a fine investment. It depends on how old you are and how many years you might have in your long term. Garth I think you are a bit of a gloom and doomer. I guess it helps you sell a lot of books. Isn’t that why authors generally write books/ I noticed you have bought some property recently.

#22 Boombust on 05.19.09 at 8:50 am

“Garth forgot to add that you should seriously consider relocating to the Pacific Northwest.”

If you are referring to Vancouver, it’s in the “southwest”, chum.

#23 Signal Loss on 05.19.09 at 9:08 am

I guess it’ll come down to a change in mindset for Shauna’s family. They’ve probably viewed themselves as people who deserve the life: the big house, the nice cottage. The teenagers are probably under the misaprehension that they come from old money and are behaving that way. The business is becoming a cash drain rather than a revenue stream, so shut it down and turn to what you have: $1.5M in illiquid assets. The real business that should be occupying Shauna’s time and that of her husband is how to translate those dead assets into useful cash. But to do that the husband has to internalize the idea that his business is now a liability, and that the trappings of wealth – the big house in exurbia, the nice summer cottage, the ostentatious wedding for the daughter – are in fact the ropes holding them to the rails from which his family needs to escape.

#24 Bill-Muskoka (NAM) on 05.19.09 at 9:25 am

So, while some worry about their personal excesses of RE property, the majority of the world’s people worry about having something to EAT, and guess what? The same greedy arseholes are the cause.

The 21st century’s bleak harvest

A few excerpts from a very indepth article.

By now it is clearly evident that as the unregulated and complex financial sector of the US was facing the unfolding effects of the real estate bubble, trillions of dollars moved across sectors and spaces and invested in food and primary commodities, causing another price bubble, this time of an altogether more serious consequence.

The simultaneous inflation of oil and food futures caused cost increases in the production of food while inflating its trading prices at the same time.

It seems that finance had run out of opportunities for profit, so it turned to the earth as a means of generating speculative profit, whether through real estate or primary commodities and food.

As the more recent financial crisis has shown, there is no regulatory capacity to stop such profiteering from reoccurring.

These are the difficult prospects and consequences of a world run by the ideology of the rich and powerful.

Economic history shows us that industrialisation was preceded by agricultural transformations, with the state playing a heavy role.

And economic history is a better guide to policy than the theorising of free marketers serving powerful corporate interests.

#25 rory on 05.19.09 at 9:36 am

#17 pbrasseur

I agree on the divide between DP and DC pension plans/private RRSP’s …I have posted on the inequalities in the past that private savings go up & down yet the DC only go up ot stay the same. Why do they not face the same downside…Seems to be more and more on this topic appearing in the blogssphere …all not in favor of DC plans …esp gov’t plans the way they are structured…so yes, a bit trouble ahead on this issue.

As a side note …talked to a guy that works in a gov’t job …he gets 9 weeks vacation (good for him) …this means all the taxes I pay in one year goes to pay for his vacation only …nice! …anyone wonder why we cannot compete worldwide anymore …hello! …any one wonder why the private sector is getting pissed at the the public sector …hello!…IMO.

#26 Bill-Muskoka (NAM) on 05.19.09 at 9:44 am

The WHY?

The Hair Cut

One day a florist goes to a barber for a haircut. After the cut he asked about his bill and the barber replies, “I cannot accept money from you. I’m doing community service this week.” The florist was pleased and left the shop.

When the barber goes to open his shop the next morning there is a ‘thank you’ card and a dozen roses waiting for him at his door..

Later, a cop comes in for a haircut, and when he tries to pay his bill, the barber again replies, “I cannot accept money from you. I’m doing community service this week.” The cop is happy and leaves the shop.

The next morning when the barber goes to open up there is a ‘thank you’ card and a dozen donuts waiting for him at his door.

Later that day, a college professor comes in for a haircut, and when he tries to pay his bill, the barber again replies, “I cannot accept money from you. I’m doing community service this week.” The professor is very happy and leaves the shop.

The next morning when the barber opens his shop, there is a ‘thank you’ card and a dozen different books, such as ‘How to Improve Your Business’ and ‘Becoming More Successful.’

Then, a Member of Parliament comes in for a haircut , and when he goes to pay his bill the barber again replies, “I cannot accept money from you. I’m doing community service this week.” The Member of Parliament is very happy and leaves the shop.

The next morning when the barber goes to open up, there are a dozen Members of Parliament lined up waiting for a free haircut.

And that, my friends, illustrates the fundamental difference between the citizens of our country and the Members of Parliament

#27 smw on 05.19.09 at 9:56 am

#14 gold bugger

I now believe that real estate isn’t an asset class, it’s a disease.

Your on today bud…

—————————————————

Its all a case of believe what you want to believe.

Watch a show like “Till Debt Do Us Part” and the majority are all young couples, with mortgages up to their eyeballs. Its the norm now, not a rarity.

These people(and many others) believe in the ever growing appreciation of real estate, because they have to, not because it makes sense. RE appreciation will stall like it did in the first half of the 1990’s.

I thought Garth was late to the punch last year with “Greater Fool”. In fact, because of the latest change in rates(and therefore affordibility), his book might have been written at the perfect time.

As for entry level homes being hot, duh! A friend’s condo was appraised at 255K before bank of Canada dropped rates to .25%. They were dissapointed to find out that, seeing as they paid 250K in 2006 right before the run up. Last month, a neighbor sold a simalar unit for 300K.

Its easy to afford when your not commiting anything but debt.

What justifies that kind of apprciation?

Cheap money, cheap debt…

The whole RE bubble is and has been about manipulating affordibility so the dreamers could step up and buy above their heads, feel that false sense of security to make them happy, and then shun anyone telling them what they are doing is stupid and reckless.

Of course our politians love this spending spree because it distorts productivity and really makes the economics of the country look better then they are.

Glad its all different up here in Canada.

Its going to hurt when people finally pull their heads out of their rear ends.

#28 Mike (authentic) on 05.19.09 at 10:08 am

#5 Steve “boomers will be adamant on not lowering their lifestyle that they have grown used to. ”

Bingo.

Even in the UK it’s happening as well, boomers here have lost their jobs, trying to sell their homes and still spend like it’s the roaring 1920’s!

It’s like hitting the accelerator rather than the brakes before crashing into the wall ahead.

Mike

#29 My_View on 05.19.09 at 10:21 am

O.k. so Shauna is at least cash heavy, however, solution, sell everything and move into a rental with teenagers. Brilliant! Since all the greater fools are buying entry level/starter homes/condos, these homes will be in demand for the boomers to downsize and in turn the starter home owners will upgrade to the scarlet o hara/mc mansion homes. What I don’t get is why Garth is not renting, from what I gather on this blog, Garth has at least 3 properties, but then again Garth is rich. Peter Schiff tells everyone to rent and at least he is a renter. On a side note; while up north for the 24 weekend, we stop at a realtor’s office to look at cottages for sale. There are a lot of them for sale, but the prices have not come down yet and sales are steady. Also a lot of construction/Reno’s happening.

#30 My_View on 05.19.09 at 10:22 am

A great site to be bookmarked.

http://www.chpc.biz/

#31 My_View on 05.19.09 at 10:22 am

http://www.chpc.biz/

#32 Barb the proof reader on 05.19.09 at 10:49 am

Shauna,

Have your husband read this:

Canada’s housing market to fall by double-digits in ’09: CMHC

http://www.cbc.ca/money/story/2009/05/19/canada-housing-outlook-2009.html

#33 dbg on 05.19.09 at 11:08 am

#7 Squidlly

Your link states “Billions” and you write “Trillions”.

