Common wisdom

dd

In the last few hours, this comment was left on the blog by a guy named Frank, location unknown:

I am out! Just sold my home to a young greaterfool couple . It was only a matter of time before we would of gone bankrupt. We made a huge mistake one and a half years ago buying , now our nightmare is over. Not sure how much we lost but at least we don’t have to file for bankruptcy. Do people see whats going on in the economy? we thought we were done and couldn’t believe there were more greaterfools out there. Advice for those looking to buy, don’t do it. Home owners are looking to jump out of that debt trap which will lead to bankruptcy. The first time in my life the media helped us by the non-stop propaganda of lies. How are those idiots able to get a loan in this really bad recession?

Shortly after I read Frank’s astute comment, I talked to a long-time buddy, who’s spent the last dozen years building up a blue-chip consulting engineering business. His wife’s had a glamour job in the entertainment sector, involving lots of trips with people we see on magazine covers.

“It’s tough out there,” he said. Corporations and governments have slashed their consultancy budgets to the bone. “Yeah, and Wendy lost her job.” There was some desperation in that voice. He asked me quizzically about the latest car sales (up a little) and real estate numbers (up considerably), saying how can the economy be getting better when virtually everyone I know over the age of 45 is either unemployed or terrified?

So I told him about this parallel universe which has formed within the last five weeks – the one inhabited by politicians, central bankers, realtors and our self-serving media. That cabal is trying everything it can to create a self-fulfilling prophecy, convincing consumers and homebuyers the economy is rebounding fast, that today’s prices are a bargain, and going into debt when interest rates are at rock bottom is a sweet move.

Is it working? You bet. Every day I field emails from disheartened young buyers who have just lost out on a bidding war. Realtors and bank economists are now saying a massive tidal wave of 36,000 new condos in Toronto will be easily absorbed – just months after this looked like a rolling disaster. Whole neighbourhoods in Vancouver and Edmonton are seeing frothy home values. And mortgage brokers everywhere, along with bank loans officers, are besieged with applications for refis.

All around us, Frank, people are streaming into new debt. Lines of credits, personal loans and especially mortgages are flying off the shelf. There is absolutely no doubt that Canadian households will owe more money at the end of 2009 than they did at the conclusion of 2008.

And so what?

So, it means we’ve learned diddly. It was just seven months ago we were all thinking about squirrel recipes, bank failures and places to flee when society ruptured. The great credit orgy of the last two decades was raining its retribution down after homeowners, Escalade owners, corporate execs, investors and governments who had borrowed and spent wildly. Real estate, profits, confidence and jobs were all hammered as a result.

Politicians everywhere have responded with massive spending of money they don’t have, while dropping interest rates to entice citizens to do exactly the same. And, Frank, they are. They have fallen for this, hook, line and (especially) sinker.  Supported by their revenue-starved friends in the media, they’ve successfully woven a narrative of recovery, growth and hope.

Sadly, though, it’s fiction. Nobody every borrowed their way into solvency. This is still going to end badly.

But thank God, eh Frank? She also created greater fools.

77 comments ↓

#1 Da HK Kid on 05.23.09 at 9:46 pm

Great Stuff Garth, as usual! Let me come at this situation differently for those who just dont get it.

THERE IS NO RISK IN SELLING RIGHT NOW!!!!!!

Does anyone actually see any downside to the sell??? NO!

Choose to buy or not sell right now, nuff said!

And this guy who sold in the above note is behind the curve but stepped up in the temp insanity to GET IT BEHIND HIM!

Park your egos kids and think of your families future!

#2 Bruce on 05.23.09 at 10:10 pm

“And mortgage brokers everywhere, along with bank loans officers, are besieged with applications for refis.”

I’m a renter, but… doesn’t it make sense to refi now if you have a mortgage already and you aren’t planning to sell? Not quite everyone is going to lose their jobs, after all.

#3 WillsDad on 05.23.09 at 10:46 pm

this year, for the greaterfools, hindsight is 80/20.

#4 john m on 05.23.09 at 10:47 pm

Great post Garth..i was just doing some reading before i headed off to bed—-North America represents 5 % of the world’s population Canada and the US less than that—* Northern America comprises the northern countries and territories of North America: Canada, the United States, Greenland, Bermuda, and St. Pierre and Miquelon. —And here we are with two of the Greatest fools–Harper and Obama with less than a 5% input into a world wide disaster trying to buy our way out and even more absurd–they are telling us its working?——- reckoning day is coming and it will make the last 6 months look like a ‘cake walk”—government coffers are now empty and a tsunami is approaching

#5 My_view on 05.23.09 at 10:57 pm

Dont forget the dreaded HST, the buying will continue strong into 2010.

#6 Upenuff on 05.23.09 at 11:03 pm

Here in Vancouver’s lower mainland, everything, besides condos, are selling left, right and center. People do not appear to be hurting economically and seem to be willing to make the crazy offers for the over priced west coast boxes that are being flogged.
Beyond trying to figure out!

#7 squidly77 on 05.23.09 at 11:18 pm

The goal is to first of all prevent buyers from knowing what a realistic price is, and secondly to get buyers to blindly bid against each other. There are four players in this game and three of them are against the buyer — the seller, the seller’s agent, and the buyer’s agent. Yes, the buyer’s own agent works against the buyer, because there is no commission if there is no sale. There’s a saying in Las Vegas: “There’s a patsy in every game, and if you don’t know who the patsy is, you’re it.”
below is a good read and well worth reading it all
http://patrick.net/housing/crash.html

dont let this guy dupe you
http://ciacanada.com/blog/wp-content/uploads/2008/07/joker-740320.jpg

#8 squidly77 on 05.23.09 at 11:26 pm

its coming and there isnt a damn thing that you can do about it

http://1.bp.blogspot.com/_nSTO-vZpSgc/SdheP0PnX1I/AAAAAAAAF30/frYO5Ue2dcE/s1600-h/case-shiller-2009-03-TC.png

http://globaleconomicanalysis.blogspot.com/2009/04/case-shiller-march-2009-analysis.html

#9 the Coming Depression on 05.23.09 at 11:44 pm

Here’s how it works. A builder builds a house. He knows he needs 10,000 bricks. He only has 5,000. He is told that you can’t build this house because you don’t have enough bricks. He starts building anyway. He gets to the end of his 5,000 bricks. He can’t finish the house. So he walks away from it, unfinished. Just like todays home buyers. They know that prices will probably come down and rates will most likely will go up. I may lose my job, the payments will be going up along with my taxes. I probably won’t be able to afford this place, but we’re going to buy anyway. Stupid people with a few bricks missing a load.

