Incoming

35 Coulson1

His voice was a bit husky, and his manner faltering. “We haven’t met,” he said on the line, “but I know of you and your reputation.”

I said nothing, listening. “It’s about my daughter…”

Interesting times, these. Helicopter parents. Maturity delayed. Adults in their late twenties and thirties barely out of the nest, and certainly not out of the web. Dorothy and I could not wait to escape, marry in university, live in a rented hovel and buy soon-to-be-discarded head lettuce which the grocer down the street saved for us. Just give me ten cents, he said.

It sucked, of course. We were robbed. I was mugged. Our family transportation (a bicycle) was stolen, and I parked cars at night. Our middle-class parents seemed to understand completely, since they’d done the same. Adversity, bad decisions – they have a role in every life. But the early years of my marriage, as difficult as they were, grew the roots that support me now.

“They want to buy a house in the Annex,” the stranger’s voice continued, “and I told them not to six months ago, but now things have just exploded. They won’t wait. They blame me. I’m worried sick about this. What should I do, oppose it or just stand back? Are they making a mistake?”

Turns our daughter earns forty and hubs makes sixty. They have been qualified for $600,000 in financing, with basically no down payment, and want to spend it all on a first house in midtown Toronto.

Because he asked, I answered. Of course it’s a mistake. There is no excuse for buying a house at the top of the price cycle in the middle of a recession. Were it not for dirt-cheap interest rates, prices would be melting instead of spiking. Today’s rates will not last. The unemployment scene will get worse. Taxes are going to be higher for years to come and the inevitability of a real estate correction is absolute.

The last thing any first-time buyer would want it to have no equity and $600,000 in debt in 2013 when mortgage rates have doubled, the economy is slagging and the housing market has been pricked by harmonized sales taxes, falling affordability, a glut of Boomer listings, higher energy costs and lower family cash flow.

“I wouldn’t touch Toronto real estate with a barge pole,” I said. “But she’s your kid.”

Some kid, I thought, hitting the End button. Twenty-eight, lusting to buy a house which is a want and not a need, closing costs probably covered by daddy, shrugging in the face of unrepayable debt, eschewing a starter home on the edge of town, prime candidate for a bidding war in which the winner loses. They deserve one another.

_ _ _

Behold the Toronto house pictured above.

The lot is 25 feet wide – not enough for a driveway, so there’s a parking pad for two vehicles on the front lawn. The exterior is stucco over mystery materials. The inside features a new kitchen, pot lights, fireplace, three bedrooms and ‘an interior and exterior sound system.’

Property taxes are just under $10,000 a year. 35 Coulson Ave. was listed for $1.329 million, and sold for $1.329 million. Days on market: 4.

God help us.

121 comments ↓

#1 dd on 07.28.09 at 10:25 pm

“Turns our daughter earns forty and hubs makes sixty. They have been qualified for $600,000 in financing, with basically no down payment, and want to spend it all on a first house in midtown Toronto”

Wow … and people say that USA did it all wrong.

#2 Cendrine on 07.28.09 at 10:33 pm

I would have posted sooner but I had to take care of a small laceration suffered after I fell on the floor in a dead faint after seeing the price on that house.

God help us, indeed!

Garth. are you still thinking we will have no depression? There seems to be more talk on the blogosphere that the US/UK are following a steeper trajectory than that which led to the Great Depression…

#3 Joseph on 07.28.09 at 10:38 pm

I wouldn’t worry about the sale of homes in the 1.329 million range Garth. The US government’s financial rescue efforts have reportedly put an additional 23.7 trillion dollars in taxpayer funds on the line, or an additional 180 percent of the current US GDP. The way Canada is going in its real estate market, when things collapse, we shouldn’t be indebted a dime over an extra 160 percent of our GDP. We’re way ahead of the game.

#4 Basil Fawlty on 07.28.09 at 10:51 pm

God help us is right. Qualifying for a $600,000 mortgage with basically no money down. Rumour is the banks are tightening up on lending standards, but this sounds pretty lousie goosie. I just today heard about another couple who qualified for a $700,000 mortgage with no skin in the game. If mortgage rates double to 9%house prices will fall off a cliff. It was just a few years ago when people were scared of any mortgage over $100,000, now there is no fear. What happened to prudence and common sense? Did they disappear with the 25% down requirement?

#5 Denis on 07.28.09 at 10:55 pm

OK … I have a bone to pick with the Condo King’s latest and greatest Investor Newsletter – “June 2009 Brad J Lamb’s Investor News The Road To Millions” (http://tr.im/uws0).

This guy’s an “expert” on TV and people will listen to him for … well … lack of a better education.

Page 3 Sickens Me because these RETURNS are worse than a GIC! The risk/reward ratio is completely out of whack!

“WILL THESE THREE BUYING OPPORTUNITIES CARRY WITH RENT??? Yes, They Will! These incredible investor buying opportunities will not last – we have perhaps 90-100 units that are priced at 2008 levels and will carry with a positive cash flow.”

Let’s break it down for those that don’t know how to analyze a Real Estate Deal:

Project Worklofts @ 25% Down ($53,975) will get you $51/month POSITIVE cash flow (RENT $1250 – COST $1199). That’s a whopping $612 over / ($53,975 down + let’s say $1000 closing costs) = 1.11% Cash on Cash Return!

Project Parc Lofts @ 25% Down ($52,225) will get you $45/month POSITIVE cash flow (RENT $1250 – COST $1205). That’s a whopping $540 over / ($52,225 down + let’s say $1000 closing costs) = 1.01% Cash on Cash Return!

Project The King East @ 25% Down ($62,475) will get you $15/month POSITIVE cash flow (RENT $1475 – COST $1460). That’s a whopping $180 over / ($62,475 down + let’s say $1000 closing costs) = 0.0028% Cash on Cash Return!

This means his investment strategy is entirely based on SPECULATION that the market will continue to go up from it’s current peak and you can unload the deal to a greater fool down the road (likely 2 years from now as per his note that rents would likely be higher at that time). There’s barely no room to cover short falls and you can get more return for far less risk in a cash or money market position.

This absolutely sickens me… Any fool can make money in an uptrend market, but it’s an entirely different ball game making money in a downtrend. Don’t be fooled … These aren’t investments, they are sales pitches disguised as investments so that someone can cash a commission cheque with little to know risk on their end.

#6 Ted on 07.28.09 at 10:55 pm

As far as I know Banks will approve me for a mortgage payment and taxes based on 32% of my gross income and up to 40% when all payments are taken into consideration. If anyone can direct me to a bank that will approve me for a mortgage of $600,000 with no money down I will pay them $2,000 cash. My FICO score is 735 so no problem with credit. If I get access to more than one approval I will pay $3,000 cash for the referral, Anxious.

#7 Ted on 07.28.09 at 10:58 pm

My gross income is in excess of the income stated for the couple in this blog article.

#8 Real Estate Deal or No Deal on 07.28.09 at 11:02 pm

Dirty Sexy Money.

#9 hal smith on 07.28.09 at 11:14 pm

The bubble will not, must not, and cannot pop. If the bubble pops we have no economy, no wealth, and no government. They know it and will not allow it to pop.Whatever it takes, the bubble will not be allowed to pop, the alternative is chaos. Affordability? Not a problem. Ever heard of basement suites? Carriage houses? Three generations under one roof? Three jobs? No problemo….And what new immigrant wouldn’t give his left nut to come and be part of the best place on earth? And his wife would give both his nuts to come here and have free health care and just buy a house and be a millionaire….. Interest rates? Gonna stay low forever. It wouldn’t be bubbleicious to raise them and if they HAVE to, no problemo, 50 year amortizations…..Defaults? Not a chance baby, no defaulting here. And if they did happen we wouldn’t call it defaulting we would call it something else and we wouldn’t tell you how many there were cause we the guvmint, sucka, we don’t hafta tell you nuthin’. Inflation? You dummy. Inflation is good, turn my million dollar bungalow into a 2 million dollar bungalow. Wassa the matter with you? Inflation will turn your punk ass savings into nuthin if you don’t get with the program and borrow to buy a house. Things get bad you can rent out the house and live in your camper in the driveway. If the tenant doesn’t like it you can toss him out on his ass. Lotsa tenants out there that can’t afford houses, easy to find a new one. Nuclear submarines? You’re grasping at straws now Garth. Nobody gives a quap what happens in India or Pakistan. Swine flu? You gotta be kiddin’ me . Ever heard of a flu shot? The bubble will not be allowed to pop Garth. If it did we would have no economy, no wealth, no retirement, and maybe even no country left. The guvmint knows this. They will do whatever it takes to keep it inflated. I can see that you have an analytical mind and that you are burdened with an education as well but that just doesn’t help these days. You have to just let go and go with the flow baby.You know you want to. Buy real estate, get rich, and be a millionaire or get left behind and be a peasant. This bubble will not pop till God Himself wills it cause Marky Mark and Flats are on it baby! Don’t miss this train people, it’ll never stop here again.

