Pay attention

caution1

The good news is that the TSX closed above 11,000 on Tuesday, for the first time since the Eco Death Star arrived last autumn. More good news was the S&P above 1,000 and the Nasdaq over 2,000, also for the first time in three quarters.

Bullish news, too, for commodities worshippers. Gold futures touched $970 and a barrel of crude is back playing with seventy bucks. In fact all the metals have been on a tear – one reason our resource-rich stock exchange is so frisky.

Even more good news: pending home sales in the US jumped more than 3.5%, when economists had been expected a single point advance. And this came just days after Congress dumped an extra $2 billion into the wildly successful Cash-for-clunkers program that has Americans lining up to buy new cars, at discounts of $4,500.

Now, the rest of the news. A resumption in global growth will mean an end to falling consumer prices. Free billions from Washington will mean an end to sacrifice tags on new cars. Higher crude oil values will translate into higher gasoline and home heating costs this winter. And rebounding real estate values, especially in places like Toronto and Vancouver mean the days of deflation look numbered.

Remember these weeks, since they’ll probably not return in your lifetime. The economy’s still contracting, strip malls emptying and jobs evaporating. Our rising petro-dollar is the worst news for manufacturers, exporters and the whale boat guys at Bay Bulls. And yet at the same time equities, commodity values, governments and consumers are all acting like there’s an expansionary party gettin’ on.

Leads me to two things: the odds this is a bear market rally are high. But if I’m wrong (hey, happens), then there’s almost no chance Mark Carney is going to sit on the cost of money for long. In either case – an economic backslide or rising interest rates – it makes me think this a fine time for a roll in the clover with Prudence.

And now, let’s ride our carpet to the North Shore:

Dear Garth:

I think you have attracted a large following not just because of your predictions or alternate viewpoint, but because there are a dearth of objective impartial people to talk to about real estate decisions. We hope to (a) remain anonymous, and (b) “move up” in North Vancouver. It is the latter on which we would really appreciate your input.

We currently live in a 3 bedroom, 2.5 bath, 2200 sq. ft. house from the mid 1980s (with the white/oak trim kitchen with pink floral tile back-splash to prove it). It is on a 33 ft. lot and has a current market value of $730,000 (we think; this is below assessed value). We owe about $335,000; have a 1.45% variable mortgage; pay just over $1400 monthly in mortgage of which just about $40 is interest). We have updated the roof, windows, lighting, paint and done some light decor touches, but if we stay much longer we feel we may need to do the kitchen, baths and flooring. One of us takes transit from work; we can buy milk at the corner store; we have great public schools and rec centres and live in a desirable neighbourhood we like very much.

In fact, we would like to stay in our neighbourhood and get a bigger home: 4th bedroom, office, rec room, larger yard. This will cost about $1.4 million and, assuming we can sell our home, require about a $700,000 mortgage. We have been pre-approved for this (and more) at 3.85% for five years. The payments would be less than 33% of our income (we understand this is a rule of thumb?). We have no other debts, but do pay a lot for childcare (about $2000 a month). We have cash for property transfer tax and the move etc.

We need (and want) the bigger home to accommodate our relatives who all live back East and visited for (not consecutively) 4 months out of the last twelve (we have a child in each bedroom and now shuffle these for visitors). They would stay longer if we could give them better accommodation. As our older child starts school, we may need a nanny and a room for her.

Although we could afford the payments at 8% we obviously do not want to lose most of our equity or bite off more debt than we need to. So:

(a) when does the 40% rule apply? As in, at what age? RE is more than 40% of our net worth now (about 70%). We put about 50% down on our house 7 years ago, and would be putting about that, or 40%, down under the above scenario. This would be more than 40% of our net worth though.

(b) when is it right to move up? We assume you will say not now, but how will we know?

(c) please don’t say “sell” but “get a bunk bed for the kids and an air mattress for the in-laws”??? Most of our relatives are not of means to pay for a hotel and we often already pay for the air fare. Renting a comparable home (to what we have) in our area is about $3200 a month, and to rent what we would move to is about $5000 (more than our mortgage would be). What do you think?

Thanks from North Van-covet

My, my, my. What ever will they say in Windsor or Winnipeg? You give us a nice little snap of what life is like from the inside of a bubble looking out. Clearly the premium for living in Vancouver is extreme – upper-middle class family like yours with a six-figure income (sounds like it’s a little north of 200K), with 70% of your net worth in a house with pink tiles.

Your note, however, shows you’re approaching this decision with as much logic as emotion. Nice. After all, you really don’t need the big house – you want it. And it’s your money, so you should use it to get what you want. If it’s a fancy house in Van, no problem. Just don’t make the mistakes of thinking this is also a balanced financial plan, or that it does not contain risk. It does. Gobs of it.

As you know, interest rates will be rising. That 3.85% mortgage could indeed turn into one in the 8% range, if rates return to their 20-year norm. You absolutely should be prepared for that, budget for it, and know the consequences. One of those will be ascertaining the answer to this question: If mortgage rates double, and a $200,000-a-year family is pinched owning that home, then who’s going to buy it from you? And as affordability falls, so will prices. It’s inevitable.

But you know that. You still want it. You’re even playing the poor-relatives-from-the-East card. It’s a sure sign.

So, (a) my belief is that anyone, anywhere with more than 40% of their net worth in one house after the age of 40 needs to change course. After age 50, you’re gambling. After 60, you’re a fool.

(b) When to do this? Two factors favour selling now – you can get a top-of-the-cycle price and a cheap interest rate commitment. But you’re also buying into peak house, and I have every expectation prices will be lower in 2011. So, mitigate it by buying the worst home on the best street.

(c) If you do rent, you’ll have $700,000 to invest which, at 5%, yields $35,000 a year – or enough to pay $3,000 a month. You can then bank the $60,000 in mortgage payments that a $700,000 home loan at 8% would cost you, starting in five year. Or you can buy a $1.4 million dollar house in North Van for $1.1 million. Cash.

Say, have you met Pru?

HOWE STREET BANNER

For Garth's latest podcast, go here.

116 comments ↓

#1 5%? on 08.04.09 at 10:05 pm

Where does this 5% return investment come from? How do you get it these days?

#2 GG on 08.04.09 at 10:29 pm

Hello Mr. Vancovet.

Sounds like you really want a bigger house and you’re using your visiting relatives and nanny as an excuse. But the numbers, despite your high income don’t make sense to get a few hundred more square footage at $700k more. Here in Toronto that idea sounds ridiculous.

Have you thought of expanding your house vertically?
I mean adding a third level which probably adds another 1000 sq ft. I think it will cost a lot less than $700k.

GG

#3 Jeremy on 08.04.09 at 10:44 pm

Amazing how many people come to Garth to try and justify their bad decisions. Ask your real estate agent these questions, he’ll tell you exactly what you want to hear.

#4 GG on 08.04.09 at 10:49 pm

Garth. I don’t understand. Why would the governments let the interest sore high in a few years knowing it will lead to more foreclosures once again. I think they will artifcially control it for a very long time until household income catch up with high prices. But hey..i’m no economist so what do i know.

#5 Cash is King on 08.04.09 at 10:51 pm

What will they say in Windsor?? “Why the hell do you want your relatives staying at your place for more than 4 months out of the year??” You already pay for the air fare and I’m guessing food and transportation while they are with you. If you get a bigger house…they may stay permanently!

Funny, when Windsorites call thier relatives in Van., the automatic number block kicks in. Nobody wants us!

Why would you want to give back all your cash to double + your mortgage. Is it because you have already lived there 7 years and your friends have already moved twice in that time? Your new mortgate will take you 35 years to pay off. You’ll be collecting CPP for 10 years and still paying that badboy off.

Too bad that $730,000 only gets you a 33 foot lot. Building a mother-in-law suite would be much cheaper than a new $1,400,000 house. Of Course, want, need, and desire have taken over your normal thought process.

I believe it was the Beatles who asked Dear Prudence – won’t you come out and play; won’t you open up your eyes. Instead, North-Van-covet is listening to Lucy in the Sky with Diamonds.

Saving Cash for the Crash

#6 conan on 08.04.09 at 10:57 pm

RE: #1

If you mean guaranteed you are right.

2 weeks ago you could get 5 %. Now it is 4%.

#7 Enuff on 08.04.09 at 11:21 pm

With reference to todays and yesterdays topic. What happens if you sell your house, put the $ in “safe” investments ie: GICs and down the road the banks fail or they go on holiday for an inconvenient length of time? Now you’ve lost your home and your money.

In an update article yesterday (I think) Bloomberg reported that the FDIC (the American equivalent to the Canadian Deposit Insurance Commission) will have to levy increased premiums to all their member banks because their payout reserves are precariously low because of all the bank failures this year alone.

I suppose that’s why Shauna did what she did, but I could not sleep with cash in the house – talk about risky behaviour. Not that I sleep well these days anyway, sigh.

#8 Casanova on 08.04.09 at 11:35 pm

c) If you do rent, you’ll have $700,000 to invest which, at 5%, yields $35,000 a year –

I dont know how you can invest safely nowdays 700k and get 5% interest. Goverment bonds and money deposits are paying less than 1%. Your strategy of investing at 5% seems riskier than buying real estate Garth!!!