#10 R.Moer on 05.23.09 at 11:46 pm

Cycles are a force of nature. Real estate cycles like great tidal waves of water come and go in rythemic emotional cycles. The best surfers in the world, those who know, can read(interpret), and live in big water know when to take a dive… literally and pass up an un- rideable wave. Let the big wave pass above you, staying deep and safe below the churn and trauma zone. If you do take it on… its gonna wipe you out, tear you up, grind and spit you out like raw sushi… just as the current real estate big cycle will spit you out like raw sewage.

Them’s the breaks, read water carefully, read the realty wave carefully.. its the same dynamic.

Only fools are willing to take on these bizarre conditions underway right now.

For real estate newbies its either good renting or good riddance.

#11 Val Mel on 05.23.09 at 11:48 pm

There is no bidding war for homes in Cranbrook BC. We have just seen an increase in inventory of 15% in the last month.

#12 Nostradamus Jr's Analyst on 05.23.09 at 11:54 pm

This is one of the greatest opportunities in real estate, in recent history.

For sellers.

#13 Arun Pillai on 05.23.09 at 11:59 pm

Hi Garth
Have you seen this http://www.yourhome.ca/homes/article/631682?ref=patrick.net

#14 zammer on 05.24.09 at 12:21 am

With all this “free” money flowing to help people feel this is the time to get a cheap mortgage and buy, when is the gas going to run out so prices can continue to correct to where they should historically be?
1 maybe 2 years?

#15 Davinci on 05.24.09 at 12:22 am

“Sadly, though, it’s fiction. Nobody every borrowed their way into solvency. This is still going to end badly.”

Not true many nations have successful borrowed them selves out if insolvency with a printing press. Successful at least for the politicians that did survive the wrath of the public.

Also a more average person example is a farmer in Germany in late 1921 borrowed money to buy 12 cows. One year later he sold 1 cow and paid all his debts.

#16 Dodged-a Bullit-in Alberta on 05.24.09 at 12:27 am

Greetings: I was in my local CIBC two days ago to make a payment on my Visa card. The lady behind the counter attempted to convince me to consider applying for another Visa card with a much smaller limit than my present one. I had to politely inform her that the object of the exercise was to pay off my current debt, not take on any more. She had no response.

#17 Basil Fawlty on 05.24.09 at 12:44 am

We are simply experiencing the intital effects of over $10T in government stimulous designed to reinflate the last bubble.
Per Gerald Celente:

Celente warns: “This is the Mother of All Bubbles, and when it explodes, it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world. All of this terminology is econo-jargon. It is like calling torture ‘enhanced interrogation techniques. Washington is inflating the biggest bubble ever: the ‘Bailout Bubble.’ This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors, and financiers the hardest. However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework was left intact. But when the ‘Bailout Bubble’ explodes, the system goes with it…”
We are in deep trouble, as those in charge of our financial system are fools, all they know is how to make the situation worse. Something wicked this way comes.

#18 Chris on 05.24.09 at 12:58 am

Great, so only what, 7-10 more years of this housing insanity? I will be 40 before I am able to purchase a home without screwing myself longterm, hope they are right about that increased lifespan thing…

#19 Ted on 05.24.09 at 1:37 am

Garth, is there any possibility that you may be even slightly wrong? You write with such conviction it appears you have the view there is no way possible for the economy to recover even 5 years out. I don’t know many people that can predict that far into the future. There are simply too many variables to change the outcome. Now may not be the time to buy but I was foolish enough to be negative on the housing market from 2006 onwards. If I had bought in 06 I would still be up significantly and would have a lower mortgage! Great blog but please realize you really don’t know what is going to happen in five years. Make an educated guess…

#20 Happy Renter in North Van on 05.24.09 at 1:40 am

Every reflation attempt leads to a larger over-correction which leads to an even larger crash… Much like a drunk driving down the road , larger and larger over-corrections inevitably lead to a roll-over…

LTCM in the late 90s, Tech Bubble Crash of 2000, Real Estate Super-Bubble of 2007… each of these is inevitably followed with a more pronounced reflation and bust cycle… Can’t wait to see what the next one is going to look like… I think we’re going to fall off the cliff this next time…

#21 JoJo on 05.24.09 at 2:19 am

Oil gains again to $ 100 soon
Gold over $ 1100 soon
Food prices again up 50% soon
Collapse of the US dollar what is very inflatory for RE,
Financial Banking System continues to be unstable
Commercial Re-estate and Credit write offs will be staggering,
Stock market will going to the roof even will see Depresssion Stats with job losses .

Inflate or Die…. It’s a Bank and Goverment policy 1.
Are you blind, Why all world leaders had meeting in London one month ago. Monetary easing and new recession policy Inflate or Die.
When we see interests 10%-18%, than we can talk about deflation.Example is R. Reagan in 1988 when hit 18% interest than was colapse of RE, Oil ($10) and gold
$200. Currently is Zero interest so RE can’t colapse.
Garth you are still in denial, look at the current RE prices in Toronto Area. Still higest level in history of RE in Toronto. Period.
Is your prediction smart ?, you should follow INTEREST RATES and still Zero/5% Down.
Garth probably you didn’t watch my previous videos?
Goverments will do everything to stop Defflation, and will spike Hiper-Inflation, because this is the only way how they can survive in the biggest World Credit Crise ever seen in History.