Typical………change your tag from “Squidlly” to “2+2=1000”

#34 Brian on 05.19.09 at 11:13 am

I agree with My_View…. don’t listen to Garth till he sells and starts renting. If you don’t have any need for the cottage now would be a good time to unload but you need a house to live in and Garth did not mention the selling / moving costs which can easily be $30k.

#35 rory on 05.19.09 at 11:20 am

#22 Boombust …hello!

http://en.wikipedia.org/wiki/Pacific_Northwest

Vancouver is in the southwest corner of BC but part of the bigger picture of the Pac NW …Jr means the Pac NW not just Van even though we all secretly suspect he covets the Okanagan and the new oceanfront possibilities coming in the future ;) …he seems to have a blind spot for this prediction …lmao.

Jr would have predicted your post 500 years ago if you would have asked nice.

#36 U.S.$fromA$iaComming home= inflation on 05.19.09 at 11:26 am

For the record Garth.

Canadian Financials up 3-4% and GOLD stale.

I remain a contrarian.

#37 Barb the proof reader on 05.19.09 at 11:33 am

#24 by Bill-Muskoka-NAM:

Bill,

Thanks for the link.

It’s amazing isn’t it, greed never abates. Everywhere we look there’s the constant cloud over society of the rich & powerful shamelessly lobbying for themselves and destroying fairness for everyone else, from unnecessarily high food prices to the dismantling of universal healthcare. For the masses to realize what’s really going on right in front of their eyes, they have to change their perspective, which takes a lot of reading to get there as you know. For that reason we probably have no way of defeating greed, but we’ll always try won’t we..

Your quote from this article, really hit the nail on the head:

"The simultaneous inflation of oil and food futures caused cost increases in the production of food while inflating its trading prices at the same time. It seems that finance had run out of opportunities for profit, so it turned to the earth as a means of generating speculative profit, whether through real estate or primary commodities and food. As the more recent financial crisis has shown, there is no regulatory capacity to stop such profiteering from reoccurring. These are the difficult prospects and consequences of a world run by the ideology of the rich and powerful."

#38 Calgary_sucks_dot_com on 05.19.09 at 11:41 am

Garth:

The new motto should be: Work until you are dead. Thats a certainty with the economy.

Home ownership isnt that great anyway. Then you are shackled to a job that likely sucks in some way anyway. I work with a bunch of physicians/nurses that act like kids. All this training and then have to be subjected to highschool behavior to pay a mortgage? That isnt a kingship way in any book. I relish my days off when I dont have to drive in Calgary or deal with any of those cattle/cows who move to slow(I hope Bob Truman is reading this-he can base his blog on ALL my comments about Calgary).

Best to rent for now, especially in Calgary. Idiots like Eduardo(who is brainwashed at 25) keep people wanting to buy their shacks who could go up in flames at any moment and lack trees. Eduardo and Mario T. at the Herald should be in relations by now.

The real strategy is how to adopt phoniness to perfect the idea of “bait and switch” everywhere when out in public. Simply smile do the minimum required and then get out and do your own thing(drive slow thru the green light camera-then floor it). That attitude is a definite must in Calgary, the new New York City(after all it looks just like Brooklyn).

I look forward to more idiots like the lady above who considers herself a boomer at age 46-that’s pretty funny that she cant put two and two together. Perhaps she shouldnt own-she doesnt think like a monarch.

#39 D from London, ON on 05.19.09 at 12:03 pm

I am being a very good boy and holding my tongue about the quandry of this boomer family and their excess of wealth. Besides, Vancouver Renter should be along shortly to say it better and with more facts.

Meanwhile all I can say is that it is very difficult for people to consider volunarily scaling back their lifestyle, no matter what age they are. The trouble for our society is that one third of the population is going to confront a stage-of-life related downsizing over the next 10 years. This will ensure, as it always has, that the Boomers’ problem is somehow going to be “our problem” as well.

Get ready for suburban McMansions cut up into “affordable housing” for the poor. You’ll know it is happening when the Boomers (who used to call for stricter zoning laws) start whining for a loosening of zoning restrictions to permit SFH to be cut up into multi-unit rentals. That will be their only hope to unload the “chipboard doghouses” (I love that phrase).

#40 kitchener1 on 05.19.09 at 12:07 pm

Living in the region, all I can say is good luck selling your house in Cambridge for 600K, your going to need it.
With a price range like that you can by a home in a great neighbourhood in Toronto/Missisagua/Milton etc…
The higher the home price the smaller the market, not even taking into consideration the smaller population numbers in Cambridge.

Best advice is already posted, sell/downsize and have cash onhand.

#41 Alex on 05.19.09 at 12:30 pm

So the suggestion is to sell both properties and invest the proceeds in the amount of >1mln in diversified mutual funds?

Not a bad idea but investing 1mln in virtual paper that can be (and is!!!) easely manipulated by banksters would be extremely risky as well.
Tangible assets are extremely important so owning a smaller house is crucial for stability of this family in case all this “diversified” paper goes belly up.

Also I would preserve at least half of this wealth in tangible silver and gold which will protect from inflation and stock market crushes.

10 fundamental reasons to own gold and silver:

1. Gold remains ultimate form of payment – No counter party risk
2. Currency debasement – US Dollar losing status as world reserve currency
3. Gold crawling back into the monetary system
4. Negative real rates
5. Falling gold supply vs increased investment demand
6. Gold & Historic averages – gold should be trading above $2300 these days
7. DOW/GOLD ratio points to $5.000+ gold before 2015
8. Gold & US public debt – gold prices required to counter balance all US public debt held in foreign hands exceed the $10.000 mark
9. Large short positions – half of all central bank’s gold has been leased into the market. (about 15.000 tons). Covering these short positions is not possible without catapulting gold prices to unimaginable highs.
10. Gold acting as safe haven in times of rising geopolitical tensions

Gold still represents the ultimate form of payment in the world.” – Alan Greenspan, Testimony before US House Banking Committee, May 1999

There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be turned into ingots bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par exellence”
Charles de Gaulle

In my opinion TSX is equal to gambling and in the long run only insiders win – it is not a transparent market at all and should be approached with caution. Don’t put all eggs in one busket!

Sure, put a half million in a metal that you cannot eat nor trade with your neighbours for anything of use. Good plan. — Garth

#42 Just a Girl on 05.19.09 at 1:09 pm

It seems to me, everyone is scrambling to figure out how to make money for retirement … gamble on home equity, gamble on mutual funds/RSPs, gamble on gold, energy, developing countries, day trades, slot machines, lotto 6/49. Where to put your money, so it “pays off” big time?

Even those who thought they’d catch the home equity rise, may not only be riding the wave down, but may have invested in an Alberta stucco condo or home, that might end up costing them real (transactional) money in repairs, not just perceptual/illusionary money lost in deflated home or stock value (where no actual transaction has taken place).

The world is so complex … and no one has a crystal ball (except Nostradamus Jr, of course)!

It seems to me, everything comes back to a very simple philosophy: regularly put away a little for the future (actually SAVE money!) …. live within your means (don’t spend more than you earn) … pay for things up front with cash, not debt (avoid credit) … and don’t gamble more than you can afford to lose.

