Enjoy the flight


Folks buying houses today are fools. Not all of them. Just most of them.

Among the fools are those who can only afford to buy if they take a mortgage for 90%, 95% or 100% of the value of the house. They’re fools if they spread that mortgage over more than 25 years. And they’re fools if that single piece of real estate represents more than half their net worth.

This is because the housing market is at its zenith. Sales activity rebounding. Mortgage brokers bustling. Highest prices ever. That’s not my assessment. It’s coming from the lips of LePage boss Phil Soper, from condo king Brad Lamb, from the Canadian Real Estate Association and real estate boards in Toronto, Calgary and Vancouver. They all think buying at the peak is cool, because tomorrow there will be a new peak.

This has also inspired several people a day (mostly emailing from real estate offices) to aggressively seek me out so they can call me irrelevant. I guess they were sick the day ‘irony’ was taught.

Sadly, I am not. I’m right. Let me tell you why.

It is impossible for the economy to rebound, family incomes to advance or lost jobs to be created soon enough or strongly enough for the current housing market to survive. Today’s action comes from demand, mostly by newbie buyers, built up in the last quarter of 2008 and the first few months of this year. A collapse in the cost of money has allowed affordability to be maintained without prices falling.

That demand will be satisfied soon enough, then interest rates will rise. This will be the story by winter, I’d say, and it will be headline news by next Spring.

But that’s just part of the story. Rising energy costs are another. So’s the climate change war Obama will start. But not the main event.

More important is what governments are doing to public finances right now, and what this will breed. As you know, Washington has just passed the $1 trillion deficit mark. The consequences will include moribund economic growth, higher taxes and decades of future inflation.

In Canada, a new report underscores what I’ve warned about. Our budget deficit will top $50 billion for at least a couple of years, and then Ottawa’s finances will be in the red for a decade. This, says economist Dale Orr, will add $200 billion to the federal debt, wiping away 15 years of getting this sucker under control.

So what, you say?

So, do you remember the last deficit nightmare we had? The one that spawned the GST, double-digit interest rates and slashed government spending? I hope so, because that’s exactly what’s coming again.

Orr’s argument is solid. Runaway spending increases by government now will give us higher interest rates as government borrowing competes for money. Higher rates make the mushrooming debt far more expensive to finance – which means economic growth alone (if there is much) can’t balance the books. So, governments have to raise taxes – since spending cuts in a post-recessionary world would be suicidal. (So are taxes, but what the hell…)

And all this happens between 2010 and 2019, just as the Boomers are retiring, dumping their houses and looking for their government entitlement payments.

These are some of the reasons real estate has a troubled future. Why the bubblette we’re in cannot last. Why anyone buying at the peak – thinking these assets can only go up – is a fool.

I’ve seen this newsclip.

Have you?

Update, 17 July 8 am EDT:

Friday, Stats Canada reported Canada’s inflation rate is less than zero. That’s deflation – when falling prices, falling wages, salary cuts, cheaper manufactured goods, lower interest rates and economic stagnation bring the cost of living crashing down. At the same time, frenzied homebuyers have been bidding the price of houses higher, while realtors egg them on, warning valuations will only rise. Fools with offers. Lambs to the slaughter.


Are we so different from the Americans? -- Source


#1 Two-thirds on 07.16.09 at 6:08 pm

Looks like another “big” ($75 billion) bankruptcy is happening Friday:

“Saying no to CIT a big gamble for Team Obama

WASHINGTON (Reuters) – In leaving CIT Group Inc to sink or swim on its own, U.S. officials are gambling that financial markets and the economy are now strong enough to withstand the possibility a big lender collapses.

On Wednesday, ten months to the day after the bankruptcy of Lehman Brothers exacerbated the global credit crisis, CIT said bailout talks with the government had ended, a development which may push the 101 year old company closer to failure.”


A decent read. CIT going bust would likely affect the “300,000 retailers” to which it provides financing. If 70% of the US economy relies on consumer spending, and hundreds of thousands of retailers lose access to funds at once, and most of Canada’s economy depends on the USA’s… Well, you do the math.

In choosing to bail out Wall St. banks but not the small business’ banker, the US administration is showing where its priorities (loyalties?) lie. I am starting to buy into the sinister tin-foil hat theories espoused by some in this blog!

Could this be the event that (ultimately) tips the markets into the second leg of the W (recession)?

We shall find out in a few months time.

#2 SF Banker on 07.16.09 at 6:17 pm

As a Canadian in San Francisco (lived in Vancouver for several years) I have to say it is shocking how Canada keeps on rolling with the RE speculation. I think the bubble up there is actually worse than it was in the US in some respects.

There are houses down here in foreclosure in the most expensive neighborhoods in San Francisco selling for 60% off. This is in a zip code with the third highest per capita income in the nation. Most sellers have hardly budged on their prices and the homes just sit there month after month. The sad thing is that even if they hacked 25% off the price the house still wouldn’t sell.

Canada is going to absolutely implode once everyone possible has bought one or more houses. Either rates will tick up, lenders will pull back, buyers will wake up, and then it is a multi-year horror show that affects almost everyone.

I know a lot of high earners down here an the housing bubble has hit at least half of them pretty hard. I know several people who are now unemployed with $1 million in mortgage debt. These are people who have been pulling in $4-500K per year for years and thought nothing of plunking down $1.5 million for an average house in a good neighborhood. I know of several people who got foreclosed on (2 houses in phoenix, $150k small inheritance lost, credit shot), another who owns 2 houses that are under water in LA (both rentals) and is debating a “walk away”.

What people don’t get is that rates boost demand on the way up and cause prices to rise, but the REAL risk is the AMOUNT borrowed. 20% loss on a $500K houses is $100k which is a LOT of money after tax. People in Canada don’t really have the incomes to support these prices, or absorb these losses. I know, I used to work there. In the US there are still some pretty high incomes, although a lot of people have lost their jobs. We made $425K household income last year and will do $300k this year which is actually a really bad year for us including a job loss. Back in Canada I made $55k out of college in the early 2000s. I probably couldn’t even get a mortgage now since I changed jobs this year and a lot of comp is one time bonuses. Once people start defaulting (amazing that ~38% of all option arms are in default – given to good credit borrowers, similar to Canadian High Ratio/variable) as either rates go up, people lose jobs/income, or houses just start dropping, the banks will stop lending completely. You can blame the CMHC for all of this as the lenders don’t take any risk at all. Do you realize the CMHC insures around 900 billion in mortgages ? this is nearly twice the current Canadian national debt… It is going to be an utter catastrophe in Canada – I guarantee it. And no offense, but living in Canada kind of sucks compared to any decent city/neighborhood in the US. There is just no comparison between NY/Chicago/San Fran/LA/Boston/Miami and Toronto/Montreal/Calgary/Edmonton/Guelph etc. Even Vancouver pretty much sucks with the constant rain and the job market is horrible everywhere except perhaps Toronto. Canada should be half the price of top US cities and right now it is more like double.

#3 Jeremy on 07.16.09 at 6:21 pm

It isn’t even a stretch. It isn’t even hard to see the outcome you’re describing. In order to find some logical argument to support rising home values into the future you need to enact all manner of bizarre reasoning, from endless flows of rish Asian immigrants to quaint old stories about how “they ain’t makin’ any more”. You have to work hard to make yourself believe that Real Estate is a good investment right now. To see that it isn’t, all you have to do is stop and think about it for 30 seconds. It’s the most bizarre thing I’ve ever seen and I’m sincerely glad I’m too broke to even consider buying a home. (and by too broke I mean I earn only $75000 a year, in Vancouver you might as well be working at McDonalds for all that will buy you) My $865 a month rented townhouse looks better and better everyday. The co-op just replaced the siding, the windows, the carpets and the kitchen counters. Not because there was anything wrong with any of it, it was just time to refresh. Didn’t cost me a penny, no levy, no loans, nothing. Oh wait, they did raise my rent from $815, I think I can handle that.

#4 wik on 07.16.09 at 6:25 pm

Calgary house prices are heading back towards the winter lows despite strong sales and low inventory. When sales drop off or inventory goes up we should see price drops of 20% to 30% from the peak reached during the summer of 2007. This could happen with out mortgage rates going up. http://calgaryrealestatereview.com/

Could Garth be the eternal optimist?

#5 pbrasseur on 07.16.09 at 6:44 pm

A Zeppelin!!!! Where do you get thoses ideas? :-)

You make a bunch of very good points.

But there is at least one thing that’s different between now and the previous deficit run: the BRIC or if you prefer emerging markets:

1) They help contains inflation (therefore interest rates) with cheap manufatured goods and inflow of massive savings from surplus nations (actually partly responsible for the current crisis)

2) They provive numerous growth opportunities for thousands of western firms. With their huge population the growth potential over the next few decades is phenomenal.

Not saying BRIC and other emerging markets are going to make everything ok however they should be part of any equation in the game of economic predictions…

#6 Trapped in Vancouver on 07.16.09 at 7:01 pm

Sadly there is a lineup of your dumb and full of ### buyer out there more than happy to take a 35yr Moron loan. How these are even allowed is beyond me. I can get over how obsessed everyone in Vancouver is with real estate you cannot go anywhere without a discussion in real estate coming up.

I have noticed there is a wack of people that our house poor. I have noticed even more lately concerts not selling out. Restaurants half full. More and more disposal income disappering cause you ” MUST ” own a house or else you’ll be priced out.

When will this madness end.

Just another guy renting hoping for at least another %20 reduction so i can take a leap without worrying about losing all my equity in the first year.

Garth keep up the good work. Lets hope someone with brains gets in office. I don’t even care what party just someone with common sense to see lending money at 0% isnt a answer to our woes.

#7 Samantha on 07.16.09 at 7:10 pm

Excellent post, Garth, and thank you for continuing to dedicate your wisdom and time to help others.

People need to see past those blue skies in that photo.

Back in the last recession during the ‘90’s, I had people tell me “everyone uses credit cards, how can you live without them?” They considered credit an extension of their income.

For those who perceive credit (any credit) as affordable, easy to acquire and necessary to live, it will be a difficult transition.

This mess isn’t going to be cleaned up quickly. Surviving the domino effect unfolding around us will be tantamount to playing a very long game of chess. Poor strategy won’t win the game. Patience, planning, adaptability, common sense, self-reliance, and determination are a good start. And, remember the opponent has two faces – predictable and unpredictable.

#8 Henry on 07.16.09 at 7:29 pm

Is it possible that Canada’s AAA credit rating and various provinces credit rating might be downgraded after years of large deficits?

#9 crashing yuppie on 07.16.09 at 7:30 pm

So True Garth,

I am out here in St Johns.

Here prices have shot up to 250K for something decent in a sfh, and average wage of 40-45K.

Absolutely unsustainable. People buyung now with anything less than the traditional 25% down are ruining their futures forever.

#10 Republic_of_Western_Canada on 07.16.09 at 7:36 pm

The key concept here is the ‘have-nots’ wanting to have the same life and things as the ‘haves’, but is getting progressively more difficult to do. And it’s about the ‘haves’ using that wish and other progressively more immoral means to fleece the ‘have-nots’.

From the semi-vetted front-running in the NYSE by Goldman-Sachs under the guise of [parasitic] market-making, to TARP, to suburban idiots everywhere trying to squeeze the next guy for more cash on an overpriced asset and the sheer ‘me-first-screw-you’ attitudes of the domestic/married-with-kids set, the whole program is a massive medieval polarization between the ‘haves’, the strugglers, and the ‘have-nots’.

Believe me, there’s lots of people in the U.S. who will never have to worry about working a day in their lives anymore to feed themselves, despite the rash of tent cities springing up everywhere or all of the Madoff suckers. You’ll never meet them of course, and despite economic collapse heavy-duty fencing for gated communities is a growth industry right now.

“Do you like Mozart? I LOVE Mozart! – But he’s a bit light for this kind of work.”

#11 lgre on 07.16.09 at 7:41 pm

Carney and Merrill Lynch see a 10% GDP growth for several quarters next year..what you talking about, Garth..lol…


#12 Solitario on 07.16.09 at 7:51 pm

I agree interest rates will go higher -they’re at historic lows.

I agree taxes will increase- we have corrupted populists incompetent idiots in charge at all level of government.

I don’t understand for the life of me why would energy costs increase. We have a glut of oil to last a few years and a glut of cheap natural gas to last decades.
Even if that would be the case, it would be great for Canada- a big net energy exporter.

I also don’t see the boomers’ retirement as a big issue- the next generation is much larger.

#13 Nostradamus jr. on 07.16.09 at 7:57 pm

Garth, you haven’t discussed “U.S. Protectionism” in your blog as you have on the Howe Street web radio.

…Protectionism will definately affect real estate values in Canada.

So how come you haven’t yet discussed it here?

#14 Alberta Ed on 07.16.09 at 8:14 pm

I remember well trying to sell our BC house in the early 1980s with interest rates hovering at 18% and the economy in the tank. The seeds for a repeat have been sown. In Canmore, several pricey condo developments are practically ghost towns full of vacant unit, others are stalled, and at least one is bankrupt; the owners/flippers are SOL. Alberta’s economy has been funded by natural gas, and there has been a fundamental shift in that business which does not bode well, while the government has yet to come to grips with the new reality. It ain’t pretty.

#15 Mark Ranger on 07.16.09 at 8:30 pm

Garth I’ll go on record as one REALTOR® who agrees with most everything you are warning of.

I would further encourage your followers to read;

First: The Accent of Money – Nial Fergusson
Second: The Great Depression Ahead – Harry S. Dent

While many others might say you preach unrealistic gloom and doom, I disagree. Quite frankly I believe your projections that real estate prices across Canada will likely fall 15% (in some markets by as much as 30%) and that interest rates are likely to go to 8.0% or higher are most realistic. This is not necessarily a bad thing.

The real estate market follows economic cycles it does not determine nor is it a leading indicator of them.

Is one a fool to buy today? If you are a first time buyer with less than 10% down, need to amortize over more than 25 years and at that a rate increase to 8.0% sometime in the future would be unmanageable then yes you would be a fool to buy today. On the other hand there are many for which a purchase today is not so foolish, many who have the resources and are averse to being a renter for one reason or another of which there are far too many to list here. There is no getting around it real estate is a very emotional purchase. One of the greatest values a professional REALTOR® will provide to a buyer or seller is to moderate the tendency to place too much emotional emphasis on a decision to buy or sell. Beyond that a professional REALTOR® will educate you on the intricacies of the market, geographic and economic, helping you do your due diligence so that you make an informed decision.