#9 POCOmpton on 08.04.09 at 11:37 pm

Hi Garth,
How about you tell me how to make money like these ppl who are buying up condos left and right in vancity? you say that most of these ppl are first time home buyers and i fit right into that category.

i’m 26yrs old, i have about 100k in cash and i make about 60k/yr. me and my bf have been looking to buy together since early this year. At that point, we were looking at places that would be around $350,000, condos obviously, being in vancouver, and i could not believe how many ppl were snatching up listings in this price range. we figured that we would definitely be able to put >20% down and have a bit left over for emergencies, etc and even then, i can’t imagine paying a monthly mortgage of over $1500/mth. and thats not including condo strata fees that are about 200bucks, plus cost of food, we both have cars (paid off but insurance+gas) and then i also really really like shoes.

the point is, i don’t think we make a lot of money, but we surely aren’t at the bottom, and we also have good savings. so who are these ppl/couples who can afford less than 20% mortgages and buy condos at these prices? and how is then possible for a single person to afford to buy a place (me at this point after reconsidering the bf)? ever?

i guess a lot these “young” ppl have parents to back them up with their downpayments, and even if interest rates do go up, present buyers won’t really be in the pits until their 5yr terms are up, right? so i might be able to jump in in about another few-5 years? great.

i’ll just go back to selling drugs and my bf can go back to being a gang banger so that we can raise enough money for that sweet, sweet moment.

thanks for letting me rant.

#10 dd on 08.04.09 at 11:48 pm

#1 5%?

Where does this 5% return investment come from? How do you get it these days?

… solid corp bonds from 8 to 10%

#11 JoJo on 08.04.09 at 11:48 pm

Yes,Recession is OVER and from 2010 is coming depression.

#12 Live in Ontario on 08.04.09 at 11:54 pm

If they really think they are only paying $40 a month in interest then they need a course in math. Even at the extremely low rate of 1.45% they are still paying $300+ a month in interest.

I suspect the rest of their math skills are just as bad. This is a recipe for doom for this family. The “poor folks back East” will likely have a chuckle when the bankruptcy happens.

#13 PC on 08.04.09 at 11:58 pm

This is all bragging.

Look at me. My Tulips(I mean house) is worth xxxx.

Just another debt slave with worthless bragging rights.

Pleeeeze…get a life.

#14 Christopher on 08.04.09 at 11:58 pm

.75 is all I can get for the bankers are not my friend. Sucks to have money! save high and don’t buy, thank god for my health!

#15 dd on 08.05.09 at 12:04 am

…the odds this is a bear market rally are high….

U bet. Without the trillions in government spending the market would trash. What happens when spending is reduced and the consumer is not there to continue on? Debt has to be reduced, credit expansion is turning into savings … how can this current rally last.

#16 dd on 08.05.09 at 12:18 am

….pending home sales in the US jumped more than 3.5%, when economists had been expected a single point advance. And this came just days after Congress dumped an extra $2 billion into the wildly successful Cash-for-clunkers program that has Americans lining up to buy new cars…

You have got to be kidding. Sales are still at lows and $2 billion is just a drop in the bucket compared to the trillions being spent. Can this spending be extended? That is the real question.

#17 LS on 08.05.09 at 12:36 am

Something is not right.

They bought a house 7 years ago with 50% down. After 7 years of mortgage payments they still have $335,000 left to go. Today that house is worth $730K???

That makes no sense whatsoever. Even if they had an interest only mortgage (is that even possible?), their house would have been worth $670,000 in 2002, and now, after 7 years where real estate rose the most, it’s only worth 730k? If they spent 7 years actually paying off their mortgage, then that would indicate their original purchase price was more like 800,000, which makes even less sense.

Someone has their figures wrong.

#18 kc on 08.05.09 at 12:38 am

Here is a carryover from yesterday’s entries about fractional banking and why you can’t withdraw your money in cash form. yes this is a lengthy piece, however, worth the time to read it if you question what money really is and what it means.
this is part 2 of the essay. there is a link in it to part 1 if you are inclined to read more.

Is America Broke Part II, The Debt God

http://www.marketoracle.co.uk/Article12501.html

#19 Nostradamus Le Mad Vlad on 08.05.09 at 12:44 am

FWIW, I would choose part of Option B — sell it then rent it back right away (if possible) for two or three years or so, then invest — there are plenty of bargains to choose from, and keep a small emergency cash outlay on hand.

Five per cent is minimum when a good-size chunk of change is involved, esp. when it is spread over three or four investments.

BTW, keep in mind the lyrics from the Rolling Stones hit — “You can’t always get what you want, but sometimes you get what you need.”
——
If the UK is effectively broke (most of its citizens are, anyway), why is the Royal Mint producing more gold coins?

http://www.bloomberg.com/apps/news?pid=20603037&sid=aF3LXxMlYpJ8
——
Article says one cannot inflate their way out of debt, but if one is so far in the hole then what are the alternatives?

http://business.theatlantic.com/2009/08/you_cant_inflate_your_way_out_of_debt.php

“Hyperinflation might wipe out that debt, but also your tax base.”
——
Seems it’s not just the west who doesn’t have jobs, but if this is the case, then why is China in such a rush to globalize the remnibi? —

http://www.google.com/hostednews/afp/article/ALeqM5iVUyEQJXsOKYC2ik3XDwBCTecJEg

http://www.theaustralian.news.com.au/business/story/0,28124,25873673-5017999,00.html

#20 Bobby G on 08.05.09 at 12:48 am

ponzi alert
http://articles.moneycentral.msn.com/Investing/CompanyFocus/why-are-company-insiders-selling.aspx

#21 soesoe on 08.05.09 at 12:52 am

Yes Garth, please clarify where this 5% ROI is? I’d like to get in on that.

#22 Munch on 08.05.09 at 1:22 am

BWAHAHAHAHAHAHA!!!

“A peek at life from inside the bubble looking out!”

Classic!

#23 Vexed in Victoria on 08.05.09 at 1:29 am

“Victoria’s July housing sales highest in almost 2 decades” (Times-Colonist)

Greater Victoria’s housing market remained strong in July, hitting the highest number of sales for that month since 1990.

A total of 933 homes and other properties sold through the Victoria Real Estate Board’s multiple listing service last month, up 51 per cent compared with July 2008 when 616 properties changed hands.

At the peak of the market in 2007, a total of 922 properties were sold. The board’s monthly sales tables date to 1990.

Greater Victoria’s real estate market slowed dramatically late last year and early this year. It picked up in the past few months as the market became more balanced and interest rates remained low.

http://tinyurl.com/ldxlnv

#24 Turner'sAMoron on 08.05.09 at 1:33 am

The sky is falling! The sky is falling!

This is not going to make your comments page, I know that, Turner, but at least you will have to read some of this before you delete it.

You are a moron. I see right through your charade. You preach doom and gloom all the time. Well, we both know that a broken clock is right at least twice a day.

You’re Doomsday fear-mongering has been proven wrong; you’re a hypocrite by telling people to not buy real estate when you, yourself, did so right in the “heat” of this meltdown you falsely predicted.

Keep strumming up these “sheeple,” Turner, and keep cranking out your books and seminars. I guess that’s what a shamed politician does best.

While you’re on the site, what monetary policy changes do you believe will be required to address rsing asset inflation and simultaneous exchange rate imbalance, Mr. Carney? — Garth

#25 Small Business on 08.05.09 at 1:33 am

5%

Good dividend stocks routinely generate a 5-20 percent dividend on your initial investment …. even in these uncertain economic times.

That is what I am doing with my money while I wait for the housing market to return to some form of sanity. Might be a long wait.

#26 MRR on 08.05.09 at 2:19 am

So where are we? Still in deflation? Inflation around the corner? Rebounding real estate in Vancouver?! Indeed, Vancouver is red hot with no signs of abating.

So when are the price declines supposed to happen?
2011 now…. gee that will have been a 9 year run! Not like the 81/82 bubble. If you missed the Vancouver run up, you missed almost a decade of massive returns!

#27 David Bakody on 08.05.09 at 7:08 am

Hello …… stay put and pay off your home …. all too soon the kids will be gone ( believe me one day they are in your arms the next day they are out on their own, especially if you keep them in a small affordable home) they will never leave a mansion! As for he in laws spring for a small but clean Motel ( less is more) perhaps a shorter visit …. and by the way soon they will be too old to travel and y’all will be left holding a monster home full of junk …. yep junk ….large homes just seem to accumulate it. As mentioned once before we had to pay people to takeaway Maytag appliances from my dear mother’s home! In any rate I believe you will do as you said you wanted to do ….. it’s like telling a drunk not to drive when the he/she has the keys in hand.

Oh ….. Garth did not mention all this rests on two key issues …… Health and Work …. just think heaven forbid one paycheck gets sick and has to leave work …. believe me it happens every second of every day to someone.

Bon Chance … good luck

#28 SaraBeth on 08.05.09 at 7:45 am

A nanny? Really? And we are supposed to feel sorry for you?

*rolls eyes*….

#29 miketheengineer on 08.05.09 at 7:54 am

Why not rip apart the existing home, add an addition. One of my relatives put a 20×20 great room on the rear of his existing home, complete with fire place, vaulted ceilings etc. Just beautiful. He uses the basement part, with a separate entrance as his work shop and computer area. More than enough room for everything with space left over. I think he spent about 40 to 50 grand to do it, himself, hiring his own contractors etc. Why go into unnecessary mortgage right now. Are you crazy?

