On ethics

Ethics1

A quiz for you. First the scenario:

Common wisdom is mortgage rates can’t drop. In fact, most people expect them to rise, maybe double over the next couple of years. This will makes large debts harder to pay. Higher rates will therefore render homes, now at record prices, less affordable. House values will likely moderate as a result.
Do you:

(a) Recognize the risk of falling prices and steer clear of the market?
(b) Wait to buy so you can reduce the size of your mortgage?
(c) Take advantage of robust financial markets to grow your downpayment?
(d) Buy only if you can weather a rate hike and an equity drop? Or,
(e) Panic, borrow as much money as possible with the longest amortization, buy even if you have no downpayment, get into a bidding war, pay a premium over the asking price, get financial advice from your hairdresser and then call home to brag to your mom?

Well, if you picked (e), you can go straight to Toronto and assume your rightful role as a Housing Analyst. Like Will Dunning.

“Those are very robust numbers,” said Toronto housing analyst Will Dunning (comment to the Toronto Star on August stats released Thursday). “Part of this seems to be fuelled by the fact that some buyers fear interest rates will go higher next year and are buying now rather than taking a chance on next year.”

Bingo. Risk. Hate the sucker. After all, why would those young buyers risk buying a house when it might cost less in the autumn of 2010? Or avoid taking on the kind of mortgage necessary to buy a home at its most expensive moment in history? Or maybe even to suffer the acute embarrassment in front of your peers of having an actual downpayment? I mean, how sick is that?

But it ain’t just Godless T.O. Even in Halifax, where people are more sensible even if they can’t run a sewage plant, strange things have been happening. Here’s an email I received Thursday night from young Jeff:

“I’ve only recently come across your blog and it definitely has made me second guess the biggest investment I’ve ever done.   I’m from Halifax, NS and bought my first house at 25.  It’s a 4 bedroom split and I paid $187 500.  I make about 56 G a year.  Here’s how it all happened.  I was awake one Sunday night in my $900 a month apartment and called RBC’s 24 hour hotline and asked about mortgages.   Tuesday I met with a mortgage specialist and was told I was good at zero down for 40 years up to 230ish.  I met with a real estate agent Thurs, looked at houses Sat and had my first house by Sunday.”

Jeff tells me he has rented a bunch of rooms out and is collecting rent from others so he can meet the mortgage payments. “People tell me I’ve got my shit togoether for a young guy,” he says, “but I wasn’t concerned about paying down a mortgage.

“Now I know I’ll have to make a killing to make anything on this house since I had nothing going in….should I have stayed renting?  I feel stuck in this house now, because I can’t get a mortgage this high anymore or for this long.  When the renters eventually grow up and move on and interest rates jump….I’m done.  What do you think?”

I think the kid gets it.

But this little tale (along with the ‘analyst’ quote above) should underscore for everyone the fragility of the times we’re in. When people rush to load up on debt in advance of debt charges increasing, when newbies are pushed into investments they don’t understand, when bankers shower money on novice investors without savings and realtors sell to the uninformed, then this is no stable market. It might be robust, alright, but it’s also unsustainable.

Worse, it’s unethical.

In the financial services industry no investment advisor, stock broker or bond salesman is even allowed to follow such practices. Iron-fisted securities commissions ensure the ‘know your client’ rule is strictly enforced. The overriding principle of regulators is investor protection.

When it comes to the housing business, my gang of biker friends stands in stark moral contrast.

194 comments ↓

#1 Not Garth on 09.03.09 at 10:45 pm

http://www.nvcondos.ca/page_content-9.html

Garth we may be seeing signs of a slowing of sales in Vancouver – perhaps the leading edge of renewed capitulation.

#2 Cash is King on 09.03.09 at 10:48 pm

On ethics….. I thought this would be a comment on Peter McKay’s faux paux.

$200 bucks for a “serious contravention.” Yep, that’ll teach’em.

#3 Mortgage Issue on 09.03.09 at 10:53 pm

My questions is : Commaon wisdom is that most of the current buyers don’t qualify for mortgages according to their income and someone somewhere is cooking books to get them mortgages. Early this year, there were stories in GTA Toronto that when banks got strict with mortgages and were counter checking the job letters and other information then many deals were falling apart on the day of closing as banks did not release funds after verifying the information and finding that they are not right.
Now, the question is, why the banks got linent this time and are they verifying all the information of mortgage applicants and if the mortgages being issued this time after going through this whole crisis then who will be responsible for this same mistake ( so to say) comitted early and will tax payers have to pay for the Banks mistake ?

#4 hal smith on 09.03.09 at 11:00 pm

Awww Garth, they’re not gonna let the bubble pop. The people WANT the bubble. Buy a house and get rich man, that’s the new reality. They will do “quantitative easing” on the housing market, very very slooowwwly for a very very loooong time.People will sleep right through it. No bubble = no economy and they know it. It can’t be allowed to pop. And the people WANT the bubble. They lust for it. Don’t you get it?

#5 taxpayer like you on 09.03.09 at 11:04 pm

“I feel stuck in this house now”

Well there’s your answer.

But here’s an example where the numbers actually work – if you want the house. A 187K mortage at 5% over 40 is – believe or not – $900/mo – what his rent was. He should qualify for over $1400 payments. Now the 40 year is a bad idea, but if he takes in just $600 rent, applies to mortgage – now amortizes over 15 years, and owes $140K after five. That should leave him headroom for rate increases.

#6 ValueHunter on 09.03.09 at 11:06 pm

“zero down for 40 years ”

I thought the govt has done away with 0 down 40 yr mortgage?

#7 Shawn Allen on 09.03.09 at 11:14 pm

Or (f) if you are mortage free or close to it, take a mortage line of credit at these low rates and go into bank preferred shares or other safer higher yield investments and beat the bank at their own game. You borrow cheap and “lend” at a higher rate. Possibly you even lend to the self-same bank by buying their preferred shares.