You have over the past weeks slammed the real estate profession for their unwarranted SPIN of late. I can’t disagree that one should take those press releases with a grain of salt. For the most part though they are reporting the realities of this market, here and now. Their press releases might be void of wise planning advice but there are individual members of that organization, or others, who are better positioned to do so who you can and should seek out. Keep in mind as well that the real estate industry represents both sellers and buyers. They don’t, nor do you, have a crystal ball. Certainly this mini-bubble caught us by surprise, but a bubble it is and why is it so? Simply our federal governments monetary game plan in order to combat the recession of late has been to lull consumers into spending rather than saving through a false sense of euphoria that the “recession is over” seasoned with a further enticement of exceedingly low interest rates. What happened as a result? Those first time buyers jumped in, created a significant demand that the laws of supply and demand drove prices up more than 10% in six short months and now the media is reporting that all is good because prices are going up which must surely be an indication of nothing less.

REALTORS® don’t set prices. The market sets prices based on such things as condition, location, supply and demand, motivation of the buyer and/or seller and, last but certainly not least, interest rates. Any fool should understand this and they who do not are simply greater fools who seek to blame their plight on someone other than themselves for not having sought the knowledge which is readily available to negate their remaining a fool.

No single body can influence real estate prices like government can through monetary policy. Lower interest rates and immediately real estate prices pick up the slack maintaining the same affordability quotient they had before the rate reduction. Increase rates and sellers are quite a bit slower to reduce their prices remembering only too clearly what their neighbour sold for last month or what they paid for the property shortly before loosing their job the next month. They don’t care about the impact on the monthly payment of the buyer.

So what do we have today? We have historically low interest rates which afford sellers the opportunity to capitalize on the affordability quotient to their advantage while it lasts. Can you really blame them? Of course you can’t. In fact you have advised many to sell now, to sell high while they can, while there are still “Greater Fools” out there to sell to.

You have warned time and time again what we can expect in the future; higher interest rates, higher taxes, and a whole lot more hurt for the next 5 or so years. I whole heartedly agree with you but these things too will eventually pass. “Life is what happens when we are planning for the future”. “Retirement planning would be a whole lot easier if you knew when you were going to die”. “Nothing is certain but death and taxes”. “Timing is everything”. “They don’t ring a bell at the top or the bottom of the market”.

#16 Jonathan on 07.16.09 at 8:49 pm

I’ve never been so certain of a housing correction as I am now. Let the mini bubble ride as high as possible. The higher it goes, the lower prices will dive when prices correct.


#17 Grumpydawgs on 07.16.09 at 8:58 pm

Garth, I agree with your comments today. Can you please comment on how the government is managing to keep intrest rates down so low for so long? Surely they can’t afford to keep this up.

I understand the headline explanations but what is really going on and what will be the catalyst for intrest rates to have to go up regardless of government manipulation?

This situation has persisted for a long time now and its created a mess, but Greenspan is just now admitting his role, but that was years ago yet the situation still persists.

#18 Nostradamus Le Mad Vlad on 07.16.09 at 8:58 pm

Pretty much everyone recalls the not-so-soft landing of the Hindenberg — http://zebu.uoregon.edu/2001/ph162/images/flamedown.jpg — which is indicative of where we’re all going, so I won’t harp on that.

Instead, as one learns by connecting all the dots thruout the world, with different events happening in different places and some of them simultaneously, it is easier to realize one should prepare themselves accordingly.

A lot of chatter on the ‘net has been about Israel preparing to strike Iran’s nuclear weapons facilities (which don’t exist, but Dimona in Israel does). Israel’s navy is already moving toward the Suez Canal in preparation for this.

A while back, I posted that Israel’s ultimate goal was to attack Iran, goad Russia into protecting Iran (which it will), call on the US for help (which iit will), let the US and Russia begin WW3 while Israel sits back and watches them destroy themselves, thus taking all the spoils of the Middle East for themselves.

No one has even mentioned what China may / may not do (it will back Russia 100%). Russia’s and China’s economies and exports have plunged — the US is not buying, so China can’t sell. So, from wrh.com:

“If the attack comes look for it during the new moon, September 18th or October 18th.” (We will be in Toronto for a family reunion around then!).

As well, a link — http://www.presstv.ir/detail.aspx?id=100785&sectionid=3510203 — also shows the CIA and Mossad are learning new tricks from each other.


Israeli ships in the Suez: http://www.presstv.ir/detail.aspx?id=100847&sectionid=351020202

If WW3 takes shape, the world’s economies became irrelevant (is this what the elite wants?), just as dubya called the UN irrelevant not so long ago. This may also be connected with the above:



(From previous post, but all are intertwined) #22 POL-CAN on 07.16.09 at 10:06 am —

“. . . This sucker is going to crash soon. Insiderers selling vs buying at 10:1 tells the story. Pump, get out, let the market dump. Rinse and repeat.”

#53 Nostradamus jr. on 07.16.09 at 2:51 pm —

“What would be the scenario for U.S. and Canada Real Estate should major wars break out in certain regions…such as Europe, Korea’s, the Middle East or….the Mexico/U.S. Border?”

#60 jess on 07.16.09 at 4:44 pm —

“July 16 (Bloomberg) — Crude oil will collapse to $20 a barrel this year as the recession takes a deeper toll on fuel demand, . . .”

See how one thing leads to another, but these events are like thousands of peas in one pod which is out of room, so the sheeple / lemmings have to be led to the edge of a cliff, then told to jump.
Looks like someone’s wetting themselves, but what is the reason? Does the name Ron Paul ring a bell?!


Not great for Harley Hogs. — http://www.jsonline.com/business/50935662.html

#19 Canadian Army Guy on 07.16.09 at 9:10 pm

Garth wrote:

“Among the fools are those who can only afford to buy if they take a mortgage for 90%, 95% or 100% of the value of the house. They’re fools if they spread that mortgage over more than 25 years. And they’re fools if that single piece of real estate represents more than half their net worth.”

Well.. I’ve wrote this before and some of your regulars told me that I was a “braggard”… because I previously posted to save the second income if you are a couple.

Then you go on:

“It is impossible for the economy to rebound, family incomes to advance or lost jobs to be created soon enough or strongly enough for the current housing market to survive. Today’s action comes from demand, mostly by newbie buyers, built up in the last quarter of 2008 and the first few months of this year. A collapse in the cost of money has allowed affordability to be maintained without prices falling.”

Garth, you are merely stating a fact. No prophecies here…

Then, you add this gem:

“Orr’s argument is solid.”

Why? He had to change his long term assessments 3 TIMES in the past year… Come on!

Overall assessment of YOUR assessment: pass.

Time to write a new book for you.

#20 Jon B on 07.16.09 at 9:16 pm

Waiting for this bubble to burst is like waiting for St. Nick on Christmas Day. Can’t contain my excitement.

#21 Nostradamus jr. on 07.16.09 at 9:41 pm

…Ladies and gentlemen…the stock markets can so easily crash again…….think…..contemplate…..now do you understand why so many Canadians have been resolute investing in a home?

…For these same reasons the U.S. and Canada will initiate “Protectionism” and eventually close their borders and economies.

#22 North Van Dude on 07.16.09 at 9:43 pm

@SF Banker-
I agree this is going to blow up and CMHC (taxpayer) will be on the hook for much of that $450B. The question I have is how do we in effect “short sell” CMHC?

What position can be taken to produce a profit when RE blows up? The banks are not on the hook for it; they actually may end up with a lot of RE on their hands for pennies when they foreclose on the “owner”.

#23 dd on 07.16.09 at 9:53 pm

.#21 Nostradamus jr.

…Ladies and gentlemen…the stock markets can so easily crash again…….think…..contemplate…..now do you understand why so many Canadians have been resolute investing in a home?

So what is your definition of an asset that loses 50% of it value from the highs of 2005? Would that not be defined as a crash? Why would our house situation be any different than what is happening in the states? Maybe the only difference is timing?

#24 dd on 07.16.09 at 9:59 pm

#2 SF Banker

…As a Canadian in San Francisco (lived in Vancouver for several years) I have to say it is shocking how Canada keeps on rolling with the RE speculation….There are houses down here in foreclosure in the most expensive neighborhoods in San Francisco selling for 60% off….

But SF Banker, some on the West Coast say it will never happen up here. Maybe in SF or LA but never never hear?

Thanks for the reality pie.

#25 dd on 07.16.09 at 10:06 pm


..Carney and Merrill Lynch see a 10% GDP growth for several quarters next year..

Sure I could see 10% growth. You take the -9% we have now and add on 10% and then you have net GDP of 1%.

Ya … whatever.

#26 Future Expatriate on 07.16.09 at 10:45 pm

Omigod… Garth said the “i” word. Does that mean deflation is over? Or hyper-stagflation (inflation in things you need to live like food, sundries, and energy, deflation in things you don’t like housing, autos, electronics, and salaries) is beginning?

Ouch. And Roubini leading the last sucker charge into the paper markets again for the final kill shot.

And the Goldman-Sachs front running scandal poised to break wide open. With GS boys all over the White House, who woulda figured?

Paradigm shift: dead ahead.

#27 nonplused on 07.16.09 at 11:06 pm

To me, it seems simple. When houses everywhere else in North America can be bought for much less, Calgary and Toronto cannot continue to rise indefinately. We don’t have a land shortage and build them they will.

Vancouver supposedly has a land shortage but that can be dealt with via an exodus.

Of course there will always be some inflation but not 20pc per year!

#28 roops75 on 07.16.09 at 11:32 pm

Today’s buyer are more than happy to take a 35yr Amortization loan and are going for very high value mortgages .These DEBT’S WILL BECOME HIGHLY UNMANAGEABLE once the mortgage rates go up.Irony of the situation is today’s exclusively low interest rates have made things affordable and tomorrow’s little high interest rates would make the current DEBT LOAD unaffordable and unmanageable(esp. all the ones with 35 year ams).
Also the government of Canada is acting very very irresponsible with the taxpayers money by using CHMC to insure these high risk mortgages and thus in case of defaults shifting the onus to Canadian taxpayers.Instead of implementing a sound monetary policy the government is pumping the Real estate market with various incentives for first time home buyers.This irresponsible behavior has really crossed the dangerous mark..and is somewhat unethical.

#29 rory on 07.16.09 at 11:36 pm

#10 Republic_of_Western_Canada you said:

“Believe me, there’s lots of people in the U.S. who will never have to worry about working a day in their lives anymore to feed themselves, despite the rash of tent cities springing up everywhere or all of the Madoff suckers. You’ll never meet them of course, and despite economic collapse heavy-duty fencing for gated communities is a growth industry right now”

Not true …you can meet one of whose hired guns …he is post #2 – SF Banker …not an owner or someone who has ‘skin’ in the game just a middleman adding zero value but lining his pockets nicely in a fixed game – of course, just IMO.

#15 Mark Ranger …you realtor types are persistent …everything you talked about costs like $499, on a good day…access to the MLS the other $10-$30K you collect…please spare me/us on how valuable you think realtors are …if all had equal access to the MLS system your value is $499 bucks.

Middlemen everywhere taking our money …jeesh …doesn’t anyone on this blog earn money the old fashioned way …as in actually producing something or helping to produce something or fix stuff…I know Meggie’s husband does …anyone else.

#30 Shifty on 07.16.09 at 11:39 pm

Victoria houses selling over the asking price. Five recent sales in Saanich East sold over asking attracting bidding wars. This is not going to end well.

#31 Happy Renter in North Van on 07.16.09 at 11:50 pm

CIT should have entered into derivate counterparty agreements with Goldman Sachs (Golden Sacks)… Then, just like AIG, they would have been bailed out for sure… As the GS boys cash out their filthy lucre this quarter, they should realize how close they came to being road kill just 9 short months ago… Hey, what’s the point of money and power if you can’t corrupt the political system?

#32 rory on 07.17.09 at 12:04 am

#19 Canadian Army Guy you said:

“Well.. I’ve wrote this before and some of your regulars told me that I was a “braggard”… because I previously posted to save the second income if you are a couple”

No, that is not why I called you a braggard [sic] …you were called that because you said you were retired in your 40’s after only being 20 or 25 years in the military (still assuming that is all it takes to get full pension) …I called you this because you did nothing to enhance your early retirement except hang on to a job for 20 or so years and then proudly announce, to the public on this blog as in look at me …early 40’s retiree here …implying the rest of us as losers …give me a break…like I said it was luck as in you were lucky to be born when you were.

As to your comment “to save the second income if you are a couple” …veryy impractical today in most major markets until house prices collapse unless you happen to be SF Banker guy.

A better way is stick to renting until you have the 20% down, able to do a 25 year am & the mortgage no bigger than about 3.5 of gross…both salaries can be counted …if we stick to just one salary that means home prices down (guessing here) over 50% and up to 70% in the BC markets to make it on one salary…if that happens no one is safe or anything will be safe …hello to reduced pensions.

It could happen as in a return to one family income due to NO NEW JOBS in the future and people continuing to lose jobs now…might even be gov’t sanctioned …how’s that for a theory…IMO.

#33 kc on 07.17.09 at 12:04 am

#5 pbrasseur

Your assumptions are kinda true, however, everyone who makes the claim about China’s “growth” forgets one major factor… they are also involved in a huge credit bubble there too. remember they are a communist country and the government only will say and release for general print the good news. I bet there is HUGE suppression of what is real and what is actually fabricated from China. Who can honestly figure the Chinese banks are so solvent when every country in teh world seem to have been swallowed by debt and deficits?

#34 Ted on 07.17.09 at 1:02 am

The sky is falling. blah blah. In the end its just like hitting the reset button. Some will win some will loose. life will go on. I have never seen such a bunch of old Nellie’s as on this blog. Non of these predictions are new. We have seen it all before in the 80’s 90’s and soon again. what’s the big deal. The World is troubled and real estate market futures are the least of it.

#35 SF Banker on 07.17.09 at 1:04 am

@ North Van Dude

I have been trying to figure out exactly how to go short on what I see as a potential “trade of the decade” – similar to Paulson (hedge fund guy, not fed guy) seeing the signs at Lehman early and betting against them. He made ~$1 billion on the trade I believe. Unfortunately, there are limited options. I would say short some of the weaker regional banks that are heavy into real estate, however there isn’t a ton of volume/float. You could short BMO, RY, etc. either through borrow/sell or options but there isn’t a ton of option volume available on even the largest Canadian banks and given all the mortgages are backed by the gov it limits their downside (which is why they are lending at these crazy short term rates). Note a similar short term lending market (commercial paper) is essentially evaporating right now in the US. This is truly scary given that this paper is a cheap way for high quality companies to borrow cash to fund operations. Worse than all the housing blowups is the continued pressure on even blue chip corporations with real businesses that create value (and incomes for workers). http://globaleconomicanalysis.blogspot.com/2009/07/commercial-paper-falls-at-record-pace.html

When even quality companies face this sort of pressure it is a really bad sign for the economy and the labor market. The biggest short of the decade is actually MIC, or the mortgage insurance arm of Genworth (which has crashed out in the US). They compete with CMHC (with around 30% of the total market), and like many of the mortgage insurers in the US who became insolvent very quickly when defaults ticked up, will likely collapse in on itself. They IPO’d right after their balance sheets look fat and happy given they collect100% of the premium up front. They are like the fat rich man with bulging $$$ pockets (premiums) right before they get the pants sued off them (defaults). These insurance dumba$$e$ depend on the mortgage market to survive so will insure basically anything. Defaults in Canada have been subdued until the last few months, but if you dig through their financials (I did) you see that the default rates are spiking alarmingly (even though they footnote a “reclassification” of how they measure defauts. Look in the IPO filing – all the info is right there for anyone to read. If you are interested I will tell you where to look – just ask. Unfortunately you cannot short for the first 60 days post IPO (regulation). I will be all over this one in two months as the underwriters are propping it up real nicely right now (as all good underwriters should). As an aside, I would say 75% of the time IPO’s happen right when a company looks its very best – usually right before the fall….