Nothing sexy or magical about it, I’m afraid. It just requires a little self-discipline and commitment … something it seems we as a society have forgotten about.

#43 Nathan in Edmonton on 05.19.09 at 1:22 pm

Shauna, don’t buy anymore property unless it’s to downsize and live in permanently. 3600sq/ft is an obscene amount of space; a modest bungalow with a finished basement should be fine for a family of 5; your teenagers will probably be moving out in a few years anyway.
Sell the cottage and close the business now (unless it’s a repo business) — a business bleeding money now will be bankrupt soon.

#44 Munch on 05.19.09 at 1:27 pm

Here’s a wild idea – give it some serious thought

Sell everything – netts you what $1,200,000?

That’s about 11 million Rand in South Africa

Buy very nice house for R 3,000,000, invest R 8,000,000 at 10.5% (prevailing interest rate) and you’re sitting very pretty in one of the most beautiful cities in the world (Cape Town), with a paid for house and a nice income

Just a thought …

Munch, from South Africa

#45 NoFreakinClue on 05.19.09 at 1:41 pm

Hello Garth,

I was wondering if you could share your insight on the following question:

– Central banks are providing liquidity and increasing the money supply to lower short-term interest rates. Canadian central bank is doing similar interventions. I was wondering what similarities you see between this and US Fed approach after nasdaq bust and 9/11 which partially caused Real Estate boom.

Is it possible that the Real/Estate boom in US be repeated here in Canada if Fed does not reduce liquidity at right time due to political presures? Or whether you think monetary forces are inferior to current deflationary forces and will not cause drastic speculation in housing markets.

Thank you in advance,
AA

#46 squidly77 on 05.19.09 at 1:43 pm

squidly
Your link states “Billions” and you write “Trillions”.

that money is leveraged at levels of between 15-40 to 1
the banks will have to be re-capitalized or taken over by the FDIC
those are only the small banks

#47 Bill-Muskoka (NAM) on 05.19.09 at 1:43 pm

#37 Barb the proof reader

It is a disease of their minds in my opinion. They are constantly afraid, have no faith in anything but money, and will be the very first to become extinct were things to get truly bad, because they have no skills other than schmoozing others.

What I find most interesting is that we get NO NEWS of this in our North American tabloids posing as ‘newspapers’, but those horrid Muslims ‘terrorists’ in the Middle East can bring out TRUTH in al Jazeera daily. Why is that do you suppose?

Perhaps we need to rethink who is willing to tell the truth we ACTUALLY need to be reading and hearing? No wonder the Establishment refuses to allow them to broadcast in North America ‘The Land of The Free and the Home of the Brave!’ NOT!

#48 Republic_of_Western_Canada on 05.19.09 at 1:43 pm

#41 Alex –
Sure, put a half million in a metal that you cannot eat nor trade with your neighbours for anything of use. Good plan. — Garth
—————————————————————————————–

Just a minute, now. Gold could be considered just a fiat-like currency, like paper and accounting entries in computer storage. It is an inherent or implied or pseudo-fiat, insofar as it has a recognized cultural history of value everywhere, looks nice and shiny, doesn’t corrode or leave nasty scuff residue on your hands, is non-poisonous, has a nice heavy heft to it, and is relatively rare. It is relatively stable in perceived value in terms of labor or commodities (all other things remaining constant). It cannot be created out of thin air. This implied fiat primarily contrasts itself with absolute fiat simply through lack of government decree.

Gold ‘fiat currency’ just has different advantages and disadvantages from the other kind. Right now, it’s slightly less liquid than absolute fiat currency, and slightly more cumbersome. Of course you can’t eat it, but I would certainly sell potatoes out of my garden, or livestock or hay bales, for small amounts of 24 kt gold, or even Krugerrands. I know people who would in turn sell me gasoline for Krugerrands or Gold Leafs too, if I wanted. It might be difficult to transfer large amounts of it around to pay for things like public works projects for example, but we still could use our fiat byte-accounting for that.

Don’t know how I’d feel about keeping a 3-inch cube of gold laying around instead of $ 500K of fiat in a bank. But, I certainly would prefer to be paid in pre-1963 silver dollar coins at face value for my salary, rather than the same amount in loonies or printed on a cheque.

#49 Grumpydawgs on 05.19.09 at 1:44 pm

#18 MC , The Fiji idea only works well on paper. I lived there and the experiance is VERY differant from visiting. We had to be surrounded by high fences, security guards and large dogs to keep the locals from leaping the fence and stealing everything that isn’t nailed down. The dream of having staff in the house is also bogus, poverty sticken locals have very sticky fingers and they look at jail time as a luxury holiday away from the daily grind of village life.

We ended up in a kind of ex-pat limbo with our community more like the circled wagons of the old west settlers than a ‘paradise’ in the South Seas. Nice place to visit but you wouldn’t want to live there.

I would recommend this site to anyone who also enjoys an alternative POV.

http://urbansurvival.com/week.htm

#50 Bill-Muskoka (NAM) on 05.19.09 at 1:46 pm

#37 Barb the proof reader

I also meant to add, if the Mike Harris ‘Common Sense Revolution’ was any example of their thinking (and we know it IS), and the level of common sense shown on Garth’s blog, then the very words ‘common sense’ are an oxymoron.

#51 Republic_of_Western_Canada on 05.19.09 at 1:51 pm

#44 Munch –

Only 3 key questions remain:

1) what is the overall rate of inflation there (contrasted with the 10.5% interest on investments)
2) is safari hunting still possible there (northern SA), for permanent residents?
3) what is the SA government immigration policy for educated white foreigners?

#52 AJT on 05.19.09 at 1:52 pm

Following Garth’s advice, I sold my Toronto condo last month. After paying out costs and penealties on the deal I had $63,000 left. Immediatley paid of my credit cards and any other debts. Now I’m renting a nice apartment for $1,400 in the Annex. My monthly expenses are 75% of what they were before, and I live in one of the best neighbourhoods in Toronto. (Which is a 10 minute bike ride from home). I’m not tied to real estate, and losing money. I can invest my wad of cash (conservatively) and actually make money. Eventhough I let my condo go for a good price I was still lucky that there was a property virgin who hadn’t read Garth’s book.

I feel like I got out just in time, especially since my debts were starting to pile up. Now that I’m planing my next move I have a lot of options available since I’m liquid.

Thanks, Garth!

#53 Fred Furberger on 05.19.09 at 1:55 pm

No Inflation says Bank of Canada

http://ca.news.finance.yahoo.com/s/19052009/2/biz-finance-inflation-fears-aggressive-monetary-stimulus-exaggerated-bank-canada.html

#54 Another Albertan on 05.19.09 at 1:55 pm

Just A Girl –

It’s a variation of the only absolutely proven way to lose weight – the Newtonian Diet.

The amount of energy output must be greater to the amount of energy input plus the amount of energy taken from fat stores.

Balanced case: Output = Input + Taken from Surplus
Weight gain case: Output Input + Taken from Surplus

The arithmetic isn’t rocket science, but people will still attempt to find magic bullets in order to get ahead with less effort.

The same philosophy applies in financial matters, along with all the potential collateral damage.

Everyone else’s mileage may vary.