#10 Increasing that 1% on 07.28.09 at 11:16 pm

wth?!! are the ‘mystery materials’ under the stucco made of precious metals? for that amount of money you could buy something less than an hour away 3x better and have a private chauffeur, maid, nanny, cook, tailor, get off the grid and stock up on lots of stuff from Xurbia, etc..
….Guess some pooor man gave in to the unnncontrollllable nesting urge of his woman again…

As for the Father consulting you, Garth, he should not assist his daughter in possibly making one of the worst financial decisions of her life. Hope he does not co-sign. If they waited 6 months, can they not understand the rationale to wait longer? He’s ‘worried sick’ about it for a reason

#11 $fromA$ia "Garths Nugget Boy" on 07.28.09 at 11:25 pm

All that free money 1.3 Million….what a pisser, I got better things to buy with 1.3 million.

Houses and Lots…. Whore houses and lots of boose!

Uh did I mention that big ticket items helping stimulous flood market creating high potential for killer deflation down the road.

#12 Republic_of_Western_Canada on 07.28.09 at 11:27 pm

werd. Do they have wind in hogtown?

The first thing to go up around that doghouse should be a concrete firewall up to the third floor.

#13 confused and fed up on 07.28.09 at 11:40 pm

Garth,
I know I asked this before but wouldn’t people who buy houses now come out ahead given that inflation will surely hit us in 5 years time?
I am speaking in general and not of those young and foolish who would buy with zero down and 35 yr mortgage.
Thanks

#14 In Shock Farmboy on 07.28.09 at 11:43 pm

Reading this form tonight, takes all! I had to read this form twice.
Where are the watchdogs in the finance dept. employed by the government of Canada?
CMHC has a time bomb on their hands. If the banks think this is funny, lets look ahead 3 or 4 years when some young person with brains that wants to be our Prime Minister, will say to hell with you banks, you should have warned the clueless in the finance dept.
I have a news flash for the banks, we the people are not going to pay the bad risks and we will fold that arm of government, like in the word we all know, *Bankrupt*
Say after me, Easy Come, Easy Go.
This young man would have my vote.

#15 Comfortable in a coma on 07.29.09 at 12:08 am

Hahahahahah! You’re joking of course. Real price $132,000 you mean?

Or maybe it could be sub-divided as a development? Maybe it was filled with tulip bulbs.

#16 EJ on 07.29.09 at 12:12 am

Over a million bucks for THAT?

I think Canada has finally outbubbled the USA. Poor lending, massively overpriced houses, people buying based on fear and speculation, looking only at a monthly payment instead of the big picture, granite countertops and Hummers everywhere…

We’ve built our economic house of cards with a blueprint borrowed from America. We’re looking at a similar end result. At least they can take some comfort in knowing that their correction is already underway, the extent of the damage being mostly known. Canada wants to drive the rollercoaster up a few more feet before dropping off the edge.

#17 Nostradamus jr. on 07.29.09 at 12:15 am

…North & West Vancouver is a terrible place to live but at least home prices and taxes are cheaper than 35 Coulson Ave, Toronto.

http://mlslink.mlxchange.com/EmailView.asp?r=1721073117&s=BRC&t=BRC

#18 Dale on 07.29.09 at 12:49 am

A parents advice is like the black plauge, perhaps if your father paid of one of your friends to not buy now and direct you to this blog he might have a fighting chance.

#19 Nostradamus Le Mad Vlad on 07.29.09 at 12:52 am

“God help us.” — Is this your (hidden, secret message to us) new, upcoming and as yet unannounced adventure in life?!
——
“Of course it’s a mistake.” — Correct, except for one thing — the only way to experience the ups and downs of life is to have the freedom to make choices, whether good or bad then learn from those experiences.

This couple is about to learn the hard reality of life. Whether it sinks in is another matter.

“. . . to buy a house which is a want and not a need, . . .” — The major difference between today’s 20 or 30-somethings, and the generations that preceded it.

Plain and simple. If we wanted something, work extra overtime to cover the costs beforehand and make sure the money was put away in good ol’ CSB’s or GIC’s.

If it was a need (mortgage), then the couple worked until it was 95% paid off, then one partner could quit. Not too hard to understand!
——
Short article from Mish’s site re: the US boomers, which will parallel many in the declining western civilization.

http://globaleconomicanalysis.blogspot.com/2009/07/incredible-shrinking-boomer-economy.html

The figures just down from the intro. give further reasons for the introduction of the swine flu now — the US, along with many others simply won’t be able to cope with the flood of boomers seeing pension cheques.
——
The China Bubble, with a few new variations. —

http://www.gurufocus.com/news.php?id=60787
——
Here is the reason for upward trends in the loonie, other things etc. The US greenback is falling back in the race to stay ahead. —

http://www.bloomberg.com/apps/news?pid=20601083&sid=aNg54YofXFJE
——
How to get lucky with a Bimmer on a golf course! 41 sec. clip.

http://dailybail.com/home/pga-tour-player-leif-olsen-hits-bank-shot-hole-in-one-clip.html

#20 Munch on 07.29.09 at 12:58 am

Keeeeeeeeee-RIST!

Someone paid $1,3 million for THAT???

Sheeeeeeeeeeeee-SUZ!

But you people are in TROUBLE, man!

REAL trouble!

Only now do I see the full extent of your problem, Garth!

Good luck Canada!

Regards, Munch

#21 Alberta Beef on 07.29.09 at 1:30 am

Interesting article regarding the number of people on pogy in Edmonton and Calgary ….

http://www.edmontonsun.com/news/alberta/2009/07/28/10294781.html

#22 Happy Renter in North Van on 07.29.09 at 1:44 am

Such foolishness makes my neck hairs stand on end… In five years, we will be witnessing a repeat of what happened in the US two years ago… Canadians should wipe the smugness off their collective faces…

#23 William Ranger on 07.29.09 at 4:16 am

Garth I love your posts. You must be one of the few sane people around who is not blinded by all the fear and greed.

I heard of someone today who just sold their home in toronto $120,000 above the asking price.

It seems the Beaches and Pickering are real estate hot spots, if you don’t mind flooded basements and living close to nuclear facilities. Everywhere seems way overpriced and delapidated homes seem to fetch the same price as renovated homes especially in North York. The crash is coming and when it does the smoke will clear and people will see better for it.

So thanks for the reality checks Garth and keep up the good work.

#24 Al on 07.29.09 at 7:14 am

What I would really like to know; does the new kitchen include granite counter tops and stainless steel appliances? Including those things proves that the house was renovated with care and skill and thus might be worth the price.

#25 pbrasseur on 07.29.09 at 7:37 am

How can they qualify for 600K loan with 100K income, seems too much according to CMHC rules.

Can someone explain?

#26 $fromA$ia "Garths Nugget Boy" on 07.29.09 at 7:37 am

#11 Killer Inflation.

Garth you perverted my comment!

#27 Chris no longer in England on 07.29.09 at 7:53 am

Re the UK:

Ric Traynor, Executive Chairman of Begbies Traynor Group, said:

“The second quarter Red Flag Alert shows the recession is likely to be prolonged, possibly more prolonged than the last recession and there is no evidence yet of a real recovery emerging. However, the overall increase in the number of problem companies has undoubtedly slowed for the last two quarters which is better news.

“We believe that the volumes of corporate and personal insolvencies, as with levels of unemployment, tend to be indicators that lag any change in economic activity and are therefore likely to continue to rise for up to two years after the commencement of economic recovery.

“Previous experience, together with an analysis of the current recession, strongly suggests that the period from this year to 2012 will see a large number of corporate insolvencies, probably above the peak levels experienced during the height of the last major recession in 1992.“

http://tinyurl.com/mhsxrn

Begbies Traynor (Business Rescue and Restructuring)

Is there a N. American version with data?

#28 wayupnorth on 07.29.09 at 7:53 am

That’s worth 1.3 million? I can’t understand then why the house down the street on sale for only 3/4 of a mill. is still for sale after over a year. Built into the side of a mountain with a clear view of the Alaska highway 250 meters below and downtown and the river 500 meters below that. Mountain ranges and forests as far as you can see. 5 bedrooms and an inlaw suite and faces east into those beautiful 4am sunrises over the mountains. Only 15 years old to boot. Only a couple of hundred meters away is a row of three year old townhouses that just went on the market and sold within days for about $240,000 each.

We really got to be doing something wrong in this town because if that is 1.3 million then my house has to be worth 2/3 that. Didn’t realize I as so rich!

#29 Fisher on 07.29.09 at 8:08 am

I am 33 and me and my wife have a similar humble beginings. The early to mid 90’s in Kingston and Peterborough was depressing. I spend six months on welfare while I handed out 3-400 resumes all over town. I ended up sleeping in a tent doing landscaping for $200/week. Best summer ever.
But, if we go that way again who is to say that realesate will too. Nobody would have guessed 0% interest. 40 year AMS, 0 down. What more do they have up their sleeves. If realestate crashes we could have forced inflation. Printing money and giving it home owners. If you rent you loose. We could see -1% interest rates for a six month period. If you rent you loose. I am renting now and let me tell you it sucks. Shitty landlord with shitty neighbors in a rental part of town. Place is bare bones and I don’t want to invest anything into it because I don’t own it. Kitchen is a mess and I pay a mortgage for it. I know houses will come down in value but who cares. What options do people really have. It will be the savers, renters, realists, and enviromentalists that loose in this future canada.