Would have worked like an absolute charm last March but then everyone was busy stocking their bunkers with salted squirrel and such.

P.S. loved the comment about halifax not being able to run a sewage plant. What a mess that is…

#8 impulse on 09.03.09 at 11:19 pm

Vancouver IS Immune = ETB, she is a resident troll of BC Real Estate Talks forum.

#9 Increasing that 1% on 09.03.09 at 11:22 pm

“I feel stuck in this house now…” – Jeff

Debt is certainly a form of slavery…

#10 Calgary_rip_off on 09.03.09 at 11:28 pm

Garth,

Why would housing prices drop more? Please define where. Certainly not Calgary. There’s too much conservative mindset and acceptance of current market values(which are $200 K in excess of real pricing).

How is this to happen?

1)Increasing percentages on mortgage rates?
a)Asia isnt likely to cause this
b)The Bank of Canada wouldnt support something that would start a collapse.

Please some latest statistics on your first couple viewpoints.

“e” as listed above seems to prevail before option “a” which seems a fantasy world. Option “d” makes the most sense.

But because “e” happens the most, the others may never happen. That’s the reality.

#11 Virgil on 09.03.09 at 11:36 pm

Most people lack long term vision.

Think as an example cars sells in US. People were waiting 3 months to get a Prius when oil was at 150. As soon as oil dropped they were buying again SUVs and Priuses were piling up in the dealers lots.

The average US buyer keeps a car for about 9 years. So oil/gas prices can change quite a bit in the following 9 years after a car was bought. Most buyers do not compile this. They only care about how much a is a gallon of gas “now”. They don’t even care how much will gas cost next year. Gas prices 9 years down the road has no relevance for them.

Same buyer psychology with mortgage payments. How much will be in a year or two they don’t even know. They only care how much will be the mortgage payment “now” because the Bank told them. No one told them how much they will have to pay if the interest rate doubles.

Banks go to the extreme of 0% down payment because they are running out of first time buyers with 5% down payment. This reckless lending practice is not in the advantage of Bank shareholders and not in the advantage of borrowers. But intermediaries (mortgage brokers, real estate agents) will make good profits. Another inflated year on the Bank books is very good for the CEOs as well.

As soon as all 0% down payment house buyers signed themselves for life, banks will have to come up with even more financial innovation: maybe the new mortgage product will be -5% down payment. This is 5% cash back if you buy a house.

As long as government shovels money through banks back door and banks don’t have to take the risk of default, financial “engineering” can continue….

#12 Alberta Ed on 09.03.09 at 11:47 pm

Speaking as a fellow biker, ‘unethical’ is bang on the money. Now, who do I vote against in the much-bruted impending federal election? I’m having trouble controlling my gag reflex.

#13 Sanchez on 09.03.09 at 11:54 pm

Garth,
Your opinions are so of whack at times. I have followed Mr. Dunning’s reports since 2005 and he has balanced views on housing; he can’t predict it and provides decent analysis. It’s that simple. He doesn’t have a crystal ball either. His reports have been far more robust and informative than all your paranoia.

#14 EssGee on 09.03.09 at 11:55 pm

Mortgage brokers, real estate agents, and housing analysts are the scum of society…period.

Note that you don’t need to have a grade school education to be a licensed realtor or mortgage broker. All you need is the ability to answer a multiple-choice exam.

#15 PVC on 09.03.09 at 11:59 pm

Garth. Garth. Garth.

You can’t be serious. Protecting the financial services industry?

They created the problems. Not the hacks you quote above.

You are aware of CDOS, SIVS, SDOs etc.

When Wally St started packaging and securitizing mortgages that’s when the proverbial hit the fan.

Rewrite the second-to-last paragraph.

Clearly I referred to retail investors, not Wall Street investment banks. But you know that. — Garth

#16 lars on 09.04.09 at 12:13 am

Garth:
Have been following your blog for a couple of years.
My wife and I ( 50 & 49 plus 2 kids ) listed in suburban Van last winter following yours and others advice. Sold this May then sat back and watched the bubble inflate much to my wifes chagrin. A few difficult months of marriage followed as we watched 10’s of thousands drift away in the frenzy while people asked us if we were crazy and why did we do what we did. The money from the sale came through in August, we payed off the banks and just finished investing the rest into a well managed, diversied portfolio with Investers Group. Now almost over the pain we sit back in our rental house with a view of the mountains and inlet, very happy to be where we are. It has not been easy but thank you. To be in this position while the next 5 years unfold is a huge relief.

#17 Nostradamus Le Mad Vlad on 09.04.09 at 12:32 am

Morals and Ethics became Very Important Parts Of Landfill Reform after dubya hijacked the first of two elections, set Rome ablaze while he fiddled in other parts of the world and generally hasn’t managed to put two consecutive sentences together. Pays yer money, takes yer chances and get what you deserve.

You forgot (f) — having sold an ever-increasing money-sucking monster and having a reasonable chunk of moolah, invest it to get an average return of 6%, rent for a long time (possibly life) and let those investments grow over two or three decades. So, I would choose (f), then I can leave kiddies a half-decent inheritance, or spend it on myself.

“. . . a bunch of rooms out and is collecting rent from others so he can meet the mortgage payments . . .”

‘Spose, just ‘spose in Spring 2011, when the ‘lympix are done and dusted there is a worldwide implosion, 95% of countries can’t look after their own and no chance of ever paying debts / pensions / obligations, etc. off?

The remaining five per cent can, but only taking care of their own. Does anyone really think the banks care what Jeff’s (or anyone else’s) position in life is?