#22 vantown on 05.24.09 at 2:22 am

I hope you’re right, because we’re holding off buying out here in Vancouver with the hope that prices will fall further. But to play devil’s advocate for a moment, what if you’re wrong? The people I know who are buying right now are no “fools” (I always objected to the smug tone of some of your posts). They are well-educated, working professionals who have stable jobs (read: not in the forest or auto industry!).

The “great crash” simply hasn’t happened. Many real estate bears (like me) who were predicting apocalypse a year ago, are now talking another 10-15% off the 10-12% or so we’ve lost already. This hardly qualifies as a crash. If you’re looking at something you can afford without having to eat peanut butter sandwiches, and planning to live there 15-25 years, I’m not sure how “foolish” you’d be buying a house now. In fact, I deeply regret having held off for a number of years because of all of the doom and gloom predictions, and am without a doubt far behind where I would be financially had I bought circa 2003. I have zero equity, and homes are still more expensive than they were then, with apparently decreasing signs they’ll retreat that far.

Garth, you come across as so pessimistic that it often seems your advice for when to buy a home is: NEVER. The truth probably lies somewhere between what the real estate shills would have us believe, and this blog.

For now, we’re still holding off. But having followed this carefully for a number of years, I just don’t see massive price correction, at least in Vancouver. I sincerely hope I’m wrong.

#23 Da HK Kid on 05.24.09 at 2:39 am

#2, Bruce, what you are suggesting in my mind only applies to people who in fact almost own their home and can ride out the storm that WILL include devaluation of their home and potential job loss.

If your are the rare few, then refi for 5 years low interest but it MUST be paid off or close due to the loss of future value (depending on where you live right now and how quickly your area bubble inflated) so when the time comes after 5 years you will not be under water OR unable to qualify for the higher rate mortgage.

Put it this way, renting gives you both the liquidity and flexibility in case of this, stuffing the difference between owning and renting in your pockets each month and hedges against job loss.

Have you ever tried to sell something during a deflationary period if needed, especially when you owe more than it’s worth. It’s an absolute killer.

FOR MOST IT’S THE SIMPLE MATH THAT HURTS!

DONT LET IT BE YOU!

#24 dudebrah on 05.24.09 at 4:12 am

Although this faux Canadian recovery is scary, what makes it worse is it is happening here in Hong Kong as well. After all it’s a great time to buy, right? I would have to assume this means other countries are falling for it too. If I hear the words “green shoots” by one more economic expert, I will scream!

#25 Lance on 05.24.09 at 4:18 am

Boy are we in trouble… the next wave of new credit, the next asset bubble… and this time we won’t be able to save ourselves by lowering interest rates even further to ignite a new bubble to save us from this one popping.
This is all going to end very, very badly in 3-5 years…

#26 Sunshine on 05.24.09 at 5:10 am

We sold our Calgary house in mid-2008 just as prices for our neighbourhood were on the brink of falling.

We are very thankful but we still feel bad for the new owners. Real bad. We believe the house has lost ~60% now based on comaparibles in the neighbourhood.

Our advice to sellers is if you can find a buyer, do sell. (Congrats Frank!) But be prepared for the feelings of guilt when you realise someone else has taken on your burden.

#27 David Bakody on 05.24.09 at 6:05 am

#22 vantown on 05.24.09 at 2:22 am

Go for it buy now “BUT” first add these ….. taxes, insurance, fuel/electricity/furniture/appliance upkeep/law care/winter & summer maintenance and long term savings for scheduled upkeep. If y’all can afford that plus the possible double amount in mortgage payments plus the 25% increase in costs of the all the above listed items …. go for it buy two!

Some years ago a talked to fine older man (around 55 then) who sold his big home in Beford NS moved into a cool new apartment and told me he now putting $1,000 away in savings per month on top of his investments from the safe/secure and is quite content and “Happy”

Me my little home is quite manageable but the door is open to do the same should I feel the need.

#28 john m on 05.24.09 at 7:51 am

U.S. NATIONAL DEBT CLOCK

The Outstanding Public Debt as of 24 May 2009 at 12:17:40 PM GMT is:
$ 1 1 , 3 1 5 , 5 9 8 , 1 9 9 , 0 2 2 . 6 1

The estimated population of the United States is 306,239,644
so each citizen’s share of this debt is $36,950.14.

The National Debt has continued to increase an average of
$3.82 billion per day since September 28, 2007!
Concerned?

#29 Da HK Kid on 05.24.09 at 8:15 am

#21, Jo Jo, your crystal ball has an old historical crack in it! Deflation 12-18 more months, Inflation (zero to very low) next 24 months. Hyperinflation not likely however I will submit long USD 0.70-0.72. Oil $100/b in 2012. Gold will not reach $1200, RE interest rates 2010 5%, 2011 7% 2012 9% and double digits in 2014!

Japan style “L” decade maybe compressed to 7-8 years!

Repair your crystal ball with government and media manipulation and the above might appear.

#30 WillsDad on 05.24.09 at 8:48 am

Re: #22 Vantown

A bad investment is a bad investment, period. Just because people are buying, doesn’t make it a good time to buy. They’re sheep, plain and simple.

You say you dont have any equity? What about all the money you’ve saved by renting. Count that, and you’ll find you saved tens of thousands of dollars.

#31 OttawaMike on 05.24.09 at 9:01 am

I was given an inside scoop on a POS this week from the bankrupt former owner. The 1960’s built house located on a 2 acre country lot with stream and hardwood forest has been vacant for 18 months. It had a nice perennial garden but has fallen into disrepair as the trust co. has left it vacant and even allowed the pipes to freeze and foundation damage to occur.
I called the agent from the trust company prepared to make an offer but was rudely brushed off for even trying. He told me they will sell it via an agent when they are good & ready to.
My realtor told me this is very common, the bank devalues the property more with their own neglect and tardiness. There is a defined waiting period after the foreclosure depending on the jurisdiction but banks often exceed this for reasons unknown.
I also checked out a former grow op house that suffered an electrical fire. The owners left 18 months ago and left all their personal effects, furniture, food in fridge(yuck). After speaking to an insurance restoration contractor, the biggest risk in these places is not just the aspergila mould but the residue of hydrophonic chemicals in the wood and insulation. Some future inhabitants may have allergic reactions to these leaving the previous owner/renovator liable. Most of these busted places are just becoming tear downs now, and sold as land value.