#30 Kanata Squirrel on 07.29.09 at 8:10 am

Dad, tell your daughter RIP with that mortgage and don’t help them by co-signing! If they do this and can get this mortgage then they should learn what it means years down the road when interests go up and they have to sell at a loss. Their choice, their loss. 100K family income with a 600K mortgage – they must be on crack.

Tough love…

#31 moneywoman on 07.29.09 at 8:23 am

to Ted, post no. 6:

For a 5 times income +mortgage, no down, speak to Mortgage broker, as it is called; it might just be issued by your neighbourhood bank too.

Try it and please contact me for payment.

#32 Samantha on 07.29.09 at 8:24 am

Who in their right mind would pay $1.329 million for that POS (and I don’t mean power of sale)? For Pete’s sake, look at that lot. They could have almost marketed it as a semidetached. Good Lord, the house is surrounded by a sea of beige (other houses in photo) and concrete.

And, the taxes are just under $10,000.00 a year? For those kind of taxes, I would want a foot massage and much, much more when paying the bill.

“God help us” indeed. After seeing this post, I think we are in way worse shape than I thought.

It would be interesting to know the income of the person(s) who bought this house. Somehow, I think (hope) that if a person had the kind of income to support a $1.329 million house purchase, they wouldn’t be spending it on a craptastic, overgrown house on a teeny tiny lot.

So, that leaves another fool who has fallen. I feel like playing “Taps”.

#33 KenDa on 07.29.09 at 8:28 am

am shocked ..that shack for over a million!!!!!!!
crazzzzzzzzyyyyyyyyyyyy

well i do understand the guy, being regarded as the “wrong” advisor to his daugher.
I am facing the same issue here
End of last year, my spouse and myself set out to look for a house in the GTA – with the prices starting to go down, we thought it was going to be our luck and SHE was growing with excitement
But with less houses on the market and with low interest rates, the houses to our liking were being subject to multiple bids and being sold near listing or even above and we did not want to get into these.

Every month I have been asking her to wait, wait, wait
SHE got so sick of it that I told her that we’d take a break and wait for the summer to be over and hopefully things will get better…

but what do we see … record prices in June and most prob July…int rates starting to rise (fixed that is)… and my agent has been telling me (and showing me) that most houses being sold are at least at listing (mind you, higher prices than a couple months ago)…
I am getting a hard time from my spouse and now she is adamant that prices will only go up! and we should buy now and not wait for prices to go up. And to top it, few friends of ours have bought in the past year and are boasting the $10K savings they made compared to today’s prices!

I am running out of arguments! I am trying to convince her to wait a couple more months but this is not easy!!
FYI, our household make more than 100K and we have no children yet ( waiting for the house to start the family…well at least what Mrs wants).

#34 VOODOO on 07.29.09 at 8:34 am

What Garth fails to tell you is that $1.329 million dollar house sits atop a diamond mine.

#35 Jacqueline on 07.29.09 at 8:36 am

Garth, you are one of the few making any sense these days. Keep up the good work.

#36 john m on 07.29.09 at 8:52 am

“Interesting times, these. Helicopter parents. Maturity delayed. Adults in their late twenties and thirties barely out of the nest, and certainly not out of the web”<<< is that not the truth! Any couple with a combined income of $100,000 even considering taking a mortgage of $600,000 need their heads read. …The house shown for 1.3 million is a blatant example of stupidity….IMO we are headed for a crash far exceeding whats happening in the states…christ we have adopted every stupid mistake they made and compounded them.

#37 Mathew Gibson on 07.29.09 at 9:04 am

# 9 Hal,

You are absolutely correct, that the government will do everything it can to prevent a housing meltdown as has occured in the rest of the developed world (except Australia and Canada). However, the government does not control the economy, only influence it, and it has now used most of the tools it has to prop things up. (Enough to get it through the next election, anyway.) The bubble will burst, as they all do. Do you really think Ottawa has some ability to control the markets that Washington does not? US bubbles burst, European bubbles burst and the Canadian and Australian bubbles will burst too. It’s onlt a matter of when.

#38 moneymoney;moneyhoney on 07.29.09 at 9:04 am

To Hal Smith no. 9

The system was, by some, suspected to be bankrupt, as early as in the seventies. I understand your cynicism; a little black humor is about the best I can manage myself these days.

No one can be certain that the Canadian government can keep the bubble from bursting when the US has failed at it, from Bush to Obama. And not for lack of trying.

Things have been unsustainable for a long time; the smoke screens have just been blown away a little bit. There is more in the public eye, for now.

As Bernanke said a few days ago “I did what I did because I did not want the 2nd Depression to happen on my watch”. Think of what he did not say.

#39 infernalmachine on 07.29.09 at 9:10 am

I guess at this rate the Toronto market will never correct.

Yay for renting until I’m 45.

#40 Soylent Green is People on 07.29.09 at 9:25 am

#34 VOODOO on 07.29.09 at 8:34 am

That CRACKED me up.

This house is out of the Annex area eg a desirable location, so I can’t believe this price. I live in central Etobicoke (40 min. away from this house in traffic) and for that price I could get the best house in Markland Woods with an inground pool, golf course backyard and everything brand new up-to-date reno (slobber granite countertops slobber), plus extra for property tax payments, and buy dinner for the whole neighbourhood (free drinks). Never mind the parking for 4-5 cars and a huge green lawn. Plus live down south for the winter, with my entire extended family.

CRAZY CRAZY CRAZY PRICE, it really is a chipboard house, I can see the bones, it would have been red brick before, worth maybe 280k in 1999, I am GUESSING. Love that big light pole smack in the middle.

Well I guess it’s worth it if you want to live close to other greater fools your own age. Out here I admit there’s a lot of blue hairs shuffling around.

#41 smw on 07.29.09 at 9:27 am

#13 confused and fed up

Because empoyment is more competitive today then ever before, meaning salaries will stay flat with such a large employment pool, unless of course your a bus driver or a garbage flinger, unionized of course, then your contribution is worth the 3% a year.

Ask people in Alberta or Ontario about “gainful” employment, or people from the east coast that were flocking to these provinces for a slab of the work.

Its almost taking a household income of $110K to meet the 33% ratio for income to average home price in Canada. That means the average Canadian income of $70K should get you into a $210K home(or what should be the average price of a home in Canada if income was still considered when lending).

Incomes and home prices should move lock-step. Fact is average incomes have been FLAT since 2000. Thats ten years of almost “stagflation” in Canada.

The “inflation” priced into homes right now is good for at least the next ten years.

Garth’s “whining” of deflation because more and more valid, in Canada as we continue to think we’re smarter than the rest of the world.

So while the pacific rim next year will be fighting inflation, North America and Europe will still be fighting the dreaded deflation…

Can’t wait till all this “competetive currency devauluation” really takes off…

Cash is king, and any sort of runaway inflation is still a good 3 – 5 away.

Oh, something something for a rainy day… Remember this? Phrase and terms like this were pearls of wisdom, confucianism of sorts from our elders, that are so simple and make so much sense but have been washed away by society in place of filling our heads will usless dribble such as TMZ, Playstation and reality television.

Our grand parents sacrificed so much for us, and look at western civilization squander it all away on magic beans.

#42 Selena on 07.29.09 at 9:30 am

Got this in my inbox from a North York realtor who seems to know “the most” as Mr. Most…Frankly, I can’t believe these newsletters are not regulated. How many people will be fooled into buying in Toronto? With Real Estate agents pumping “the end of the downturn is over”, who knows?
—————————-
July 2009
Dear Friend,
The Toronto Real Estate Board reported a record 10,955 homes sold in June, up 27% from June 2008. The unprecedented demand for home ownership over the last 3 months has led to a continual increase in prices, culminating with June’s record breaking average sale price of $403,972. The average home sale price in 2009 now stands at $383, 710, up 1.6% over 2008.
While a 1.6% increase over 6 months might not seem like much, it is significant considering that prices were expected to drop 3%-5% in 2009 due to the economic downturn.
I have to admit that I also thought the average price would drop in 2009. Good thing I stick to helping people solve their real estate problems, not fortune telling!
The real estate market continues to be strong. All of the reasons for not buying before, (economic downturn, unemployment, and recession) seem to have been forgotten and its business as usual, both in the real estate market as well as the stock market.
This unexpected demand for homes has dropped the inventory of available homes from 23,500 + in April to 18,704 as of the end of June which will continue to result in bidding wars and increasing prices.
Even though the spring market, (the strongest part of the year for real estate sales) is now over, the strong sales will continue until July, but not at the same level as in June.
Low interest rates are adding fuel to the real estate market in 2 ways. One, monthly payments are cheaper so more people can afford to buy and to buy more expensive homes. Two, with term depositions earning 0 – 0.5% return, many people are choosing to put that extra money into upgrading their home.
I believe that this may be an opportune time for anyone considering upgrading their home. It’s a good time to sell to get maximum value for the existing home and a long closing date allows one to find the new home in the summer/fall market when the demand and competition of the spring market has lessened.
If you or a friend you know would like to explore this further, please give me a call and let’s get together and talk.
Don’t forget, I’m never too busy for your referrals!
Your Friend in Real Estate.
Mr. Most

#43 Devil's Advocate on 07.29.09 at 9:42 am

RE: #5 Denis on 07.28.09 at 10:55 pm

I would suggest that Mr. Brad J. Lamb is walking a very thin line. Lamb is a REALTOR not an investment advisor. Yet he is giving investment advice. Lamb is telling his clients to buy condos today because the price is only going up and so too are rents. How can he know this? What makes him so sure? Does he have a crystal ball?