#55 Another Albertan on 05.19.09 at 1:57 pm

Oh perfect… apparently the blog’s parser eats greater-than and less-than and other characters when presented in particular orders…

That pretty much destroyed my equations…

Balanced: OUTPUT equals INPUT plus TAKEN FROM SURPLUS

Weight gain: OUTPUT is less than INPUT plus TAKEN FROM SURPLUS

Weight loss: OUTPUT is greater than INPUT plus TAKEN FROM SURPLUS

Argh.

#56 CalgaryRocks on 05.19.09 at 2:07 pm

#38. If you can’t be bothered with driving the speed limit, may I suggest you load your gps with the locations of all the cameras in Calgary. It can be done in only a few minutes as all the info is already out there.

This way, you won’t have to deal with silly little road rules that clearly were made for people without masters’ degree such as yourself. Good luck!

Ps. I know you’re a fan of Sweden, but sadly, they also use speed cams, as does most of Europe. I guess they’re all facists, based on your comments about Calgary.

#57 dd on 05.19.09 at 2:09 pm

I dont understand the hate with gold/silver. If you really needed to try to eat it then I doubt that the cash you had would be much better off. I wouldnt recommend putting half your worth in anything but some gold/silver definately wouldnt be a horrible idea.

#58 Alex on 05.19.09 at 2:09 pm

Sure, put a half million in a metal that you cannot eat nor trade with your neighbours for anything of use. Good plan. — Garth

Garth, can you eat “diversified” stocks?
And I am not sure who are your neighours but people have been trading gold and silver for 6000 years ….

Gold is not money. Money is money, It buys gas, food and ammo and DVDs, dude. — Garth

#59 Toronto C9 Renter on 05.19.09 at 2:11 pm

Our situation last year was similar — house in Toronto, + cottage, how best to lock-in gains for retirement?

We ultimately sold the house & kept the cottage, here’s why:

1. House was worth the most, thereby maximizing cash in the bank
2. Cottage capital gains would have been a killer
3. Keeping the cottage provides a hedge, should our assumption about dropping real estate values prove incorrect
4. When we do ultimately select a final retirement destination, we’ll sell the cottage to cover part of the costs
5. We still love going to the cottage – not sure we could part with it just yet!

#60 . . . fried eggs and spam . . . on 05.19.09 at 2:21 pm

Yesterday, I responded (and predicted) to #77 squidly77 at 8:54 pm about the Dow, TSX and NASDAQ all declining significantly after the Olympics.

The Dow may not be too far off :-D so, like good sheeple, the others will follow! — http://tinyurl.com/pbyj3d
——
If Greenspan had a key role in the housing bubble — http://tinyurl.com/r7x74r — what of Geithner (who attended the Bilderberg Group meetings this past weekend), Paulson and Bernanke?

Those are now The Three Stooges running the economy for The Bilderberg Group now!

Speaking of Geithner — http://tinyurl.com/rcptrg — and — http://tinyurl.com/qbcdxa

Two paras. from second link:

“Please see Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis for my take on the coercion Paulson used on Bank of America CEO Kenneth D. Lewis, pressuring Lewis to go along with a merger he clearly knew was not in shareholder best interests.

“Here is a snip from Geithner’s Plan Can Succeed: “The Plan: Dump $500 billion of toxic assets on to unsuspecting taxpayers via a public-private partnership in which 93% of the losses are born by the taxpayer.”

Surprisingly, Cdns. are taxpayers too, and it is becoming all too clear that Geithner, Bernanke and Paulson call the shots delivered by those ‘behind the scenes’ unseen ones, then the CPC follows from orders from them.

We are royally screwed!

#61 nonplused on 05.19.09 at 2:35 pm

The new home sales does not surprise me a bit. I posted months ago on this site that I thought new home builders would drive the next phase of the crash by undercutting existing home prices. They can do it because they can change the size of the homes they are building to meet buyer’s budgets, whereas the existing home inventory is already built. The low interest rates just makes the transition much easier for them. They can unload current inventory that may not be sized correctly easier.

So the next phase of the market will be continued excess inventory building as home builders continue to construct new, smaller, cheaper homes that they can still sell. Eventually the excess capacity will reach a point where the existing home market price will collapse a.k.a. the US market. It won’t be different here. At that point the builders go out of business and stop building but right now they are still profitable, so they will build.

#39 D from London, ON

What “excess of wealth? If he’s 56 and has any intention of retiring without a government sponsored defined benefit plan he needs to start saving more now. Although I don’t know how he’s going to do that if his business is in the trash can.

PS, that means the rest of you jealous whiners who are 56 and don’t have a mil by now are in some serious do-do. Unless you work for the government. Then you have a pension that is the equivalent of being a guaranteed millionaire when you retire courtesy of the citizens of our fine country.

Government workers are the new elite in this economy folks! Guaranteed job, guaranteed pension, guaranteed health benefits, guaranteed life! The rest of us tax payers can go sit under a bridge after we retire with nothing. And if you have a house, the government will raise property taxes and slowly take it away from you to pay for all those retired city workers.

Everyone likes to talk about the generational conflicts to come between the boomers and X-Y-Z, but I think the fight amongst boomers themselves in about 5 to 10 years is going to be even more entertaining! As a generation X myself I think I’ll wait until the “government guaranteed pension versus no money anywhere” social unrest plays out before I bother raising the intergenerational debt transfer question. By then the inherent criminality of the system should be pretty clear to all the broke retirees as they watch the government retirees swarm the golf courses.

#62 MenWithHats on 05.19.09 at 3:01 pm

Canadian wage scale :
http://tinyurl.com/pdsgf7

#63 Dan in Victoria on 05.19.09 at 3:16 pm

Geez Shauna, all the warning signs are flashing in your face pay attention.If your business is running at a loss with the adjustments you have made whats that tell you?I don’t run my business as a hobby,I do it to make a fair profit.Don’t get emotionally attached to it,make the hard desision now,is it viable?If so get your personal side in order.Your plan i’m sure was to retire a few years from now?So go now.Why would you want to wait until the SHTF and go then?I like to try to be ahead of the curve.

#64 arit on 05.19.09 at 3:23 pm

munch:

Cape Town IS beautiful!

TODAY

Zimabwe was beautiful too 30 years ago.

I do not know if retiring in South Africa is a smart decision.

Regards

arit

#65 Kelly McMae on 05.19.09 at 3:23 pm

Wow. Tough choices ahead.

Awhile back someone posted information about Mary Croft and the legality of income tax.

Who was that?

#66 Kevin on 05.19.09 at 3:44 pm

Here is a good article about the root causes of the housing/credit bubble in the US. It is much in line with what Garth said in Greater Fool.

http://andrewsullivan.theatlantic.com/the_daily_dish/2009/05/a-failure-of-capitalism-iv-more-on-bubbles.html#more

#67 Andrew on 05.19.09 at 4:43 pm

#31 My View

Great link, but bizarre. The Ottawa price support date is 2267. What people will do to have a housing blog!!?

#68 Got A Watch on 05.19.09 at 5:28 pm

#59 Toronto C9 Renter – You make a great point. Everyone should consider the tax angles BEFORE they sell real estate, not after.

AFAIK, you are allowed to sell tax-free 1 ‘principal residence’ per year. I guess this is 1 per tax (calendar) year.

So her logical course would be to sell the house this year, and move to the cottage (or at least transfer drivers licenses and mailing addresses of record). Then next year she can sell the cottage, as a ‘principal residence’.