This is all sophisticated stuff and not recommended for casual investors. My advice for your average canadian who wants to maintain their assets. If you have a house, sell it. If you have debt, pay it off. If you have cash in CAD dollars, put it in a short term bond fund denominated in USD and leave it there for 12 months. Take my advice, you will thank me later.

#36 SF Banker on 07.17.09 at 1:23 am

Let me walk you through how this plays out in episodes as well given I am watching it unfold by the day in the US, and, as someone who works in the financial markets I stare at this crap all day long.

First, housing will hit a maximum possible level. In my neighborhood, the most expensive in San Francisco, this was list prices for 15-1600 sqft 2 bed + office 1 or 2 bath condos in 3 unit buildings of around $1.4 million. This was summer 2007. These places were renting for around $4,000/ month but have dropped to more like $3,000-3,400. This is the highest rent district in the city. They are now selling (when they sell) for around $1.1 million. Mostly they just sit. This is the point where every possible person who is interested and remotely qualified to purchase a home is now an “owner” and fully indebted. This is peak housing price and peak ownership. This is the beginning of the end.

Something will shake confidence, maybe rates will tick up, maybe people will find business slowing down and some layoffs will happen here or there. It really doesn’t matter. I can barely remember the turning point – it is a blank.

Now the slide starts – it started on the low end, people in the ghetto making $12/hour in $500k houses with no money down. They stop paying and get foreclosed/evicted. They had nothing to lose, and lose nothing but a bit of pride. Prices start dropping in the bottom third since everyone is defaulting. The lower income groups, given the lack of savings, family with extra dollars, etc. are very sensitive to changes in employment. They fall hard and fast, and house prices follow. I got an email from an agent – he has an 8 unit building in the ghetto he is trying to unload for $180k. 7 units rented at $700/month, 1 empty, 4 of the 7 not paying (need eviction). It will take a while to sell, even at those prices….

The mid and upper tier watch the crash in the ghetto and think to themselves… “wow, the ghetto is really bad, I am so glad I don’t live there” but they get a bit nervous as they repeat to themselves “this would never happen in xyz (insert upper & upper-midclass neighborhood)”

Next, people stop buying houses. It is just too expensive and the market is shaken. Open houses are a ghost town, still prices are at the very peak but nothing sells. Real estate agents and mortgage brokers and construction workers, easily 10-15% of the total economy, start to feel the pinch. Houses aren’t going up anymore, no one is buying, and everyone spent all their HELOC cash on a new kitchen already. They stop going to restaurants, and some, the ones with the biggest payments and lowest savings, slowly stop paying their mortgages. A few defaults start ticking up in the midrange communities, but still prices stay “high”. Some layoffs happen – a shot over the bow at typical employers – tech companies, banks, insurance companies, home depot, etc. etc.. Everyone is nervous, they know housing is a “bubble”, they stop going out to eat in restaurants. Restaurants are getting killed, home renovation companies are getting killed and consumers really pull back. Now electronics retailers and software companies and laptop manufacturers are all getting killed. More layoffs. Defaults tick up, credit card balances balloon and people stop paying, and now housing is really not looking too good. Prices start dropping, foreclosures zoom upwards, and consumers pull back even more. A couple of banks fail – bailouts. Still, everything is collapsing in on itself. Unemployment zooms upwards. A vicious spiral on the way down until we arrive to where we are today. Where 25% of households are effectively out of money. Poor and “rich” alike. I have seen many people go from net-worths of 500k+ to zero in like 12 months. The speed at which people have zoomed to the poor house is SHOCKING. And that is what a bubble crash looks like to me.

Happy to answer any more questions – it is difficult to put it all in words in one short post. It has been an amazing thing to watch unfold, despite the morbidity of the situation. And stuff seems to be just getting worse and worse too…

#37 Kate on 07.17.09 at 1:29 am

We are watching the entry level houses in Coquitlam, BC. Not only have the prices fallen 40-50K but every ad I get from MLS is sold 10-15K below the asking price.

Garth, when do you think the big inflation will start?

#38 Ghost of Tom Joad on 07.17.09 at 1:45 am

#18 Nostradamus Le Mad Vlad — thanks for all the great material you post! Please keep it up.

#39 rory on 07.17.09 at 1:55 am

Really good commentary over at TAE … help explains why I get so mad at some of the posters …and like the post implies – where is the outrage…we should be mad as hell and looking for scalps…I am as much a sheeple as anyone but at least I am mad and trying to show it …call it step 1 in the process.


Did especially enjoy this comment: “Goldman Sachs has received a lot more public money than it has given back, so much is clear, but that won’t prevent it from paying out grossly $500,000 per employee (an amount that may vary depending on how many toilet attendants you’d add in)” …does this sound like our SF Banker Canada sucks guy…can’t be a real banker …gotta be a trader trying to be respectable.

#40 Dale on 07.17.09 at 3:00 am

I want to thank all you first time home buyers in Edmonton who gave your landlord your notice and said goodbye to paying his mortgage. I sold last year and had a hard time getting a decent price on a rental. This year there is a lot more to rent with incentives. I have already asked my landlord for a discount if I do not get one I will be going back to kijiji and shopping for a better and less expensive place. Rental freedom with money in the bank hah hah!

#41 David Bakody on 07.17.09 at 6:24 am

Was speaking with a salesman yesterday who was thinking about moving up homes ( has a good old but good home in an established neighbourhood) told him what most know and then he paused an agreed. He went on to share this ….. people are buying cars on L of C ( due to easy low rates) and some are even buying cars on Credit Cards at 29% interest! So add this to available ready use future cash to feed any business ladies and gentlemen and you can see where Canada’s economy will be when interest rates go up. Also pet food took a sharp increase …..hello other business people your future is in this mix as well and where are your voices?

#42 Toronto C9 Renter on 07.17.09 at 7:31 am

to #27 Nonplused who said…. ” Toronto cannot continue to rise indefinately. We don’t have a land shortage ”

Actually Nonplused, in T.O. we do now have a land shortage. We are constrained by Lake Ontario to the south, and mountains of garbage to the East, West and North!

#43 Toronto C9 Renter on 07.17.09 at 7:40 am

To #36 SF Banker.

Interesting. Don’t know much about San Fran other than it had been insanely pricey for a long time, thereby squeezing out many essential service people like teachers, nurses etc etc which can only end badly

I’m very familiar with Manhattan beach in LA where we have part ownership in a place and 09 is the worst year of the crash so far. For a while it looked like the high-end was holding up in SOCAL but now its abundantly clear that all good things must end.


#44 BM on 07.17.09 at 7:51 am

Great post Garth! . Of all your previous blogs this one drives the nail to the post about why real estate will have a troubled future.
I tried my best to explain to a firsttime buyer a DINK, not to buy but still continue to rent. He has a whole load of friends under debt who have advised him that now is the right time and donot waste your money on rent. The dilema is a lot of immigrants who come from the middle East after working there for 6- 8 years in the tax free land have lots of cash sitting in the bank. With no proper advise and accumen to invest in stocks the only best thing that they think they should do is buy a house and put in the $ 100 grand or more that they have bought into this Country into their first home.

I am staying with my VRM as you advised in your reply to me in previous blogs. Thankyou

#45 ca on 07.17.09 at 8:06 am

Garth —

For a further explanation of why housing is headed down, readers may want to check out today’s post at


#46 Samantha on 07.17.09 at 8:13 am

#35 and #36 SF Banker

Thanks for the great posts SF Banker.

What’s your take on this article regarding the issue of 2nd mortgage bailouts?


#47 kabloona on 07.17.09 at 8:24 am

Just wanted to say “thanks” to SF Banker for posts #2, #35 and #36. Keep ’em coming…..

#48 lgre on 07.17.09 at 8:26 am

“Middlemen everywhere taking our money …jeesh …doesn’t anyone on this blog earn money the old fashioned way …as in actually producing something or helping to produce something or fix stuff…I know Meggie’s husband does …anyone else”

yeah, my FT job is a service HVAC/R mechanic, I know what you mean though..there are a lot of people and professions created to live off the backs of others..realtors, mortgage brokers, job agency recruiters and the list goes on.

#49 Just a Carpenter on 07.17.09 at 8:37 am

29 rory
Middlemen everywhere taking our money …jeesh …doesn’t anyone on this blog earn money the old fashioned way …as in actually producing something or helping to produce something or fix stuff…I know Meggie’s husband does …anyone else.

Some of us still do! While some of the bloggers invest in the markets, I continue to invest in the tools of my trade and in hiring and training apprentices. There always seems to be someone needing something built or repaired. The well equipped efficient, and skilled crew can bring a nice return on investment!

A common thread I have been seeing is the emotional aspect of RE. How true, 90% of my day is spent dealing with the emotions of the clients. Some days I am more a shrink than a carpenter.

#50 Samantha on 07.17.09 at 8:50 am

#39 rory

“where is the outrage..”

My brother and I have had some discussions about that one. Why are people not reacting to the avalanche of poor decision making that is assailing us from all directions? There is nowhere near the amount of outrage expressed that one would expect.

Desensitization is a very good word for this situation. There is so much information volleyed at people, that after awhile I think they just shut down. They don’t use this information to prepare for the current situation and/or coming changes. Deer caught in the headlights mentality – they can save themselves, but stay fixed and do nothing.

The future frightens them, never mind how they are feeling about today. So, I think they just go into overload and “turtle” – pull their heads in and tune it all out.

Desensitization also is a factor in issues such as people becoming homeless and living in tent cities. The average person can’t identify with that possibility because they have never been homeless. And, because they are not sensitive to the issues behind homelessness, they fail to see their own vulnerability.

I think for the financial sector bail outs, most people are angry but feel it is too big (or the corps are too big) to do anything about. So, they leave it to the government. When the government doesn’t handle the situation as well as it could, then it’s back to bitching and apathy. In this case, the masses don’t realize or acknowledge the “power of the people” to change things for the better by using the very government and system that is in place.

When it comes to home buyers, especially the FTB’s, it sure looks like the bulk of them are giving in to peer and media (commercial) pressure. They are inexperienced and just haven’t lived long enough to see how real estate cycles and why this current mess is so out of the ordinary. We know it can’t end well, if for any reason because it is just not sustainable. Unfortunately, I think many of them will find this out the hard way.

When things get bad enough, then people organize and take action, which is sad because if people didn’t wait so long to use the channels available to them to push for changes a whole lot of suffering could be avoided.

It is frustrating because I remember being told many, many times over the years that I couldn’t change the world, only my small part of it. That doesn’t change my belief that people working together can change the world.

Anyway, thanks for raising this point and the link, Rory, because I have been wondering about it for awhile.

#51 Houman on 07.17.09 at 9:15 am

Let me get this right, we have negative inflation????
How is that possible with the current interest rate?
I am begining to wonder if we will ever see the RE market turn around.
What about all the Immigrants? Seems like they all come here with money and they seem to be the driving force in RE..
Any thoughts guys?

#52 David Bakody on 07.17.09 at 9:29 am

Sooooh, Ladies and Gentlemen does a negative inflation rate mean all wages tied to the inflation rate mean a roll back in wages? Does it mean the government can reduce CCP, OAS and indexed pensions for seniors? note sure but who is questioning Mr. Flaherty? the media? We all know all Goods and Services prices are rising and will continue so why does the media continue to sell RE as a path to prosperity? Gas prices are falling why? Shops and stores continue to close why? Banks continue to loan money under less than appropriate security backing and raising L of C’s on past financial data, why? Because the good times are back? or they are being forced by a government that has no idea of what to do and “NO” past experience running a country with only a single minded agenda for personal gain! What does all this have to do with housing ” Everything” because the total $$$$’s in investment runs into multi billions and it is fueled by false expectations and the issue of invisible blinders worn by at least 34% of the Canadian voters and 100% of Canadian News Agency who appear to have lost all their professional backbone in investigative journalism!

#53 Nostradamus jr. on 07.17.09 at 9:46 am

Pundits are wrong….U.S. Treasuries will not be sold….Gold will be sold….Get out of Gold NOW!!!

>>July 17 (Bloomberg) — China’s finance ministry failed to meet its debt-sale target for a third time in two weeks at a 182- day bill sale, according to traders at Galaxy Securities Co. and China Citic Bank in Beijing. The ministry had tried to sell 20 billion yuan of bills and only sold 18.51 billion yuan, traders said. The average yield for the bills sold was 1.6011 percent, they said.

Here’s the problem – The Chinese, if unable to fund their operating expenses with debt sales, will be forced to sell something – like US Treasuries – to do so.

These failed auctions have also come with fairly significant “tails”, or increased interest coupon demands from the buyers. This in turn is a clear statement by the buyers that interest rates are too low.

Feel that squeeze yet, Mr. Chinaman? This is the push-back from the “stimulus” and “easy money” policy, and it is now showing up in China.

One way or another this winds up hurting, and if the Chinese start to sidle toward the door with their Treasuries, it could hurt over here in the United States hard and fast.<<.

…Again, if China decides to sell their U.S. Treasuries…The U.S. will begin to close their doors and "PROTECTIONISM" will stare China right in their faces.

Nostradamus jr. predicts…..Hong Kong and Vancouver will become the only predominant two trading harbours between Asia and North America.

#54 My_View on 07.17.09 at 9:46 am

Dr. Housing Bubble

The site is full of spam ads, love the free Canadian Government Cheques.

#55 Larry on 07.17.09 at 9:53 am

Here in Calgary, a friend of mine called a re agent last week about a house they seen for sale in Coventry hills (NW Calgary with no c-train service) listed for 399K.
The agent happily informed them there were already 10 bidders and the house sold for 450k in 2 days. I can’t wait for this bubble to burst, it’s criminal what has happended in the RE estate market these past few years. I have no respect for this profession. Garth oil dropped again today i think we’ll be ok with cheap gas until next spring.

#56 Mark Ranger on 07.17.09 at 10:04 am

#29 rory

Here’s a story for you…

A homeowner’s plumbing is not working. He telephones a plumber who tells him the minimum charge is $75.00 for a service call. The homeowner agrees. The plumber shows up about an hour later. After looking at the plumbing issue he pulls a rubber mallet from his tool chest and strikes the plumbing firmly then rises, turns the tap and hot water begins to run freely. The plumber then proceeds to fill out the invoice and presents it to the homeowner.