As REALTORS we help people buy properties for a variety of reasons. For the most part buyers buy shelter. More sophisticated buyers buy for investment purposes, but a prudent REALTOR will restrain them self from giving such investors too much advice referring the client to a professional better equipped to do so. Not only is doing so in the best interest of the client but it also offloads the liability the REALTOR might incur for being WRONG.

The difference between a “professional” and a “hack” is that a professional will refrain from giving advice where there is reasonable doubt they might be wrong. A judge does not contain all the information in their head by which to pass judgment. A judge will adjourn proceeding so that they can research the case law and consult others in order to return with an appropriate ruling. Mr. Lamb is of the “opinion” only that real estate and rent values will only increase. He has no way of knowing this for sure and there is great evidence that quite the opposite might, in all probability, occur. Mr. Lamb is a REALTOR not an economist, not an accountant, not a lawyer and certainly not a financial advisor. As a REALTOR he can only professionally comment on where the market is today or has been in the past, NOT where it is going in the future.

I have quite a contrary outlook on the future of real estate than Mr. Lamb, yet I do not tell clients not to invest in real estate at this time. I give them what information they need from me, that they might not be able to get from another, with which they might be able to make their own informed decision. I don’t have a crystal ball. I do have a degree in economics and a long professional career in real estate till that does not qualify me to make prediction upon where values are headed in the future with any accuracy that a client might rely upon. I have been wrong before and, I am sure, will be wrong again. As a professional I understand this and insure I insulate my clients from risk of relying on my advice alone.

The real estate profession goes to great lengths to have its membership adhere to a “Higher Standard” than the law of agency requires. Mr. Lamb’s advice is fraught with peril. If he escapes the obvious potential consequences of his ill-advice I would be surprised an he lucky. At the very least he is setting himself up for a fall from his current status of grace which he holds so publicly that might make that fall equally public and humiliating not just for him but the whole real estate profession. He should be muzzled like the rabid dog he acts.

REALTORS are self policing and if Mr. Lamb was a member of our board I would most certainly bring it to the attention of the board what damage he is potentially doing to his clients and our profession. I suspect TREB would equally listen to any such concern by its membership or a member of the public with respect to Mr. Brad J. Lambs conduct. He is certainly not acting as someone I am proud to have as a member of our profession.

#44 Larry on 07.29.09 at 9:48 am

Canada is going to suffer really bad, worst unemployment rate in decades and highest real estate prices ever don’t make any sense. I hope i won’t be bailing these idiots out.

#45 Jeff in Pickering on 07.29.09 at 9:52 am

So what really does happen in 5 years when the piper comes calling on these no money down, way beyond your means, zero (or negative) equity houses?
Will they be foreclosed and repossessed? Will the bank or CMHC allow them to pay a percentage of the remaining mortgage and walk? Will we have to pay for their stupidity?
That’s what worries me the most about the next five years – not my own circumstances and decisions, but rather how much will I have to pay for others’ moronic decisions?

It is starting to seem like if you wish to remain a homeowner, the best course of action is to save lots of cash, and build as much as equity as possible? But hey, if you’re a homeowner, isn’t that ALWAYS a smart thing to do?

#46 artisuseless on 07.29.09 at 9:55 am

@ #25 pbrasseur
How can they qualify for 600K loan with 100K income, seems too much according to CMHC rules.
Can someone explain?

I have no idea either. I also thought they stopped the zero-down stupidity.

#47 Joseph on 07.29.09 at 9:58 am

Post #4 by Basil Fawlty stated , “It was just a few years ago when people were scared of any mortgage over $100,000”. You know, he is absolutely right. I know a couple who refused to buy a home for $230K here in Ottawa just a few years ago because their mortgage would have been over $100K. Now, they have purchased a home for $400K “as an investment” with a mortgage more than twice that amount. The shift in psychology has been real. It’s scary with what has happened to prudence.

#48 TJ on 07.29.09 at 10:11 am

I am constantly amazed at the number of people that are still living at home with Mummy and Daddy, while they are working and making great money.
Lazy? The Era of Kids as Emperor?Empress?
I’m with Mr. and Mrs. Turner. The day after I turned 18, my dad called me into the kitchen and handed me a check for $500.00 bucks. He had appreciated the fact that I worked every summer since I was 13 – but now, it was time to learn about the real world. Oh, and good luck at University.
That teaches you what money is all about – it’s called survival, and it’s all about hard work, saving, dedication and having some smarts.

Now we have 35 yera olds whining because they aren’t sure if they should by the above illustrated piece of dung, or just stay with Mum and Dad, keep making payments on the 7 Series Bimmer, and keep up with those three week holidays at Sandy Lane.

So – not knowing the value of money – 1.3 for the trash heap listed in this post seems doable. I mean, everyone has to own a home, right?
I won’t lose my Mummy and Daddy backing – they’ll help me with the minimum downpayment.

Totally insane and irrational – but that’s a Real Estate crazed human for you. The top is IN when we have Real Estate as the main topic of conversation. I sold my Condo for a number of reasons, but one of the main ‘tells’ for me was a grocery clerk, at our oft visited Super Valu store telling me about some great ‘deals’ and how Real Estate had ‘intrinsic value’.

I listed and sold in 3 days. People laughed at my wife and I -calling us fools and doom and gloomers.
I told them interest rates will have to go up in Canada we have no choice.

Don’t believe Garth? Read this:

The Canadian dollar hit a 10-month high Monday amid growing risk appetite and rising expectations that inflation will ultimately force the Bank of Canada to break its promise to keep interest rates on hold until mid-2010.

“The time for tightening is not yet at hand, but June 2010 seems too late,” said Yanick Desnoyers, the assistant chief economist at National Bank Financial. “The day when the condition for the Bank’s low-rate commitment is no longer met will probably come before then.”

Mr. Desnoyers said the benchmark interest rate had been lowered to a record low of 0.25% to limit the damage of the recession and financial crisis. However, he said the rate was too low relative to core inflation, which stood at 1.9% in June, just one basis point below the bank’s target rate.

The outlook for higher interest rates, whether they come sooner or after June next year, has helped support the Canadian dollar, which has increased by about 8% since the beginning of the month.

http://tinyurl.com/lwz4aw

Or this beauty:

US Durable goods orders drop 2.5 percent in June:

http://tinyurl.com/kpo6ll

Or for our snooty pals here in BC:

BC Exports have gone down by, hold your breath, a whopping $1 billion in month of May alone. Year-to-date it is down some 19% (-2.4 billion). It is surprising that nobody cares about this data. No mention in media at all. Unfortunately, I am not sure if I can add the report here (copyright issue with BC stats and what not). Anybody looking for specific region can ping me.

I dunno how that’ s going to bode for our “outta recession” economy.

http://tinyurl.com/lz388r

#49 smw aka Rainy Day on 07.29.09 at 10:19 am

#39 infernalmachine

Bet you a coke that come the end of the threat of McGuity to harmonize taxes(or if he does), the end of the Harper Home Depot Tax and any slight adjustment up to bank rates, will cause the same damage(Sales cut in half) we were witnessing in late 2008.

It only took the reduction of the 40 year mortgage to drop sales by half for the fall in Ottawa. This compared to 2007 and 2006.

Five years off the amortorization removed half the sales!

Check this out, but be warned, its gonna get bumpy:

In October and November 2008 housing sales as stated, drop by half. Bank rate was at 2.5% with the new amortorization of 35 years.

Note the bank rate was between 4.25% and 3.25% when we had the 40 year still in place.

Even with the amortorization at 35 years, a 2 point drop in the bank rate effectively creates a 20% buffer in affordibility. This is why there are bidding wars, we loosened the belt way too much.

If we wanted to maintain equivilent housing credit conditions to compensate for the loss of the 40 year mortgage, a half a basis point is all that was required, for the same affordibility for a 35 year mortgage.

Congratulations Carney, you’ve officially blown up a huge housing bubble. I predict that there is enough credit to push the housing average nationally up to 20% from 2008 prices, or at least that high until the first bank rate move up, a half a basis point move up adds 8% – 9% on your payment if utilizing a 35 year mortgage to afford a home.

– $500K mortgage @ 35 year amortorization @ 4.5 = $1086 bi-weekly

– $500K mortgage @ 35 years amortorization @ 5 = $1157 bi-weekly

Numbers from the RBC mortgage calculator

Comments?

PS As for the stock market, short everything, the fall is what it is, FALL!

#50 Toronto C9 Renter on 07.29.09 at 10:20 am

….”closing costs probably covered by daddy”

By the way, not sure what land transfer tax is like elsewhere, but in Toronto, all-in closing costs for the $1.329M house are close to $50,000 believe it or not.

So forget about that new Benz E class for the driveway (or should I say “parking pad”!)

P.S. how do land transfer taxes in Van compare, anyone??