They lent that money out, they want it back with interest. If they can’t get it, they may end up owning a property which would worth pennies on the dollar.
——
#49 Avi on 09.03.09 at 1:00 pm — “. . . Rockefeller Reveals 9/11 FRAUD to Aaron Russo”

It would be very convenient if everything could be put together in one package, so — http://ncane.com/mw00

Plus, ever wondered why there were so many great camera shots taken? Well — http://ncane.com/s73q
“The New York Times reported Thursday that a group of five men had set up video cameras aimed at the Twin Towers prior to the attack on Tuesday, and were seen congratulating one another afterwards. (1)”

Webmaster’s Commentary: “The cameras were set up PRIOR TO THE ATTACK! The cameras were set up PRIOR TO THE ATTACK! The cameras were set up PRIOR TO THE ATTACK!

“How did these Israelis know the planes were going to hit the WTC enough in advance to get their cameras into position?”

You get my drift — the whole set-up was an inside job! Take a gander at the lead-in pic to http://rense.com/ which explains it better.
——
#91 Onemorething on 09.03.09 at 8:17 pm — “. . . the global economy outside Canada and the USA? . . . What is Canada going to look like when all demand for it’s exports is dead or is being sold at below cost to foreign countries . . . Jobs lost in Canada will never come back . . .”

— which goes with —

#94 miketheengineer on 09.03.09 at 8:38 pm — “The big boys know what’s coming.”

Nothing further need be said other than the Rothschilds, the Bilderberg Group, the Rockefellers and other members of the elite Goon Squad are taking us for a ride we have never been on before.

#18 Munch on 09.04.09 at 1:20 am

Hey Garth1`?

Nice friends!

NOT!

#19 Nostradamus jr. on 09.04.09 at 1:28 am

Here it is for everyone on this blog, “the writing on the wall.”

…Contemporary Govt’s as we know it have hit the wall.

Contemporary Govt’s, including Canada’s will at some point reduce or stop delivering Social Contracts to its Citizens….ie: Social Security…EI…and even Socialized medicine.

No country knows how much or how bad things will become.

…The only place…in Canada anyways…that one can protect their equity, retirement, investment security would be in their own Homes.

Especially in homes because of Canada’s system…”no capital gains tax on primary homes”…..for now.

…The turmoil around the world continues…. a home is a home….you can always rent out a room or two.

Where else can you put your worthless paper $$$?

Nostradamus jr.

#20 daystar on 09.04.09 at 1:36 am

And we can literally thank a Conservative government for it, Garth. They are the ones who up and decided 40 year nothing down is in vogue. They also decided in their infinite wisdom to care not what rising interest rates will do to default loans CMHC/tax payers dollars will have to cover in the future, or what rising rates will do to the families facing bankrupcies and shrinking personal equity. Let the next government worry about that, we’re here to create wealth!!!! (wink, wink)

Lucky for us, the Cons also up and decided that a real estate bubble is great! Relax the lending regs and lets drop Bank of Canada rates to zero, let the good times roll, why, look at what it did for the U.S.A.!!!! They are really happy with what Bush did for them…

So Canadians should be happy with the same policies Harper has instilled upon us to create such a nice housing bubble the taxpayer’s will be on the hook for when the parties over…. especially when those interest rates rise… and they will with this same government that likes 50-60 billion dollar deficits and fresh trade deficits with the great liquitdation sale of corporate Canada to ensure a whole lot more.

And oh yeah, in case readers don’t understand it yet, it does matter who you owe.

I’m sure Canadians will be glad to know that trade deficits and federal deficits lead to the sale of bonds and if they don’t sell, interest rates go up to make them sell or currency drops like a stone to make them sell and if that doesn’t work, the currency just keeps dropping… Just ask George Bush. Its what ended his great wealth creation real estate bubble scheme and it didn’t bottom pretty.

And its our future if we continue to follow Bushenomics, Harper style to its ugly end ’cause in case readers haven’t caught on yet, its what we’ve had for a government. Its old school Republican, America first. Create a housing bubble, and the government is popular since over 80% of the average persons equity is in their own homes so lets pop homeowner equity and Bon Temp Rouler! … til’ the bubble bursts, that is…. unfortunately for Bush, the bubble burst 3 years too soon. Best thing that could ever happen to Harper and his followers is if he lost the next election, truth be told.

This big fat Real estate bubble will burst here and Harper and his followers will run the same fate unless we can find ourselves a government that creates the environment needed to grow our economy without adding debt. Hey, didn’t we have that once before, who were those guys again? Didn’t they double Canada’s GDP in a mere 12 years while dropping taxes for the last 10, while paying down federal debt with surplus’s, who were those guys again? Must have been a real bad lot to have done such things for this nation. Harper says so, so it must be true. Whats not to trust, right? He’d never lie to us about the economy or buy your vote.

Why, just ask Chuck Cadman.

#21 NoFreakinClue on 09.04.09 at 2:10 am

Hi Garth,

Do you know how long does it usually take for the effect of Governement spending and borrowing from Bond Markets to appear in rising Mortgage interest rates? Any historical evidence?

My Economics prof says about a year or … so it should not be very far that mortgage rates rise if this guy knows his stuff… else, waste of his 4 yr spent on PhD…
Thanks,
AA

#22 neto on 09.04.09 at 2:35 am

Well I’m 33 and about to buy a house at 29 but my wife and I had a baby at 31 so now here the hard part. Do I buy a house now or wait until the dust is gone. Well let me see, I live in Edmonton and make decent money but I want to have a house until our baby gets married but after reading the economy, blog and so on I think I’m going to stay put and wait for another two years.

#23 Future Expatriate on 09.04.09 at 2:49 am

Sorry to be off topic, but this news represents a possible paradigm shift.

Garth… might want to rethink your position on gold. Seems the Chinese, geniuses that they are, have figured out a way to f*ck the fixers, permanently, by turning 95% of their earning population into ravenous not-so-little goldbugs…

Gold might be currency very soon…. in China.