Now she may lose some value over the year on the cottage, but not having to pay any capital gains taxes on the second property will probably make up for that, and more.

And I can’t STRESS THIS one enough – every Canadian taxpayer should get a Tax-Free Investment Account, and the sooner the better. Even if you open it with $1 now, the tax-free balance limit grows +$5,000 per year whether you put any more money in or not. Maybe down the road you can top it up, at least you will have the option.

And you can grow the tax-free amount by profiting as well through your investments. I would invest in more risky things in there, actually, if you do score big it will be all tax-free and grow the tax-free balance allowable. It’s an absolute no-brainer. If you don’t know what to invest in, then just buy a Bond. The important thing is to open the account this year.

#69 Got A Watch on 05.19.09 at 5:41 pm

TV special report right now on ‘A-Channel’ – “Is the Housing Boom Back?”

“Buyers lining up, bidding wars, homes selling in 1 day, record low interest rates – is the real estate boom back?”

The ‘Greater Fools’ are on the march. Apparently, they have just landed from ‘Planet More Debt’. We lost touch with ‘Planet Cash’ a while back. Thx to whomever named that earlier. LOL.

This is in Ontario, Home of the Great Recession.

I just shake my head.

#70 smwhite on 05.19.09 at 5:45 pm

#58 Alex

Garth lets not be silly, gold can’t be traded for money? I know this place called Kitco, they’ll buy and sell you the stuff.

The point Alex is missing, you shouldn’t have 50% of your net worth in ANY asset class. Hence why we’re here on this blog, cause people think 80% is ok in illiquid real estate.

But if he were to not have read your book he might not know your stance on precious metals. Then again, if he watched you on George Strombo a few months back, he might have loaded up. :)

07:50

http://www.cbc.ca/thehour/videos.html?id=1016766233

“IF” gold has leveled off at the $900 level(and $900 is the new base), guys like Alex I’m guessing are waiting for that spike up, which will swing in the other direction just as quick. It will eat up the average person that isn’t hitting the refresh button watching the world spot price hourly so fast.

Gold doubled from 400 to 800 the beginning of 1980 and was back down to 500 before the summer, ending at 700 in December before slowly bleeding to death for two years and moving basically flat for 20 years. People are scared with the prospect of ending the year 5% down, imagine watching the gold yo-yo back then, or today.

I’m sure this is why my father, father-in-law and Garth aren’t fans.

Even though housing is overpriced for its value at this stage, its still better for some people to use it as a forced savings vehicle versus them playing in equities or gold.

Commodity based equities/trusts that pay a dividend and are bought via dollar cost averaging are the simplest way for the average Joe to play inflation and provide income now and in retirement.

Gold doesn’t pay a dividend, it stores value, it has its place but not for the average person that doesn’t understand inflation.

Anybody out there watching Agrium (AGU) or an owner?

#71 Live Within Your Means on 05.19.09 at 5:46 pm

bpbrasseur and rory – re pensions – I happen to be one of those govt pensioners. Why do we have to go to the lowest common denominator. Why can’t we have legislation that ensures that employees that pay into pensions with private companies receive their fair share. Why are private companies allowed to go under, the shareholders take their profits, while the employees, who paid into a pension plan for years, get the short shift. BTW, when I turn 65, the Fed OAP claws back my prov. pension contributions. Thats a Prov/Fed agreement and I understand why.

Correct me if I’m wrong.

#72 Eduardo on 05.19.09 at 5:55 pm

Hey Calgary Suck Dot Com,

I live downtown on a tree lined street and I can walk 20-25 mins to work so I don’t deal with any traffic. You’re the moron for buying or renting a box out in the middle of no where and having to drive.

Overview of why things will be ok

ME:
Mortgage cost = ~1000 a month @<2% debit
Condo fees = 300 a month debit
1 renter = 750 a month credit
HDTV/internet = 100 debit
taxes = 120 debit
gas = 0
insurance = 70 a month debit
power = 60 a month debit

Credit = 750
Debit = 1650
CASH FLOW = -900 after: taxes, condo fees, internet, heating, water, HDTV, and mortgage
To equity each month = ~750$

Typical Calgarian:
Renting a craphole somewhere means you lose:
-1000+300+120 a month in costs
-gain between 600-1000 (depending on if you live with someone) and 100 in transportation (if you live outside downtown) and 70-100(?) in heat/water in costs that are included in condo fees
-lose 750 in income
-equity each month = zero

This means that all in it costs between 100 and 500 dollars more to rent.

Even if rates were to increase retardedly due to inflation so that my mortgage is 1500 a month I’m still ok because that means that rent increased anyways.

WORST CASE, I can’t find a renter for any price (even though apparently renters are all over because buying is for suckers) AND rates are through the roof… my house is not in jeopardy.

#73 Dan on 05.19.09 at 5:58 pm

The MSM has no shame in putting out RE propaganda. Anyone watch the news and the spin of how great the housing market is starting to become? Then five minutes later they talk about how economic times are tough? A booming housing market in tough economic times? What a joke. Also they talk about sales in April are up 23% from March? Are they joking? You can not compare April with March? Why didn’t they compare April 2009 with April 2008? It should be against the law to decieve the public with misleading facts. Just sick of the lies. If housing doesn’t drop to affordable levels (one or two years) it will be time for serious thoughts about leaving Canada. Will not become a debt slave because the masses in Canada are to stupid.

#74 David on 05.19.09 at 6:04 pm

Shauna should first and foremost bone up on finance and arithmetic. A house is only worth as much as a buyer is willing to pay for accommodations. The price of $389K in 1996 still might be to high in terms of what could possibly be collected in rental income in the future. 3600 square feet with pool has a nice big carbon footprint which bodes well for the future. Sure it does.
A recreational property as an investment? Is Shauna serious? They spent $275K on a property barely used one month a year. During that time this wonderful “investment” has not yielded any dividends, rentals or interest income, but because it is real estate it is an “investment” and now hypothetically worth $500K.
Buying a condo and renting it out only makes sense if it is cash flow positive from day one and yields decent cap rate. There is only one direction for interest rates in the future. Tying up equity in an illiquid asset that does not offer a decent return is foolish.

#75 Live Within Your Means on 05.19.09 at 6:21 pm

A couple of guys last summer bought a next door neighbours house for about $220, incl. taxes. They put it on sale for $260. No takers so they have spent about 5 mos renovating the place inside & out. I have yet to go inside, but several neighbours have. They want $300 private or $326. if thru an RE agent. Neighbours believe they’ll lose on it. They opened up the living/dining room and kitchen. SO opened up that we dooubt people will go for it. We’ll see. There’s an illegal, very cut up apt. downstairs. They replaced the carpet and that’s it. Ex-neighbours (now in nursing home) never had tenants downstairs but had 3 huge freezers- at least one of which was to store food for birds :) They were a lovely neighbours.

Damn flippers have cut down some nice shrubs, and screwed up some other trees.

#76 Republic_of_Western_Canada on 05.19.09 at 6:24 pm

#58 Alex –
Gold is not money. Money is money, It buys gas, food and ammo and DVDs, dude. — Garth
—————————————————————————————

Nope. Money is anything that a set of buyers and sellers agree is an acceptable representation of value. So, gold [bullion] can be money, as are Krugerrands. You can even create abstract derivatives (forwards) based on it, synthetically issued in units of itself if you want. It might be [presently] less liquid or less widely traded than the Euro or Krand or Gold Leaf, but it can be definitely money even for the primitive heathens of southern ontario.