#51 dek0nstructi0n on 07.29.09 at 10:22 am

RE: #40 Soylent Green is People on 07.29.09 at 9:25 am

“This house is out of the Annex area eg a desirable location, so I can’t believe this price.”

Just to point out to you (and others who may be unfamiliar with Toronto), if my eyes are seeing the map correctly, this house sits in one of Canada’s most elite neighbourhoods. i.e. Forest Hill.

It is walking distance from Bishop Strachan and Upper Canada College, famous private schools for the very rich. Your neighbours would be people of the ilk of Ted Rogers (RIP), famous hockey players, entertainers, etc. This house is clearly entry level for this area, where many others are priced in the 5M – 10M range.

Probably a subpar structure and lot, but this is really a case of location,location,location.

#52 Mike B formerly just Mike on 07.29.09 at 10:29 am

The reason this house is so expensive is because it is in Forest Hill very close to Russell Hill Rd and Warren Rd which are spectacular streets. Yup…questionable material.. icing sugar over a rusty tin can. Pricey Yup.. but surrounded by some of the best RE in Toronto.
South of St Clair is also pricey but that is very close to Casa Loma..
If you want to really be shocked do some historicals in this area and you will see that some houses were bought for “land value” well over 800K just to tear them down and put up the icing sugar houses.

#53 john m on 07.29.09 at 10:32 am

780,000 people in Canada on UI and the numbers are rising………imagine what the payroll is for that every week+afghanistan+our commitments to CMHC+the auto companies+84 million a day interest on our national debt+++++++ and all our commitments are rising-revenue is down……if this spells good times then bears don’t shit in the woods :-)———–ah yes borrow every cent you can and buy an overpriced mcmansion duh! As my pappy used to say “some people don’t have sense enough to come in out of the rain” :-)

#54 smw aka Rainy Day on 07.29.09 at 10:33 am

#46 artisuseless

– $30K down
– 35 year amortorization
– 2.75% five year variable
– $4000 property taxes
– $500 monthly debt repayment

Check it out on ING directs affordibility calculator or TDs! These numbers get you a $600K mortgage!

http://calc.tdcanadatrust.com/HMCIA/Input

http://www.ingdirect.ca/en/mortgages/index.html#

Train wreck in motion!

#55 Greg W., Oakville on 07.29.09 at 10:37 am

Hi Garth, FYI, you might find this interesting, but not good news for stopping global climate change,
and we’ll still have to deal with peak-oil issue/supply and demand, if it turn out to be correct.

Can Hydrocarbons Form in the Mantle Without Organic Matter?
Could Deep Source Hydrocarbons Migrate Up Into Oil and Gas Reservoirs?
Republished from a Carnegie Institution press release, July 2009.

http://geology.com/press-release/mantle-hydrocarbons/

#56 D from London, ON on 07.29.09 at 10:43 am

#14 – In Shock Farmboy

I am sorry to say that I think we WILL pay the banks for their bad risks, 100 cents on the dollar. :-(

#57 Rural Rick on 07.29.09 at 10:46 am

We were living in an apartment in TO 20 years ago and wanting to buy a house. Every thousand we saved it seemed prices went up three thousand. We finally decided to purchase a small bungalow in a Southwestern Ontario town on a river. We followed Garths advice and threw every penny we could at the principal. With two incomes we pretended we had one. Three years later we burned the mortgage. There have been lots of ups and downs since then and we have moved twice always paying cash.
We now have 2 acres in the country near town and a wonderful laid back lifestyle with lots of good friends around. Fishing, boating, beaches and lower prices for everything. Sure times are tough but it is tough for the whole community. We help one another and make our own fun.
Best move we every made. I would urge anyone who is looking for a home to think outside the major urban areas. No doubt a major correction in real estate prices is coming but if you are determined to buy getting a solid house for a low price in a rural area sure will lower the financial risk.

#58 Greg W., Oakville on 07.29.09 at 10:48 am

Hi Garth, Some may find this interesting.

Citizens of the United States Welcome to Animal Farm 2009
http://www.marketoracle.co.uk/Article12295.html

#59 robert on 07.29.09 at 10:58 am

Had a beer yesterday with a transplanted Canuck that has been living and working in Arizona for the past 20 years. Ladies and Gentlemen this is not good. Good paying jobs $ 20.00 + per hour are now lucky to garner half of that ( if it can be found ). And we in Canada are exmpted from this carnage you say ? Take a look around you and see how many Canadians have had their work week reduced, wages rolled back, or indeed the mother of all evils temporary or permanent lay-off. Carney says the recession is over … Flaherty, Baird and the rest of the conservative bullsh*t artists say ” not so fast”. I wouldn’t put an ounce of faith in anything these clowns say. My money is on Kevin Page’s projections as he appears the be the only one with a semblance of integrity and honesty. Good Luck Canada .. I fear we will need it.

#60 Denis on 07.29.09 at 10:59 am

#43 Devil’s Advocate on 07.29.09 at 9:42 am

Thanks for your input DA. I definitely appreciate a REALTOR that presents the right information from a proper investment perspective (i.e. talking my language) and I can make the decision to invest or not based on the appropriate facts.

In this case … it’s more of a push than anything else. If someone is new to the RE Investment world and is turning to him for “advice” then they’re screwed b/c he’ll tailor (disguise) his sales pitch, as any good salesman would, as “investment advice.”

#61 Herb on 07.29.09 at 10:59 am

Three years ago my daughter moved to TO and wanted to buy a condo. I dissuaded her, using arguments such as bloated prices, affordability, economic expectations, etc., and she didn’t.

The little witch kept track of the properties she had been interested in, and they still are all at least 25% more expensive. She moved to Ottawa seven months ago, and would have made a tidy profit if she had not listened to Old Dad.

Right or wrong, Fathers can’t win.

#62 dave99 on 07.29.09 at 11:00 am

I agree that house is overpriced. However one of the things that the non-Toronto readers may not appreciate is the inconvenience of travelling time for those who live in Toronto.

If one chooses to live in Etobicoke/Mississauge/etc but works downtown, that can easily add up to 10+ extra hours of travelling time each week (compared to living downtown). When you consider the limited # of quality hours each week to enjoy one’s life (net of work, chores, sleep, etc), that extra 10 hours is a big consideration for some people.

For those whose friends/family live downtown, that is even more motivation for some people to plunk down $1m for a nice, modern, well located house which will allow them to enjoy their lives outside of work. It’s a question of time, and “buying” time via living in the right house and neighbourhood.

One can say that these people should perhaps consider moving out of Toronto to a city without that traffic congestion. I agree. It’s something I myself am considering.

However, I’ll point out that Toronto is the economic engine that has been funding the Ontario’s lions share of federal transfer payments for the last several decades. The huge population growth in the GTA over the past 30 yrs has come from those who move here for economic opportunities.

I’m not saying that Toronto is the centre of the universe (nor Canada). But I’m pointing out that the social and economic factors that leads Torontonians to paying what you consider a ridiculous price for housing are the same social and economic factors that have financially supported the lifestyles of many other Canadians from other provinces and cities.

Once again, I agree the house is overpriced. And I agree that Toronto prices are due for a 20% drop over the next several years.

I’m simply providing some perpective in response to some of the howls of scorn and disbelief. :-)

#63 jussupow on 07.29.09 at 11:07 am

#9 Not sure what to make of you. perhaps sarcasm. Could it be you really believe in the forever bubble? because is going to happen. ppl on this blog are somewhat confused we are still immune to the manure happening everywhere. certainly underestimate this government mad obsession to prolong the happy times (bubble just collateral). They can’t totally control what is happening in the economy but they can print. deflation is clearly the numero uno on the most wanted list. See. Nothing else matters. Mish argument they can’t print as fast as the wealth destruction goes weakens fast and Schiff after all may be the guy who laughs the last. deflation would not do. clearly. re prices actually may fall in real terms (shiller) but in absolute they rise they will. permanently high plateau (ok thank you). What is in this to the savers, renters etc. bunch. nothing good of course. remember grumpydawgs great rant about the illusory benefits of deflation? unfortunately there isn’t any. I do not question powers ability and willingness to push us in a hyperinflationary environment.

#33 if your wife is givin you as hard time that is a sign of bigger problems of matrimonial nature do you see. (sorry just kidding). Months will not do if you like to see the prices go down. Unfortunately years will not do either.

to Munch. you forgot ur obligatory – Garth this is your best post ever! ooooo… best ever… ooooooo

#64 North Van Dude on 07.29.09 at 11:57 am

@#9 Hal Smith

Hal, I agree if it were up to the Cdn govt, yes, they would not allow the pop to happen. There are too many REIC lobbyists influencing the government, not to mention, too many sheeple that are in too deep for this whole thing to fail.

However, you make the mistake of assuming that the Canadian government actually controls things like interest rates, CAD $, and unemployment. Lose this illusion, because they do not. Travel outside Canada and you will learn quickly that our country of 35m people is an insignificant blip- less influence on the world economic scene than the state of California (and they are officially broke).

It’s not up to the Cdn government to decide what interest rates will be- when rates creep up around the world they will do the same in Canada and there is nothing that Mark Carney, Jim Flaherty or Harper can do about it.