“$150.00!” exclaims the homeowner, “I thought your minimum charge was $75.00?!?”

“It is.” Replies the plumber..

“Then why is the invoice for $150.00? All you did was hit the pipe with a rubber mallet.” inquires the homeowner.

“That is correct” the plumber calmly replies “$75.00 for the call out and $75.00 for knowing exactly where to hit the pipe with the mallet”

Anyone can learn to do anything but the process of learning is typically a costly venture fraught with trial and error. Education is a bargain at any price and there is no education like experience.

#57 Bill on 07.17.09 at 10:04 am

What will be the future impact on the TSX?

#58 Peter @ Canadian Banks on 07.17.09 at 10:17 am

#2 SF Banker

SF Banker, this was a great post! Anybody thinking of buying a house in Canada now, should read this.

#59 RE agent on 07.17.09 at 10:20 am

I still see too many vultures here that are just waiting to pounce on some poor fool that forecloses in the near future so they can buy their dream home for -20 to -50%.

But there is a bigger problem: Canada has moved away from sustainable economic developement (ie. low unemployment, thriving private sector industries that build real tangible products). Instead Canada is driven by economic policies that serve the interests of big banks, real estate corporations and agents –

Like check this guy out:

First of all, if you are a licensed professional engineer not working as an engineer, you are not ALLOWED to call yourself a professional engineer anymore and you have to return your license. Second of all this guy is taking advantage of his “professional” designation that abides by a code of ethics to assure you that he is an ethical agent. Yet look at what he states here: http://www.mississauga4sale.com/rates.jpg

– despite the economic disaster and unprecedented government debt, he claims interests rates will remain low and prices will continue to rise for a “long” time. Essentially scaring the public to buy now or you will be screwed for life for affordability – in the mean time filling his pockets with sweet commission.
In summary: real estate agents have replaced strip club D.J.s as the sleaziest “professsion” out there. In time, when interest rates and cost of living rises, their profession will come under intense public scrutiny.

#60 Bottoms_Up on 07.17.09 at 10:52 am

Now, for some more spin:


“U.S. home building at seven-month high–Builders began [sic] to regain confidence as they emerge from housing meltdown”
Now for the numbers, yoy:

June 2009 – 563,000 units
June 2008 – 1,091,000 units
June 2007 – 1,406,000 units
June 2006 – 1,862,000 units
June 2005 – 2,062,000 units
June 2004 – 1,924,000 units

A more appropriate title: ‘New starts down 75% from the peak in 2005’ or ‘New starts down 50% from a year ago’.

Any other suggestions for a more accurate title to this wonderful globe and mail article?

#61 Ben on 07.17.09 at 11:18 am

From the link: “…the drop was mainly due to a 19-per-cent plunge in energy products, especially gasoline, Statistics Canada said. Excluding energy, consumer prices rose 2.1 per cent from a year ago.”

Garth, agree with the thought, but you chose not to mention that the main driver of the deflation in June was the plummeting energy prices.

Core inflation strips out food and energy. Did you not know that? — Garth

#62 Keith in Calgary on 07.17.09 at 11:19 am

Ahhhhhh, the Hindenburg, like the Titanic, an apt symbol of our housing market.

I had to laught today, the talking heads on Canwest Global TV are getting their lips loaded by either REMAX or the government when it comes to how they report certain segments of the news, specifically as it pertains to the economy.

Apparently Alberta has a -1.6% “inflation” rate and Calgary has a -1.5% “inflation” rate.

Hmmmmmm……..last time I checked that was actually called a DEFLATION RATE. Guess that word is not politically correct for the puttet masters that pay their bills, namely REMAX, which is a major sponsor of Global TV news.

#63 Don of the Basement on 07.17.09 at 11:52 am

Regarding the inflation/deflation number:

An interviewee on the radio this morning said that it is oil and oil alone that has drug the inflation number to negative territory. Without it, the inflation rate would be >2%.

Since oil is going to be stratospheric again, does this not point to hyper-inflation occurring sooner rather than later?

#64 SF Banker on 07.17.09 at 11:55 am

@ #43 Toronto C9 Renter

I am quite familiar with Manhattan beach, I was actually there several weeks ago. An ex-coworker of mine sold his house there in 2006 for around $1.2m, double what he paid in 2002. He then proceeded to overpay for another place that is now killing him (7 figure mortgage, no income) in Santa Monica. He’ll probably be filing for BK shortly.

What is amazing is that in this massive bubble, you think someone would have actually made some money. The reality is, I can’t think of ONE person who made a killing in real estate here, even as values doubled and tripled. But, I can think of dozens who are in the process of losing it all. I would say 9 out of ten lucky owners who bought pre 2002, and watched their house double, went out and either bought 1 or two more houses, or sold and moved up to a MASSIVE mortgage. I know another group of people who were enjoying very high incomes for a few years too – say 300k+, and almost all of them went out and bought extremely overpriced (900k+) and expensive houses, some bought two (“recreation” property in Canada is the biggest laugh).

@ #46 Samantha on 07.17.09 at 8:13 am

Mortgage bailouts DO NOT WORK, and NEVER WILL WORK, but of course the government needs to “DO SOMETHING” to make all the constituents feel better. I know people who go on about how their mortgage is “killing them” every month (particularly since that fat interest tax deduction goes away when you have no income). Some of them got all excited about the “government plan to help us”. Doesn’t work. The government calls up Wells Fargo daily and screams at them to do more modifications, but a typical bank has ZERO INCENTIVE to reduce their claim at all. They are already losing a pile on their mortgages, why the heck would the agree to lose even more by reducing the size of their claim, or the amount they receive as a payment every month? It is ludicrous and won’t work. The full recourse nature of Canadian loans and artificially low interest rates on these notes is a recipe for disaster at least as bad, if not, worse than in the US. Borrowing short and lending long has NEVER worked.

Finally, you learn a lot about people when the tide starts going out. For instance, I know a well to do guy with his own small company that always seems to be living well. I was told by a friend yesterday that the guy is FREAKING OUT these days. Turns out, he owns a DOZEN rental properties, including multi-unit places in California and Arizona and is getting absolutely crushed. I had no idea. As the crash continues you will be surprised at who is swimming without a bathing suit.

#65 r1200c on 07.17.09 at 12:05 pm

SF Banker on 07.17.09 at 1:04 am @ North Van Dude

I have been trying to figure out exactly how to go short on what I see as a potential “trade of the decade” .

Have you thought of shorting large low-end property management firms like Boardwalk? If low-income renters loose their jobs and walk away – these companies are bound to take a hit…

#66 Got A Watch on 07.17.09 at 12:11 pm

Step back and look at the global picture: GDP contraction is evident everywhere on a massive scale, despite manipulated Government statistics.

Here’s a Canadian analyst who sums it up: Financial Ninja ‘Global Deflation: Unavoidable’

“FN: Nobody seems to care, but it really is all about deflation. Deflation first, inflation later. That is how this mess will play out. There is no other way, despite Ben “Helicopter” Bernanke’s best efforts to inspire inflation and skip the whole deflation part. The Master Plan really is to inflate, but the math simply doesn’t add up.

What kind of “urgent action” can be taken to “reduce high levels of excess capacity”? No amount of additional debt will put that idle capacity to work. Other than taking dynamite to idle factories, the only other “effective” measure would be to start a war. Wars have the added benefit of putting the unemployed to work even as infrastructure is blown up.”

(links to:)

World Bank warns of deflation spiral: “The World Bank has given warning that global economy will fall into a “deflationary spiral” unless urgent action is taken to reduce high levels of excess capacity in industry.”….. (go to Telegraph link for some more)

My comment: You can’t ignore a global wave, as much as smug pockets might like to think they could. The real recovery will not occur under present financial conditions, everyone knows there are still mountains of bad paper under the rugs. Don’t ask, don’t tell, has become the new accounting standard. The velocity of money is flat at best, credit still contracting. Until that changes, credit will not flow throughout the economy.

To me this suggests little gain in commodities except food and a few others (precious metals perhaps) for years until demand once again revives. Recent reports of Chinese buying seem like stockpiling, as trade volumes are still way down. Without demand, resource producers like Canada or Australia, will not start to recover until the edge of the next up-wave in the global economy starts.

We could see prices rise due to new Taxes and currency debasement (imports more expensive), but that will not be real inflation. Things you have to buy will get more expensive, things you don’t need will fall in price. Another kick when they’re down for consumers.

IMHO this translates to Canadian real estate: as in people who bought real estate since 2000 will be in trouble without substantial equity. I predict the bottom at ’97 price levels in 5 years or so.

Some may disagree with all this. I just try to call it as I see it, not as I wish it to be. Looking at the Kondratieff Wave and history, where there is nothing new in all this. A Gilded Age has ended.

#67 PTDBD on 07.17.09 at 12:31 pm

negative inflation?
There’s a choice in what you believe in. Govt. stats or your bills.

What’s your budget say? – has it learned to spin the numbers yet?

CIT – a great example how companies in the know can milk the markets. At first “government bailout was questionable then it was imminent then it was unobtainable. Now “talks are in process”. Stock doubles. Easy money – if you know which way the daily news flip is going to go. Some resource shares seem to do the same thing with foreign govts. flipping rights like pancakes.

#68 The Coming Depression on 07.17.09 at 12:44 pm

Don’t quite agree with the San Francisco poster who states it rains in Vancouver. Been here 4 years never seen such small precipitation then the last 2 years. Rained twice since May 26th.

#69 Basil Fawlty on 07.17.09 at 12:45 pm

From CNC News:
“Vice President Joe Biden told people attending an AARP town hall meeting that unless the Democrat-supported health care plan becomes law the nation will go bankrupt and that the only way to avoid that fate is for the government to spend more money.”
Nuff said.

#70 OttawaMike on 07.17.09 at 12:46 pm

Core inflation strips out food and energy. Did you not know that? — Garth
Interestingly they leave housing out of the calculating formula as well.

Bad news ahead on the commercial real estate front for Generous Electric:
Funny how CNBC is not all over this story seeing how it is their parent company. Probably because the loses are only in the 10’s of billions and not trillions. A billion $ is just not what it used to be.

#71 Grantmi on 07.17.09 at 12:58 pm

Wait for the USD$ to start tanking now!!


It’s coming! As the indicators show.. the 20 week is about to cross over the 50 week… looking to head into the 70 cent range again!

God help us all!!

Move along! Nothing to see here!

#72 wayupnorth on 07.17.09 at 1:08 pm

#39 RORY

Check out Nathens economic edge and listen to the 4 talk radio pieces that explain how the U.S. and the rest of the world are basically controlled by Goldmans and their buddies.

After that check out the Market ticker and Mishes site for conformation and additional info to what the SF banker has posted today.

Basically in the short term everything has to collapse and massive amounts of debts need to be written off to start over. In the medium term there will be a struggle over whether we take our governments back from the corperations or head into some form of NWO.

In the long term the world will have to go back to 20% down and 3.5x ONE income in calculating mortgages with NO government backing and the inability of lenders to trade or sell mortgages which means if they write um they deal with any consequences themselves.

For those that say that means house prices will drop by half or more well….DUH! Ask yourself this question. Outside of the last 30 years or so, when has any civilization ever produced an economy that allowed two jobs per family unit outside of farming or garbage picking? If we are lucky and trash the free trade without a world wide minimum wage b.s. we might get back to the level of one job for each family unit in 5 years or so. Anybody who thinks we are going back to what we had up till last year is in for a rude surprise as Garth has been trying to warn for a long time.

#73 Insurance Blogger on 07.17.09 at 1:21 pm

I heard the deflation numbers on CBC Radio this morning.

Cost of food is up, but clothing and shelter costs are down. They blamed lower energy prices for the majority of the decrease.

Since when is cheaper energy a bad thing for consumers?

#74 Munch on 07.17.09 at 1:24 pm

Garth, you are correct!

Yes, most definitely!

Stupid must hurt!


#75 POL-CAN on 07.17.09 at 2:04 pm

OT but funny… And true in so many ways….

again via TAE

Sister Entities to Share Employees, Money

In what some on Wall Street are calling the biggest blockbuster deal in the history of the financial sector, Goldman Sachs confirmed today that it was in talks to acquire the U.S. Department of the Treasury. According to Goldman spokesperson Jonathan Hestron, the merger between Goldman and the Treasury Department is “a good fit” because “they’re in the business of printing money and so are we.”

The Goldman spokesman said that the merger would create efficiencies for both entities: “We already have so many employees and so much money flowing back and forth, this would just streamline things.” Mr. Hestron said the only challenge facing Goldman in completing the merger “is trying to figure out which parts of the Treasury Dept. we don’t already own.”

Goldman recently celebrated record earnings by roasting a suckling pig over a bonfire of hundred-dollar bills. Elsewhere, conspiracy theorists celebrated the 40th anniversary of NASA faking the moon landing. And in South Carolina, Gov. Mark Sanford gave his wife a new diamond ring, while his wife gave him an electronic ankle bracelet.

#76 POL-CAN on 07.17.09 at 2:09 pm

#59 Bottoms_Up

Karl did a piece on these numbers this morning. Worth reading….

What Are They Smoking?


#77 Samantha on 07.17.09 at 2:22 pm

#54 My_View –

Ads aside, Dr. Housing Bubble blog contains very well written and educational information regarding real estate, economics and current events.

#78 Bill-Muskoka (NAM) on 07.17.09 at 2:25 pm

Deflation? Well, not according to the insurance companies who claim they need to INCREASE RATES to help them with inflation! What happened to those BILLIONS in EXCESS PROFITS of just a few years ago?

Insurers drive up rates for motorists

Oh, gee, they had to actually PAY CLAIMS! Well, isn’t that a part of their industry? Where is the GOVERNMENT? Oh, yeah, getting a happy time from the insurance carriers.

#79 JeffinPickering on 07.17.09 at 3:03 pm

If gas has fallen so far, why have so many consumer goods that have a gas and transportation component not gone down? In fact, many of them have actually gone up (esp. food)!

As far as I can tell the only things that are cheaper today than a year ago are gas and cars (and no one is buying the cars anyways), along with wages (unemployment, salary cuts, etc.). I haven’t seen great deals on any manufactured goods yet.

I can’t believe the goof economist had the stones to call it an “almost ideal development” since “shoppers on recession budgets can enjoy cheaper gas and clothing”.

Yeah, that’s what people on recession budgets should be doing – spending money on gas and likely unnecessary, non-essential new clothing.

#80 Sailorman on 07.17.09 at 3:49 pm

To Blog Dogs,

I am flabbergasted about the optimism shown in the Canadian RE market by the MSM, realtors, and politicians. However, I am not surprised as being a pessimist does not earn one a living most of the time. People want to hear good news – not bad news. They need to hear the bad news as well, but not too much. I put it down to one of those want and need things that eventually get us into trouble. The above people (MSM, realtors, andpoliticians) are selling “wants” and not “needs”.