#32 OttawaMike on 05.24.09 at 9:06 am

Behold the Canadian banks!:
http://www.economist.com/specialreports/displaystory.cfm?story_id=13604591

#33 Samantha on 05.24.09 at 9:18 am

#24 Dudebrah – They call it “green shoots” because if you have to shovel that much fertilizer on something to sell it to the public, then it must be a plant.

#27 David Bakody – Good advice/points. It’s hard to tell people who are chasing home ownership that it is a place to live. Period. Home is truly where your heart is – whether that home is rented or mortgaged.

Buying a house does not give a person more security. Even if the house is paid in full – property tax increases, changes to the neighborhood and many other issues can precipitate a need to sell and initiate a much more involved process to do so. Renters on the other hand, can sublet, give notice and pack up and find another place to live.

Some people seem to think that home ownership is necessary to raise a family. That’s nonsense. Many people in the past as well as today raise(d) their families in rented apartments, duplexes, townhomes, houses, basement suites etc. You haven’t failed as a parent if you raise your children in a rented home.

Home ownership is not a right. Sometimes it can be unfair when “others are doing it” (buying) and you can’t. Well, if you want a house that badly, then you can do what myself and others have done:

– Go to night school and increase your earnings

– Work 2 (or 3) jobs

– Find a way to move to a rural community where housing is less expensive and you can telecommute to work or become gainfully self-employed.

– Save and pay cash for a property in a less expensive, well located (think future) community that you can’t commute from. Think of it as a weekend retreat. Pick it up cheap and putter with it on weekends. It could be a cottage, house, or land in a small village or somewhere off the beaten track. Do your research and get creative. I did that with my last house. Bought it for $5,000.00 in a beautiful area of rural MB near a park.

– Leave your province. So many times I hear people moan about BC or ON housing costs but heaven forbid they set one foot over that border. I left and haven’t looked back.

Every part of Canada has some sort of climatic challenge – wet/cold/wind on the coastal areas, colder in certain parts, but so what? You use common sense – you dress for the winter weather conditions and not only learn to live with it, but play in it as well. It’s only one season out of a four season climate.

Remember, home is where your heart is – and you might be surprised at how easily your heart can bond with and embrace a new and less expensive community, whether you rent or buy the roof that shelters you.

#34 hagbard on 05.24.09 at 9:35 am

JoJo – Its not gold that’s going up, its the US dollar going down. How do I know? I can buy gold from my usual sources today for the same amount I paid a month ago. Gold is holding its value.

#35 Bill-Muskoka (NAM) on 05.24.09 at 10:02 am

Ah, then there is the Chinese solution!

Man pushes would-be suicide jumper off bridge

A Chinese man was pushed off a bridge by an angry passerby after his threat to commit suicide held up traffic for five hours, Chinese media reported Saturday.

Retired soldier Lai Jiansheng, 66, broke through a police cordon and reached out to shake the hand of would-be jumper Chen Fuchao before shoving him off the bridge.

“I pushed him off because jumpers like Chen are very selfish. Their action violates a lot of public interests,” Lai was quoted as saying by the China Daily newspaper. “They do not really dare to kill themselves. Instead, they just want to raise the relevant government authorities’ attention to their appeals.”

Chen, $328,404 in debt because of a failed building project, fell eight metres onto a partially inflated emergency air cushion and was hospitalized with wrist and back injuries. Lai was detained by police.

Chen was at least the 12th person since early April to threaten suicide at the same spot, the Haizhu bridge in Guangzhou.

So, the Chinese have not quite aquired the honourable act of Japanese Hari Kari it would seem?

Perhaps our deteriorating bridges will be a gathering spot for CEO’s from NorTel, GM, Chrysler, and a whole lot of MP’s? We really do need to find a better location! Remember, Location! Location! Location! That’s the ticket!

#36 dd on 05.24.09 at 10:13 am

Sadly we are all effected by the greaterfool.

#37 timbo on 05.24.09 at 10:24 am

Check houses carefully before you buy!

http://www.calculatedriskblog.com/2009/05/jim-
realtor-crack-house.html

#38 timbo on 05.24.09 at 10:24 am

Check houses before you buy!

http://www.greaterfool.ca/2009/05/23/common-wisdom/comment-page-1/#comment-29740

#39 Just a Carpenter on 05.24.09 at 10:26 am

Buy goats!

Recently my mom pulled out a worn coin envelope contain a russian gold coin. My grandma sold had her goat for a gold coin before imigrating to Canada with her 4 boys. Curious as to it’s value today I had a coin collector check it out. His response…not a rare coin but with the value of the gold, you could probably buy a goat with it. 60 years and the golds buying value had not increased at all. Hmmm wonder how much the land and house grandma and the boys bought has increased?

#40 Rasputin on 05.24.09 at 10:27 am

This little echo boomlet really is amazing. But it was completely called by Garth and a few others. Heady, optimistic and euphoric couple of months. Unfortunately reality stalks us all. And when it shows up and crashes our little party, it’s not coming alone. It’s going to bring some nasty friends.

#41 Boombust on 05.24.09 at 10:34 am

#6

I believe many sales that are taking place in the Lower Mainland are due to falling prices. Really!

I see big chunks being lopped off SFH prices in the eastern suburban areas.

#42 Gord In Vancouver on 05.24.09 at 11:05 am

#22 vantown

…….The “great crash” simply hasn’t happened. Many real estate bears (like me) who were predicting apocalypse a year ago, are now talking another 10-15% off the 10-12% or so we’ve lost already. This hardly qualifies as a crash.

………For now, we’re still holding off. But having followed this carefully for a number of years, I just don’t see massive price correction, at least in Vancouver. I sincerely hope I’m wrong.
_________________________________________

This appears to be a combination of the novelty of obscenely low interest rates and the perception that it’ll be awhile before Vancouver sees a 10%+ price drop again. Vancouver real estate prices have basically stabilized, frustrating those who need 2005 to early 2008 prices to break even.