Any nation that takes on excessive personal debt is due for a serious correction. Take a look at the RE bubbles that happened in the US, Spain, UK, Ireland, Finland, Sweden, Norway, Switzerland and the Netherlands- examine them closely and you will see they all follow a pattern that is almost biological in its regularity and predictability.

I no longer tell friends or family my opinion on these matters because like the wise Bill Bonner said just last week, “People will believe what they must believe, when they must believe it.”

#65 Cornelius T.Zen on 07.29.09 at 11:57 am

Good morrow, all!
The entertainment value of your blog is incalculable. Renters and wise buyers are sitting back, all smug and amused. The greater fools are all biting their nails to the quick, wondering why they took such chances.
All right. We now know that real estate is only a wise investment if and when you can get someone else to pay your mortgage…that is, you become a landlord.
So, in a nutshell if you will, what are the WISEST investments to make these days? Where should someone park their cash for the best return? How can anyone improve on term deposits, GIC’s, or other bank-secured investments? Do you have another forum where this can be discussed? I look forward to your answer.
BTW, I’d love to see you and Robert Kiyosaki go head to head. What a seminar that would produce – CTZen

#66 North Van Dude on 07.29.09 at 11:59 am

@#9 once more- for a sobering read on bubbles, check out Kindleberger’s Panics, Manias and Crashes. Whether the bubble is made of RE, tulips, stocks or bonds, it always ends the same.

#67 VOODOO on 07.29.09 at 12:07 pm

A must read:

“Do [inflation-adjusted] home prices have a substantial long-term uptrend?” he wrote in 2006. “The [data] suggest not. … [U]ntil the recent explosion in prices, real home prices in the United States were virtually unchanged from 1890 to the late 1990s.”

http://www.theglobeandmail.com/report-on-business/commentary/road-to-recovery-runs-through-heart-of-us/article1234521/

#68 View from the south on 07.29.09 at 12:18 pm

Here’s a little reality for you. Real estate Windsor, Ontario style.

Two houses.

Central location, schools, transit, parks, shopping.

http://www.realtor.ca/propertyDetails.aspx?propertyId=8524127

http://www.realtor.ca/propertyDetails.aspx?propertyId=8240292

First asking $60,000 second $120,000

Welcome to the future…now.

#69 613 Happy where I am on 07.29.09 at 12:18 pm

Where is Coulsen Ave.? It’s a cute house but I would be drunk on the koolaid if I ever spent that much to buy that place.

Right now, in Ottawa, some 400 families in Kanata are screaming bloody murder at the City for flooded basements due to a downpour last week.

Many of us who have lived in Ottawa a long time can remember when parts of Kanata and Orleans were wetlands (glorified name for swamp!). The builders drained it off to build houses and now everyone is shocked that there is water in the basements…. c’mon people!!!! It’s been raining here steady for a month, the ground is saturated, the sewers are full, and the house is situated in a flood zone and people STIILL ask (with a straight face) “why is there water in my basement????”

#70 eddy on 07.29.09 at 12:23 pm

these folks shouldn’t blame Garth Turner because they missed the boat. That would be their own fault. Real estate is always about specifics, and a lot of opinions on this blog are generalizations. The expansion of debt through ez mortgages punishes all savers, expands the money supply and guarantees real estate inflation. Money was not meant to sit on. Toronto price correction happened last spring. The above house is in a great location

#71 Maurice on 07.29.09 at 12:33 pm

Garth: How can stupid people have that much money? The property taxes will be doubling soon.

#72 Nostradamus jr. on 07.29.09 at 12:33 pm

Lordy Lordy, $1.3 million for that dump?

…Homes on the North Shore, Vancouver go for only $800K

TO is in a bubble ready to burst!

…Either that or North Shore homes gonna double in value….right after the Olympics.

#73 Two-thirds on 07.29.09 at 12:34 pm

God help us all, all right… What happened to our planet? Did most of the population get infected by alien viruses a la “The invasion” (http://www.imdb.com/title/tt0427392/)?

More unnerving tales from Alberta. Heeding Garth’s advice from a few weeks ago, I met with a financial planner yesterday. The guy gave a quick presentation of his company and then proceeded to determine our net worth. He was quite surprised when we told him we have no debts. He said that usually what he does for most of his new clients is to recommend how to better manage their debts, but this didn’t apply to us.

After some generic talk on matching investment strategies to timeframes, he showed me an example of why right now is the best time to borrow to invest:

Scenario A

You save $333/month for 1 yr. Invested with a rate of return of 6%, it will yield $353 at the end of the year, for a total of $4,349.

Scenario B

You borrow $100,000 from them at 4% interest. An interest-only payment would work out to $333/month, same as Scenario A. You invest it for a 6% return, yielding $6,000 at the end of the year. All of the interest paid is tax deductible, which assuming a 36% tax bracket is $1,440. He claimed that the annual return on the $333/month would be $7,440.

What bothers me is just how easy it would be to use math to lasso the unquestioning into doing something like this. I asked what the loan interest rate is indexed to. Answer =prime + 1.x (%). I then asked what investment vehicle would consistently give a 6% return. Answer = their 13.2 billion fund invested in bank shares. I asked when would the $100 K be paid off? Answer = blank stare.

Now, the above is not the unnerving part of the tale. What made me truly pale was the casual way in which he mentioned that his company has now a program where they give out $100K loans for investing with them, to anyone who asks for it! Everyone can be an investor now! Cheap money is yours for the taking, what are we all waiting for?

This bubble will not pop this year. Not when money is shoveled out the door to any Dick and Jane, happy to invest with no “skin in the game.”

As Garth said, God help us all.

#74 D from London, ON on 07.29.09 at 12:47 pm

#68 – View from the South

I take your point about Windsor house prices – they don’t call Windsor “Detroit North” for no reason. Windsor has been in a recession 2 years ahead of us, and we may end up there too.

That being said, I know that part of town and it can hardly be called “prime”. Ouellette Ave. is the speedway to the Tunnel, and busy 24/7.

#75 RS on 07.29.09 at 12:50 pm

I feel depressed!

#76 hahahaha ... on 07.29.09 at 12:50 pm

the interests rates are SO low now…
and the house is just what the real estate agent told me i needed. i now must have it; i crave for it; i’ll buy it now….
forget about the state of the economy, unemployment numbers, pending interest rate adjustments… its all good for now !!!!

#77 Munch on 07.29.09 at 12:53 pm

ooooooooo Garth, that was your best, ooooooooooooooo!!!

LOL :o

Thought for the Day:

{checks nervously over shoulder for rampant Garth}

“Atheism is a non-prophet organization”

#78 45 on 07.29.09 at 1:00 pm

35 Coulson Avenue: $1.329 million sold in 4 days selling price = asking price. So on July 2009 it’s worth $1.329 million! 1 km from St Clair Station! I’m not buying but when gasoline prices double so will value of this house.

#79 Troubled Realtor on 07.29.09 at 1:04 pm

What do you think this house is worth? It’s in Forest Hill. Other houses on the same street were sold for 1.6 mill. I have seen the inside of this house it was fantastic. This was a bargain at 1.3 mill. This is not a FIRST TIME buyers house.

#80 jess on 07.29.09 at 1:06 pm

dek0nstructi0n

…lagging indicators such as ponzi retirement scams can effect those postal codes .

all currencies are derivatives of the us dollar….yes?

#81 dd on 07.29.09 at 1:11 pm

#72 Nostradamus jr.

“TO is in a bubble ready to burst!, Either that or North Shore homes gonna double in value….right after the Olympics.”

Stop smoking the dope. Vancover prices cannot support the already lofty prices … at 8 x earnings. Do you think property will move if that metric turns to 16 x earnings?

#82 dd on 07.29.09 at 1:18 pm

Reality check:

Stock markets pricing reflex more on a fundamental basis compared to housing. In other words when cheap financing is taken out of the equation stock market prices have come of considerable highs in the last 12 months. And what happens to housing when the cheap financing is taken away? Back to fundamentals based on earnings/affordability, employment, rent ….

#83 $fromA$ia "Garths Nugget Boy" on 07.29.09 at 1:26 pm

Oh Garth,

Add fuel, food and Real estate prices to CPI and whalla!

You get 50% inflation.

#84 dd on 07.29.09 at 1:34 pm

#79 Troubled Realtor

Ya no. This was a bargain at 1.3 mill.

No people with more money than brains. This place has North Van beat by a long shot. http://www.realtor.ca/propertyDetails.aspx?propertyId=8502539

#85 View from the south on 07.29.09 at 1:36 pm

Hey “D from London”

Windsor is actually south of Detroit ;-)
Those may not be “prime” but $1.4 mil will buy you a whole lot in my town. River or lakefront with water access can be had easy for the price of that T.O. fixer upper.
Something is only “worth” what someone else is willing to pay.

#86 Dodged-a-Bullit-in-Alberta on 07.29.09 at 1:48 pm

Greetings: I would just love to see how much the insurance company would give the owners if that house burn”t to the ground, had to be demolished and a new one built in its’ place. You can bet your soul the bank would still want the mortage payments on the original amount though.