Rest assured this will cause a massive golden bubble, but we’ve been HIGHLY trained by you and others here as to recognize the best time to jump off, which won’t be for quite awhile as this massive social and economic tactic of economic war against the “Masters of the Universe” takes hold.

This also is a direct counterattack against the recent CIA attempt to destroy the gold market by claiming (falsely which is why it went nowhere) that the Chinese were counterfeiting various bullion coins en masse. The truth was less than a handful of people were involved and the effect on the market proved negligible, so the failed plan was abandoned.

It is interesting to see how a massive Chinese population flooding to gold ownership will affect the rest of the world’s preference of the metal over paper, including North America.

I’d suggest the Canadian mint ramps up production asap.

As you know, imho, a return to a real monetary standard and getting monetary policy free of the control of various governments and central banks via paper, is one of the best things that could happen to this planet, albeit after a long hard and painful return to reality adjustment. I’ve seen no difference in the damage done in the real estate market via gov/banking shenanigans vs. the world of banking and finance except as a matter of degree.

This Chinese move could return sanity while avoiding anarchy on main street.

Wall street? Raze it and replace it with hi-rise condos built on real affluence from a real monetary standard and on factories in another part of town that actually make things rich Chinese want to buy.

#24 Jay Currie on 09.04.09 at 4:41 am

And the realtor for my house, being a genius, has organized an open house for a long weekend Saturday.

The ethics are straight forward: professionals give the best advice they can, shills sell stuff. Houses, mortgages…whatever is going.

A year out there will be some very unhappy and very broke people.

Meanwhile, crazy yuppies 2.0, don’t buy my house. It is overpriced and the much advertised “built in” bookshelves are mine. The “spa-inspired” bathroom means you have to sit diagonally and the “garden” is dead.

GLTA

#25 NOBODY on 09.04.09 at 5:09 am

This is how one has to look at this “housing” issue.
Unless you appreciate the hobo lifestyle, one needs a roof. Rent or own.
Some prefer renting while others own their property in which they live. A third group wish they can own but cannot afford the down payment- remember home ownership is a PRIVILEGE. Not a right.
You buy in a good or a bad market.
Housing was seen as an EQUITY in the past few years.
Bad surprise today, eh?
If one buys for the LONG term in which to live in and raise kids, etc. who cares, really about where the market goes and- IF prices crash. As long as one stays in the house and it’s not up for sale, who cares.
That house that one buys today at $275K in Kingston, Ont. will be worth more in 25 years. In 3 years? Nobody knows.
The big issue is if one views a roof on his/her head as an equity, that person sees it from the wrong angle.
Now, if you buy for say 4 years while in Calgary, Edmonton, Vancouver or Saskatoon, IMHO that person will lose due to past hyper-appreciation and speculation.
It’s not rocket science…

#26 David Bakody on 09.04.09 at 6:19 am

Just wondering ….. all this home renovation that is going on ( Tax breaks – hidden increase in parts and labour) will people want more for their existing newly renovated home or will they feel sad when the bubble breaks and there home is worth far less. It all comes down to supply and demand, many will remember my words wrt the ode home buyer’s plan ….$4K for the new home buyer from the government and $8K+ for the builder in increase purchase price …..no saving then and no savings now!

#27 Mike (Authentic) on 09.04.09 at 6:21 am

Funny enough speaking of ethics, unethical behaviour and getting caught is cheap:

Tory cabinet minister Peter MacKay fined $200 for breaching ethics code

“Canada’s ethics commissioner has fined Defence Minister Peter MacKay $200 for breaching the federal code of ethics.”

http://www.google.com/hostednews/canadianpress/article/ALeqM5jLr0ms9pbA7JVQRIk9z1YRMoHhFQ

Mike

#28 Mike (Authentic) on 09.04.09 at 6:38 am

Did you hear on CNBC last night they are going to introduce a “Cash-for-appliances” scheme? Simular to the “Cash-for-clunkers” scheme.

Completely nutz and irresponsible of the Gov’t to force people to go further into debt AND raise their GDP debt at the same time.

The US Gov’t might as well hand out fist fulls of money at the corner next.

—–

Holding RE long term.

In the last boom in Calgary, it took 18 years for those who bought at peek to recoup the same “spending power” amount of money. That’s before 18 years of mortgage interest, property tax, maintenance, roof, house reno’s, etc.

18 years is a long time to be in 1 house and not make anything extra on the purchase price of it.

—-

#11 Virgil — Great post, I enjoyed reading that.

#29 buy gold on 09.04.09 at 6:43 am

The Coming Train Wreck
To Avoid…

The Continuing Collapse of the
U.S. Housing Market to 2013

What would you do if you saw a train wreck about to happen and there was nothing you could do to stop it? You’d get out of the way (we hope). So why don’t many Canadians do that with their investment decisions? Simply because we can’t help ourselves – we have the sun in our eyes.

The sun will be shining when the snow begins to fly up in Canada. That alone is a big draw to buying property in the U.S. Yet those who purchase today will look back at that decision as just another poor “holiday influenced” decision. Prices will have dropped, expenses will have escalated and that piece of paradise will no longer be a place of peace and relaxation – and will definitely not be the bargain it may look like today.

#30 robert on 09.04.09 at 7:03 am

“…some buyers fear interest rates will go higher next year and are buying now rather than taking a chance on next year.”

Bingo. Change “some” to the more probable “most” and you’ve got everyone over on “the rates will go higher” side of the boat. Also the banks are telling people rates have little room to move down. What they are not telling people is the time frame for rates to end their secular downtrend and begin to rise. Are the banks being disingenuous? Are people generally naive? You decide.