#30 Mel Eager on 08.05.09 at 8:03 am

Hi TurnersAMoron,

You obviously strongly disagree with a lot of the comments on this blog.

Have you personally had recent financial success in spite of Garth’s warnings on this site?

Are you a realtor that has continually been able to sell homes and make a living?

Do you have skin in the stock market, and havie you ridden the latest increases on the Cdn and US stock market indexes?

Can you provide some examples where you proved Garth wrong?

I am curious, what makes you so smart? Seriously, share your knowledge.

Cheers,

Mel

#31 wayupnorth on 08.05.09 at 8:11 am

#7

The story is much bigger then that down south. Over the weekend three mid sized banks should have been put out of business by the FDIC but weren’t because it doesn’t have enough money left to pay out all of the depositers. At this point any run on the U.S. banks would last 5 minutes before there is no money to pay out.

Add in the fact that over a million Americans have recieved forclosure notices over the last year but have not been evicted so have been living rent free all that time. The banks don’t want any more houses because if they have to sell them the true value of the sale price replaces the inflated value they are carrying on their books which would bankrupt about 3/4 of the largest banks down there.

Now add in the problems of state and local governments with their budgets. Illinois laid off half their state troupers and I believe Georgia just laid off most of theirs and is asking for the national guard to take over policing duties. Detroit may not even have a public school system this fall etc. and you can see that the U.S. is not in a recession, that was a year ago, or even a depression, that was a couple of months ago, but a full fledged breakdown of their culture. More and more people are simply stopping to pay their debts as it really doesn’t matter if the whole thing collapses.

But Canada is different you say? Like others I was shocked a couple of weeks ago to read here that our own CMHC is totally responsible for any mortgage they insure. I always thought they were only responsible for the first 25% minus whatever down payment you put in yourself. How many defaults and/or how big a drop in house prices before they collapse just like what is happening south of us?

As far as that Vancouver family goes, I would suggest going for a 2 million dollar house with indoor swimming pool, tennis court and several inlaw suites. After all you wouldn’t want to get caught short if additional members of your extended family want to visit do you?

#32 The 'VULTURE' on 08.05.09 at 8:18 am

The Never-ending Search for The Greatest Fool

These people are contemplating going from a $700,000.00 (with a $335,000.00 mortgage @ 1.45 VRM!) home to one that is twice the amount at $1.4 million (mortgage rate 3.85%) during this current “depression”??? Nice…real shrewd….Must be paying attention to the current economic disasters around us for sure. The fact that the bank is willing to ‘rent’ this kind of money to them as well is truly insane.

Assuming both are working, what will they do if one of them loses their job. If there is only one income then God help them because you know that the new overpriced house is going straight back to the bank.

I fondly remember my father’s first house cost him $12,600.00. His second and current house cost him $70,000.00 which is now assessed at over 5 times its value. He just shakes his head in disbelief at the foolishness in home buying that has been going on over the last 7 years since Greenspan started the free money craze.

People are now pre-conditioned that it is normal to spend in excess of 700,000.00 on a home…that it is normal because everyone else is doing it. What about their retirement, what about food, clothing, transportation, entertainment, financial security, holidays.

House rich – cash poor until a greater fool comes along…

#33 Jonathan on 08.05.09 at 8:19 am

HAHA

Ahh good laugh.. that sign is the funniest thing

#34 Munch on 08.05.09 at 8:26 am

This is a BUBBLE, Ladies and Gentlemen!

A BUBBLE!

Will you never f*cking LEARN?

I guess not – as my papy used to say “If you don’t want to LISTEN, then you are going to have to FEEL!”

#35 Devil's Advocate on 08.05.09 at 8:51 am

#3 Jeremy on 08.04.09 at 10:44 pm WROTE “Amazing how many people come to Garth to try and justify their bad decisions. Ask your real estate agent these questions, he’ll tell you exactly what you want to hear.”

Not necessarily. I am a REALTOR and I am advising all my buyer clients who are financing their purchase (pretty much all of them) to calculate what the mortgage payments on the home they choose would be at 8.0% in order to determine affordability.

We own our own home and have contemplated selling during this obvious peak time, putting the cash in something secure and renting in anticipation of a drop in RE values. But that is hard to do as a home for many of us is not so much about being a financial investment. I don’t care if you own free and clear, are mortgaged or rent… in the end we are ALL renting when one considers opportunity costs, taxes, interest, etc. A home (shelter) is a consumable. You should never buy a home expecting to become rich from it. You should budget for shelter just as you do food and if at the end of the day you have nothing to show for it at least you had a roof over your head. So in my mind renting or owning is no different. From the financial perspective it is like leasing or buying a car. I own my cars, I own my house but that owning works for me doesn’t make it the best choice for another. It’s just the way we approached acquisition of the “things” we need and, even then as I mentioned, we are contemplating the benefits of renting vs owning.

We all buy on emotion and then, afterward, rationalize those decisions with logic. You can’t take it with you. Think about it… we ARE all renting. Government is our landlord.

#36 Davinci on 08.05.09 at 9:05 am

GFMS estimates that banks were net buyers of gold after being net sellers in the first quarter.

http://www.mineweb.co.za/mineweb/view/mineweb/en/page34?oid=87094&sn=Detail

Garth said gold is going to $500 – Quick Garth call up all the central banks and tell them they are making a mistake and they should just print more paper and hold that and be rich.

lol

Ever heard of Bretton Woods, sailor? — Garth

#37 JeffinPickering on 08.05.09 at 9:19 am

“We currently live in a 3 bedroom, 2.5 bath, 2200 sq. ft. house from the mid 1980s (with the white/oak trim kitchen with pink floral tile back-splash to prove it). It is on a 33 ft. lot and has a current market value of $730,000 ”

If this doesn’t say ‘absolutely ridiculous bubble’, what does?
730K? Are you kidding me? Here’s some perspective: We have a 3 bedroom (plus another one in the basement), 2.5 bath house, around 2200sq ft – $350K. Oh, and we have a 70X140′ foot lot. Oh, and we’re five minutes from a mall, highway, groceries, urban transit, and can reach downtown Toronto by GO train in 25 minutes (I do it everyday), or the same by car on weekends/off rush hour.

Can we just saw Vancouver off and set it adrift in the ocean before the rest of us have to pay for this stupidity? (don’t get me wrong, I know we have plenty of greater fools right here in TO and Southern Ontario too)

#38 Kenda on 08.05.09 at 9:25 am

My advice to this family: Stay put!
am sure the existing house has gained nearly 100% in value in the 7 years… so if it goes down in value in the next 2/3 years, then sell and buy another one (whatever you want) at presumably lower price too!
WHY? they have low low interest at the moment…why increase debt and cost of debt – esp when we all know interest will rise!

that said…I have few questions for everyone else (incl Garth)
1. we blame the high prices of late of RE in Canada to very low int rates!
Compared to US, our rates are higher, our income lower. US only has a slightly higher unemployment rate… yet, here Canadians are buying houses and in US, they are not. Does this mean people here are FOOLS?
2. Int rates are at their lowest in ages…and bound to go up in both CA and US. Does this mean US house prices will go further down, since this is what we are expecting here in Canada?
3. Why would the govt increase int rates? CA is already so strong, inflation is still within reasonable range…raising int rates will cause less investment, stronger CAD – detrimental to the economy…
Moreso, house debt burden will be heavier leading to more defaults and lower housing prices and hence more default – mini US RE crisis…but who will foot this bill then? not the banks…all risky mortgages are insured with CMHC (govt again)? so why will the govt spit up, if it knows it will falls on its face? My view, they will artificially maintain the rates low and prevent the housing crisis!
4. That said..the housing market needs a correction and may get it…but in my opinion, not in short term (1/2 years) but more long term (5-10 years) – esp with boomers selling their McMansions!
MY VIEW: house prices will not fall soon…but will not increase … will start falling in couple of years, slowly over a decade or so!
Anyone who wants a home, buy a home!
anyone who wants to invest in a house, WAIT

#39 Jonathan on 08.05.09 at 9:26 am

#4 GG

“Why would the government let interest rates rise?”

Many reasons. You could ask yourself why didn’t the US started to increase interest rates after the tech collapse of 2001. They created a real estate bubble to offset the losses on American’s investments. But the problem was that it required a huge consumption of debt to keep home prices increasing.

It is a combination of first time buyers and mover-uppers that take on the debt that props up the prices of the assets. These individuals are primarily aged between 24-40. Putting these individuals into a pile of debt that, today, won’t be paid off for 35 years is not good for the economy in the long run. What you end up with is a short burst in the economy related to over priced new homes. Long after the economic benefits have passed and spent, that individual is still has the far majority of their 35 year am left to pay. At that point money that they would otherwise spend on goods and services is still be spent on their mortgage. This cripples the economy and results in falling wages and recession.

When you take on debt, you borrow from your future. Plain and simple. It’s as easy as that. Don’t expect a bright future if your economy borrowed to much and didn’t invest it in areas that will produce a future economic return. Real estate is one such commodity that produces no future economic return.