Until BC/Vancouver’s unemployment rate decreases and we can be assured that today’s buyers can handle 6%+ interest rates, I would not feel angry about missing today’s “buying opportunities”.

If a bull Vancouver real estate market is inevitable, then why is the city’s “condo king”, Bob Rennie, encouraging local developers to make buildings more affordable?

http://www.cbc.ca/canada/british-columbia/story/2009/05/22/bc-vancouver-real-estate-market-bob-rennie.html

Rennie’s assumption that “average two-income homeowners” weren’t in the stock market is laughable as most of these people still owned mutual funds.

#43 David Bakody on 05.24.09 at 11:13 am

Just returned from a drive ( and a stop a Tim’s) to Chester ….. noticed many new signs on Ocean Front & St. Margaret’s Bay homes also they seem to have been run down ( lack of professional maintenance) from last year. I know the prices are down also, but there appears to be community building going on. As far as the city here is concerned homes are selling well, but the reason very well may be last years gas prices, many are still paying off those bills and live in fear it will happen again. Strange a local radio station was talking about why people do want to commute any more and are opting for the city life. Add to this the high cost for teenage auto insurance and no jobs for kids in the burb’s so they can help out should they want to drive a family car.

#44 DG on 05.24.09 at 11:47 am

I’m not sure that corporations have really slashed their consultancy budgets to the bone, as your friend suggests. I’ve found the opposite is true and in fact have billed enough in the last two months to pay off every penny of our debts hanging over us from our failed business.

The work I’m doing is what used to be done by 3-4 full-timers who have been laid off. My wife is doing similar work in the same industry and between us we have enough to keep us going for two or three years.

Now, that doesn’t mean everything is rosy. Quite the opposite really, even for us, in that we have to save like mad to make up for lost time, and we’re not sure what we’ll do when those two or three years are up. But from a monthly income perspective, things are better for us now than they have ever been, literally by a factor of three.

#45 Finanzkrise on 05.24.09 at 12:01 pm

Vantown #22

Your patience in the Vancouver RE market will most likely pay off. I too have ‘smart’ friends and colleagues (fellow MBA grads) that have bought in the last two years or are looking to jump in now. Education in corporate finance does not necessarily get connected to personal finance when the emotions of home ownership come into play…

The valuations just don’t make sense. Debt bubbles are self limiting, eventually. Anyone who thinks a major correction can’t happen in Vancouver (it’s different here) need only look back to the early ’80s when house prices crashed. I can’t find it now but I recall seeing a photo from 1982 of people demonstrating in front of a CIBC after losing their homes.

These 0 percent interest rates and cheap mortgages are unsustainable, and gradual rate increases as policy makers would love to ensure are not guaranteed – the international bond markets ultimately drive the bus when it comes to the trajectory of mortgage rates. When I read about a couple of poor UK and US bond auctions and threats of credit rating downgrades, I am not convinced that this will be a smooth ride…

#46 rory on 05.24.09 at 12:02 pm

Hi all …

Seems to me we all need some perspective from many different sources …I read a bunch of blogs, most suggested from this site, but this is the only site I read all the comments all the time.

So, GAW & others, if you have a site that helps us all with perspective in finance, economics, and RE, it would be of great interest to me and I imagine others.

Blogs I read on a regular basis are TAE, Coming D (need that perspective), Mish (as does the whole world it seems), of 2 minds, Nathans Economic (for the Sunday cartoons) + others but I save the best for last …this one – greaterfool and trying hard not to be one.

Beautiful day today in the Okanagan….say the first baby quail of the season running for cover – all 8 of them.

#47 vantown on 05.24.09 at 12:24 pm

#27 David Bakody:

Go for it buy now “BUT” first add these ….. taxes, insurance, fuel/electricity/furniture/appliance upkeep/law care/winter & summer maintenance and long term savings for scheduled upkeep. If y’all can afford that plus the possible double amount in mortgage payments plus the 25% increase in costs of the all the above listed items …. go for it buy two!

Despite my not saying that we’d buy a house (as opposed to a condo or townhouse), and the fact that at least some of the expenses you list apply to rentals as well, there’s an overriding theme here, as in many of the other comments: fear. First, mortgage payments are not going to double, even if interest rates do; this betrays a peculiar kind of mathematical ineptitude (e.g. a 25-year $500K mortgage at 4% is $2639.18 per month, at 8% is $3859.08, not $5278.36).

Second, “nothing ventured, nothing gained.”

#30 WillsDad:

Just because people are buying, doesn’t make it a good time to buy. They’re sheep, plain and simple.

No. This is an important part of my point: they’re not (all) “sheep.” Many of them are intelligent people who know what they can afford, and know what they want. Calling people idiots doesn’t move a debate forward; it’s essentially an ad hominem argument.

You say you dont have any equity? What about all the money you’ve saved by renting. Count that, and you’ll find you saved tens of thousands of dollars.

If I’d bought in 2000-2003, I’d still be far, far ahead. Another way of looking at this: why don’t you sell off all your possessions, and go live in a tent in the forest? Wow, would you be able to save a lot of money. Nothing “wasted” on mortgage payments or rent.

It all comes back to the strong scent in the air here: fear. It seems to me that the reason many people read and comment on this blog is because they would like to buy. But we’ll always be able to find a reason not to. #18 Chris writes, “So only what, 7-10 more years of this housing insanity? I will be 40 before I am able to purchase a home without screwing myself longterm.” It’s fascinating that the opposite reasoning never applies: waiting too long could also meaning “screwing yourself” in the long term.

#48 dbg on 05.24.09 at 12:31 pm

#9 The Coming Depression

Yes, you’re a few bricks short of a load.