Interest rates can move up and down significantly within a secular move (witness the US30yr) however secular change is not announced with the ring of a bell (or upon the ruminations of a twenty-eight year old mortgage “specialist.”) That’s why whenever I’ve owned a house in the past twenty-years (secular rate down) I’ve always carried no more than a one year term. Presently I choose to rent and, at my age doubt I’ll ever own a house again.

#31 Ray MacDonald on 09.04.09 at 7:04 am

We bought a house in my late 20s after we got married. Moved around a bit (including Montreal in the late 1970s – guess how well our equity did then). Paid the dam’ mortgage off before I was 40 and got on with my life.
I’ve owned a house for 36 years, and still do. Never seen a penny of the money I’ve got in this so called “investment”, and probably never will. It’s less than 30% of my net worth so who cares?
How people get so excited about the glamour of real estate motrgages completely escapes me.

#32 Ray MacDonald on 09.04.09 at 7:06 am

Sorry mortgages

#33 Don't Believe the Hype on 09.04.09 at 7:20 am

You have to remember that people focus on payments now, not in the future. None of the “articles” aka sales pitches in the papers talk about prices of houses falling as interest rates rise.

When Jeff Rubin is saying load up on debt while it’s cheap you know something’s wrong. To be fair I don’t think Jeff is necessarily referring to mortgages which have changing rates over time.

I’ve had people argue with me that my 10 year old (well maintained and paid for) car should be traded in for a leased new vehicle because it’s cheaper, renting a house is just paying someone else’s mortgage, new giant screens are cheap at $1200! I try to explain that I don’t have to make payments on my car, my rent is less than a mortgage (not to mention property taxes and repairs and interest), and since when is a $1200 TV cheap?? All my attempts at a sane explanation are to no avail.

Oh well…

#34 miketheengineer on 09.04.09 at 7:26 am

Garth:

Your post have over and over again demonstrated the fact that buying a home is no joke.

I watched as a young person, several of my relatives loose their homes due to high interest rates and lack of job during the 1980’s. Not a pretty site, when the relatives come by for a visit to ask for money , cause they just plum run out of options. At least this guy is renting out rooms. And at 56k, he should be able to pay the mortgage, with the renters help, or he sells out and gives up the battle. Whats he doing with the CASH. From what I see, he should continue the battle or stop wining. At least he has work!

#35 Sampson on 09.04.09 at 7:45 am

Question. I am about to move into a house I purchased at the beginning of the year. I have $280K in cash at the moment. do I:
A) put $205K down on the house keeping the balance to be spilt between investments and an emergency fund or
B) Put the minimum down required to avoid CMHC fees and keep 6 montsh worth of expenses in an emergency fund and invest the rest of the money.

Thanks in advance.

Or, put $280K down, then borrow back $180K in the form of a home equity loan. If you use the proceeds for investment purposes, the interest is deductible, which is the same as being able to write off the bulk of your mortgage payments. The strategy will free up your capital for diversification as well as reducing your taxable income and increasing personal cash flow. — Garth

#36 X on 09.04.09 at 7:50 am

Graham Summers recommending to stockpile food and water:

http://www.gainspainscapital.com/index.php?option=com_content&view=article&id=131:weekly-market-recap

#37 anon09 on 09.04.09 at 8:06 am

Canwest outsourcing advertising production work in Calgary and Regina overseas

#38 Samantha on 09.04.09 at 8:16 am

“Those are very robust numbers,” said Toronto housing analyst Will Dunning (comment to the Toronto Star on August stats released Thursday).

Oh, save us all from adspeak – “robust numbers”. Isn’t that word “robust” also used to sell coffee and wine, among other things?

“Part of this seems to be fuelled by the fact that some buyers fear interest rates will go higher next year and are buying now rather than taking a chance on next year.”

So, buyers do understand the some of the consequences of higher interest rates. They are not naive Bambis frolicking in the urban forest?

Perhaps, Bambi and the rest of the herd are well aware that if interest rates increase they will not ‘qualify’ (as if they ever did) for mega mortgages and won’t be able to buy their first-time-homebuyers-dream-house resplendent with stainless steel and granite. Wonder who fuelled that fear?

It is unethical and the people pushing property are no different than a drug dealer making money off the misery and suffering of other human beings.

And just like drugs, all they had to do was say ‘No’.

It was just that simple.

#39 Justin on 09.04.09 at 8:33 am

# 15 PVC

You are correct but it must also be pointed out that many Banks and Mortgage Firms (CEO’s) deliberately set out to make bad loans. Ratings firms were also in cahoots as they turned a blind eye knowing the value of these assets (toxic waste) couldn’t possibly be true.

Finally, It was Tim Geithners (ahem….current Treasury Dept. boss) job as head of the Bank of New York to ensure that regulation (honest oversight) was indeed taking place.

In truth the whole subprime debacle (trigger for current economic mess) was a massive collusion in Fraud.

#40 Jonathan on 09.04.09 at 8:36 am

Rule of Thumb 101

Consumer attitudes towards a speculative investment reach an all-time high immediately before a bubble blows. The attitudes drive the prices up to their maximum level. Problem is, when attitudes get to euphoric heights they have only one direction to head and that is down. When consumer attitudes begin to erode the prices must drop. The cycle feeds itself.

In 2008 consumer attitudes did not change – affordability did. That’s why the market dropped and also why people jumped back in the market this spring with low interest rates.

We are at a maximum level of prices and stimulus in the mortgage market. Incomes are falling (fell 0.5% in labour and 1.3% in the service sector in Q2), taxes will have to rise, and interest rates are going up, all the while job security is reaching an all-time low.

Congrats to all those new homeowners. Anyone else getting sick of congratulating your younger friends for buying this spring – even though they ignored your warnings?