I look at the gloomy picture out there an don’t understand why others are not seeing the economic storm clouds on the horizon. A good sailor always looks to the horizon for storms. This blog provides help in identifying those storms and and what is needed to avoid them .. somewhat like a weatherman. If the weatherman says stormy weather ahead, would you go sailing? The smart ones (=80%) will either sink, treadwater for awhile or maybe swim. Thanks to the weatherman and his dogs. Ignore them at your risk!


#81 Rock Bottom on 07.17.09 at 3:52 pm

#55 Larry

Your hate is misplaced. Was it the RE agent or the buyers who bid the price up? Are people responsible for themselves or not?

#82 Dan in Victoria on 07.17.09 at 3:55 pm

Hey Garth,those e mails calling you irrevelant,send them a complementary coffee mug with your picture on it with “Leitmotif”printed on it. Also an order form for Xurbia,”This months specials “only” for first time buyers” no use passing up a business opportunity.

#83 Mike B on 07.17.09 at 4:21 pm

Too funny… just heard some mega bone head paid 700k for a POS asking 549k… Ever wonder why people think real estate is retarded…. Cause it is!!!! And he plans on tearing it down to build a dream home… What a moron of epic proportions…

#84 Herb on 07.17.09 at 4:23 pm

SF Banker,

get yourself back to Canada! We need your knowledge and mindset up here.

#85 Vancouver_bear on 07.17.09 at 4:24 pm

#53 Nostradamus jr. on 07.17.09 at 9:46 am
Nostradamus jr. predicts…..Hong Kong and Vancouver will become the only predominant two trading harbours between Asia and North America.

Hong Kong may be, but why not Seattle, RE is cheaper, port fees are lower, or your asian puppits are so stupid and they will pay more for the same? I don’t think so.



Fees in the YVR and Port of Vancouver are exorbitant….That’s why I stopped flying from YVR 8!!! years ago. When I fly from Sea-Tac it feels so good to save CAD 1000 on just 3 tickets. It’s only a 3 hours drive and the savings are so sweet. Bu-buy YVR, bu-buy Port of Vancouver…..I am anxiously waiting for my next vacation…..and pocketing the savings is so sweet.

#86 $fromA$ia on 07.17.09 at 4:32 pm

Uh, pardon me but GOLD is still above $900 with .7%deflation.

You idiots that think deflation is a factor are blind.

Harper said lately he is prepared to keep pumping the stimulus, what ever it takes. Deflation is what the Government will stamp out. Harper want’s inflation, why?

I’ve mentioned it before, it’s easier to pay back mortgages and government debt with debased dollars.

Yes, the RE market will take a hit but your not going to see values cut in half nor will you see the GOLD spot price reduced to $500.

Garth, who’s the greater fool? I agree RE is overpriced and with upcomming mass inflation Gold is undervalued.

There is absolutely no evidence whatsoever there will be ‘mass’ inflation. Ain’t gonna happen, nugget boy. — Garth

#87 David Bakody on 07.17.09 at 4:42 pm

#78 JeffinPickering on 07.17.09 at 3:03 pm

Profit my dear lad and many believe it is their right to make up for lost profit ….. prices are always directly to what the market will bear ….. fresh pricked fruit/veggies are always high until bellies are full then they drop. Many years ago a Chicago gangster once said you can have all the folding cash just give me the nickle and dime business …… just think a nickle or dime increase on every single grocery store item which are sold 24/7 with ships and air planes flying them in 24/7 to feed 400 million people. Would you lower your price if you were collecting more due to lower gas prices knowing the tide will change? Make hay while the sun shines routine bye>

#88 David on 07.17.09 at 5:07 pm

SF Banker present some interesting points about the current state of affairs in post bubble California.
One of the big problems it appears, is that the banks are reluctant to readjust their balance sheets and income statements for the myriad of non performing home loans. Bad assets are kept of the books as performing loans long after months and months of payments have been missed or court proceedings have been initiated. There are probably thousands of families living virtually rent free as an overwhelmed judicial system tries to cope with an avalanche of yet more foreclosures.
SF any insights on this issue in California?

#89 Basil Fawlty on 07.17.09 at 5:44 pm

Good article by Eric Sprott, which discusses the financing options of the $2T US budget deficit. Forget the “green shoots”, it looks more like green poop!

#90 Basil Fawlty on 07.17.09 at 5:49 pm

“There is absolutely no evidence whatsoever there will be ‘mass’ inflation. Ain’t gonna happen, nugget boy. — Garth”
Not so fast Blog Commander. Allow me to present Exhibit A.

I have read it, and agree with much of the logic. But there is no evidence from Sprott the US will resort to voluntary hyperinflation. It would be the flaming end of capitalism. Like I said, ain’t gonna happen. — Garth

#91 dd on 07.17.09 at 6:14 pm

#85 $fromA$ia

“You idiots that think deflation is a factor are blind”

If the real economy produces sluggish growth for years to come how can mass inflation happen? There will be no wage, materials, or capacity shortages for a while.

#92 gold bugger on 07.17.09 at 6:14 pm

@rory: Realtors – like everyone else – are worth what someone is willing to pay them. You can go ahead and try to hire a realtor for $499. Or not. Up to you.


#93 dd on 07.17.09 at 6:19 pm

#77 Bill-Muskoka (NAM)

…Deflation? Well, not according to the insurance companies…

Insurance companies are investment holding vehicles. They take premiums and invest in the market until there are claims. They are raising rates because there returns on the market suck and need to increase there returns. This will explan the majority of the increase in rates.

#94 $fromA$ia on 07.17.09 at 6:20 pm

There is absolutely no evidence whatsoever there will be ‘mass’ inflation. Ain’t gonna happen, nugget boy. — Garth

OOO!! a reply. Don’t tell me I had to troll for this one.

You’ve said it before, “theres no such thing as being half pregnant.”

Printing money to replace money that has been destroyed is one thing but the money is out there and printing more is going to debase/devalue the money.

The Governmant will print money and add to the system to resist deflation. You’ll see Garth. They can put it on the table but they will have a really hard time taking it off the table.

I’ll stick to my Nuggets and if I am wrong then I will be getting good interest from the bank anyway, right?

Better safe than sorry.

#95 dd on 07.17.09 at 6:23 pm

#84 Vancouver_bear

Are you saying that Hong Kong and Seattle will become the only predominant two trading harbours between Asia and North America?

Wow … RE in Seattle is cheaper than Vancouver.

#96 Samantha on 07.17.09 at 6:28 pm

#63 SF Banker –

I agree bailouts will not work. The article referenced bailouts for second mortgages and it was appalling to me that this is even being considered.

When does this nonsense stop? A financial institution wants a bailout and then several months later claims a profit and plans to pay out beaucoup bucks bonuses and salaries.

Personal and corporate greed has resulted in millions of people in over their heads. I do think there was a segment of people who purchased homes who truly didn’t understand their mortgages. These would be people who perhaps lived in a bad area of a city and wanted a chance to live in a better neighborhood for their children’s sake. The greed factor of flippers and people who suddenly decided that 1200 sq ft is “tiny” and had to have 5-6000 sq ft is a different matter. Either way, for those who have children, it is the children I feel sorry for – they didn’t ask to dragged through the stress of eviction and/or homelessness.

Normally if a person or business made bad choices and/or encountered bad circumstances, bankruptcy would result – no bailout. Consequences and hopefully a good lesson or two learned.

I have looked long and hard at the numbers on Dr. House Bubbles blog for some time. There is no way they can bailout the coming wave of Alt A and 0 interest mortgage resets. I just can’t see how this is going to work. Workouts can’t work if a person doesn’t have an income. Ironic that some of the people involved in writing these toxic products in the first place have been hired to do the workouts.

You are right, the government does have the pressure on to do “something”. Sad, because none of this mess should have happened in the first place. I still go back to the 1999 repeal of the Glass Steagall Act because that seems to be the catalyst for the mess that followed.

If another 4 or 5 million lose their homes, they won’t have enough tents or in one video I saw, garden sheds, to house people who are homeless. Even if they allowed people to remain in their “foreclosed” homes, how can they pay for maintenance and utilities without incomes?

I think the whole mess should have been allowed to just collapse – banks, mortgages – everything. It would have been tough and horrible, but at least the severity of this mess would have been revealed. Then some practical solutions might have been implemented, for housing and employment. Bailouts have only prolonged this mess and covered the approach of the next wave of toxic mortgage products.

#97 ror101 on 07.17.09 at 6:36 pm

#56 Mark Ranger you said:

“Anyone can learn to do anything but the process of learning is typically a costly venture fraught with trial and error.”

Yeah …as in other peoples money …

So what you are saying is that an experienced Realtor will actually cost me less (more $$ in my pocket) even after spending $30K to retain them and that all other less experienced RE agents will cost me the $30K + …prove that one…your just smoke and mirrors on that one.

But yet you don’t really buy or sell homes – people do or set the prices – markets do …so really all you do is introduce buyers and sellers …so that makes you what, the yellow page listing for the plumber (rofl …that one is good …that is almost a GT equivalent)

Which brings me back to the only real value you guys produce, the MLS …the MLS is similar to Goldman Sachs auto trading program, anti competitive and meant to separate us from our money…2 weeks of RE school and the license fee and you to can be a RE pro…give me a break…still sticking with $499 + another $2500 for the MLS listing …flat rate ….still wanna be a Realtor Ranger Mark for that kind of money.

People are Realtors because the upside is huge, work is easy (some work long hours but it is easy), downside very limited (no real liability), get to write off business expenses, hang out with bankers and lawyers, and it costs virtually nothing to get into it, no degree required, (think the std has been raised that you need a grade 12 education though – so I am wrong not everyone can be a Realtor – ooops)…what a deal – for the Realtor …still $499.

#98 J on 07.17.09 at 6:39 pm

I had some guy in IT who dropped 1 mil on a home. He says that a few months ago was a good time to buy but now sales are great. He says everything else sucks but real estate. He’s in his late 20s, earns maybe 60K. Has a partner who obviously earns more, but still.

I nodded my head with confidence. I said “ya GDP is way down, unemployment way up, but home sales and prices have gone up”. Another coworker in the conversation who sold in December because she was expecting a real estate slide said “I just don’t get it, it doesn’t make any sense”. She says she is looking in the high 400’s for another home but can’t find anything in that range. It’s sold out.

So I sat her down with me afterwards. I took her over the facts. I explained what rising interest rates will do to housing, and that what will happen in Canada will now be as bad as America. I asked her this question:

“How much do you consider real estate to be an emotional feeling?”

She said 80 percent. She says for her husband its 90 percent.

I said that is what is driving everyone. As soon as real estate starts to fall, noone will want it. It will be seen as over half of Americans now see it: costly and a wealth sucker.

I like this boom. The more people who buy in today at todays interest rates, the worse the fall will be. I just hate the fact that my taxes will end up bailing them out. Garth.. could we organize people in this group to protect our taxes? Why should we, in this group, pay for the speculation of others. Look at the states, all those bailouts did nothing – just protected the losses from the rich. Sometimes I hate our socialist country because I already know how this will end.

#99 Crash on 07.17.09 at 6:41 pm

#80 Rock Bottom:
Sure the buyers bid up the price, not the R/E agent. But the R/E agents facilitate the process by their sealed bid competition whereby no one knows what the other party is bidding. This rapidy drives up prices because prices are set at the time of the sale (the margin) causing rapid price increases. All R/E agents want multiple sealed bids on a listing as this is how the best price is obtained.

#100 ror101 on 07.17.09 at 6:55 pm

” #91 gold bugger on 07.17.09 at 6:14 pm

@rory: Realtors – like everyone else – are worth what someone is willing to pay them. You can go ahead and try to hire a realtor for $499. Or not. Up to you.

Well duh…not the point I am trying to make.

Realtors have a competitive advantage in that they control the MLS system …without that control their value is $499 bucks (figure picked out of nowhere).

They know they have us by the balls and that is why they charge what they do…if Realtors were Microsoft they would be labeled anti competitive, if realtors were gas companies they would be labeled as colluding on prices …just saying.

#101 rory on 07.17.09 at 6:59 pm

Whoops …a few posts went out as ror101 …was still me, rory – ranting, whining, saying, telling how i see it…and you know what, I am not out in left field..IMO.

#102 Evangeline on 07.17.09 at 7:10 pm

SF Banker

Why do you think a bond fund is a good place to park cash and why 12 months?

#103 Evangeline on 07.17.09 at 7:28 pm

((One way or another this winds up hurting, and if the Chinese start to sidle toward the door with their Treasuries, it could hurt over here in the United States hard and fast.))

I don’t think that will happen. An economist friend explained to me that China needs US debt as much as the US needs China to buy it. China has to purchase oil and other resources on the world market with USD and holding US debt guarantees China a steady income of USD. So it is unlikely China will unload US treasuries.

#104 Republic_of_Western_Canada on 07.17.09 at 7:53 pm

#93 $fromA$ia on 07.17.09 at 6:20 pm –

Printing money to replace money that has been destroyed is one thing but the money is out there and printing more is going to debase/devalue the money.

Most people are carelessly or conveniently missing the fact that money (debt) is not ‘destroyed’ by debtors wandering off into the desert or emigrating to New Zealand.

It is either paid down or, in extraordinary cases, declared null and void (nonexistent) by bankruptcy court. Just as only chartered banks or rogue bankster institutions are recognized as having the authority to create money through fractional reserve lending, so too are only recognized courts of law authorized to discharge debt (money) created by banks.

Then only when that debt is discharged, are banks or packaged tranche holders down the line to legitimately take the hit through accounting writeoffs. For the purposes of the money supply upon which the definition of deflation or inflation is based, any debt still exists where not decreed null and void by courts in the jurisdiction where that debt originated.

One of the biggest reasons banks or securities holders can’t arbitrarily write off bad loans is that they have to be tied to bankruptcies, in order to maintain validity of fiat money or bond value. Accounting convenience and market forces are not a substitute for legal financial due process, as lame and slow and self-serving as it is.

Nor, as we’ve seen, can AIG’s issuance of CDS’s be an absolute substitute for the legal base of fiat and bond issuing either. Statistics can let you duck the problem and spread it around a bit, but cannot provide a fundamental code and agreement for sustaining a monetary system.

That’s one of the reasons for massive infusions of cash into financial institutions – to minimize usurping the legal system as much as possible. It’s also the reason that fundamental deflation cannot occur, because the court system is not equipped to deal with bankruptcies at the granularity and volume that is required.

The value of fiat money will be destroyed just as quickly by loss of faith in the value of fiat through the inability of a moribund legal system to issue and appropriately track bankruptcy annulments through the lending system, as by forex traders trying to make balance of payment adjustments. Or by central bankers issuing a few trillion worth of new dough by toggling some computer bits and selling them to the Chinese on a handshake.