#40 Chris no longer in England on 08.05.09 at 9:29 am

If I was entertaining so many relatives for four months of the year, and had the expectation of them staying for even longer if their “quarters” were more amenable to them, I’d be expecting them to nanny my kids for free in return for their keep. There you go – some money saved!

#41 Kurt on 08.05.09 at 9:30 am

@ Turner’sAMoron: the great thing about posting to a blog is that it isn’t in real-time. You can take all the time you need to think about what you are going to say, and then review it for, at a minimum, coherence. The moderator asked you a question, a reasonable question, a good question, but a question that requires thought. How about blessing us with an answer? If you choose not to, your post may be dismissed as the mindless rantings of some brainless loser.

#42 Mike B on 08.05.09 at 9:35 am

Must be the air on the west coast that makes people consider themselves omnipotent. Maybe the weed. I don’t get it. They have an already huge mortgage and they want to double that. Just insane. Hey if they feel real estate is a good investment then why not buy two or maybe three. In five years they can cash out and retire on easy street….right???

#43 Devil's Advocate on 08.05.09 at 9:43 am

#37 JeffinPickering on 08.05.09 at 9:19 am “Can we just saw Vancouver off and set it adrift in the ocean”

Please…

But do us a favour, start the sawing somewhere about the Sask or Alberta boarders. They too, like us in BC, would probably prefer to be set adrift from the moronic Ontario based central government. Thank you for your support… NOT.

#44 VOODOO on 08.05.09 at 9:47 am

Illinois budget cuts:

http://www.stltoday.com/stltoday/news/stories.nsf/illinoisnews/story/335066AB43E519CE862576050000ED68?OpenDocument

#45 Larry on 08.05.09 at 10:14 am

Average 2 bedroomed TH across the road from my rented house here in Calgary, listed 385K condo fees $330 , c/s in 2 days.
The recession is over here in Calgary (not that it ever happened)

#46 Got A Watch on 08.05.09 at 10:19 am

“Turner’sAMoron” – Take the first word out of your name, and you have the perfect online handle for yourself.

There is only one moron here, to find him, just look in the mirror.

Garth’s common sense is way too intense for many sheeple to absorb, obviously. All the “arguments” these trolls make boil down to “it’s different this time”, “I believe every word the Government/media/Realt(ho)rs(TM) say” and “Real estate will never ever decline in value again and interest rates will never rise again”. Insert other clueless platitude here.

Sure. If you really believe that, it’s surely is time to load up on Vancouver or Toronto real estate, with the smallest down payment possible. Nothing like buying in after 10 years+ straight of rising prices. Yep. It’s so obvious.

The road to riches, or the road to bankruptcy. Time will tell. Me, I just play the odds. Rational assessment of probabilities indicates what has gone way up recently will come way down again. All things move in cycles, and every cycle has a negative part. Sorry, I’m a deep thinker.

#47 LS on 08.05.09 at 10:24 am

@VexedInVictoria

I actually saw those housing stats in Victoria very positively. Even though they put their usual spin on it, the median and average price went down both from June and from a year ago. So with record sales, and record low interest rates, prices still can’t approach the highs of last April.

That is an excellent sign for the market being about to correct. When sales volume reduces, and interest rates rise (fixed rates already are, and the pre-approvals for the lowest rates are about to expire), prices will come down. This is the first month that has started to become clear from the market activity.

#48 andrew black on 08.05.09 at 10:29 am

#10

you mean like GM and Chrysler :) the return on bonds is based on their credit rating and only junk bonds are paying that kind of return these days. the probability to recover the principal for these bonds is almost null.

in 2008 GM was selling bonds with 6.5% coupon in 2008 and they paid less then 50c on a $ to the bond holders.

#49 Bob on 08.05.09 at 10:35 am

euphoria now is similar to that of before~~ disaster in fall…. is coming~

#50 Herb on 08.05.09 at 10:37 am

With all the market good news, do not forget the real bottom line defined by Amos and Andy:

“Ah’m still da broker, but you now is da brokee!”

#51 PTDBD on 08.05.09 at 10:38 am

Pay attention Garth..do not fight this market bull.

Confidence is being ramped up each day. There is unlimited taxpayer money at work here. For example, today’s $173 million government loan to Bombardier. Deficits simply don’t matter anymore as we have gone far beyond payback. The piper will never be paid but who cares.

When the markets go up, people feel richer and spend more even though their income has dropped. To the moon babeee :-) going forward :-)

#52 Ultraman on 08.05.09 at 10:41 am

#24 Turners’sAMoron said,

“You are a moron. I see right through your charade. You preach doom and gloom all the time. Well, we both know that a broken clock is right at least twice a day.”

This is the digital age dude, a broken clock is a broken clock. Who’s the moron now?

#53 Vince on 08.05.09 at 10:42 am

#36: “Gold going to $500”

Isn’t in reflexive and nonsensical to measure gold against the dollar if the hypothesis is that paper money (U.S.) will become worthless?

The yardstick for gold should be:
(a) how others value it,
(b) ability to acquire real goods in exchange of it, and
(c) it’s inherent scarcity

If the price of gold is fixed again, we have much bigger problems to deal with.

I would rather be in gold, simply because of it’s scarcity. Real returns are hard to come by, you might as well put aside a few krugerand as a simple hedge against the worst-case scenario. The value against the dollar shouldn’t factor into the equation.

#54 davers on 08.05.09 at 10:54 am

“We owe about $335,000; have a 1.45% variable mortgage; pay just over $1400 monthly in mortgage of which just about $40 is interest). ”

This has to be a typo or something, the interest should be closer to $400 a month.

335000 * 1.45% = $4857/ year = $404.80 / month in interest

#55 HappyJack on 08.05.09 at 10:57 am

Would the folks consider a trailer or used motor home ? Then if things got antsy you could always move it to another location.

If you think you own your home, try not paying the taxes for a couple of years and see what happens !!!

Keep Smiling

#56 Larry on 08.05.09 at 11:04 am

Obviously Western Canada is immune from this type of news http://www.independent.ie/breaking-news/national-news/49000-people-made-redundant-in-ireland-in-2009-1852322.html
142% increase in 12 months.

#57 Samantha on 08.05.09 at 11:07 am

North Van-covet –

Here’s another way to consider needs and wants:

Doing what you want to do can result in needing to do something you don’t want to do.

and:

Just because you can do something, doesn’t mean that you should do it.

Lots of justification and rationalization in your letter which doesn’t bode well. A sensible decision or plan shouldn’t require that kind of thinking.

You have sold yourself on this plan. I really hope that you have a contingency plan that considers life events such as job loss. Too many people out there relying on family income as their ticket to affordable housing.

If you want to live above your means, you will never get ahead.

People who live below their means don’t necessarily “look” wealthy. They live in a more modest home, drive older vehicles and don’t require an 10 x12 room to house their shoe collections. They also have more money than the posers who finance their McMansion lifestyle. Some people like to live life, others like to “stage” their lives and make it all look pretty, but they own none of it – it’s just rented from their creditors.

To each their own.

Good luck

#58 Jeremy on 08.05.09 at 11:07 am

This is what a friend of mine would call “A first world problem”

#59 JoeCalgary on 08.05.09 at 11:13 am

Some Canadians are saving:

http://www.ottawasun.com/news/canada/2009/08/05/10364471-sun.html

A third of us are preparing for the future, others continue to dive further into debt.

#60 rubberduckie on 08.05.09 at 11:16 am

Dear North Van-Covet:

You sound bored. It sounds like you want to do something big and exciting that will get your heart racing. I think folks at mid-life crisis used to have affairs and buy sports cars, but those things are passe now, plus divorce is really expensive. Maybe you should consider taking up a thrill hobby like skydiving!

OK but seriously, if you are indeed bored, you need to find something meaningful to do.

Ever notice that the Spring/Summer buying frenzy corresponds to the months there’s no new primetime T.V. shows on?

#61 eddie on 08.05.09 at 11:19 am

i find it quite amusing how many people come here to justify why they need to upgrade their McMansions.

what happened to the good ol days when kids shared their bedrooms with their siblings and relatives with no money just stayed home?? we look at the US and say we’re somehow living in a vacuum from the rest of the world in the words “no, we’re different here”.

do these peeps realize the Americans have been losing their homes, NOT because they can’t afford the monthly payments BUT, their creditors decided to make a “margin call” on their precious homes?? No different than playing margin with Nortel stock…if the value of the stock isn’t worth the money the bank lent you, front the cash or sell it..now.

So buy that $1.4 million home and find out in a year when its value drops to $900K, and ya gotta come up with $500K cash to cover the margin, if the interest rates doubling everyone is so worried about really matter at all…and, see if you can still afford the monthly payment after…

but hey don’t be offended….most Canadians also think the home reno tax credit means “free fence”

#62 Nathan in Edmonton on 08.05.09 at 11:34 am

Two very opposite people in these recent posts … Shauna with her eyes wide open pulls money out of her bank to use as a safety net, and this guy, absolutely delusional, who obviously hasn’t thought about what’s coming — still thinking he needs newer, bigger, shinier to be happy. The property ladder is busted beyond repair and those climbing up it are in for a hard fall; however, I believe there is security in home ownership in these uncertain times. There is lots of talk of the USD reset coming and that can’t be good for us. For right now, I’ve decided the security of having a home (which isn’t a financial burden) is more important to me than having that money in the bank or investments, which I’m trusting less and less each day.