#41 Jonathan on 09.04.09 at 8:44 am

Every single person I spoke to who has bought has said something along the lines of this:

“interest rates are going to be low for at least a year. When they raise rates it will because inflation is out of control, and home prices will increase rapidly”

Someone should tell them that when about $80-100 trillion of debt worldwide wants to start to shrink it’s deflation that they need to be concerned with. All that debt was newly ‘printed’ money when it was loaned out – that’s an incredible amount of inflation. More than double the inflation before the Great Depression. Naturally we are seeing the start of deflation. Even if we have $10 trillion in deflation per year worldwide, or roughly 20% of our economy, it will take 5 years before we reach the inflationary forces prior to the great depression. Gives you an idea of how serious this crisis is.

If home prices increase rapidly, and incomes remain about where they are while interest rates increase, where do recent buyers think new buyers will come from? — Garth

#42 BDG YYC on 09.04.09 at 8:45 am

Ooops … more “normal”

http://finance.yahoo.com/news/Unemployment-rate-rises-to-rb-1733516447.html?x=0&.v=6

Here a trillion there a trillion …

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ1kcJ7y3LDM

Beatings to continue … except in Canada of course.

http://www.reuters.com/article/marketsNews/idINL453152320090904?rpc=44

#43 Gonzo on 09.04.09 at 8:57 am

I’m not sure why people think that the government would be able to stop a bubble from popping. Bubbles throughout history always return to (and usually overshoot) the mean. All around us bubbles are popping. Do you think the U.S. wanted housing prices to collapse? Even as the quantitative easing was in full effect, housing prices were collapsing.
But I guess that’s why it’s a bubble. Even bloggers on The Greater Fool can’t see through the thin bubble film.

#44 Joe Realtor on 09.04.09 at 9:06 am

#14
I’ll be the first to admit that there are plenty of whack-jobs working as Realtors out there (see my blog) but your inference that all getting a license entails is answering some multiple choice questions is way off. Phase 1 used to be multiple choice. Phase 2 involves alot of essay type questions as well as written offers and Phase 3 is much the same. Further, there are many people who fail the Phase 2 and Phase 3 exams and have to do re-writes. In Ontario, they’ve made it tougher as the exams are no longer open book.

#24 – Jay
You never know, that open house on a Saturday of a long weekend may just get your house sold. I’ve never sold a house through an open house, but there are plenty of people who shop for houses, or are just out looking, on holidays: Mothers Day, Fathers Day, even Christmas Eve day.

#45 Gary Helmer on 09.04.09 at 9:07 am

Hi Garth. I’m pleased to know you are back in the political arena… Good luck with it!
In your Myopia (Sept. 2) post you said “it’s no big deal to get a steady and virtually risk-free 5-7% on your money these days, which is a decent real rate of return. You can even earn it in tax-advantaged ways, through dividends or capital gains.” You have suggested that in previous posts also and readers keep asking you how? You did reference Govt. of canada bonds awhile ago but I (and i think many others) could benefit from a bit more of your inside on this issue. Since you keep throwing that 5-7% target out there, could you follow that up with a post dedicated to where we might look to make those gains?
A quiet but supportive senior…

#46 buy gold on 09.04.09 at 9:17 am

Chinese to destroy Feds by refusing to honor fraudulent derivatives contracts

The Chinese government has told Chinese companies they do not

DELETED. If you cut and paste another 2,000-word article, with no regard for the integrity of this site, you will be banned. This is your second irresponsible post today. — Garth

#47 Hopeless_in_the_GTA on 09.04.09 at 9:22 am

Let’s put it plainly. Those of you that are banging away that home prices should fall (especially in the GTA!!) are completely deluded.

Garth has tons of arguments, most of which are all about mean-reversion (just like most full-time bears/pumpers) but the one that falls flat everytime, except for those of you with serious means and connections (i.e. hedge funds), is the old easy peezy miracle-no-risk rum-induced 5%-7%-on-your-money clap trap that is being peddled all over this site.

Again today Garth says: “Take advantage of robust financial markets to grow your downpayment”.

Wait a minute… care to back that up Garth? What suggests that we have robust financial markets? Because your indexes recovered a bit since March? As far as I know, Canadian home prices have hit new highs and markets have yet to recoup losses from the 08 October crash.

Traders I know are talking about a nasty fall season, and a bond market fiasco.

And why is it that no one comes by this site talking about how Garth’s strategy has personally paid off for them in recent months? There is NOONE writing Garth about how they made a ton of money doing anything he recommended. All these letters are from people that are afraid, or at best have quelled their fear by selling houses and renting… but they’ve MADE NO MONEY.

Only Garth, who bought a home in January seems to be laughing at all you suckers. Enjoy your rented hovels porkers!

Yes, Garth, you might have to go back to politics so you can scare more people… otherwise there’s no chance you’re going to see anything bad happen to real estate. Your reputation however, that is another matter.

So in closing, please tell me why at this moment robust financial markets exist?

Equity markets have advanced 40% since March. Those who know the relationship between rates and bonds are poised to do extremely well. Commodity price plays have been most profitable. Short-term financial market swings, however, are meaningless since serious money can be made in volatile times, where prices move up or down. This differs drastically with home prices which only return a capital gain (minus very high acquisition costs) when values rise. Get educated. — Garth

#48 Gord In Vancouver on 09.04.09 at 9:33 am

#31 Ray MacDonald

Good for you.

You’re one of the few remaining Canadians who see a home as a place to live, not a wild casino game.

#49 PVC on 09.04.09 at 9:34 am

Prediction 2010-early 2011ish.

Garth will become a gold bug bunny.

Oh, and Garth don’t give one of your limp comebacks like
I mentioned gold in one of my books or in passing.

You will become a gold bug out of blog dog pressure and
upward price pressure.