#87 Devil's Advocate on 07.29.09 at 1:48 pm

If the home at 35 Coulson Ave. was listed for $1.329 million, and sold for $1.329 million, it was worth $1.329 million to someone and therefore worth it… today, just as any other home is worth what it sells for.

Homes which sell today for more than you and I think they ought to might not be able to be sold by their then current owners tomorrow for what they paid. On the other hand they might sell for more. Who’s to know.

The problem we have today ladies and gentlemen is that real estate has become a speculative game. Even those of you who choose NOT to buy today because you believe real estate is currently overvalued are speculating that it will come down in value in the near future. It’s all speculation and that is what is wrong with the markets… all markets… speculation.

Housing is a consumable which is to be rented be it through mortgage, rent or cash purchase within your means. I don’t care about 25 year, 35 year, 40 year or 100 year ammortizations for that matter as long as the monthly payments are realistically within your present and future means. These unprecedentedly low interest rates are the fools trap that concern me most. We all know that they are bound to go up at some point. We all know that they have caused house prices to reach the high levels they have. Raise interest rates and real estate values fall, lower interest rates and real estate values rise. It’s the monthly affordability quotient that matters most to homeowners mortgaged or free and clear (there is an opportunity cost associated with having all your money tied up in a home), just as it does to renters. Consequently there is a monthly cost to anyone maintaining a roof over their heads. Some just choose to do so more lavishly and beyond their means…

#88 MenWithHats on 07.29.09 at 2:10 pm

I used to believe that Canada was an intelligent country .
Not now .
I read these missives and I cringe .
Stupid,stupid,stupid .
The old man should just say “Okay,go ahead and saddle tourself with an unpayable debt .A debt that will crush you and your dreams .
Don’t call me when you become homeless .
You were warned .

#89 Nostradamus jr. on 07.29.09 at 2:31 pm

Nostradamus jr. continues to prognosticate that since Canada’s Loonie has gained @ 10% vs the U.S. Dollar…Ottawa can lower interest rates!

…Canadian Interest rates are too high, the Loonie must drop to support Canada’s export industry of commodities.

…Vancouver proper will soon be heralded as North America’s Financial,Trade, Cultural and Leisure capital.

…Although it is a terrible place to live, the North Shore, compared to TO’s Real Estate prices is set to double its values once again.

You heard it here first.

#90 Just a Girl on 07.29.09 at 2:33 pm

There is so much complexity in investing, I think real estate (ie. principal residence) is something most people think they understand and feel comfortable with. It seems “safer” to pay down a traditional mortgage, than make confusing investment decisions. Perhaps this is why people are flocking to real estate now, during a recession … sort of a built in mechanism to “hunker down” and play it safe.

But no one really does the math. It’s quite easy — make two columns — renting expenses on one side, home ownership expenses on the other. Then the intangibles of course, because home ownership and renting are lifestyle choices that don’t come with a specific price tag.

I wonder how folks with 0% down, 35 year mortgages at historically low interest rates are going to do when life throws them a little wrench … or a big one. In my 25 years of home ownership, I have experienced 15% interest rates, loss of jobs, childcare expenses, vehicle breakdowns, family emergencies, marital changes … not to mention unexpected home repairs, like flooded basements … all of life’s events that hit your bank account hard.

Young folks today are not immune to life’s challenges. Perhaps that should be the third column in this simple exercise. How are they planning to deal with the unexpected? Mommy and daddy?

#91 Jan on 07.29.09 at 2:43 pm

Coulson ave at 1.3Million? & you say Vancouver is nutz? Look like you Easterners are totally off your rockers. At least in Vancouver the lots are 33 feet wide :)

#92 jwk (nee jwkimba) on 07.29.09 at 2:49 pm

Ted are you trolling?
RBC will happily give you 550k with 5% down and a 100k income. Not sure how long this link will last:

http://partners.leadfusion.com/tools/rbcbankusa/home01/tool.fcs?param=sGx*[email protected]@

Just go to rbc.com and fill in the form. 110k income, no other debt 2.9% over 30 years. Bingo.

Second tier lenders will go higher than 32% of income with excellent credit. Try First Financial.
http://www.firstnational.ca/default.aspx?menuId=5&catId=1

Any qualified mortgage broker can get you 600k on a true 100k income right now.

In lieu of your donation, but one of Garth’s books. It sounds like you need to read it…

#93 POL-CAN on 07.29.09 at 2:55 pm

Time for some Goldman Sachs bashing via TAE

Bashing Goldman Sachs Is Simply a Game for Fools: Michael Lewis

http://bloomberg.com/apps/news?pid=20601039&sid=a2X3hNaWcbeg

#94 POL-CAN on 07.29.09 at 3:11 pm

Again via TAE… Excellent read…..

What happens when interest rates double?

Housing Recovery: Sell Now Or Your Capital Will Be Trapped
(July 27, 2009)

http://www.oftwominds.com/blogjuly09/rates-capital-trap07-09.html

#95 leaside_girl on 07.29.09 at 3:16 pm

The house in question is actually cheep for that area. So 1.3mil is a “good” price for someone. We are still renting and by the looks of the things will be for at least next 2 years. ahhhhhh I would love to have my own house with 2 kids now getting bigger every day 2 bedroom appartment is getting small but I refuse to pay half a million dollars for 1500sf 50 years old house.

#96 Bilbo Bloggins on 07.29.09 at 3:33 pm

Guy at work just bought a shit kicker of a house for almost $600K (Burnaby). It’s situated right on the busy road.

Him and his wife are only 25 and just entered the workforce not too long ago. Down payment is a measly 10%.

He’s getting CMHC insurance and has to work a second side job now at Superstore (Loblaws).
She works too but likes to spend her money on expensive things like designer purses.

The house is a fixer upper. He’s going to be busy for the rest of the year trying to build a kitchen in the basement for the mortgage helper.

Another disaster waiting to unfold.

#97 blobby on 07.29.09 at 3:33 pm

$10k a year tax?!?

I pay less than that in RENT!

I’m gonna sit back an be smug at the home buyers and count my huge wad of cash.

#98 wjp on 07.29.09 at 3:55 pm

Greetings: I would just love to see how much the insurance company would give the owners if that house burn”t to the ground, had to be demolished and a new one built in its’ place. You can bet your soul the bank would still want the mortage payments on the original amount though.
# 86 Dodged….

Irrelevant…the land has the value!

#99 POL-CAN on 07.29.09 at 4:00 pm

Hmmm…

It is too bad that we can not outsource our city garbage workers to a foreign country. On the other hand this might be something for all other public sector workers to worry about…

Union fury as civil service outsources jobs to India

http://www.timesonline.co.uk/tol/news/politics/article6731114.ece

#100 Samantha on 07.29.09 at 5:11 pm

After some further reflection about the post and many of the comments, I realized that much focus has been given to the market correction and impact upon housing prices.

It occurred to me that one of the things not discussed very much is how the people who have bought into this insane market will cope when the market corrects, interest rates rise and if job loss becomes an issue.

Frankly, I don’t know if these people will be able to cope with the consequences. There seems to be so much financial naiveté – I don’t know if that’s the right word for it.

I was thinking about how some of the Dads have commented about trying to counsel their children only to have the market continue to rise. The market cannot continue to rise indefinitely and it is already beyond income tolerance. So, eventually their counsel will prove wise, but by then for many it will be too late.

Will they move back in with their parents? Rent? Homeless?

It’s sad to think that, in some cases, families will be torn apart by the consequences of rising interest rates and market correction. I feel bad for the children who will be dragged through this mess.

All those people behind the statistics – what will become of them?

p.s.

#34 Voodoo – good one – luckily didn’t have mouth full of coffee lol
#77 Munch – great pun and much appreciated

#101 Dan in Victoria on 07.29.09 at 5:43 pm

I feel for the dad,but if hubby and daughter want to buy,Dad tell them where to go and get the info,many,many bits of info by some savvy people on here, and the links they have provided.If they still want to buy make sure your name is not on anything.It’s time to grow up for that pair,will it be a mistake?Time will tell, none of us can give a exact date of the impending correction,and its size.Its coming.They’re young and have time to rebound.Anything you say is not what they want.And if you have been propping them up its time you grew up too.I’m sick of these spoilt brats.I want it and I want it now.A little lesson like what Garth spoke of will teach them in a hurry.Been there done that.Try living out of your truck for awhile.Some learn fast some don’t.But learn they will.

#102 dd on 07.29.09 at 6:06 pm

#89 Nostradamus jr.

“Although it is a terrible place to live, the North Shore, compared to TO’s Real Estate prices is set to double its values once again”

Hey, pass the doobie man. Like Cool Daddy-o

#103 NKVD Black Raven on 07.29.09 at 6:49 pm

Canada’s in an Earl Jones RE world.

#104 moneymoney on 07.29.09 at 7:24 pm

Of interest to those who read comment #99 on UK government outsourcing of IT & FINANCE jobs to India:

It has already happened in Canada too. The Bank of Montreal outsources IT jobs to China; in Guangzhou (outside HK, on the mainland).