But this together with continuing industrial collapse will all fundamentally result in slow, poisonous stagflation and simultaneous global currency collapses compared to gold, oil, food, and water. That is, unless all that debt is actually paid down after mass religious conversion of everyone on the planet to fransiscan monks.

#105 Mark on 07.17.09 at 8:11 pm

Hi all/garth.

I’ve just read about us “officially” entering deflation. And i have a query. The bank of canada needs to keep inflation at around 2% correct?

Normally if inflation is high, they bring inflation back down my raising interest rates? Correct again?

Now I cant remember a time where we had deflation. But surely the only thing the BoC can do to keep it inline is to lower interest rates? But how are they going to do that when they’re already at rock bottom?

What happens now? Does this mean interest rates stay low? Have i mis-understood and this actually means interest rates will start going up soon?

Sorry if i seem obsessed with interest rates – but as far as i can see, that’s the only thing propping up the housing market at the moment?

#106 john m. on 07.17.09 at 8:15 pm

WOW times were looking bad at this time last year…but more lambs have been led to slaughter,more lying propaganda,more false hopes,personal debt reaching new levels in a falling economy………oh well its summer time the pogie cheques are coming in for approx 10% of our population……all things heading for a very bad ending..winters coming …heat bills,no more UI,no jobs.a government going deeply in debt–trying to solve a problem they created by using the same policies that created it………hmmmmmm no wonder there was “mutiny on the bounty” :-)…….oh well what do i know?…………..and in Ontario our wonderful “dalton” is offering incentives to buy electric cars ($10,000) per car i hear……..hmmmmmmmmm sure hope it helps those 1.7 million dollar per man jobs they tried to save in the last bailout……….hmmmmmmm but id do wonder how many of the people truly suffering are in the market for an electric car??????? ……… lots of greater fools making decisions with our future………the biggest challenge is trying to pick the GREATEST..fool.

#107 $fromA$ia on 07.17.09 at 8:23 pm

I am not talking hyper inflation. Hyper inflation is +50% in one month.

We are in a stagflationary environment. Some things such as food and RE are inflated.

Canadian Tire products are Deflation.

The way the Gov rates Core inflation exclude fuel, and food and probably RE too.

Yes manufacturers will cut production, customers will chase fewer goods, and Manufacturers MSRP may be raised. Natural inflation in a deflationary environment that does not require green shoots.

It’s very easy to create inflation and not deflation.

#108 Nostradamus Le Mad Vlad on 07.17.09 at 8:31 pm

#38 Ghost of Tom Joad on 07.17.09 at 1:45 am — “Please keep it up.”

Thanks! There are plenty of fiscally astute bloggers here who post really good articles / opinions, so I’ll continue reading them and posting a mix ‘n’ match of stuff!

Speaking of which, a different cartoon on why God prefers Atheists! — http://www.mrwiggleslovesyou.com/rehab477.html

#70 Grantmi on 07.17.09 at 12:58 pm — “God help us all!!” — We’re all going down in a blaze of glory, so “Hay baybz take a walk on da wild side!”

#71 wayupnorth at 1:08 pm — “. . . in the short term everything has to collapse and massive amounts of debts need to be written off . . .”

I take a similar view, in that just about everything (with a cost) will flatline at some point which is the worldwide crash.

Here is another way of creating artificial types of fiscal messes, all of which are piled on top of each other until the rug is pulled out from underneath. Mark Carney worked with Hank Paulson at GS, so would they be in cahoots here as well?


Article predominantly for boomers (such as moi). Winter is nigh. — http://www.financialsense.com/editorials/quinn/2009/0713.html
Comments for next two from wrh.com are better. — http://www.ynetnews.com/Ext/Comp/ArticleLayout/CdaArticlePrintPreview/1,2506,L-3748014,00.html

“Just in time for the nuclear attack on Iran!”


“One of the callers into yesterday’s radio show was talking about this incredible “coincidence” in which Baxter had the cure for the outbreak before the outbreak happened.”
The Chinese have seen something, and this is why they’re moving there.


#109 TJ on 07.17.09 at 8:34 pm

Vancouver will make SfCa look like a small time party.
This City’s average family doesn’t have the after tax income to afford a $150,000 condo, much less an entry level $395,000 joint in the Fraser Valley.

While the last of the suckers jump in – a ton of mortgage holders are already are buying FOOD and paying their mortgages out of Equity.
Great if you have at 75-80% and you can get 2.25 – but that isn’t going to last, bunky.
FICO better be 750+ or forget it.

The HELOCS that have been feeding this fiscal insanity are slowly starting to tighten – and when the average guy wakes up and realizes he has to sell – it will be a crowded dance floor.
I just cannot for the life of me how people can’t see, or don’t want to face the obvious.

Take a cruise down I-95 in Florida, or I’ll take you for a drive out to the endless tracts of unsold homes all over the Inland Empire, in Southern California. Nice 120 degree day on the cul-de-sac, where 5 out of 9 homes are either vacant for for sale, or abandoned.

There is a 5 YEARS of supply and nobody can afford a pencil – much less a house, in the desert, at the end of a 2 hour commute from L.A.

The Subprime Crisis was just the opening act – NOW, we have ALT-A loans crashing and huge numbers of ‘resets’, that are finishing off another wave of ill informed, or greedy borrowers.

I was just in Los Angeles and Tom Bradley Airport was a tomb, compared to the bustling, crazed LAX of 5 years ago.

A lot of people lose on Real Estate!

A vast number of people ‘trade up’ and then want to sell out and ‘retire’ to that nice modest $1 mil. condo in Naramata.

Not gonna happen, Pilgrim. Illiquid is, as illiquid does.

Soon – it will be harder to sell your house than to get someone to admit they loved Mike Tyson.

Vancouver’s credit rating is tanking – so to borrow money – Vancouver will get killed on the open market. Since we are no longer AAA, all of Vancouver’s paper is no longer investment grade. Services get cut and ‘value’ is wrung out of living in this so called ‘Best Place On Earth”…(*oh, please – Downtown Vancouver is strung together by a traffic grid designed by Ozzy Osbourne. The xenophobia of a vast number of Vancouverites is kind of silly).

Wait til after the Olympics. People will be sitting and staring at the Speed Skating Oval, or the ridiculous Canada line – and will go “what were we thinking…?”

The crux is – too many, DON’T.
Think, that is.

#110 J on 07.17.09 at 9:06 pm

One really has to appreciate the forces of protectionism during the Great Depression.

Due to excess industrial capacity, prices dropped worldwide.

Cheap products were exported into other nations who already had excess inventories.

Companies were already breaking. They couldn’t drop prices further, but they had to in order to compete.

Charging tariffs helped reduce the pressure. Other countries responded in both defense and in need, raising their own tariffs.

It sounds incredibly basic but I don’t think I truly appreciated the pressures that companies faced. It wasn’t just some bad political policy – protectionism came from desperation.

#111 ted on 07.17.09 at 9:09 pm

#67 you are trying to convince people it doesn’t rain in vancouver? Are you nuts or unobservant.

#112 timbo on 07.17.09 at 9:27 pm

#109 j

your right about how protectionism does come up

Everyone hates my view on it but can you ever balance a budget with a trade deficit and a manufacturing base that is consistently moved offshore? Canada might just step into the black hole with one toe exposed but the US problem is deep .Without manufacturing they will have chronic unemployment which will force the issue and will start a trade war.

#113 Pat G on 07.17.09 at 9:43 pm

#52 – David Bakody

Hi David

Actually, I think there are some who do put out good investigative reporting — at least more than there were before the last election!

Have you been reading James Travers the last couple of months? He has been hitting the nail pretty straight and has shown strong backbone, honest observations and cites CPC flim-flammery as well as the weak areas of all parties. There are others who have been able to unleash some pent-up frustration with our present government and have been willing to unveil some truths.
I only hope people are reading but apparently newspapers etc. aren’t doing too well lately. More than a pity — it’s to the great detriment of democracy. Then, again, I’m not sorry that western media concentration seems to be weakening.


#114 J on 07.17.09 at 10:54 pm

#89 Basil Fawlty on 07.17.09 at 5:49 pm

“There is absolutely no evidence whatsoever there will be ‘mass’ inflation. Ain’t gonna happen, nugget boy. — Garth”
Not so fast Blog Commander. Allow me to present Exhibit A.

I have read it, and agree with much of the logic. But there is no evidence from Sprott the US will resort to voluntary hyperinflation. It would be the flaming end of capitalism. Like I said, ain’t gonna happen. — Garth

Wait a minute Garth. I think you threw down this gent without giving him your complete take on this.

The US has two choices. Print money, cut spending or significantly raise interest rates to attract individuals into saving.

Spending domestic savings works against the economy. There is no point in having a stimulus program if requires people to save. It would have been better to have the private individuals spent that money. Furthermore raising interest rates will be devastating for all other obvious reasons.

Cutting government spending in a substantially way (more than a couple hundred billion) would be extremely difficult. Substantial cuts would come in the form of medicare, medicaid and old age security. Obama aint cutting those.

So what’s left? They are going to print money. The federal reserve already announced another $1 trillion in printed money. They are holding their breath that the deflationary forces will stop the inflationary forces of printing money. The deflationary forces are huge. Without leverage, Americans shouldn’t be making anywhere close to what they earn.

So I think that inflation will affect America via exchange rates. I think their will be a UK and US currency crisis in the next 6 months.

The solution to that crisis is to cut spending and significantly raise interest rates.

#115 Rock Bottom on 07.17.09 at 11:07 pm

#99 rory
“They know they have us by the balls and that is why they charge what they do…if Realtors were Microsoft they would be labeled anti competitive, if realtors were gas companies they would be labeled as colluding on prices …just saying.”

Not exactly. Anyone can start up a competing system and there are many out there. Through the free market, 95% of people are still choosing to work with a realtor. Most Utilities are protected, regulated monopolies. You cannot just go out and start one.

Anyone, even you, can start up your own MLS system and charge $99 if you want. Give it a try if it’s so lucrative.

#116 Mark on 07.17.09 at 11:11 pm

@110 (ted) he said “Rained twice since May 26th.”

And he’s right you know.. but one of those times it DID rain for a whole week.

#117 kt on 07.17.09 at 11:53 pm

GT wrote:

“Folks buying houses today are fools. Not all of them. Just most of them.

Among the fools are those who can only afford to buy if they take a mortgage for 90%, 95% or 100% of the value of the house. They’re fools if they spread that mortgage over more than 25 years. And they’re fools if that single piece of real estate represents more than half their net worth.”

I resemble that remark (except for the “fool” part) so I thought I’d speak up.

I finally bought my first home, in my mid-30’s 8 years ago using just 5% down. Rates were only a percentage and a half or so higher than they are now. At that time, the combined principal, interest, taxes, and utilities on that home (obviously north of the GTA) cost less than most rents on a so-so apartment in Toronto at that time. Keeping in mind that I was making $33K a year at the time (yeah, I’m damned good with my money). On account of my mother passing away and subsequently moving my father in with me, I had to sell that first place and find something a little more suitable. Recently I had to take charge of my father’s debts, and as a result I had to refinance and consolidate those debts creating a 30-year mortgage on my current home. I wasn’t too happy about that. ‘Yikes’ was my first thought. And only *half* of my net worth, Garth?? You gotta be kidding. My income is less than one fifth of my current mortgage. My net worth is … well … ha ha … I don’t think I have to say.

But, it’s all good. I have a zero balance on my one and only credit card. My line of credit is untouched. As I always have, I make accelerated weekly mortgage payments, and I also put every spare cent I have (and I do actually have a few) toward the mortgage principal. In just three and a half months, that originally 30 yr am now sits at 25 years, so I’m feeling a bit better about that part.

Yes, I’m what people would call house poor, but with my income level, I’ve lived that way all my life, whether my outlay was for rent or mortgage — and I’d rather be house poor any day than fill a Toronto slumlord’s bank account. If interest rates balloon by the time my locked-in 5 year term is up, yeah, I’ll definitely be sweating a bit. Will it be the end of the world? Nah, I’ll have to sell and downsize. No biggie. Would I prefer to do that rather than live in my old TO apartment, filling my slumlord’s pockets? Damn right I would. I don’t think that makes me a fool. Sometimes hit shappens to people and they have to make less than ideal choices. For those who have the limited financial means that I do, these current times aren’t actually very scary. “When you ain’t got nothing, you got nothing to lose”. That’s not exactly my case, but compared to 8 years ago, I’m doing better now, and it sure isn’t on account of an increase in income.

#118 MarkArgentino on 07.18.09 at 12:36 am

My 2 cents worth.

I don’t agree that the housing market is at it’s zenith. There is much room for the Mississauga Real Estate Market and the GTA real estate market to increase.

First things first.

Negative articles, press, blogs and news sells. Negative press has always sold newspapers and negative press is most sensational. You can read the negative press, but don’t always follow the predictions, often they are wrong.

If you want to get noticed, write something very negative or go against the grain and many will notice. Other negative people will tell their negative stories, because negative people need validation of their negative experiences and observations, so they can say “I told you so” and sit on the sidelines and stay safe. (just read the majority of responses in this blog, it’s the negative herd mentality).

I’m not saying negative people are wrong or that negative analysis is not necessary, but don’t let it affect your psyche or your personality. Always be positive, even in negative situations and you will survive. Even some of the negative people who have written above are sometimes positive because they see opportunity in negative situations (what an upside world we live in)

If you say something positive or predict positive news about the future and it does not happen, people will point at you and put you down for being wrong. If negative press comes to be, the writer can say I told you so. If negative press does not occur, everyone forgets about the negative news and moves on, waiting for the next negative news.

Thus, negative news cannot lose.

I do not agree with Garths comments that he states our Canadian real estate bubble that is about to burst and that “This is because the housing market is at its zenith” We are no closer to the peak of real estate prices in the GTA or Canada than we were each spring and fall peak experienced during each year from 1995 to 2008

Some have commented about the ’emotional’ aspects of the real estate market and the financial markets.

We all make decisions based upon emotion and then attempt to validate our ’emotional’ decision with facts.

I would like to know where you think we currently are on the market emotions cycle as pictured here:


Do you think we are at the point of Hope, Relief or maybe even optimism? If you asked any realtor back in October 2008 up to about January 2009 they would have said that we were in the area of Despondency. Our GTA marketplace was so depressed, sales were down incredibly, agents were getting out the business by the truckload and the future looked grim. Our ‘price’ bottom was January 2009 and since then prices have only increased in the GTA. This gives many of us reason for hope and even optimism, some in the downtown areas of Toronto are feeling euphoric of late with multiple offers and 100%+ selling prices. Could this real estate bubble last much longer? Will this real estate mini bubble last much longer? Your guess is as good as mine.