#49 Mike B on 05.24.09 at 12:41 pm

What is driving Real Estate in Toronto is low interest rates and slightly lower prices in some areas. The tell tale sign that sellers are unloading troubled properties is when widows , having lived in their house for a decade after their spouse passed, now feel that they are ready to sell. They want clean offers no conditions and full price … ohh and ignore the seller sponsored inspection pointing out mould, alluminum wiring and wet basement… and by the way get me a coffee!!!!
The HST next year will also see a bump in interest where the morons save several thousand on GST but spends 10 of thousands extra on principal.
Regarding the alternate universe that the govt exist in by dropping rates so low… One can only conclude that what BOC and All central banks want to see is INFLATION not deflation….inflation has simple remedy… increased rates. The US and UK in particular do not want to see rates go up as it will mushroom their already huge national debt… The text book tug of war

#50 vantown on 05.24.09 at 12:45 pm

Finanzkrise #45:

The valuations just don’t make sense. Debt bubbles are self limiting, eventually. Anyone who thinks a major correction can’t happen in Vancouver (it’s different here) need only look back to the early ’80s when house prices crashed. I can’t find it now but I recall seeing a photo from 1982 of people demonstrating in front of a CIBC after losing their homes.

The trouble is, this is precisely what we were all thinking one, two, three, four years ago. It hasn’t come to pass. I know, we’re only a year past the peak. But a lot of us bears were all thinking we’d be at -20% and falling by now. I think we’re about -10%, and apparently rising.

#51 Dan in Victoria on 05.24.09 at 12:53 pm

Post#35 Bill,That’s ok if they want to “off” themselves,but please no familycides in Canada,or anywhere else for that matter. Post#39 Just a carpenter,I can hear the gold bugs now”How big a goat”

#52 Mike B on 05.24.09 at 1:02 pm

I liken Real Estate buyers today to novice auction attendees. Those of you who have ever gone to an auction to see some bidders essentially pay more money on an item than they could buy brand new at retail know what I am talking about. Yes they did beat out others but no they did not win… Only sellers win at bidding wars. Remember the old saying “no deal is better than a bad deal”…. Now those of us who are cash buyers are cautious because we are all in and hate to make mistakes. Others here perceive this as fear but I call it careful…those who seem fearless have little skin in the game and like it that way…they are not fearless but adventurous with others money

#53 Guardia Civil Tricornio on 05.24.09 at 1:06 pm

Saturday CityTv/24 news cable flash:

…signs of economic recovery.. Leaside home sells for 160K over asking…

I wonder if Frank was that lucky?

#54 DG on 05.24.09 at 1:15 pm

@Vantown: All good points, but the jump in mortgage payments between 4% and 8% remains very significant (almost 50% higher). I haven’t noticed anyone making the mistake of thinking that going from 4% to 8% means the payment will double, but perhaps I just haven’t been paying attention.

Regardless, very few people getting a mortgage today are going to see their incomes rise by 50% over the next five years. Sure, they may not be anything close to being maxed out with their current 4% payment, but in your example they still need to come up with another $1220 / month of after tax income at 8% to enjoy the same standard of living. That’s probably around $25k / year in additional gross income that’s required.

I do think, however, that many of those arguing in favour of renting are simply mirroring those who ardently believe in buying. That is, both sides are simply trying to validate their own behaviour.

Renting, frankly, sucks, in Toronto because of the generally poor quality of rental accommodation, particularly if you’re looking for a well-kept single family house in a decent neighbourhood. I can rent a house for a lot less than buying, but to get the living situation I want, I have no choice but to buy.

#55 POL-CAN on 05.24.09 at 1:46 pm

# 46 rory

Add ZeroHedge to your list:

http://zerohedge.blogspot.com/

Global Research and Counter Punch are good too:

http://www.globalresearch.ca/

http://www.counterpunch.org/

And for some good info with a funny sarcastic spin try:

http://maxkeiser.com/

and

http://sootandashes.blogspot.com/

#56 Rhino on 05.24.09 at 1:47 pm

Well, folks, I been away settling into my new “retail career”, and like all good soap operas, this little blog seems to stick with the message. Accurate it may be, but I must agree with posters who would like to see some widening of the discussion.

That said, here in West Island Montreal, doggie walks show more “SOLD” signs than “FOR SALE” signs on home properties. Since we rank 27 out of 28 cities as far as economy goes – (that is 6 behind Detroit!) we have not seen the huge price swings, so maybe there is some benefit to poor economy and no jobs!

Oh… and LOTS of “For Rent” on commercial properties.

BTW, now I am no longer a middle management exec, and now a “sales associate” in retail making 1/4 what I did, let me fill you in on a truth the MSM and politicians are denying…

My hardware store counter person co-workers include:
– an ex-Nortel engineer
– an ex-pilot with 45 years experience
– an ex-sales manager who was responsible for 1/4 Canada
– an ex-account manager in industrial sales
– a retired Air Canada chap whose retirement fund disappeared.
– an early retirement chap who ran out of cash and lost his investments…
– and more to come, I am sure….

THAT, FOLKS IS REALITY.

There is honestly seems to be more “talent” on the floor than there is in the admin offices!

Yet, the hardware chain is busy with lots of folks taking advantage of tax credits, etc., and other jumping on credit programs with no interest for 6 months (then 28%!!!!).

My draftsperson/process design friend has been laid-off with 3 months “pad”.

A neighbour just told me a local pharmaceutical company is closing and outsourcing an entire department putting 25 skilled educated workers OUT.

ALL my “self-employed” colleagues are finding contracts closed without warning, customers cutting back – some in fear, others due to lost revenue. I, personally am in part-time retail now since my client list shrank overnight, and I still must survive.

So… all you deniers out there, get ready for a shocking reality. If an economy, already depressed for the past decade like Montreal is experiencing continued downward trends, you folks in bubble-land are in for one hell of a ride!!

Ta Ta For Now… off to the bowling green. At least that is not expensive fun!

#57 David on 05.24.09 at 1:56 pm

Frank’s comments might make some people mad or scared. I look at this way, home ownership ought not to bring families to the brink of financial insolvency and if it does, then something is really amiss. The low interest rates are giving the real industry an extended Indian Summer amid a serious extended economic downturn. The bitter taste of reality will not be any more palatable when the bubble finally bursts in earnest and there in no solution for a negative equity mortgage. Frank lives to fight another day and buy another home when prices are more amenable to family income and financially sustainable. Once interest rates return to anything like historical norms, it will be game over for the putative home owners who bought houses with cheap money and no equity at prices disconnected from fundamentals. Kudos to Frank for beating the storm clouds.