Why? It’s still not money, as less of an inflation hedge than oil? — Garth

#50 Vicguy on 09.04.09 at 9:36 am

From this morning’s Victoria T/C: “CMHC says area housing starts will rise more than 40% in 2010”

http://www.timescolonist.com/Real+estate+rebound+predicted/1961358/story.html

#51 Halifaxfamily on 09.04.09 at 9:41 am

The Halifax guy really does get it, and I’m hoping he gets out before the slow-moving trainwreck happens. We Atlantic Canadians are up to our noses in debt. Though the malls are humming and the houses are turning over, it’s all a shell game financed with cheap debt.

Case in point. I went to a dealership the other day and they were ‘out’ of minivans. Huh? How can you be out of minivans, used AND new? (we were looking for a Toyota Sienna)

Is it because of leasing? Nope – people don’t lease vans because they usually ‘buy’ them. Vans, he said, are usually kept in the family or trashed due to kids. Leases are too restrictive.

So, do they buy them with cash, I asked? Nope – people usually finance. Oh.

What is the percentage, I asked. Answer: over 95% of people finance their vans. (I think the answer is close to 100%)

Right. That’s where the minivan shortage is – artificially increased demand due to easily borrowed money. Why not buy a cheaper used minivan, like we ended up doing, and not have to finance it?

Not sure. We’re in funny times, I say. Fortunately, making a financial mistake of buying a minivan is at least 10-30X less costly than making the same mistake on a house. Nonetheless, it illustrates the point that people are doing weird things right now.

#52 smw on 09.04.09 at 9:46 am

#28 Mike (Authentic)

Ha ha…

Its classic media manipulation when you hear about the tenth of a percent rise in GDP but as you stated, they don’t shoot out the “debt” figures that coincide.

If there was only a way to make the terms “debt” and “enslavement” sound not so negative…

#4 hal smith

I see your back into the glue again.

So what your proposing is its going to cost you, $2 litre for gasoline, $10 for a 4 litre bag of milk and $6 for a loaf of bread in the near future as we print money to keep home prices stable.

Hope some of these houses being put up in the last couple years are made of ginger bread, budgets are going to get tight and so is that grocery bill and energy bill.

Good call, keep dreaming.

#53 613 Happy where I am on 09.04.09 at 9:51 am

My ex and I bought the townhouse I now live in solo when interest rates were approaching 20%. I have not moved since. I was happy with what we got when we bought it and I am happy now. We spent over 6 months looking at properties for sale before we bought.

The push nowadays is to buy a piece of the pie before it’s too late. The bidding wars, while great for the vendors, means potential buyers hardly have time to think about what they are doing or if they should be buying a house. I think people should be forced to take a unbiased financial literacy course as a prerequisite to first time home ownership. Then, we can’t blame the agents, inspectors, analysts, or media in hyping real estate as an investment.

Why do North Americans crave home ownership so much? I can understand Americans to a certain degree because they get a mortgage interest deduction for tax purposes but what’s in it for Canadians????

I am just thankful that I have a roof over my head and that I wont be house poor even if interest rates climb skyward again, and they will…

#54 dontcallmeshirley on 09.04.09 at 9:58 am

Run your spreadsheets.

Total cash out is equal between 500k @ 3% over 30 yrs and 230k @ 10% over 30 yrs.

Consider that before paying another 3 years of rent while waiting for a price drop.

Cheers.

Meaningless. The longest rate commitment in Canada is five years. — Garth

#55 Evangeline on 09.04.09 at 10:00 am

on ethics in another arena …

YES!!!!

UK’S Treasury Chief: Some Bankers should pay back bonuses

Britain’s Treasury chief Alistair Darling said Friday that bankers who make lousy decision should be forced to return their bonuses.

Darling said that leaders from the Group of 20 leading economies meeting in London this weekend would be discussing reforms to the way in which bonuses are paid out.

“A bonus shouldn’t be guaranteed, it should be earned,” he told business leaders in the Scottish city of Glasgow.

Britain — along with fellow European economic powerhouses France and Germany — has been pressing for tougher rules on bonuses at the upcoming G-20 summit. In a letter sent Thursday to the EU president, Germany’s Angela Merkel said it was especially important to forge international rules to rein in traders’ bonuses, blamed by some observers for helping fuel the financial crisis by encouraging unreasonable risks.

#56 Rick on 09.04.09 at 10:07 am

#31
Hi Ray
I also paid off my house before I was 40, then when real estate went crazy, I borrowed on the equity, put it into the stock market, pretty well doubled that, paid off the equity loan and now I’m a little further ahead. That’s how people get some of the money out of their real estate “investment” while never selling the house. This obviously doesn’t work for everyone, but it worked well for me. Of course, I wouldn’t recommend doing this right now, but it can work if you know where/when to invest it.

#57 Evangeline on 09.04.09 at 10:31 am

#51 Halifaxfamily

I am thinking of buying in Fredericton as the prices there seem reasonable. I was talking to someone there who is in the investment business and he thinks Fredericton real estate will jump 15% as the financial crisis unwinds. It wasn’t a sales pitch because he is a disinterested party, but what is your take on the situation?

#58 tim sople on 09.04.09 at 10:39 am

Actual Jobs Report Canada

-August brought a continued deterioration of full-time work, with 3,500 additional job losses bringing the total since last October to 486,000.

-There were almost 50,000 Canadians out looking for work last month, meaning that the number of officially unemployed rose by 21,900.

-Most of the pick-up was in the lower paying service sectors, while high-paying, high-productivity manufacturing work continued to be scarce, falling by another 17,300.

-Hourly wages were 3.3 per cent above last August levels, the lowest growth rate in more than two years.

As well, economists caution about reading too much into any one-month survey. They point out that the national agency threw a head-fake in April by reporting 35,900 job gains in the middle of a severe slump, only to take them all away in May.