I’ve been a residential real estate agent in Mississauga since 1987 and I’ve watched people suffer from real estate losses and even lose their homes in the period from March 14, 1989 to about 1994 when the market began to increase again. Our real estate market has enjoyed unprecedented growth from 1995 to September of 2008. 14 years, incredible. During this period I had clients who were buying a new home in say 2001, closing 15 months later and making $100,000 profit and did it again from ’03 to ’05 or ’07 and made a ton of money in real estate. I warned them that our market had already peaked at whatever it was at the time, $250,000 GTA average price, $300,000 average price and then $380,000 average price in ’07, how high could it go and when would it burst. Well, I was wrong that the prices had ‘maxed out’ every time the TREB (Toronto Real Estate Board) price hit a new maximum each spring and fall from 1995 to the spring of 2008.

I carry two articles in my portfolio, one written in 1987 which talks about Toronto average real estate prices predicted to rise to over $200,000 in 1988 and another article that appeared in the Toronto Sun written by the Business Editor, who was none other than Garth Turner, dated January 7, 1988 where I have highlighted one paragraph that sums up why real estate in the GTA was undervalued, Garth states “This is the result of simple market forces – of supply and demand. As long as people are willing to sacrifice other aspects of their lives to liver where the action is, then prices will rise” Reasons for the huge increase in real estate values in the 80’s were that women came into the work force during this decade and investors fueled the market from the mid 80’s until ’89. It was just a simple case of what Garth states, supply and demand. Many blamed the reason for the ‘bust’ back in ’89 due to double digit inflation, double digit unemployment and investor greed. It took about 5 years to recover from that bubble. I feel that supply and demand was the fundamental reason why real estate continued it’s unprecedented growth from 1995 to 2008 The differences in this last cycle of increase was that we had relatively low interest rates (actually an all time low in 03 and 04), low inflation and low unemployment. Again, supply and demand reared it ugly head and prices kept increasing. Only when the “financial crisis” peaked in September of 2008 did our local GTA real estate market pause. And this pause was only for about 4 months. Since January of 2009 prices have increased again.

So what’s my point? Garth preaches doom and gloom for our future real estate market. I certainly hope he is wrong. I’ve read through all the comments on this post and while most bring up very important and factual points, these don’t address the old adage of supply and demand. If there is demand and the demand continues, prices will stay about where they are or increase. If the US and the global economy improve over the next year, then we are in for another round of positive real estate markets in Canada. As long as people around the globe see Canada as ‘the land of the free’ they will continue to migrate here and as long as our Canadian economy does not run out of control, demand will exceed supply.

If you bought a home back in 1989 at the very peak of the TREB market and held that same home for the past 20 years you would still have 5 years left on your mortgage that was originally about $180,000 (assuming you put 10% down payment) and you would still owe about $50,000 on this mortgage assuming 8% average interest rate since 1989. You would now have a property worth about $400,000 and equity of about $350,000 If you are thinking of buying a home today, don’t buy anything that takes up more than 35% of your gross income, make your amortization 20 years if you can handle the payment, or 25 years at the most. If you rented for $1375 (the mortgage payment for the preceding analysis) you would be paying about $2000 per month or more for the same house and you would have ZERO to show for it. Also, don’t go for the 30 or 35 year mortgage. Go as short as you can to pay off that mortgage as quick as you can while the rates are low. I do believe what Garth predicts that rates will rise again to double digits by the year 2020, but if you pay down as much of your mortgage as you can in the next 10 years, you will be ok by the time the interest rates hit double digit again. My point is that if you sit on the sideline and hope for real estate values to drop 10 to 50% over the next year or two, you’ll be out of luck (again) here in Canada. Our economy is not the same as the US anymore, our banking system is not the same and our mentality is not the same, certainly not similar to what SF Banker writes about.

So, what’s my second point? Read the negative press, articles, blogs and such, but DON’T be negative and follow their advice in the long run. Buy real estate for the long run, buy real estate that is within your family budget and pay it off as quick as you can. So when the next ‘drop’ in the market occurs and the nay sayers say they are right, then you can buy another property at a good price! :-))

Just my 2 cents worth.

I wish you all the best!

#119 Vancouver_bear on 07.18.09 at 1:15 am

#94 dd on 07.17.09 at 6:23 pm

I am not saying that Seattle with Hong Kong will be predominant, I am asking our Nosrti why Seatlle could not replace Van? How is Van better? RE even in Honolulu is cheaper than in Van….I would move to Honolulu if an opportunity arise. Just browse through Honolulu craigslist if you don’t beleive me.
As for RE in Seattle it’s cheaper as well…for example:


similar house in Vancouver will cost at least 2 times more and will be unlivable, for 200k in Van you will not even buy a 2 bdrm condo.
With all the criminal activity, shootings and homicides reported every single day….Vancouver will hold a crown of crimial capital of North America pretty soon.

#120 kc on 07.18.09 at 1:42 am

Here is a good read if you ever wonder what is the matter with people who think that new bubbles are the way the world will be forever. This sets in motion the “HIT” Canadian RE is going to be hit with. Just look at the graph (quater way down) that shows what happened to Dubai, now that is one hell of a CLIFF. This article contrasts nicely what greed, fear and OMG I have to buy now before I am priced out forever will do to peoples minds when interest rates are driven down to promote the rides.

The Seven Immutable Laws of Bubbles: Example, Housing Markets in USA, UK & Dubai



#121 Vancouver_bear on 07.18.09 at 1:46 am

I cried when I saw this listing


How dumb sheeple in Lower Mainland can be? I saw the house, I would not allow my dog to live there.
Dumb and dumber were smarter than local sheeple. Bwahaha.

#122 rp on 07.18.09 at 1:46 am

Re: taxes. Here is an RE bear’s 3 step guide to %^$ing the government. Recall that every generation is greeted by some kind of poverty trap, so turnabout is fair game.

1) During the asset bubble, work hard (like everyone else) but save your money (unlike everyone else). Young couples should save the second income if possible. It sure sucks to be frugal!

2) Let the inevitable crash play out in its entirety. This often takes longer than expected (just like the run up), but keep saving. Then buy a cheap house and live debt-free.

3) When the government raises taxes sky high (having first bailed everyone out and only then realizing it is totally broke) quit working so much. Decide there are more important things in life than granite countertops and paying for society’s mess.

You see, if you’re in debt then you’re in a trap. But if you need to buy lots of things, or take big vacations every year, you’re in the same trap. You need a high income to do those things which means you’ll pay the high taxes and enjoy greatly diminished returns in the future.

Instead, try to find joy in a simpler life. Working less relieves stress and gives you more time to do things you might enjoy. You can see family, tend to your garden, or read magazines at the library. You don’t need a high income, and you don’t have to worry much about taxes, the economy, or the collapse of western civilization (hint: grow your own food, trade it for guns).

That’s my plan anyway.

#123 Dave on 07.18.09 at 2:12 am

Printing money to replace money that has been destroyed is one thing but the money is out there and printing more is going to debase/devalue the money.

The Governmant will print money and add to the system to resist deflation. You’ll see Garth. They can put it on the table but they will have a really hard time taking it off the table.

I’ll stick to my Nuggets and if I am wrong then I will be getting good interest from the bank anyway, right?

Better safe than sorry


i’m into gold mining shares as well. You’re totally wrong with your argument though. There’s a few people on here that have good sources as to post bubble contractions and what happens after a post bubble contraction. 1720, 1772, 1825, 1873, and 1929 were all economic bubbles that burst. Massive speculation and borrowing occurred in those economies making everyone rich at the time.

After those bubbles burst, each one of the bubbled economies went into deflation. Governments in each of those bubble contractions printed, printed, and printed as much money as possible to get out of deflation. THEY COULDN’T!!!! there was too much debt (personal, corporate).

Printed money has no effect on an economy if it isn’t used. People can’t borrow today because they’re broke. Banks aren’t lending like they were a few years ago. The money that has been printed may as well been buried – it’s not being used and hasn’t replaced what was lost.

You can also look at Japan in the 1990’s for evidence. They had a huge bubble that burst and they went into deflation for a decade. It was the corporations that were bankrupt in their situation. Money was printed, but it didn’t do anything to get them out of deflation.

So here we have 6 examples of post bubble contractions all similar to the one of 2008. All had massive speculation driving prices, assets, rocketing upwards. All were credit economies. All suffered massive deflation after their respective bubble burst.

So, can you explain to me why oh why this particular case (2008 post bubble contraction) will go against history? This has all happened before and is falling into place exactly how it did in the past.

Deflation is where we’re at. Don’t worry about hyperinflation. Gold-mining stocks are the big winners in deflationary economies by the way. That’s what history says

#124 Paul on 07.18.09 at 5:40 am

#10 “The key concept here is the ‘have-nots’ wanting to have the same life and things as the ‘haves’, but is getting progressively more difficult to do. ”

Nail. Hit. Head.

We have an “entitlement” generation of people in their 20s who have seen people slightly older than them (not to mention their own parents) get the houses, the cars, etc during the long boom years.

They’ve been dreaming of the day they would join in the fun and they’re not letting a recession put them off.

They’ve never lived through a bad recession and they assume if things do go bad their parents or the government will see them OK. I think Garth is right, once this lot of fools have got what they feel they are entitled to, they will settle down to a lifetime of debt worry, and the rest of us can buy at more realistic prices further down the line.

The effect of the job losses hasn’t really kicked in yet. It’s when EI runs out and some people realise they can’t find a new job that reality will set in – round about the time interest rates, and maybe some taxes, start rising.

#125 Paul on 07.18.09 at 5:42 am

#108 “The xenophobia of a vast number of Vancouverites is kind of silly”

I agree with much of your post but that last comment is not my experience of living in vancouver in any way, shape or form. Exactly the opposite in fact. Guess you haven’t lived here.

#126 Across The Fence on 07.18.09 at 6:22 am

The argument is strong for both cases….inflation/deflation. I guess they recognize two distinct types of recessions / depressions. The one started in ’29 was deflationary, the one in Germany in ’23 that everyone talks about was inflationary. The consensus is the government through policy can chose one or the other with an inflationary correction being preferred as it can be controlled through monetary policy [raise interest rates]. A deflationary event becomes a negative feed back loop that is almost impossible to stop and drags on for ever. Deflationary events can drag on for decades.

The deflation from 1830 to 1860 led in no small part to the civil war. The Northern states were locked in a race to the bottom with the Southerners. The straw that broke the camels back was the intention of the south to introduce slaves into factories, and start to produce with zero labour inputs. That is what is going on in China right now. They cant move anything, so they are going to start chopping wages to slave /subsistence levels to get things going. It won,t work. They are also doing it in Mexico.
The “problem” is that the US has such a high debt load. The US is dangerously in sight of defaulting on its bonds and treasuries or at least in danger of not having buyers for its debt. Which would of course cause it to default. There simply is not enough money out there to buy up the US debt at the current rate of several billion dollars a “DAY!” That shortage makes the US dollar more valuable and therefore that would say deflation. The shortage is why the Fed started to buy up US debt with ‘electronic money. An increase in the money supply is always inflationary. That’s why the Chinese are getting pissy. ‘We sold you all this stuff and you write a cheque on the back of a napkin? … and tell us you are good for it?’ That is why interest rates have to go UP. The USA will have to offer higher interest rates to make their debt look attractive as an investment.

Defaulting is not an option and rampant inflation to water down the dollar wont sit well either. Therefore they are looking at a jobless, stagnant, economic recovery with high interest rates. This is almost certain. That means, zero growth for years, like the lost decades in Japan. Only worse. Japan was a net exporter through this time, the US is a net importer. They are truly screwed. There is no way they can repay their debt within the context of the current economic model. There is no way out of this for them. In March they realized this. The US is going into decline from this point forward until they become a net producer again. .

This argument however is moot. What ever happens will depend on the price of energy-oil. We are out of the stuff , there is no question about that. If the economy were to go back to ’07 levels, oil would go back to $150, and stay there unless it went to $200. Anything linked to oil and energy will become inflationary. Every thing else will become deflationary. Oil is outside of the usual supply and demand framework as its supply is very unelastic and so is its demand. In other words the market cannot be used to arbitrate the price. Price rationing doesn’t work. Therefore physical rationing will take place. Learn to live without.

So what happens? Likely scenario is that there will be two distinct streams one deflationary and one inflationary. Deflation at the onset as wages are destroyed, followed by inflation that will not be controllable through interest rate policy. Essentials will become inflated and non essentials will deflate as discretionary spending is eroded. Net result will be a lowered standard of living and the death of retail. End game of “Globalization.”

#127 Mike B on 07.18.09 at 7:04 am

ror101 you are 100% correct … The RE market is heavily manipulated… pricing and volume… Realtors can stagger listings to keep selection low … It can take months or years for prices to erode but days for prices to go up…Agreed that the MLS system is a closed loop favouring the “borg” realtor system… Resistence is futile as they say. The computerization has also made it a very fixed system… Realtors get listings a day b4 the public and anything good is taken in hours… Brokers sell to brokers direct as well so stuff that comes up for the public is leftovers.

#128 Nostradamus jr. on 07.18.09 at 8:59 am

Vancouver_Bear et al,

…Various countries are now legitimately bankrupt…Wars are now inevitable….even thermo nuclear.

Simply reason out why Canada is perceived so safe and you will deduce why Toronto and Vancouver have bubble like real estate prices?

…To my friend who posted the article on China/Russia potentially warring over Siberia…I posted that scenario here months ago as well as the potential illegal refugee/immigration landings into Canada.

Like I keep repeating, Canada is the safest place in the world.

Invest accordingly.

#129 lili on 07.18.09 at 10:25 am

I can see that SF banker (with a salary in the $300K – $500K range) has been transformed into a market oracle here. However, the envious and greedy among you might be better off focusing energies on obtaining such a salary in the first place. What SF Banker knows about markets is probably less than he knows about keeping employed at 6-10x the average income.

Sorry but the pandering here is a bit pathetic. And before anyone says I sound jealous… Darn right I am!! My entire net worth, compiled in a long arduous decade, is CAD400K in cash, no house, nothin’; which amounts to less than one good year at SF’s job.

Moving on to other jealous prickery: I find it astonishing that despite major price corrections, American real estate is not correcting to anything near affordability. As it goes, San Francisco real estate, reported as one of the biggest stinkers right now, is still priced well beyond affordability. And I don’t mean some cooked index from a bank. I mean real affordability, i.e. 25% down, 2.5x a single SUSTAINABLE income.

But no, that’s not what’s happening. And it won’t. Maybe over the next decade it might. By then, you’ll have grown grey waiting to buy.

Someone said: “Garth.. could we organize people in this group to protect our taxes? Why should we, in this group, pay for the speculation of others.”

You can avoid taxes if you can figure out a way to make good dough via capital gains. Since owner-occupied real estate flipping is wallowing, capital gains is the time-honoured way to escape taxation… The TFSA, which helps, is a little late. At least it’s around now. Trade like a demon in there.