#58 deja.vu on 05.24.09 at 2:25 pm

“And mortgage brokers everywhere, along with bank loans officers, are besieged with applications for refis.”

Hearing from someone I kniw in the bank, a ton of refinances are happening ‘cuz reality hits when the homeowner has to pu up the greater of 3 months interest or the interest rate differential to the end of the mortgage term. The 0%, 40 year mortgages comin home to roost.

:P

#59 Future Expatriate on 05.24.09 at 2:29 pm

Nice picture of Bernanke you got there… didn’t recognize him at first with his bald head covered up.

You would have thought the traditional Wall Street garb would have nailed it though…

#60 My_view on 05.24.09 at 2:29 pm

Renting stinks, bottom-line. I did not buy in the early 2000’s because I thought the market would correct especially after the tech bubble, but it didn’t. The R/E market just got more steam and left a lot of renters in the dust including me. So I waited and waited, then Garth’s book came out Greater Fool. What a breath of fresh air, I ate that book up and preached the gospel of Garth to anyone who would listen. I thank Garth because we bought in early 2009 spring when the dark clouds were everywhere, and he was right the market would correct 10-15%, we got the home for 10% less (plus other negotiated items) than what it would have sold at the peak. This time it’s similar to the tech bubble again. A lot of people rather own bricks & mortar over equities. This is especially true for Canadians; maybe it’s the cold weather. Nov 2008/ March 2009 stocks/RRSP crash, peoples investments took a beating, however not real estate. We all want a home, who are we kidding. Who dreams of renting an apartment, especially for the rest of their lives? In the 10 years I was renting my landlord got over $160,000k from us. Yesterday is history, tomorrow is a mystery but today is a gift.

#61 Grantmi on 05.24.09 at 3:32 pm

I’ve been having this back and forth battle with friends and family on why we have NOT jumped back into the crazy Vancouver – Lower Mainland RE market… after exiting it 4 years ago.

We’d love to move into the South Surrey enclave just outside White Rock. Between Ocean Park and Crescent Beach.

http://i43.tinypic.com/zxl3xz.jpg

This is a snap shot of the current MLS.ca listing on their site. Of course this does not include the “FOR SALE BY OWNER” signs also sprouting up every where too.

Or the for Sale OR rent signs!!!!!!

“Move along! Nothing to see here!!

#62 timbo on 05.24.09 at 3:50 pm

What the heck happened to vegas. very good video and a heck of a warning if your renting and your landlord does not pay the bills.

http://www.youtube.com/watch?v=rFTZ3flsipE

#63 Simon on 05.24.09 at 4:44 pm

vantown

You make a good point; there is a large segment of society very capable of reading the tea leaves every bit as well as the folks here. They are perfectly able to determine their financial position, job security, lifestyle needs, etc. and act accordingly.

Pretty much all the advice offered here is premised on the claim that there’s a sort of economic tsunami on the go and there’s only one “right” way of responding.

Quite a dubious foundation!

#64 TS on 05.24.09 at 5:27 pm

OttawaMike on 05.24.09 at 9:06 am Behold the Canadian banks!:
http://www.economist.com/specialreports/displaystory.cfm?story_id=13604591

You can thank Paul Martin for keeping Canadian banks in good shape by refusing to back off on bank regulations.

On the flip side, you can thank Harpo and Dim Jim Flaherty for creating Canada’s own ‘sub prime’ mess by allowing ill-advised 40 year mortgages with zip downpayment. As the economy worsens we’ll see defaults and home repossessions increase further.

#65 Time_machine_in_calgary on 05.24.09 at 5:48 pm

Garth,

When the going gets tough, its important to consider that all the foolishness in this world wont matter in 100 years, unless someone invents immortality and/or a time machine. As it stands, this seems unlikely, so the serfs in Calgary remain content to be loyal to their Lords, be it the bankers, or the landlords, or both. What is likely is more admission to insanity asylums and mental institutions in Calgary by those that buy “houses”.

#66 From the Hip on 05.24.09 at 6:07 pm

Hi All,

I have been renting for 6 years, saving money to the point where my wife and I have cash assets totalling 540K. Unfortunately, my landlord is kicking us out August 1st, he sold his home and needs to move in here.

My days of renting are over, my wife and I just had our first baby 4 months ago and my wife is tired of the uncertainty of renting so I am reluctantly finally becoming the ‘greater fool’.

So long friends, thanks Garth, hopefully I will see you on your bike in a couple of years while I am on my way to bankruptcy court. I just can’t win the argument anymore, the government is not going to allow housing to suffer. They will do whatever it takes, as long as people feel house rich they will spend and drive this insane thirst for debt.

I could not believe how easy it was to get approved for a mortgage, we secured 600K over the phone with BMO, at 3.45% fixed for 5 or 2.5 variable. I think it is harder to catch a cold than get a mortgage.

Over the last week I have been walking into crappy houses with my new best friend Dave the real estate scumbag. I am competing with a bunch of greater fools such as buying crappy homes in the bloorwest/Sunnylea/Kingsway area of Toronto.

Good luck to the rest of you, I just don’t see any way out, I thought the market was going down, I thought I was finally right that the insanity had stopped. I was wrong, and Garth, I think you are a very bright man with the correct vision of the future, but you can’t stop this title wave. Our banks have money to lend thanks to the govenment. There is nothing you or I can do to change that fact.

All the best,

From the hip

#67 David Bakody on 05.24.09 at 6:13 pm

#47 vantown on 05.24.09 at 12:24 pm

In all my years I have found most people do exactly what they want to do ….. my words like others are only pause for investigation ….. your facts on mortgage costs on paper are most likely correct … please understand VAN this: an added expense from $2639 to $3859, is $1220 … now to recover that per month you would have to receive a raise of approx $6500 per year ….. like every other increase in expenses it must be paid from take home pay or savings. In all my years of working most of my decent raises netted about $70 a month take home, promotions were more of course they were about $120 but as you know they did do not happen often.