What you’re really trying to do is distinguish between a commodity on one hand, and abstract fiat money on the other. Fair enough. Problem is, either gold or 4-ton Yap Rai stones can have an abstract monetary value attached to it, which is separate from it’s value as an immediately useful commodity.

It might have disadvantages like government confiscation, theft, weight, elastic/dynamic valuation in terms of various true fiats, etc; but the usual vehicles of fiat have theirs too.

Gold is money.
QED.

I’m an orange. — Garth

#77 Mark on 05.19.09 at 6:34 pm

To #53 : “No Inflation says Bank of Canada”

yes.. they’re right.. we’ve got deflation to come properly first…

#78 Boombust on 05.19.09 at 7:05 pm

“Vancouver is in the southwest corner of BC”

…and Canada. Who wrote that article? An Amerikan?

Why does “the Pacific NORTHwest include Vancouver?
If the centre of the universe is California, then perhaps…

#79 U.S.$fromA$iaComming home= inflation on 05.19.09 at 7:11 pm

Gold Luvers, don’tforget Garth said Gold at $500/oz is likely.

#80 Sail1 on 05.19.09 at 7:30 pm

Hey Garth, do you have a link for your gig on 640? I missed it the other morning.

Thanks

#81 Tony on 05.19.09 at 7:43 pm

Unload everything now as the hike in the minimum wage January 1st 2010 spells 15 percent unemployment in Ontario. Ontario will be the last place in Canada to hold or buy real estate. Alberta is probably the best place to move to or to buy real estate right now. Take the proceeds and sell the stock market short as it’s heading for a big fall. It may bump 8500 on the DOW once more before collapsing back to the 7000 to 7300 area.

#82 Canned Goods and Buckshot on 05.19.09 at 7:44 pm

Kitchener1 states

“Living in the region, all I can say is good luck selling your house in Cambridge for 600K, your going to need it.
With a price range like that you can by a home in a great neighbourhood in Toronto/Missisagua/Milton etc…”

I live in Cambridge. Like any urban area it has affluent neighborhoods and also those with lesser socio-economic means. Your comment implies Cambridge lacks great neighborhoods. Clearly, you havn’t travelled much within Cambridge. I’ve been watching the MLS for some time and, indeed, 600K homes in Cambridge are still moving.

Shauna and her family can move, they might just have trouble renting an place appropriate for their needs.

#83 Devil's Advocate on 05.19.09 at 7:48 pm

I can certainly buy all the arguments against gold but I, as do many, have greater faith right now in the lasting value of gold as a historically accepted storage of wealth. I’m just not convinced the banks are a strong as they say, not to mention the storage of wealth I have there is just a bunch of ones and zeros in a computer memory. Add to this the zeal with which governments of the day are printing fiat currency and that it is multiplied ten fold through the banking system without any labour to back it and I get real concerned about its lasting value. After all the invention of paper money was to better facilitate a more efficient system of commerce than the barter system in which one would exchange their labour for that of another. With today’s fiat currency there is no exchange of labour and that precisely is the real big problem with today’s economics – it’s all credit. Eventually this HAS to catch up with us or our children or our grandchildren. I just tend to believe that the system will BREAK before it gets to that. And that is why I tend to want to hold some (some) gold. Yes it too is a fiat currency of sorts historically accepted as a thing of value… and I suspect that if all hell broke loose it would tend to be more readily accepted as such than fiat paper money.

Today the TSX is up some 300 plus points!?!?! Sounds great but I suspect it is just a further departure from reality which will cause the “correction” to be that much more brutal when it comes. After all unemployment is still and will continue to be a number 1 issue, corporate earnings just aren’t there as they try to dispose of excess inventories and are not going to rehire to build more until they do. Those unemployed workers are not going to help corporations deplete the excess inventories – it’s a classic catch 22.

Yet we continue this bear market rally in all asset classes?!? Something’s gotta give you know that Garth you have and continue to warn of it. When it happens what will fiat paper money do? Sure maybe just a 10% chance, but as you say “if you knew your home was 1 of 10 that would burn to the ground in the next year wouldn’t you make sure you had good insurance?” Hell make it 1 in 100 or more relevant 1 in 10,000 which would be more in line with the safeguard people pay hundreds of dollars each year to safeguard against.

And if your gold does double you can hide that gain from the taxman… theoretically.

#84 Basil Fawlty on 05.19.09 at 7:56 pm

“Sure, put a half million in a metal that you cannot eat nor trade with your neighbours for anything of use. Good plan. — Garth”
“Gold is not money. Money is money, It buys gas, food and ammo and DVDs, dude. — Garth”
Are you saying out of $1M you would put $500,000 in cash, food and tradeable stuff?

As opposed to pieces of metal? — Garth

#85 rory on 05.19.09 at 7:56 pm

#71 Live Within Your Means

Hi, LWYM …the difference between DP plans like yours and DC plans is that the DC plan is investing in stocks, bonds, etc with your employer making some portion of the contributions on your behalf. How much your pension ultimately is is based on your return in the market…the individual has all the risk.

The DP plan you have is guaranteed at a set level …it is independent of the market. If the market is down then your employer tops it up so you don’t see any difference…here the employer, the gov’t, has all the risk.

So now you see the problem, markets are down and may be down for a decade or more so where does the money come from …the taxpayer …kind of a double whammy to the person in a DC plan …less pension + higher taxes to supplement gov’t pensions …ya think this will not be a problem.

As to making any company guarantee something over and above market returns leaves one vulnerable …hence the trouble with GM and Chrysler as companies…gov’t just get ya to give more.

I have no problem with gov’t pensions…okay that is a lie …they are gold plated and ultimately unsustainable given the economy going forward but yet the unions/gov’t will not recognize this fact and the gov’t of the day will cave and get the unorganized taxpayer to pay more via taxes …see #61 nonplused …he gets it.

I could write pages but not the place…IMO.

#86 Future Expatriate on 05.19.09 at 8:00 pm

“I’m an orange. — Garth”

That’s most unfortunate, as Harper and Obama are juicers….

But seriously Garth, most of my smartest neighbors and all of my richest ones will take my maple leafs anytime.

Only the idiots go “What’s that?” and “Eeeeew, don’t you have any colored paper or formal looking certificates or something?”

An inflation hedge or commodity play? Sure. But don’t pretend it’s money. — Garth

#87 lgre on 05.19.09 at 8:33 pm

“Anybody out there watching Agrium (AGU) or an owner?”

bought in the low $40’s and still holding, great company great stock. CF is giving them a hard time, they have nice offer on the table but CF is being stubborn..it dosent look like they want to sell to agrium..maybe cause their canadian :-)

#88 JO on 05.19.09 at 8:53 pm

71-live within your means-why can’t we have legislation…Legislation would mean nothing. In fact, it will make things worse as usual…the only hope in hell of having a properly funded public pension system is to get away from the reliance on a company..all workers would put a % of their pay into a massive, centrally managed pension fund with employers matching..it is different from the rip off, ponzi scheme CPP.