#105 Dave on 07.29.09 at 7:30 pm

lol, it’s true! I heard the same thing coming from my better half. Bidding wars on high-end properties etc. How is this happening? How bad is this crash going to be?
wow

#106 Jim on 07.29.09 at 7:34 pm

Why this recession feels so bad from the Wall St Journal:
http://articles.moneycentral.msn.com/Investing/Extra/why-this-recession-feels-so-bad.aspx

#107 john m on 07.29.09 at 7:40 pm

Hmmmmmm i wonder what that 1.3 million dollar-location-location-location dwelling will be worth when the depression really hits and people are moving out of the cities in droves,crime will be rampant,understaffed police forces,huge tax increases .Life will be different for sure,a nice little home in the country will become pretty attractive.You can live off the land but you can not survive in a concrete jungle trying to guard your possessions. Who knows??–my bet is we are headed for some shocking times–judging by the actions of our leaders so far —hope for a quick recovery is a dream for the gullible.

#108 P-Wing on 07.29.09 at 8:26 pm

If I had 1.3M burning a hole in my pocket I would much rather buy something on 4 acres like this in Guelph. I cant believe someone can spend 1.3M on a house with a 25 ft wide lot!

http://www.propertyguys.com/properties/34762-guelph-ontario-single-family

#109 Nostradamus Le Mad Vlad on 07.29.09 at 8:26 pm

Brainfreeze weather now, as it is brutally average here in the Chokanagan, unlike http://www.kcci.com/weather/20203282/detail.html . Nevermind, as there are other things to focus on.
——
Line following is pretty clear! —

http://www.guardian.co.uk/world/2009/jul/29/swine-flu-pregnant-woman-lancet

“Thalidomide was also deemed to be beneficial…”

. . . and . . . http://www.naturalnews.com/026723_health_vaccines_immune_system.html

“It is Official: WHO Recommends Mandatory Injections to Almost Two Hundred Countries

“Executives from Baxter, Novartis, Glaxo-Smith Kline, and Sanofi Pasteur have seats at the advisory group that on July 13th recommended mandatory H1N1 vaccination of everyone in all 194 countries that belong to the World Health Organization . . .”

Guess who’s going to make a fortune by making and selling the vaccine? Remember, Baxter already had a good supply of vaccine on hand at least a year ago.
——
Comment from wrh.com is straight-to-the-point . . .

“California is now foreclosing homes faster than the entire nation is selling new ones.”

http://dprogram.net/2009/07/29/california-budget-deal-punishes-the-poor/
——
Most have already seen this, but comments from wrh.com are good, and it is a fair bet to say Canada is on the same track.

http://www.washingtonsblog.com/2009/07/even-bernanke-admits-this-could-be.html

“Folks, after trillions and trillions of YOUR tax dollars poured onto Wall Street, Bernanke has just admitted what I have been telling you for months;

“THEY DON’T KNOW HOW TO FIX THE ECONOMY!

“All they are doing is looting the nation before it all collapses and the only choice you have is whether to allow them to steal any more from you or not.”

#110 MenWithHats on 07.29.09 at 9:20 pm

Please donate to the’ MenWithHats’ charitiable organization to purchse helmets for Ontario residents .

#111 gold bugger on 07.29.09 at 9:20 pm

Dodged a Bullet asked: “I would just love to see how much the insurance company would give the owners if that house burnt to the ground, had to be demolished and a new one built in its place. You can bet your soul the bank would still want the mortgage payments on the original amount.”

To obtain a mortgage, your property must be insured so that the bank’s security is protected. It’s right there in the docs you sign at the bank and lawyer.

If you cancelled your policy, you’d be in default of your mortgage.

Therefore, by definition, anybody who bought this house with a mortgage has an insurance policy that covers it being rebuilt.

#112 RM in Oakville on 07.29.09 at 9:22 pm

#87 Devil’s Advocate on 07.29.09 at 1:48 pm

Well said!

#113 Jonathan on 07.29.09 at 9:49 pm

Maintaining ‘high’ home prices requires an ever expanding credit environment since incomes and savings alone do not support the price level (hence why it is high). To maintain the prices, the government will be forced to look for more and more unique ways to expand credit. Moving towards riskier lending is a must as it becomes very difficult to expand good credit any further.

It’s not high home prices that we should be concerned with.

It’s the mortgage debt in this country that has been growing at over 10-13% per year for the past 8 years.

Excess debt growth causes asset inflation. When the debt is restricted from expanding further, you get deflation as prices revert back to their sustainable level that is supported by incomes and savings. Deflation causes credit to shrink, compounding the problem.

Anyone who thinks that home prices will continue to rise isn’t looking at the facts.

#114 Herb on 07.29.09 at 10:24 pm

613 Happy Where I Am,

you won’t be happy long in 613 if you try to introduce reality into area municipal politics, as you are in your #69.

You could not possibly suggest that developers should not build in swamps or floodplains, that City Hall should not approve such developments or, if they do, should force developers to build bigger sewers and catch basins, as well as paying for enlargement of the existing infrastructure to handle the new requirements. If you did, developers would not make enough money to become philanthropists, and we would not always be raising property taxes to make up for planned or unforseen infrastructure deficits.

Remember, things just happen in the 613 area; they are never caused.

#115 Jacqueline on 07.30.09 at 6:38 am

When I was a kid my parents were looking for a house to buy. They found one that they really liked for $250,000 but decided it was too expensive and always spoke of it as costing “a quarter of a million dollars”. They made over $100,000. Maybe this is a bit extreme but it is very interesting how psychology has changed.

#116 steven rowlandson on 07.30.09 at 6:40 am

Hello Garth.
Well the case in question: $100,000 income and a craving to buy a $600,000 house.
The solution is obvious. Come up to Barrie or Orillia and buy for 40 or 50 percent of that and fast track the repayment of the mortgage. Also the couple in question should buy a pair of smart cars for the commute to Toronto. Even that solution is chancy but far better than the disaster they are about to walk into.

Steven

#117 D from London, ON on 07.30.09 at 7:56 am

# 85 – View from the South

( _Disclaimer_ – Typical Ontariocentric discussion follows: Ignorance of the state of the rest of Canada may be upsetting for some readers.)

I know Windsor is south of Detroit. I used to work in Wayne county before the economy in SE Michigan went into the Mother of all Crappers. I assume the “north” part was used by whomever coined the phrase as a general reference to the fact that Windsor is in Canada.

You are 100% correct that you can get a ton of house for your money in Windsor these days. The price of many beautifully located waterfront homes would cause many 416ers to have a stroke.

But none of this counts because, as we know well in SWO, for GTAers the spread of civilization to the west ends at Winston Churchill Blvd. ;-) (before all you GTAers get on your soap boxes, I know this because I lived most of my life as one of you. When I moved away it was generally accepted that civilization stopped at the 427).

I agree with the comments in your original post – Windsor’s economic situation is creeping east faster than the spread of the Emerald Ash Borer. I keep expecting house prices in the rest of Ontario to drop like those in Windsor based on fundamentals, but so far no go (thanks Mr. Carney).

In London the ‘official’ unemployment rate is the THIRD HIGHEST in all of CANADA – and except at the very top end house prices here don’t appear to have declined at all from 2007. Why are Windsor house prices in the toilet while house prices in other areas of Ontario are not following suit? (a friend in Niagara Region tells me some areas there are following in Windsor’s footsteps, but not all areas there).

(OK rest of Canada – you can uncover your eyes now – Thanks for your patience).

#118 Soylent Green is People on 07.30.09 at 12:41 pm

51 dek0nstructi0n on 07.29.09 at 10:22 am

Re Forest Hill, okay, now the price makes sense. Thank you for checking that.

I was sort of thinking that a young couple would prefer the young so called vibe of Annex as a much more desireable entity rather than the blue haired blue blood wrinkles of Forest Hill.

#119 Ronaldo on 08.01.09 at 1:09 am

Absolute total insanity. What on earth is wrong with the banks for even considering a mortgage on this place. I’m beginning to think the banks are the Greater Fools. It’s too crazy forf words. When I purchased my first home in North Vancr in December 1970 the cost was 20,800 and my salary was around 10000 yr, roughly half the price of my home and costs were roughly 25% of my salary when interest rates were 11 per cent. This was a brand new home, 1868 sf, three levels The same job today would probably pay 65000 yr so using the same formula as in 1970, I put the value of that home at around $135000. 10 times less than what it sold for. What on earth has happened over this time period. It makes no sense whatsoever.

#120 Peter on 08.01.09 at 3:04 am

Well, what I can say is MONEY is too CHEAP all over the world and that cause everywhere and everyone to chase over HARD and SOFT ASSETS of all kinds…When I talk to my friends or my clients, they all said the money in their savings accounts yields nothing, they rather redempt all of their GICs from the bank and borrow more than they own to buy a better house, invest into all kinds of stocks , ETFs and mutual funds in order to get a positive return…Leverage their own home to flip another 2-3 homes or condos in order to gain profit here and there…Lastly, we have some amazing immigrants from China, India and some Asian countries where they think they can buy an amazing home here for $ 500,000 CAD means its too cheap and too affordable than in China or India…so I am going to load up more homes and rent some out to make money also..plus they will try to bid,bid & bid until its prices are double (and they think this is the right price to buy cause price will never never gone down…)

#121 Me on 08.01.09 at 12:25 pm

hal smith…..are you delusional or just being sarcastic – I cannot tell…