#68 David Bakody on 05.24.09 at 6:23 pm

Sorry Van my old fingers are stiff, 1220 X 12 is 14,640 x a modest 45% tax and deduction is 21, 228 and that is assuming it happens on time …. if not you are into less saving and robbing Peter to pay Paul.

For what it is worth I do no anticipate many companies will be giving out raises of any value in the near future. Even Ottawa will be sitting pat unless an election provides a majority and then it will only happen in the second or third year.

#69 mikef on 05.24.09 at 7:32 pm

Good post Rhino.

Here in Fantasy West Island I’ve noticed a definite slowdown in economic activity.

There isn’t as much noise from the airport,not as much traffic in the early morning on Cote de Liesse,and tons
of commercial real estate for sale/rent.

Residential single detached dwellings on the West Island and Western Montreal will always have good value in good times and bad times, because it is very
centrally located.

Just wait in a few years when Peak Oil and a crumbling
US dollar push oil over $200 and gas $2.00L,PERMENATELY all the
“English” (anybody who’s first language is English.Irish,
Greeks,Italians,Jews,Indians,Pakistani,etc)
who moved to 450 land(Vaudreuil,Laval,South Shore)
will be scrambling back to Montreal Island.

#70 . . . fried eggs and spam . . . on 05.24.09 at 8:04 pm

“. . . parallel universes . . . Canadian households will owe more money at the end of 2009 than they did at the conclusion of 2008. And so what? So, it means we’ve learned diddly.” — combined with — #66 From the Hip at 6:07 pm — “. . . I just don’t see any way out, . . .”

Hmmmmm. I live in parallel universes, so there are / is multitudes of me(‘s). As to the rest of it, best to check with humanity, try to understand why they keep crucifying themselves.

Hah! Could it be Barbecued Sheeple? Sheep-On-The-Cob? Out of the frying pan and into the fire? Watson, I’ve figured it out! Come! No time to waste!
——
Holy smokes! I’ve come to the conclusion that the universe and world we live in is nothing more than a gigantic conspiracy theory, that it doesn’t actually exist. This means that some entity, other than yours truly, is setting this tome.

If any of you ever figure out who I am, please let me know — I still haven’t found myself yet!

Let’s play around with these reports. You may recall the ‘elite’ was about to embark on a cull of about 2/3 of the world’s population, to give themselves more room and resources, operating under the false pretext of overpopulation.

Well . . . http://tinyurl.com/pknhkr /\ http://tinyurl.com/quqtlw. To accomplish this, ‘society’ has to be destabilized and hence, the worldwide fiscal takedown began a while back.

This is now accompanied with pig / bird / any ‘killer’ flu available, wars, rumors of wars, false flag ops., religions fighting amongst themselves, natural disasters, mass unemployment, bankrupt welfare systems and the violence that stems from that, etc.

Funnily enough, these so-called ‘elite’, brilliant minds and brains, supra-wealthy people have completely forgotten one thing: What goes around, comes around; for each action, there is an equal and opposite reaction.

In 50 years, none of this will matter as we’ll all be partying on the other side. Just a bunch of BS horsefeathers down here, that’s all!
——
Following two are quite interesting. First sentence from first link speaks for itself. — http://tinyurl.com/qmbtpj

“Now there is a clear time frame for the dollars collapse: it will happen this summer.” /\ and /\ http://tinyurl.com/ol7slv

#71 Grantmi on 05.24.09 at 9:46 pm

Job Losses Push Safer Mortgages to Foreclosure

By PETER S. GOODMAN and JACK HEALY

Published: May 24, 2009

As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.

In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.

http://tinyurl.com/qc2ym5

Ouch!!

“Move Along.. Nothing to see here!!

#72 Investx on 05.24.09 at 11:12 pm

Thanks to whoever posted the Economist article above, “Don’t blame Canada: A country that got things right” May 14th 2009

Explains how RE and the economy might different up here: more conservative banks, mortgage interest, no tax-deductable mortgage interest, etc…

#73 Future Expatriate on 05.25.09 at 2:18 am

#62- Want to know what happened to Vegas and what’s ahead for Canada? Here’s a chart for the value of a friend’s townhouse there:

Chart

See that up and down double dead cat bounce before the last ugly straight down slide?

That’s where Canada is right NOW. 2nd dead cat bounce up.

Especially in BC.

#74 BigAl on 05.25.09 at 5:13 am

Screw it….I’m buying now. Well, will start looking for a builder and project in the GTA. From what I see here, lots of people talking about hyper-inflation, lots talking deflation. If I buy and hyper-inflation comes, I do OK with the house value, plus I see I can lock in for 10 yr at 5.5%. If there’s deflation, I still have my home (which I plan on being my final home for my life). Throw in a basement apartment to rent out, and I think I’ll be even better.

#75 Future Expatriate on 05.25.09 at 7:27 am

#74- And when it turns out to be hyper-stagflation (housing and salaries, if you still have one, go down while necessities like food and energy go up) you’ll REALLY have bit a huge chunk out of your ass.

Good luck renting that apartment out too. Especially since you’ll be competing with everyone else in Canada who already ruined THEIR big houses.

Because in hyper-stagflation, rents go through the floor right with housing values. The LAST thing on anyone’s mind is owning a house or even getting a roof over their heads when they can’t figure out where the next MEAL is coming from.

#76 pjwlk on 05.25.09 at 9:39 am

I saw my R/E friend on the weekend. She could barely contain herself as she bragged repeatedly about how busy she was and how well she’s doing. A reminder I’m sure that I was wrong when I said that there was not going to be a spring market this year.

She did however admit that most of the buyers are first timers and also that most of the sales are under $400k.

#77 Future Expatriate on 05.25.09 at 2:24 pm

Las Vegas is real estate is “booming” too… as long as you only count foreclosures under $100,000 USD.

And former million dollar foreclosures for under $200,000 USD.