The best solution really is to get rid of all these bullshit DB and DC pensions..they really don’t matter in a debt based, fiat money, highly leveraged fractional reserve monetary system..these economic systems lead to catastrophe….if we all took care of our own retirement instead of relying on 3rd parties with the cancer that is the entitlement mentaility, we would not be in this predictament today. I left a DB plan recently which I was a member of for over 7 yrs, against my will…and now i have to transfer my commuted value to a locked in RSP which i will not touch until i am 55 based on current rules..so let me get this straight, I have a significant deduction taken from my pay against my will, and then when i leave, i am forced by legislation to keep my money locked until I am 55, and then I am forced to invest in whatever the Income Tax Act says I can…of course, it’s ABSURD !!!

How is that gov’t workers, the sector of the economy which is least productive (requires taxation which drags down GDP, productivity) are paid the best pensions supported by a majority of payers who have none, or if they do, enjoy only meagre benefits compared with the civil servants ? Yes, we need government (police, firefighters, military, bare bones tax enforcement office, basic social services, and court system), but gov’ts the world over have become way too large and WILL shrink n the next 5 yrs..My point is that although many think their pensions are guaranteed, it would be wise to plan for a 20-30 % reduction in benefits before 2015. There is no way gov’t workers will keep their generous payouts at taxpayer expense when most have no pensions and those who have them see their meagre benefits cut..just a thought.

JO

#89 squidly77 on 05.19.09 at 9:08 pm

the problem with making predictions is that the naysayers expect it to happen..now
when it doesnt happen now they are all over you

when eventually it does happen they are silent

calgary sfh price at peak july 2007
$505,000 @ 7% = $3,537/mo

price april 2008 1 year ago
$474,564 @ 7% = $3,324/mo

price april 2009
$426,311 @ 3.5% = $2,128/mo

based on full mortgage amount over 25 years

thats 40% cheaper than july 2007
and 33% cheaper than april 2008
who says that the markets not crashing !!
there is no bottom !!

#90 Future Expatriate on 05.19.09 at 9:32 pm

“An inflation hedge or commodity play? Sure. But don’t pretend it’s money. — Garth”

OK. I’ll let the Chinese do it for me.

You might be an orange, Garth, but it looks like the Chinese are goldbugs.

And they, not the US, will be determining what money is. Bombs can only go so far against asymmetric warfare it seems. Especially financial warfare.

Ing and Francis were pumping gold the last time it was at $1,000 – before it went to $200. — Garth

#91 tjmikey on 05.19.09 at 9:37 pm

I think the bottom will be realised when the average price for a SFD is equal to 3 to 3.5 time annual gross income. This would roughly equal the FMV for a SFD prior to the run up.

It may take 3 to 4 more years of bit by bit drops but it pretty much has to happen to get the house in order.

This puts the Calgary market with another 30 to 40% to drop to reality IF the job markets hold up. Should unemployment continue down this road then all bets are off.

Most jobs lost won’t be back. Should the USA follow the course of even moderate protectionism Canada is hooped.

#92 HJD on 05.19.09 at 9:43 pm

Am I missing something or not paying sufficient attention? You appear to be advocating that we sell our homes and rent. And yet, I gather you own two or three pieces of real estate. Respectfully, why haven’t you followed your own advice?

I don ‘t give a fig how much real estate anyone owns. Just don’t have more than 40% of your net worth in it. If you pass that level, you live with risk. — Garth

#93 . . . fried eggs and spam . . . on 05.19.09 at 9:43 pm

This is a new slant. Countries are racing for the Arctic’s and Antarctica’s resources! — http://tinyurl.com/pmyohf
——
Max Keiser – Poverty and Food Shortage is Created by the Banking System

“The same system what is destroyed the housing market now destroying the food market.

“India should ignore the copyright of seeds from Monsanto, the way they ignore the software copyrights.”

No links, text only, but one I posted yesterday said that Canada, America and Oz are going with GM wheat. I guess this will be a contributing factor in The Decline And Fall Of The American Empire!
——
Remember that the second phase of the housing slump (already started) was going to include commercial development? Well, it’s begun! — http://tinyurl.com/r2nlvg
——
The clip is just under ten minutes, but the comments from wrh. are very interesting (following). — http://tinyurl.com/66uzb6

Stocks are up…great news, right? Everything’s going to be OK. Optimism is a lovely thing. Realism is better.

Few on the boob tube are capable of being realistic about the real state of the credit system and thus the economic system and thus society.

Here’s the reality:

Wall Street created exponentially more paper assets than there are hands to hold them and it can’t sell off all these assets at the same time without causing mind-boggling deflation.

(Imagine an auction where only one person shows up and there is no minimum price.)

Lower prices are not a bad thing, but lower prices with a massive overhang of super-inflated debts that have to be paid back is. A very bad thing.

Two serious economists who warned about the current calamity well in advance and who don’t have a dog in the fight (i.e. over-priced assets they hope to sell to optimists) explain the potential scale of the consequences facing the world.
*****
Now, put these ‘lower prices’ (for material goods) side by side with higher food / basics costs of life, and figure out where we are going. Stagflation?

Or does anyone actually KNOW what is happening anymore?

#94 Andrew on 05.19.09 at 9:56 pm

#89 Squidly

Eventually your predictions will all come true. Just like the Plunge-O-meter guy, who says the Ottawa price support will happen in 2267!!!

#95 kitchener1 on 05.19.09 at 10:06 pm

#82, Of course there are nice areas in Cambridge/Kitchener/Waterloo/Guelph, that does not mean those areas are worth 600k.
Thats one thing I don’t understand about the mentality of people in this region, 9 years ago a brand new SFH was going for 160K, today people are asking 320K for these same homes, yet, today Kitchener is 3rd place for unemployment numbers in Canada.

Not sure what homes you see moving but I have been watching a few areas in Toronto in the 600K range and they are moving, although at a snail’s pace.

Im sad to say but this region is on the way down, soon it will be very similar to what you see in Windsor. All of those high paying labour jobs at Budd (Kitchener A frame) and Lear, BF gooderich etc.. are not coming back. Along with them go countless jobs at auto manufacturing parts plants and small time machine shop. Check the business exchange (MLS listing) and all you see for sale are lots of small time machines shops/pizza shops/corner stores.

#96 dbg on 05.19.09 at 10:12 pm

#46 Squidlly

The money isn’t leveraged. It’s called fractional reserve banking and all banks do it. Some countries are more aggressive with this process such as the UK.

They still only lost Billions not Trillions. Good try though.

#97 dbg on 05.19.09 at 10:16 pm

#89 Squidlly

A rate of 7% on a mortgage in 2008. I hope it was yours. Your mortgage broker must be loving you as that rate is silly and only someone with a FICO score(beacon) of 500 or less would even consider such a rate.

#98 dbg on 05.19.09 at 10:23 pm

http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=13685647&fsrc=rss

The liquidity wave is rolling again. Have you got your longboard ready. Surfs up dudes.

#99 Oh My on 05.19.09 at 10:28 pm

I’m late to this discussion, and thought that revisiting the rent/buy, RRSP/No RRSP, is in a way, off topic here (especially the venting about government workers…right or wrong, it misses the mark). Shauna is a self-described STAY AT HOME MOM with three teenaged children. This means that she will have to find purpose and meaning outside of her family home. Why not think about what YOU want to do with your life? You are close to many universities, colleges, cooking schools etc… You have a husband that is late to fatherhood…he may also be late to retirement. Not everyone needs/wants to retire at 65, unless your work is grinding and unimaginative. Cashing out on one of your properties would free you to explore your options…what do you like to do? What are your passions? Have you fantasized about starting your own business? What are some of the emotional reasons you want to keep nesting …to this end why do you feel the need to buy the retirement condo now??? Why does a 46 year old woman seek out the reassurance of paternalistic advice? As one commentator noted, if this was about real estate, the book would not lead you to ask these questions. I’m suggesting that you are asking the wrong questions to the wrong person!