#63 CalgaryRocks on 08.05.09 at 11:34 am

If you think you own your home, try not paying the taxes for a couple of years and see what happens !!!

By this logic, you are currently a slave to the government who will emprison you if you don’t pay your income taxes.

If I had to choose I would choose property taxes over income taxes and with a paid for home my income doesn’t have to be that high to live well. Canada discourages work so why not work 6 months and take the rest off. Who needs to pay all those taxes anyways.

#64 brownguytryingtogeta_nut on 08.05.09 at 11:45 am

“You could ask yourself why didn’t the US started to increase interest rates after the tech collapse of 2001. They created a real estate bubble to offset the losses on American’s investments. But the problem was that it required a huge consumption of debt to keep home prices increasing”

A pattern I am beginning to see emerge from this new era of disaster capitalism is constant construction and destruction of mass-complicit pseudo ponzi schemes financed by a private-public partnership.

If interest rates are not allowed to rise for fear of setting off a chain reaction that would (choose correct word) stall/destroy/negate/reverse/other the economy, than it cannot and will not be allowed to happen.

This is clearly an international economy with its high capacity fibre bundle’s reaching every city/town/village/hamlet of the world, and with the riches that are reaped when times are good and provided/traded/financed by the US, when times are bad, the US will not be made the scapegoat which it should be.

Instead when a corner of the economy and financial world is falling, the only consolation to the mass wiping out of wealth and savings will be allowing of another bubble to invest and reap the rewards in.

Everything points to higher volatiliy, and knowledge based financial system, which is only heralded by the arrival of high frequency trading, reports of which are published now from the NYT to the Globe and Mail and elsewhere.

You must find the next hot spot important place to invest in, and for every size and financial level of investment (i dont know, say, $ 5 000 – 25 000, 30 000 – 50 000, 50 000 – 100 000 and above) you must know which bubble or hot spot to be a part of to reap any investment rewards. This is not a must I suppose, but it will be a rate determining factor in which to build wealth and will distinguish the doing well from the really doing wells.

If you know, banks will treat you well and if you happen to be a banker/trader, then the rewards will be that much larger. Goldman et al, will pay handsomely with their salaries and bonuses to those who know how to identify bubbles on the rise and how and when to profit from the bust.

If your not in know, you will never know.
I think gone are the days in which you can invest and hold. How can you when volatility and the wrong types of liquidity is constantly being shocked into the system.

Please critique.

#65 MenWithHats on 08.05.09 at 11:46 am

“God put me on this earth to accomplish a certain number of things. Right now I am so far behind that I will never die.”

#66 Brian on 08.05.09 at 11:55 am

Didn’t anyone do the math? If they owe 335k and the house is worth 730k that leaves about 400k in equity. Apply this to a 1.4m house would leave a mortgage of a cool million.

#67 DD on 08.05.09 at 12:12 pm

#9 PocoCompton

A 26 year old with 100k in the bank, paid off car, and only making 60k in Vancouver. Translation = lives with parents.

That Garth, is part of the reason why real estate is so expensive in Vancouver and why it may never come down for some time. We have the highest proportion of “young adults” (18-30) in Canada living with their parents rather than starting out on their own two feet. The number of late 20s and early 30 year olds living with their parents, or “sharing a house” as they like to call it, is significant.

Even with a mediocre wage, you can save significant amounts of money when you have no living expenses (rent, groceries, utilities). As such, you can come to the table with large DPS that allow you take out large mortgages.

Explanations for this social retardation stem from the expense of real estate down to cultural values of ethnic groups. However, it is attributable to a loss of the independence drive of young people, and the desire to maintain their parent’s lifestyle. They will sacrifice their independence and the “joys” of making it on one’s own rather than rent some dumpy first apartment and eat KD.

Unless this trend abates, real estate will always be expensive compared to those other areas where youth are willing to leave their parents nest and start living.

#68 DD on 08.05.09 at 12:22 pm

#37

“Cut off Vancouver and set it adrift”

Lol – nice one! As a Vancouverite, I have to agree with you!

We live in our own little delusional world out here, and IF the RE market ever crashes, centres like Vancouver will lead the downward decline. Any fallout (falling banking shares, homeowner relief programs, bailouts, spiking EI claims) will negatively impact the country.

Not that other regions have not made mistakes, but we really should be made to wallow in our own stupidity after an 8 year run and continued buying frenzy!

#69 very disappointed on 08.05.09 at 12:23 pm

While you’re on the site, what monetary policy changes do you believe will be required to address rsing asset inflation and simultaneous exchange rate imbalance, Mr. Carney? — Garth

That’s just it Garth. Rising asset inflation is not a concern for the BoC. If you think that the BoC will raise rates to counter inflation, especially ASSET inflation, you’re insane!

Again, this is another case where your views are communicated so obtusely that remotely sensible people, with just a bit of economic understanding, can not make sense of them. Why would Mark Carney give a damn about inflation that affects regular Canadians, or even Canadian small business?

The author also raises a good point. You were a buyer during the “blip”, and stole your own thunder. An enigma within an enigma… I get that you like that about yourself, but it’s not an example to follow.

Most sensible Canadians certainly won’t do so.

Most Canadians can read. I sold two properties and bought one. As for inflation and monetray policy, your claim to having a ‘bit of economic knowledge’ nicely defines inflation. — Garth

#70 Barb .. a reader in Calgary on 08.05.09 at 12:33 pm

Shauna, for reasons soon apparent, is what I’ll call her. –Garth

I still want to know why you called the previous blog case Shauna.. How soon will it be apparent? Oh, I’m so impatient.

#71 JP on 08.05.09 at 12:35 pm

@JoeCalgary

Interesting article, but it misses a very important point. Like many numbers, the US personal savings rate is cooked, in the sense that according to the definition, paying down debt is defined as “saving”. Unfortunately, I do not know if the same definition applies to Canadian statistics.

While I certainly believe that paying down one’s debt is a smart move, that is a far cry from true savings which can be later re-invested in the economy (in the form of capital, not just consumable goods and services).

#72 confused and a little crazed on 08.05.09 at 12:42 pm

Hi garth,

as others have asked before me on this blog…the 5 % pertains to preferred shares in company bonds…such as which companies for example and how do we buy these. Is it thru a financial company like prime america or one of the big 5 baanks

thanks . any info is much appreciated

They are preferred shares in the bank, not in a bond (although many bond yields currently surpass this rate). You need to get a discount brokerage account (dangerous with your knowledge level), or a broker or advisor to act on your behalf. — Garth

#73 Makeorbreak on 08.05.09 at 12:56 pm

I can’t believe the stupidity of some people. This family in Vancouver wants to go in debt for close to 1 million so that they can ‘have’ an in-law suite and a nanny. Have you thought about converting your basement and/or attic? Besides, if your relatives stay one third of the year and you have to support then, why don’t they do the nanny work?

But the decision is yours. Go ahead with your plan and 5 years from now, you will either mail your keys to the bank, or rent your in-law suites and bedroom to tennants, and charge your relatives.

#74 My_view on 08.05.09 at 12:58 pm

Garth writes,

“Remember these weeks, since they’ll probably not return in your lifetime”. and

“As you know, interest rates will be rising. That 3.85% mortgage could indeed turn into one in the 8% range, if rates return to their 20-year norm”. and

“If you do rent, you’ll have $700,000 to invest which, at 5%, yields $35,000 a year – or enough to pay $3,000 a month”.

Whats there to remember? The real estate bubble? Or their home value? There will never be a recession again, sorry depression, no thats in 2011. Maybe 2012, wait a couple more years for buying, meanwhile the states and world economies will be on fire, oh crap the boomers, I forgot. But hey thats my guess. Again with the rates, how do you know? I understand the “norm”, but when rates were in the 5-6 % range (2005) real estate was still moving (on fire). The best for last, the guy does not have $750 large if they sold, only half, (fees, blah, blah) they still owe, and plase tell us about this 5%, i know equities, but be more specific, plus that would be taxed. Time to buy a new brush.

#75 North Vancouverites on 08.05.09 at 1:03 pm

Hi all:

We are the couple that is the subject of the letter of the day. Being long-time lurkers on this forum, it is interesting to having Garth’s comments and those of the forum participants.

There was a typo in Garth’s post that has caused some confusion. Our current mortgage is $35,000, not $335,000. That is why of our blended monthly principal and interest mortgage payments of just over $1400, the interest component is about $40 per month at 1.45% variable interest (actually $45 when I checked online banking for July).

We bought our house in 2002 for about $450,000. It took a big leap of faith to buy back then since we do not like taking on debt and apart from the house, have not done so for consumer purchases (we use credit cards but pay them off each month and in reference to one post here, I should point out that my car is 12 years old). Vancouver housing had always seemed over-priced but if we wanted to own, that is what it took.

Given where the market has gone since 2002, we feel that our house purchase turned out to be a good move.

In light of the price escalation (i.e. the bubble) and the economic turmoil, we tend to agree with Garth that the housing market here (and elsewhere in Canada) is due for a correction. How much and when is unclear.