Also, I note some new posters with some historical economics under their belt. Very refreshing. Only missing is ncoffee, the fella that actually followed the Garth down the rabbit hole: Missin’ you bud.

#130 jess on 07.18.09 at 10:26 am

is the “affordable housing” of today going to become the affordable housing of the last crash.
Would you live with four years of mould?
i guess the infrastructure dollars will now be retained as “affordable housing” …interesting to me why affordable housing words only seem to come out when real estate is about to tank and the unemployment numbers go higher.

Hamidullah Saidhamid’s life has been thrown into turmoil.

Saidhamid, his wife, two daughters and son must move out of their apartment at 43B David St., which is owned by Kitchener Housing Inc., because of unsafe conditions in the four-unit building.

Water damage, mould and rotten wood have forced Kitchener Housing Inc. to relocate everyone. By Monday, the building will be empty. The repairs are expected to take at least two months.

“The house has been leaking for four years,” Saidhamid said.

#131 $fromA$ia on 07.18.09 at 10:31 am

#121 DAVE,

Dave, you want to learn how to make freinds, don’t tell them their wrong outright.

If you think your so right you should be infinite times more wealthier.

Yes I got gold stocks too. They do well because of the lag on the cost of labour in this environment as well as a rising spot gold price.

Dave, at no time in history could we create this much money this fast with homes/lending being the major reason.

Lending is way looser now Dave.
With one pay stub and a letter of employment(not min 90 working days)I can borrow to buy a house for $535,000 with a $75,000 a year income.

Really buddy have I told you your wrong yet?

#132 jess on 07.18.09 at 10:47 am

the financial “shakedown” isn’t finished exposing the deluded about their allusions of wealth. Isn’t the bottom in when all are in acceptance? Seems to me some folks are just entering the shock phase.

#133 $fromA$ia on 07.18.09 at 11:05 am

Dave another reason why the spot gold price is rising is because the American $ is weakening, remember that SPot Gold is valued in the world reserve currency which is the American $.

#134 rory on 07.18.09 at 11:12 am

#114 Rock Bottom …see post by #123 Mike B…he gets it.

Rock B my comments to you:

“Anyone can start up a competing system and there are many out there.”

And they control what like 1 or 2% of the market. If you need to sell you need the MLS. Ooops it is a monopoly.

“Through the free market, 95% of people are still choosing to work with a realtor. ”

No they are not, they are forced to because they cannot list their property on MLS w/o a Realtor and what sells houses – the MLS system…why would anyone in their right mind spend $25K if ‘the system’ was not forcing them to do so.

“Most Utilities are protected, regulated monopolies. You cannot just go out and start one.”

Yes you can but the start up costs are so prohibitive to start one that it effectively blocks out everyone trying…talking millions, hundreds of millions…hello.

“Anyone, even you, can start up your own MLS system and charge $99 if you want. Give it a try if it’s so lucrative.”

You really do not get it …I want to list my property on the MLS system. That is where the action is. I will gladly pay for value, and will shout up about it when the value is apparent. It is not there…it is an overpriced monopoly. (The 1% Realty guys are a good start in the value dept. but fighting uphill against the big bad establishment and their stuff is listed on the MLS.)

If you think you are getting real value for the $10k to $50K you pay in RE commissions then say so…tell me how much you like writing that cheque and detail why the value is there …seriously dude…all will be shown that it is the MLS …and if you think a post (listing) on an IT system (MLS) is worth that kinda bread then hey …you win the prize to keep paying.

RE buying and selling is not hard …it is only expensive because of the exclusivity of the MLS system. And they protect it at all costs because w/o that advantage – $499 bucks + a lisiting on the system

Last thought – ever notice the Realtor ads …always talking about adding value …if you have to tell people then it is not obvious or it really is non-existing.

I am always truly pissed (loathe is also a good word) when I pay the commission. Why is that?

RE rant done …promise (fingers crossed…lol).

#135 Greg W., Oakville on 07.18.09 at 11:19 am

Hi Garth, FYI, for anyone that doesn’t know yet and wants to stay as healthy as possible for as long as possible.

This site has the latest Good Science based information and link to it, plus info video’s.

See ‘Free’ online new info video 28 min,

NEW DVD: Professional Perspectives on Water Fluoridation

Featuring a Nobel Laureate in Medicine, three scientists from the National Research Council’s landmark review on fluoride, as well as dentists, medical doctors, and leading researchers in the field, this professionally-produced 28-minute DVD presents a powerful indictment of the fluoridation program.

The DVD also includes four special features including Dr. Bill Osmunson’s acclaimed statement on fluoride.

if you have a bad diet you are more suseptable to the harmfull effects of fluoride exposure!
Brital water filters do not remove fluoride!
Boiling water only make it more concentrated.
How much are you and your families being exposed too form all possible sources? How much water do you drink each day?
Why does it say on your tooth past tub ‘Do Not Swallow’?

I have seen first had the good science based evidence that it’s time to stop water fluoridation!
I attended the UofT Aug 2008 World fluoride conferance, it’s effects on the brain and soft tissues of the body.

I do not drink cluoridated water anymore if I can help it!
Even still, the basic science has not been done to see how much fluoride a person might absorb throught your skin when in a shower, bath, hot-tub, or swiming pool.

Why then is water fluoridation still being promoted?
See above site latest info add-on,

‘SOS: Fluoridation in Senate Health Bill.
FAN will soon have an online sign-on petition to Congress requesting that fluoridation be removed from this bill’

For more science based info also try,

Find out for yourself! Protect yourself and your family!
Help stop water fluoridation in your area,
write your local government and inform them.
Tell them to stop adding toxic water to your drinking water supply now!

I think this is worth remembering,
‘belief in myth avoids the discomfort of thought.’

#136 rory on 07.18.09 at 11:30 am

Okay I lied about no more RE rants, but the morning coffee is just reving me up.

Just want to make one point, middlemen, that all know about but is easily forgotten in the excitement of buying and selling.

If you buy and sell a propert in BC, it will cost you alot of moola…use $500K as the buy price …land transfer tax $8K, RE commissions to sell $500k (7%/3%) …$19k = $27k + legal and other misc.

So, the day you move in your home has to sell for @$27K more just to break even. So tell me who benefits on keeping the RE business going in the present form – Realtors and the gov’t ….surprise.

#137 $fromA$ia on 07.18.09 at 11:54 am

Garth this is for you.


I have said consistently that we are on a similar, but lagging, trajectory. — Garth

#138 Bottoms_Up on 07.18.09 at 12:06 pm


Look at this seller gloating about their recent sale. (Sold, sold, sold–(YEAH!!))

#139 Bottoms_Up on 07.18.09 at 12:22 pm

#131 Greg W., Oakville on 07.18.09 at 11:19 am
Garth haven’t we heard enough about fluoride exposure? And Greg, if you really wanted to worry about what’s in your water I suggest you research trihalomethanes. These are created as a by-product of the reaction between chlorine and organic material, and are carcinogenic. You cannot remove them using a brita filter, or by distillation. The main exposure to these compounds is via INHALATION when you take a shower (and you are exposured to a greater extent in the summertime). If you want to educate the public, educate them about something worthwhile:


(ps. water fluoridation has great public health benefits, as does water chlorination)

#140 $fromA$ia on 07.18.09 at 12:25 pm

Yes for sure Garth.

Look at Canada on the graph you can see those steps up around 2005.

Each step up was a direct influence from Flaherty’s medaling.

-The Zero down intro.

-40 year intro.

Was the great depression caused by loose lending and grossly inflated home values? (thats why I think the only way out of this mess is (if your going to print money) inflation! Of course though we are seeing some deflation now.

#141 Barb ... reader, Calgary on 07.18.09 at 12:26 pm

#97 J “I like this boom. The more people who buy in today at todays interest rates, the worse the fall will be”

That alone is a very cynical comment J. I had been reading along enjoying your comment until that last paragraph. Your last paragraph — your summary after rounding out how stupid, unecessary and emotional this boom is and that it will lead to the same terrible fate as the U.S. housing market — and then you state that you ‘like’ this boom??! Your final paragraph began as coming across strangely cruel but when it is added to the rest of your last paragraph, your comments in total simply don’t add up. Something smells. Your statements delete each other out.

Because you state: “Why should we …. pay for the speculation of others …. Sometimes I hate our socialist country because I already know how this will end.”

What?!? “The speculation of others”?? J, come on now, Mr. Garth has written extensively about all the players and the real sources of the problem! The buyers, right now, include a lot of newbies who have been trained by the media to lust for housing. The last few suckers whom the real estate (so-called) “professionals” — who know better — are leading them down the garden path with misleading ‘spin’ and market hype smothered in honey, smoke and mirrors sales numbers and low interest rates.

How about you try blaming the REAL perpetrators who claim to be ‘professionals’ but are really nothing more than crooks, hiding behind their ‘professional’ masks. And blame these Con politicians like Harper and Flaherty who haven’t a clue as to how to run a country nor an economy and can only make decisions based on their strategy of whether it’ll fool enough people to get them re-elected.

So if you want to blame the newbies who are being led into buying, please also blame the wolves, media, Cons and crooks who caused this and those who could have stemmed this crisis, but instead added fuel to the fire. If you don’t like putting out fires, then don’t vote for such idiots.

#142 Vancouver_bear on 07.18.09 at 1:09 pm

124 Nostradamus jr. on 07.18.09 at 8:59 am

I said it before and will repeat again.

With all the criminal activity, shootings and homicides reported every single day (since the beginning of 2009)….Vancouver will hold the crown of a crimial capital of North America pretty soon.

#143 Industrial Guy on 07.18.09 at 1:44 pm

“Help stop water fluoridation in your area,
write your local government and inform them.”

Inform them of what? All this fluoridation is evil has been debunked decades ago by people with real university degrees from real universities and not the school of Hokey Pokey.

Real Science has peer review to keep it honest. If fluoridation was this terrible evil. Don’t you think the flood of liability law suits would have ended its use. Oh right … the judges are in on this conspiracy too.

This is the classic ..”what they don’t want you to know” ….. “a European study concluded” …”so called experts say” of alternative media. Lets call it what it is: . It’s fraud. Nothing more complicated than that.

Are we now going to publish links to articles written by guys who say the moon landings are a hoax and 9-11 was a alien conspiracy? I wonder if Elvis will post his take on RE Prices in Las Vegas soon?

#144 Mike B on 07.18.09 at 1:53 pm

To echo rory 130…. I have seen situations where a realtor forces a buyer to work thru an agent at their office just to make sure their office makes higher numbers and therefore the bigger bonus… Also seen scenarios where a buyer meets an agent at one house and that very night shows the buyer a competing house.. They put an offer in and win but all the agent did was fax the offer in… no presenting. In less tha 4 hours they csn make 10-12k… Doctors doing even make that kind of coin…the system is rigged to benefit the agent some of whom can net ten sales plus per month. 100k in one month. Not bad with no skin in the game!!!!

#145 Future Expatriate on 07.18.09 at 2:03 pm

#121 Dave asked “So, can you explain to me why oh why this particular case (2008 post bubble contraction) will go against history?”

That’s too easy. Obama and the boys from Goldman Sachs (who created this mess in the first place) are running the world’s largest economy. Into the ground.

Whether on purpose for profit motives, or accidentally because they are idiots, it makes no difference. The end result is still the end result, and it will be much worse than anything yet seen.

#146 Nostradamus jr. on 07.18.09 at 6:04 pm


…What’s a “crimial”?

Hey….a few homicides here and there gives a city character…or would you prefer free Govt subsidized Bud & Mushroom for every Tom, Dick or Harry?


#147 Dave on 07.19.09 at 1:56 am

#121 Dave asked “So, can you explain to me why oh why this particular case (2008 post bubble contraction) will go against history?”

That’s too easy. Obama and the boys from Goldman Sachs (who created this mess in the first place) are running the world’s largest economy. Into the ground.

Whether on purpose for profit motives, or accidentally because they are idiots, it makes no difference. The end result is still the end result, and it will be much worse than anything yet seen.

you’re missing the point, (yet again, some of you fail to understand the relationship to the examples I stated). 1720, 1772, 1825, 1873, 1929 were all leading economies in their day and had their own version of “Obama and the boys”….read about these depressions. In each of those cases there was massive speculation, followed by a post bubble contraction, followed by bailouts to stop deflation. The bailouts never worked and deflation always continued in those instances. Hyperinflation never came!

Dave, you want to learn how to make freinds, don’t tell them their wrong outright.

If you think your so right you should be infinite times more wealthier.

Yes I got gold stocks too. They do well because of the lag on the cost of labour in this environment as well as a rising spot gold price.

Dave, at no time in history could we create this much money this fast with homes/lending being the major reason.

Lending is way looser now Dave.
With one pay stub and a letter of employment(not min 90 working days)I can borrow to buy a house for $535,000 with a $75,000 a year income.

Really buddy have I told you your wrong yet?

I have too many friends to be honest, and don’t care for any more. You use the word your when you should be using you’re, and use their when you should be using they’re.

the simple point is: in past economies assets were blown way past affordability. Tulipmania, South Sea Bubble, Mississippi bubble…these are all examples. In those cases along with many others, assets climbed incredibly high, people borrowed money like mad to purchase the assets, and the assets became completely unaffordable to the common folk. What ensued was basement prices for assets, credit destruction for the general public and massive deflation even though governments in all those examples tried propping up their economies up back to their bubble level.

2008 wasn’t any different. Don’t think we’re special. A single tulip during tulipmania at its height costed 10 years of a man’s wage!! That’s for a tulip (yes a flower). 10 years for a single flower. There’s countless examples.

Someone please prove me wrong. There is absolutely no record of a leading economy with credit that went into a hyperinflation in thousands of years. The only thing that happened in severe or deep depressions was deflation.

I know there’s others on here that have done their research

#148 Future Expatriate on 07.19.09 at 3:40 pm

NOBODY, I repeat, NOBODY, ever had their own version of “Obama and the Goldman Sachs boys” running the world’s largest economy at the time.


You need a session with Mad Max.

This group will not only repeat the worst mistakes of the past; they will outdo them by all possible measurements of degree.

According to plan.

#149 Devil's Advocate on 07.19.09 at 6:10 pm

Rory and others

If being a REALTOR is so lucrative and easy to do why don’t you become one?

#150 jwk (nee jwkimba) on 07.19.09 at 8:38 pm

That’s me waving from my corporate apartment in New York. I am in the ‘arch’ of the building in the foreground….and I am moving from here directly to Etobicoke. Should be , uh, different!

#151 Mikhail on 07.19.09 at 10:00 pm

Sorry for my English…
The house prices in Russia have dropped recently for 15-20% and up to 30-40% in some places during just a few months. In Moscow it is less, but the trend is the same.
I live in Vancouver and “own” an apartment… thinking of selling it this fall. Hope to get back my down payment ( I bought this 2-bedrum in Burnaby in April 2006 for $ 350K…)