#100 RJ on 05.19.09 at 10:49 pm

Cashed out of a house in 2004 in the states, it was paid for. Seeing as it was my residence, zero capital gains tax as well. I bought physical gold and silver with the US dollars from closing. Don’t really need to eat it, I’ve got a garden.

#101 Shawn on 05.20.09 at 12:02 am

Is this why licensed advisors have “know Your Client Rules”

Wow people are wiling to shout sell the house and cottage and close the business based on little nfo.

It seems clear the cottge is not being used and should be sold.

As to the house that is a big decision, sell if ou have a place to go that you like. I can’t see selling in a panic.

#102 Mi Too Bitz on 05.20.09 at 12:04 am

Eduardo, quit huffing glue.

#103 Shawn on 05.20.09 at 12:06 am

Don’t panic

Sell the cottage if not being used.

Think before selling house, where will you ive, will commute be as good, cost of moving is petty large. Do not be panicked into selling.

#104 Basil Fawlty on 05.20.09 at 12:15 am

“Are you saying out of $1M you would put $500,000 in cash, food and tradeable stuff?

As opposed to pieces of metal? — Garth”

No, on it’s own merit.

#105 Munch on 05.20.09 at 12:32 am

@ #51

Howdy

Only 3 key questions remain:

1) what is the overall rate of inflation there (contrasted with the 10.5% interest on investments) – we are siitting with CPI at about 8.1%, forecast to move back into the inflation-targeting band with upper limit @ 6%
2) is safari hunting still possible there (northern SA), for permanent residents? Yes it is, but it is very expensive, mainly targeted to rich Murrikans :o)
3) what is the SA government immigration policy for educated white foreigners? Easy to immigrate, a bit of red tape but we welcome skilled foreigners with open arms

Regards

Munch

#106 Enuff on 05.20.09 at 2:13 am

I couldn’t stand to live in constant worry and uncertainty so a year ago (2008) we sold our home in TO and moved to a small town in Bruce County, in SW Ontario. We bought a small home on 1/2 acre lot over-looking the river valley and rolling hills beyond. Why did we choose Bruce County? Because our house was less than $230,000. The economy is fuelled (pardon the pun) by Bruce Nuclear Power, (still hiring)and agriculture – two fairly recession resistant industries.
What we didn’t count on were the fantastic beaches, and relatively inexpensive recreational opportunities. Our town has 3 rivers converging in it. Who needs a cottage? We can put our canoe in at one end of our street and 1/2 hr later take it out at the other end of our street, then walk it back home or leave it at the paddling club right on the river. The cultural life is vibrant and ecclectic – thanks to the simultaneously independent-minds and community-spirit of the towns-folk. The artists and musicians on our main street could teach the kids on Queen street a thing or two.
Today we are so thankful that we made the move. We feel like we are having our cake and eating it too. We have a house but a small one. Property taxes are almost a joke compared to the $7500 we were paying for the privilege of living in TO each year. Our town is small (pop 1100) but it has an extensive list of shops and services. We can easily walk everywhere. My spouse and I both work at the Bruce Nuclear Plant which although no closer to our town than the Pickering Plant is to TO, our commute has been cut down to 1/5 the travelling time, zipping along country roads with only four stop signs between home and the desk. I’m not trying to boast about how well things have turned out for us but rather to give people a sense that change and down-sizing can be incredibly rewarding and liberating. If you like the idea of owning a home, you can do it here with much less risk because the house prices here are lower to begin with but the nuclear plant pays salaries competitive with those in TO. Here, shopping at farmers markets, buying local, and getting to know the farmers who grow our food is not just a trendy concept its a lifestyle. Even the snow gets us down less because the municipalities plan for and have adequate resources for snow removal. Typically the snow is cleared – everywhere – before we get out of bed. I guess the bottom-line for us is that we traded in, worry over uncertainty, for a comfortable life-style, greatly reduced debt, space for a large vegetable garden and fruit trees, and inexpensive activities in the great outdoors. We haven’t looked back even once. There are many options out there, this is but one, good luck with yours. Taking action is the key.

#107 Mike (authentic) on 05.20.09 at 2:38 am

72 Eduardo “I live downtown (Calgary) on a tree lined street and I can walk 20-25 mins to work so I don’t deal with any traffic. You’re the moron for buying or renting a box out in the middle of no where and having to drive.

Overview of why things will be ok

ME:
Mortgage cost = ~1000 a month @<2% debit
Condo fees = 300 a month debit
1 renter = 750 a month credit
HDTV/internet = 100 debit
taxes = 120 debit
gas = 0
insurance = 70 a month debit
power = 60 a month debit ”

By your numbers you own a small condo in Connaught or Vic Park (renter ville), throw away $420 a month (but you get “free” heat) and have to rent out a room in it as well.

I think I’ll go with the rent option in the same neighbourhood for $750 (inc free internet, cable and u/g parking) and not have to deal with a roomie, not worry about falling market value, selling it if I lose my job, etc, thanks.

http://www.rentfaster.ca/Calgary-Apartments-For-Rent/36999-Downtown-Condo

Mike

#108 D from London, ON on 05.20.09 at 8:18 am

#61 – Nonplussed

You are right about the wealth – I forgot that buddy was 56, I was just jealous that the writer was a stay-at-home parent with 3 kids, a $600k house, a cottage and a net family wealth north of $1 mil. I get that way sometimes, it’s an ugly side of my otherwise pleasant personality (lol). I also discounted the money bleeding business and probable lack of employment future for either writer (out of market too long) and hubby (too old, probably developed bad habits like independent action and critical thought while self-employed).

I think your point really ties in with Garth’s posting. If boomers don’t have a pile of assets ready for retirement they will face a sad future. I suspect that a lot (and by no means all) boomers are counting on some mix of the following three sources of wealth to fund their retirement:

1) Selling their homes (as Garth and others note);

2) Inheritance from their Greatest Generation or Blessed Generation parents (as Garth notes). A lot of people don’t take into account the large sums that will be spent in the last 6 months of Mom and Dad’s lives for end-of-life care (the part medicare doesn’t cover) – this ought to take a bite out of those funds, unless M&D drop dead of a heart attack or stroke.

3) the lottery.

If income is not greater than expenses from ages 45-60, when do you expect to accumulate the wealth necessary to fund what is likely to be a long retirement?

As for gov’t pensions, I am jealous of those too. As with most DB plans, I can’t see how they will survive the first cohort boomer retirement wave and still pay out a pension a retiree could live on. These will either have to be fiddled with by the gov’ts (likely) or, as the tin-foil hat brigade says, we’ll need a good dose of the flu or other killer disease to thin the ranks of future retirees.

#109 Eduardo on 05.20.09 at 3:24 pm

Yup condo in that area. Why do you think there are no pictures, you moron. I’m sorry but that place either has a dead hooker in it or its 750 and youre living with someone.

#110 Val Mel on 05.20.09 at 8:30 pm

Squid Man,

You are one of my favorite posters…keep it coming!

The realtors and bankers on here wet their pants every time you post!