Like some other commentators here, I too wonder how to get a 5% return relatively safely as Garth suggests. And then, if we were to sell the house now and netted about $700K, 5% yields $35,000 per year BEFORE TAX, or just shy of $20K after tax (at the marginal rate). Not enough to rent a comparable abode in our neighbourhood.

We are likely staying put for now, enjoying a house that is essentially paid off and saving to take advantage of whatever buying opportunities may arise (not necessarily in the housing market). We realize that that means taking (most likely a paper) loss on the current house in the event of a correction, but there are risks if we sell, invest elsewhere and rent and there are non-financial considerations in favour of staying put for a while.

#76 very disappointed on 08.05.09 at 1:03 pm

By the way, Mr. Turner, one other theory of yours that I have a respectful quibble with is the demographic one. The baby boomer card has been successfully played by a number of would-be pundits with debatable if not ruinous results for the reactionary (However it has made Mr. Dent and Mr. Foot quite popular, if not infamous).

I find this whole concept of a baby boomer property dump rendered impotent when one considers the new opinion of world governments that “people should just work longer”. The Bankers’ Voice … i.e. the Economist for instance ritually argues that we are all far too healthy in our 70s and 80s to NOT be working. Working you “to death” is certainly a viable solution to the boomer economic wind-down crisis, notwithstanding its monstrosity.

It seems to me that government is quite committed to pushing back the legal (and notional) retirement age using legislative means and cultural influence. So let’s say now you can work till you’re 85… What does that mean for old age expenses tied to valuations? No problem.. inflate away.

I believe what motivates the government is that it’s soon time to pay the piper… i.e. the pension debacle coupled with the asset boom debacle. Oh yes, and the idea that bankers should be profitably involved in both areas.

I think, Garth, there may be some new issues to grouse rather than home price collapse. er.. correction er… moderation or whatever we’re calling it now.

Dream on. Nothing’s more predictable than demos. — Garth

#77 somecatchphrase on 08.05.09 at 1:12 pm

Must see link.

“What they say/what it means: New Market Reality Edition”

http://seekingalpha.com/article/153929-what-they-say-what-it-means-new-market-reality-edition

#78 MenWithHats on 08.05.09 at 1:56 pm

” Some people think I`m a total moron and I would hope most people think I`m very good at what I do. ”

Okay, a mortgage should be no larger than three and a half times your gross income .

#79 Brian on 08.05.09 at 1:57 pm

“It is on a 33 ft. lot and has a current market value of $730,000 (we think; this is below assessed value). We owe about $335,000; have a 1.45% variable mortgage; pay just over $1400 monthly in mortgage of which just about $400 is interest). ”

So in other words you’re amortizing over 335 months or 27 years till you’re debt free… Thats 2 years longer than any 20yr old kid should ever get a mortgage for. Add another 700k in debt and you owe over a MILLION bucks… then you’d be a negative millionaire. lol.

O and garth, he wouldn’t have $700k to invest @ 5% cuz he’d be paying the bank back his 335k mtg. plus a nice commission cheque.

One post says that we should be stashing $120k in cash in our ducts EARNING NO INTEREST, wait for the 2nd coming of christ and the very next post says to support THE world’s biggest ponzi scheme to earn up to 5%…

You can then spend on rent ,not “bank”, the 60k/yr. Where’s he gonna live?

Not gonna rerun the numbers but you guys need new calculators.

Final conclusions, borrow 1.12M buy the big house for 1.4M, stuff $120k in your ducts and install motion activated turrets for when the bank comes to take it away.

#80 jess on 08.05.09 at 1:58 pm

56 Larry
…yeah, and isn’t the good bank/ bad bank idea moving forward and wasn’t this the model the banksters were promoting- low tax haven,immigrants to build to keep wage low etc etc. seems like the solution is another socialized private profit scheme.

#81 blobby on 08.05.09 at 1:59 pm

Hi all.. Some of you are quite smart here.. so i thought i’d ask you lot.

CBC ran a news story today about inflation, and how food prices were up 5%

http://www.cbc.ca/consumer/story/2009/07/24/f-food-inflation-threat-recedes.html

On the same page Flaherty is recommending every province moves over to HST for a big “payout”. Hell, now the government is “bailing out” provinces in return for huge tax grabs!

http://www.cbc.ca/consumer/story/2009/08/05/harmonization-reaction.html

So my question is – if every province adopts HST, in effect causing food and oil to rise an extra (using BC here as an example) 7% – does this get factored into inflation calculations?

Oh, and am i right in my understanding that GST was only supposed to be temporary? All this talk of HST sounds very permenant to me!

#82 Dan in Victoria on 08.05.09 at 2:03 pm

I’d be talking to a architect and the local zoning people you can bang on an addition/renovation. (depending on what you do)Put your hard earned money to work for you, instead of paying realtor fees,moving expenses,temporary shelter costs,family disruption(moving to a diffrent place) etc.Sounds like the house could use a tune up. You can do a lot of renos for 700 grand.You could build a nice house for that actually.

#83 blobby on 08.05.09 at 2:03 pm

To #69: Quote: “Rising asset inflation is not a concern for the BoC. If you think that the BoC will raise rates to counter inflation, especially ASSET inflation, you’re insane!”

Erm.. with regards to rates – inflation IS the MAIN concern for the BoC !!!! Do you even understand what inflation is?

Of course they’ll raise rates to combat inflation – that’s how rates work!

#84 jess on 08.05.09 at 2:08 pm

56 Larry
…yeah, and isn’t the good bank/ bad bank idea moving forward and wasn’t this the model the banksters were promoting- low tax haven,immigrants to build to keep wage low etc etc. seems like the solution is another socialized private profit scheme.

#64 -enforced regulation returns market to long view

#85 wetcoaster on 08.05.09 at 2:12 pm

Garth,

Have you considered the China/Arnie theory to the west coast destruction coming ? If China is indeed walking a tightrope as Bloomberg has stated, then any type of crash would severely effect the Asian buyer out here in La La Land which I consider a major factor in this madness.

Toss in Arnies legalization of pot in California and all the grow-op houses will flood the market as they all sell to buy cheap California houses to set up shop in at a quarter of the price as up here. Whose going to buy all the pot from here when it’s legal down there ? I see an Asian contagion coming like no other.

As per a radio show last week,the Chinese stock market valuation is the equivalent of the US,UK and Canada markets all combined. Something to think about….pass me the pipe Arnie.

#86 very disappointed on 08.05.09 at 2:14 pm

Garth, please, oh please suggest where I can pick up such a basic knowledge of economics that I don’t get throttled by you every time I raise a question… Geez.

@#64 brownguytryingtogeta_nut

I think you’ve basically stated the argument that has won out, and accepted passively, since the collapse in October. Yes, unbridled capitalism (with unbridled finance) dooms us to continuous boom and bust. Possibly, we await a final bust that at some point renders the situation unworkable for the capital in place … and then it flees. Or so say the Marxists.

The question before many in the anglo-sphere right now seems to be how close are we to a situation where capital will finally flee to greener pastures. All the talk of emerging markets seems to have a thread of this impending change in the world (or world order if you’re into that notion).

I don’t believe this is particularly close to happening, or prone to happening in a dramatic way. You can pick your bubble, ride the tide, but if your dollar depreciates long-term, you may do less well each cycle.

Additionally, and more relevant for us with a non-stratospheric net worth, if social security crumbles around us, and democratic power is eroded, then monetary gains are devalued again.. as you will need them ever more to pay for services. But currently, most of us here write off such concerns quite easily.

So what is your choice? It is to take on risk, knowing that you have a great chance to lose due to your handicap in the domains of information access and transaction scale.

Unfortunately, you might be better not to view things this way, as it constricts action. Better to follow Nike, and just do it!

Practically speaking, I am dealing with similar issues, and may have to take the advice of my betters and go one quarter high-grade bonds, 40% GICs real estate cache (or real estate if you can actually afford it), and a quarter or more Canadian commodity stocks and similar ETFs for the long haul.

I can’t wrap my head around the incentive system of mutual funds, but for their access to BRIC growth, I may have to eat this one… I’m so open to ideas in this area.

Hopefully, that was worth reading.

#87 blobby on 08.05.09 at 2:20 pm

I found this also interesting…

http://www.vancouversun.com/business/real-estate/index.html

All the POSITIVE press is accompanied by a big picture.

The negative piece titled “New homes prices across Canada fell for the eighth-straight month in May, Statistics Canada announced Friday” doesnt get any picture and is nicely hidden away.

So much for canada having unbiased media. This level of propaghanda is right up there with fox news!

#88 Matt on 08.05.09 at 2:34 pm

Read With Your Eyes Closed

How can someone read this blog EVERYDAY and still ask those questions!?? Amazing.

You’ve lived with this situation for while, what’s one more year? Either it will be more expensive (and so will your house) or you’ll be glad you held off. Remember the feeling on the morning of Sept 15th?? I know I won’t forget.

#89 very disappointed on 08.05.09 at 2:58 pm

#83 blobby

In the current context, I argue that core inflation is low. That is my understanding. Also, the ingredients to maintain such low inflation are well in place–i.e. goods production in low-wage underdeveloped nations over which western economies maintain a delicate but effective hegemony.

If you believe in peak oil, fine; I do too. But does that legitimize the near-instantaneous upwards movements in energy prices of late? Or is this more speculation that ignores a real slump in demand and inevitably brings on more dreaded volatility? And what are the options anyway… where is Toffler with a fourth wave?

So, if Canadian real estate surges on cheap rates, and core inflation is not horrendous (or can be incrementally revised towards lower readings… such as has been claimed already about U.S. data), why would the BoC break a sweat?

The BoC will take its cue from the US Fed. And the US Fed in fact DOES have a significant real estate meltdown to worry about and that won’t encourage high interest rate policy. Nor is the U.S. committed to strong dollar policy. So we will not unilaterally undertake to raise Canadian overnight lending rates to deal with our inflationary woes.

The US must post massive inflation to encourage the Fed to raise rates, and we can follow. They have no reason to do so.

So yes, BoC policy is to moderate inflation. If it becomes grossly out of proportion, you will see some moves. But all this 8%-and-up mortgage rates in 5 years is nonsense, and is ironically coming from the same cohort that suggested, just one quarter ago, that a deflationary spiral was imminent.

Again, can’t have it both ways I say.

#90 TO on 08.05.09 at 3:06 pm

when will prices decline in Toronto? I am begining to wonder if we will see any price decline ever.
Everything I read says that toronto re is under valued and we have imigrants as well as outside buyers….
Garth has been saying we will see a drop for many years now and so far no sign of a drop infact it looks like we will not see any drop…

#91 JoeCalgary on 08.05.09 at 3:31 pm

#71, JP, I agree. I do think that at least some people are doing a combination of saving and paying down debt. I’m of the opinion that the PTB are simply noticing money being withdrawn from the economy in terms of stimulating purchases and they are decrying that loss.

That’s why bailouts given directly to the people instead of to the banks and other corporations didn’t happen here. Bush tried it, and people were already realizing they should be paying down debt and saving, so it didn’t stimulate the economy the way in which it had been intended.

Problem is, I don’t think the bank and corporate bailouts worked either. According to yesterday’s bank reports in Britain, it didn’t work there.

Larry, please confirm you were being facetious with the “no recession in Calgary” statement, right? Small business, at least, is really suffering here, and pretty soon if not already commercial property is going to be tanking.

JoeCalgary

#92 Barb .. a reader in Calgary on 08.05.09 at 4:23 pm

#75 North Vancouverites,

At #82 there’s a suggestion that you consult an architect. I tend to agree with that route. All of the description herein of yourselves indicates that you are people who are looking for comfort, not luxury.

So if you can expand your space, you keep all elements of neighbourhood, schools, and so on. Eventually your expansion, and some redecorating, will allow you everything you want. Do the expansion first. If you add a floor to the house, plus, add an addition here and there, then later renovate the older areas, I guarantee in the long run you won’t regret taking this route.

I appreciate the temptation to ditch the old and not put any more expense into your present home. And I also appreciate that it just ‘seems’ much easier to plop yourself into a larger home that would be perfect for your wants. But that is just simply not always so. Consider that the home you really want will have it’s own hidden problems, bad neighbours, unrealized sound problems, unknown problems just to mention a few angles that should be considered, not denied.

If you can salvage your present home and allow it to transform into your dream home, you’d be wise to do so. You’d also be adding to the economy and getting more value for dollars invested, rather than paying the high cost for the value someone else added into another home.

#93 Bertie on 08.05.09 at 4:57 pm

It’s never off topic, real estate.. and politics.. and what the heck is all the crap going on in the media — what’s wrong with the world.. and who are some of the hidden and powerful, ignorant jerks pushing and shoving their nonsense against the will of the majority of people?
Well, well, well…. The vast right wing conspiracy has had a large portion of it’s skirt lifted for us all to see what’s under there, done so by this author’s investigative reporting in a book about the fellows, who for decades, have helped tip sensitive politics from the very top, as well as using their power to interfere and disrupt politics in all parts of the world. Fundamentalism at it’s worst has had more power than anyone could have ever imagined. The book certainly explains a lot of the quacky and inexplicable U.S. politics, how a thing like Bush got elected, as well as decades of CIA related insanity around the world ruining other countries by secretly allowing The Family to outfit and finance the bad guys…. not to mention this groups interference in getting leaders in other countries (ahem!) elected:
The Family: The Secret Fundamentalism at the Heart of American Power
Editorial Reviews:
http://www.amazon.com/Family-Secret-Fundamentalism-Heart-American/dp/0060559799
So if you’re curious as to one of the reasons why we the people, the majority of people, have such a struggle getting our voices heard, getting the truth out, it’s because unbeknownst to the majority of us, we’re constantly fighting a very well-financed, very vast, secretive, degenerative and arrogant cult who prefer things their way. Take a peek. Judge for yourself: “The Family”:
http://en.wikipedia.org/wiki/The_Family_(Christian_political_organization)

#94 Industrial Guy on 08.05.09 at 4:58 pm

This economic recession is far from over……….(Reuters) – U.S. retailers could post their 11th consecutive drop in monthly same-store sales this week as cool weather, a weak job market, and a lack of tax-free holidays had shoppers picking through the clearance racks in July instead of buying full-priced back-to-school clothes. It’s no wonder Wal-Mart stopped reporting monthly sales earlier this year.

Base metal prices are on the rise, but most are no where near the highly inflated prices of mid 1008. How much of this movement is demand and how much is speculation is yet to be seen.

It has taken desperate measures like the “Cash for Clunkers” program in the USA to move existing inventories of new cars off the lots of the surviving car dealers.
If there are “green shoots”, who is paying for this recovery? We all are, as in the Governments of Canada and the USA.

No two economists can agree whether the economy can stand on its own two feet without the torrents of Government money propping it up. How have the economic fundamentals changed much since we continue to do the same things which caused the beginning of this crash.? Canadian families are under water in debt. The artificially low interest rates have actually worsened the situation by convincing us to pile on more.

The buy a condo today, declare bankruptcy tomorrow strategy of economic growth has created a nice buoyant faux market which looks great in the press. Just imagine the Tsunami of personal bankruptcies once interest rates return to historical levels and Governments in fear of inflation turn off the money printing press.

#95 Samantha on 08.05.09 at 5:34 pm

#75 North Vancouverites –

Now that the mortgage balance is clarified @ 35K, as well as other aspects of your situation, I agree with Barb’s #92 excellent post and others who have suggested reno.

Good to hear you have a 12 year old car, too ; )

I use to live on Cap road not far from Edgemont Village – North Van is a nice area.

(See Nostradamus Jr. – I admitted it – North Van is nice.)

#96 Bill on 08.05.09 at 5:54 pm

I have made very good gains in my self-directed RRSP, which is primarily made up of financial, energy, and oil related stocks. About 85% of the stocks pay a dividend.

I’ve made well over 20% gain this year, since March 2009.

Should I sell all stocks, go into cash, and wait for a market crash? And then re-invest? Or should I hang on?

I am 35 years old.

#97 Two-thirds on 08.05.09 at 6:11 pm

In other news, if we are seeing record sales this summer and lower prices than last year, then why would a mortgage lender leave Canada?

“Wells Fargo is just the latest non-prime lender to pull out of Canada, and it caught most observers by complete surprise.

Wells didn’t go into reasons in its press release. All it would say is:

“In response to recent analysis of our operations and the current market environment, at this time, we have made the decision to stop originating consumer real estate loan products in Canada.””

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2009/08/more-on-wells-fargo.html

Are they the canary in the coal mine?

#98 jess on 08.05.09 at 6:16 pm

Democrats want to give the government new power to oversee large financial companies and important markets, and to shut down troubled firms in an orderly fashion. They want to create a consumer protection agency, removing that responsibility from banking regulators. And they want to rein in Wall Street, including by placing limits on bonuses and restricting investments made with borrowed money.

“These things are going to happen,” said Steven Adamske, a spokesman for Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee. “It’s complicated. It’s not easy to do, but we are trudging through it.”

The idea of a new agency to protect consumers has proved particularly popular on Capitol Hill, forcing some critics to drop their outright opposition and instead press for its powers to be circumscribed. The heads of the regulatory agencies argued Tuesday that the new agency should write rules, but that banking regulators should continue to ensure that companies comply with those rules, and punish those that do not.

Enforcement of consumer protection laws “should stay with the bank regulators, where it works well,” said John Dugan, head of the Office of the Comptroller of the Currency.

#99 OttawaMike on 08.05.09 at 6:23 pm

Garth,
Will you continue writing your blog during your 7 year prison term received today in the Livent trial?

Oh never mind wrong Garth….

#100 jess on 08.05.09 at 6:55 pm

job scammers watch out people

http://www.nytimes.com/2009/08/06/technology/personaltech/06basics.html?_r=1&ref=business

#101 Peter on 08.05.09 at 7:03 pm

STARTING!

Cash-Strapped Alabama County Feels Crush of Recession

http://www.foxnews.com/politics/2009/08/05/cash-strapped-alabama-county-feels-crush-recession/

#102 Nostradamus Le Mad Vlad on 08.05.09 at 7:07 pm

The research was exhaustive, long, arduous and took five minutes or so, but it’s done. These are my findings:

#110 Canadian against idiootic Liberals on 08.03.09 at 8:06 pm — #118 CAILiberals on 08.03.09 at 9:54 pm — #122 CAILiberals on 08.03.09 at 10:20 pm — #124 CAILiberals on 08.03.09 at 10:31 pm — #125 CAILiberals on 08.03.09 at 10:39 pm — #24 Turner’sAMoron on 08.05.09 at 1:33 am

“. . . Do not be deluded into thinking Mark Carney has free will. Only a loose lip. /\ Thank you for coming by, Mr. Flaherty. /\ If I didn’t matter you wouldn’t be here. /\ Brave words coming from an anonymous poster giving his email address as [email protected]. Tell us about patriotism and service. /\ You accuse me of ‘quasi treason’ and hide behind a digital veil. No lessons to be learned here. /\ As soon as my roving death squads get off break, we’ll IM. /\ While you’re on the site, what monetary policy changes do you believe will be required to address rising asset inflation and simultaneous exchange rate imbalance, Mr. Carney?”

I came to the hypo-obfuscated-thetical conclusion that one of the CPC trolls is alive, well and kicking. The person referenced is, of course, Madamoiselle hairy La Happy Snuggiebums Hooker, who is doing a thoroughly boring job of selling herself to the lowest bidder, as per CPC Policy.

This is one of the last pix I took when we were joined through Garth’s old political blog. Taken just as she woke up, this is one of her better entrances. Enjoy!

http://www.unexplainedstuff.com/images/geuu_01_img0141.jpg
——
Many terrific posts stand out, and this (I know it’s kind of a spoof) from #77 somecatchphrase on 08.05.09 at 1:12 pm — “world explodes = ASIA RALLIES”.

Lyndon Larouche, along with a few other bloggers has spoken of an “October Surprise”, when almost everyone is joyfully indebted beyond the moon and then — SWOOSH! — someone quietly idles by and pulls the rug out from under sheeple’s tootsies.

Today, Bill Bonner of The Daily Reckoning alludes to a similar situation:

“. . . No one knows how long this rally will last . . . It will continue until it runs out of gas. That could be tomorrow. It could be months from now. It will run out of gas sooner or later, and probably [this fall]. A real, durable bull market would require an economic boom – a genuine recovery.”

Square brackets mine. There is no “economic recovery” as yet; all on the m$m is pure BS, as the wacko politicos are scared shitless what may happen, esp, on this continent.

Nasty stuff is already happening in Europe, with unemployment seeing larger numbers as plenty of jobs have gone to former third-world countries. Japan does seem to showing signs of improvement, ‘tho.

#103 Makeorbreak on 08.05.09 at 7:18 pm

http://www.washingtonpost.com/wp-dyn/content/article/2009/08/03/AR2009080302958.html

#104 Mike B on 08.05.09 at 7:33 pm

Turner’sAMoron Can this really be Mark Carney… maybe I’m a moron but who knows. Clearly real estate is a difficult one to predict especially if all the parameter change daily or hourly/ two big factors are interest rates and the suggested strong “rally” I can’t see either real estate or the rally continuing on “better than expected earnings” translation … being able to limbo under a six foot high pole … no great feat that’s for sure.. BOC is between a rock and a hard place with currency and interest rates. Forget about real estate.. if these are left alone… low rates and high Can Dollar then this recession will get real ugly real soon.
With so many companies reporting better than expected simply by cutting labour and internal costs at some point a top line growth assessment is needed.
Being able to make profits by reducing staff hardly sends a message of the recession ending just shifting slightly … say two quarters away. We will just have to take our medicine and deal with it instead of playing cutsie with the rates.

#105 Gonzo on 08.05.09 at 7:45 pm

I think it’s fair to say that the majority of people will pretty much buy at the limits of affordability if they can… this current run-up is an example of that, with increased buying because of low rates.
If we assume this, then aren’t we always at the borders of the maximum price? In other words, buying will continue until people are priced out. First time buyers can’t afford first-time homes, buyers moving up can’t afford bigger homes.
What this means is that in order for prices to increase, interest rates will have to drop or wages increase. Naturally there may be a time period yet for all the buying to happen (resulting in some short-term continued increase in prices), but over the medium-long term I can see no reasonable scenario that would have home prices increase. If this did happen, I think wages would have to increase, in which case, aren’t we better off putting our increased wages into better investments?
I guess the government could start extending mortgage terms/dropping downpayment requirements. This would probably again create a little run-up until the buyers were all maxed out.
All until a crash.

#106 Chris no longer in England on 08.05.09 at 8:22 pm

“Ex-US lawmaker guilty of bribery”

http://news.bbc.co.uk/2/hi/americas/8186731.stm

Maybe like Shauna he prefers to keep his cash at home.

#107 Jonathan on 08.05.09 at 9:13 pm

Many posters question why the BOC would want to raise interest rates to curb asset inflation when it will damage the economy.

Quite simply because the economic benefit of an asset bubble does not outweigh the crushing economic impact it has when the bubble deflates. When you require ever increasing amounts of debt to prop up an asset, it will always end. We are topping our economy up with the last of the last in terms of debt – as low as 1.4% debt. If people aren’t borrowing today, then they definitely won’t be borrowing tomorrow. Which means the bubble collapses.

Had only they lifted interest rates sooner, the collapse would be lessened.

Take a look at the United States. Greenspan left low interest rates for too long – and look at the result. He made these moves to avoid a recession in the after math of the tech collapse. Prices today are almost back to where they started (and more than likely will drop below 2002 prices).

#108 Herb on 08.05.09 at 10:02 pm

Makeorbreak,

your link at #103 is truly depressing. The American dream, that they were living in the best of all possible worlds, was all that many of these people had. What will they do without it?

Was it a coincidence that TCM showed “Grapes of Wrath” a couple of days ago?

#109 DD - Do Your Due Diligence on 08.05.09 at 10:12 pm

107

Excellent commentary! Very insightful.

#110 Bailing in B.C. on 08.05.09 at 10:20 pm

#67 DD

As #9 PocoCompton clearly stated a 26 year old with 100k in the bank, paid off car, and only making 60k in Vancouver, gets their money by selling drugs. I don’t believe this poster was being facetious, just honest.

#70 Barb “Shauna, for reasons soon apparent, is what I’ll call her”

I think that what Garth was getting at was that he could not use her real name. Shauna was probably a girl he had a crush on when he was six

#111 Casanova on 08.05.09 at 10:51 pm

garth said:
They are preferred shares in the bank, not in a bond (although many bond yields currently surpass this rate). You need to get a discount brokerage account (dangerous with your knowledge level), or a broker or advisor to act on your behalf. — Garth

The idea that solid corporate bonds are paying 5% interest is coming from prople that dont look behind the screens. You have to see at what price are trading those bonds, and once you factor that in you will see that the interest rate is barely more than what goverment bonds are paying which is very low. This is valid for good solid companies only. For more info , check the spread between corporate and treasury bonds , it has come down in a significant way. I think Garth like all politicians likes to talk about things he does not understand in detail, but given the amount of writting he produces, it is normal to have some false information inserted inadvertently.
THERE IS NO SUCH SAFE INVESTMET OUT THERE THAT WIL PAY 5%, OTHEWISE THE GOVERMENTS WILL HAVE A HARD TIME SELLING THEIR DEBT AT 1%, GET IT???

Stop yelling and get some financial help. A 5% return with acceptable risk is entirely possible. — Garth

#112 X on 08.05.09 at 11:17 pm

#111 Actually some gov’t’s are having a hard time selling their debt at 1%.

And I think you are misunderstanding a bond w a preferred share.

#113 Davinci on 08.06.09 at 10:08 am

“Ever heard of Bretton Woods, sailor? — Garth”

Yes!

Have you heard of 1971 Nixion Nixed the gold standard thus ending Breton woods? Surelly your are old enough to remember that? lol :D

Have you heard of 1999 central bank “gold agreement”?
I’m sure you have not so just google it or let me explain…

The gold agreement in a nutshell is that central banks must sell a minimum of 500 tons of gold (total) anually for ten years. September 31 2009 that agreement is done!

#114 DD - Do Your Due Diligence on 08.06.09 at 2:53 pm

110 Bailing in BC

“I don’t believe this poster was being facetious, just honest.

If you re-read #9, she noted her frustration at not being able to buy. She was being facetious, and certainly was not admitting to selling drugs. Who in their right mind would openly admit on a public forum that requires the submission of an email address that they were drug dealers (yes, you can put a fake email address but your IP address is recorded).

My whole point was that any 26 year old with 100k in the bank making 60k has been living with their parents. This trend of delayed social development allows people to amass larger DPs than those without such forms of parental assistance, even with mediocre salaries/wages. These large DP’s facilitate the continued buying frenzy. And since Metro Vancouver has the highest percentage of these individuals, the frenzy could go on for some time.

That was the point

#115 conan on 08.06.09 at 7:38 pm

Re: 113

“September 31 2009 that agreement is done!”

And why do you think Governments will stop selling gold?

LOL

#116 Tom @ Canadian Finance Blog on 08.07.09 at 3:27 pm

I put up a post yesterday with an Economics professor that looks at the phases of a bubble and what might be still to come.

http://canadianfinanceblog.com/2009/08/06/is-the-current-market-a-return-to-normal.htm