#59 Hopeless_in_the_GTA on 09.04.09 at 10:57 am

I love it:

“Equity markets have advanced 40% since March… Commodity price plays have been most profitable. .. serious money can be made in volatile times, where prices move up or down.”

Yes, if you have an aggressive money manager (ahem, a broker for rich guys like you) or make $200K/year with $1-2M in assets you can get into some good hedge funds. I’d like to see anyone with a net worth south of $200K walk into a bank and ask shyly about what products and services offer 5%-7% returns on their money. They will get smoked. I’d love to see a mutual fund salesperson tell someone how they can make money when the market is going down. You are suggesting that regular people will outsmart even fund salespeople (er.. financial planners) as a matter of course. Ridiculous!

I know financial planners.. you can’t even invest with them if you want to go against the market. They’ll show you the door.

And you’re telling me this 40% rally since March is robust? Where were you in March? You were telling people to sell houses, not jump into the stock market!

The rest of what you’re talking about is above the heads of most people that are buying houses and will remain so ever more. So who in the hell are you talking to?

Garth, the problem with your blog is that you mix audiences constantly. You tell regular joes to sell their homes by peddling fear (of course, technically you tell people to fear a mere 10% real estate correction… my lord how awful!!), and then suggest that they become a bunch of stockbrokers to manage a huge wad of cash in the riskiest financial market of the last 30 years!?!? Yes, sure, to finance-types it all makes sense. But not all Canadians are trained bloodsuckers.

What gives you the balls to suggest some take their life’s savings, 80% in home equity, and start gambling?

Where’s your mean reversion argument with respect to stocks and bonds? Or do you just think day trading is way cool and somehow we can all run little mini-hedge funds instead of working?

Get real.

You have much to learn. Check the anger and get educated. — Garth

#60 Vancouver IS Immune on 09.04.09 at 11:02 am

#8 Non Pulse

Sorry to disappoint your powers of deduction, but I am neither ETB on RE Talks Forum nor a troll for that matter.

I posted that original “assessment” on yesterday’s thread because that was my feeling after seeing the August REGVB stats, and I also posted on Vancouvercondoinfo and Rob Chipmans site as “Keep on Waiting”. I don’t post enough to warrant a “full-time” handle.

But thanks for the taking the time to try to figure out who I am…lol…like that makes a difference. My assessment still stands, and even Garth could not refute the logic behind it.

Not worth refuting. — Garth

#61 Nostradamus jr. on 09.04.09 at 11:05 am

Slow but sure Payback for……CHINA

…China holds U.S. Debt…lots of it

…China diversifies into North American Commodity Holdings.

U.S. and Canada “NATIONALIZE ALL FOREIGN OWNERSHIP”.

…ECONOMIC NATIONALISM IS INEVITABLE”

A return to economic stability is about Jobs/Manufacturing on Home Turf.

World Trade is a failure.

China scooped world manufacturing with 10 cents on the dollar labour costs.

China gives it all back thru Nationalization of their foreign holdings.

Gold collapses as China and India sell their gold holdings for food.

It is inevitable.

Nostradamus jr.

#62 jwk (nee jwkimba) on 09.04.09 at 11:07 am

Run your spreadsheets.

Total cash out is equal between 500k @ 3% over 30 yrs and 230k @ 10% over 30 yrs.

Consider that before paying another 3 years of rent while waiting for a price drop.

Cheers.

Meaningless. The longest rate commitment in Canada is five years. — Garth

It is even more meaningless when you attempt to pay off the mortgage early. It’s a lot easier to pre-pay a 230k mortgage off than a 500k one. Even if you could get a US style 30yr lock in mortgage, in 15 years when inflation has driven the mortgage value down, you still owe over 300,000 on the mortgage. the 230k @10 owes 178k.

Compare whan an extra $100 a month does to these potions (hint almost nothing to the 500k, a big impact on the 230k).

Definetly worth waiting a few years for…

#63 Sphinx on 09.04.09 at 11:10 am

“Higher rates will therefore render homes, now at record prices, less affordable. House values will likely moderate as a result.”

Interest rates will NOT go up for many years in Canada, because higher rate will kill exports, housing, and the whole economy…Carney will make sure that does not happen, Conservatives/Liberals on the same boat. I believe we’re heading into the Japanese past scenario of lost two decades, in our case with about 15+ years of slow and continuous housing price decreases after an initial big dip.
I thought the market will correct because of insane prices causing low affordability..didn’t happen, then thought it’s the higher interest rates..won’t happen, I believe the unemployment will do the job and it’s something the government CANNOT manipulate like the interest rate. Inevitable higher taxes to pay for current & coming bailouts will be another head wind. Hard times ahead of this country

We’re all losers in this game, both homeowners and bubble sitters, no winners.

Canada is not Japan. Carney is powerless to control rates beyond the short-term. He is grafted at the hip to the Fed. — Garth

#64 Two-thirds on 09.04.09 at 11:14 am

The only thing surprising about the employment figures presented in this report is the arithmetic:

“Canada posts surprise gain in employment

OTTAWA — Canada posted a surprising gain in employment in August as the economy showed signs that it was beginning to pull out of a recession.

Statistics Canada said Friday that 27,100 positions were added during the month, compared with 44,500 losses in July. The unemployment rate edged up to 8.7% in August from 8.6% the previous month.

The gains were led by part-time and private-sector employment, the federal agency said. There were 30,600 part-time jobs added in August, while 3,500 full-time positions were lost. Hardest hit was the manufacturing sector, which shed another 17,300 in August. The biggest gains were in the retail and wholesale trade, up 21,200, and finance and real estate, up 17,500.

Six provinces saw employment rise, with the biggest increases in Ontario, British Columbia and Quebec. Alberta lost the most jobs in August.”

http://www.edmontonjournal.com/business/Canada+posts+surprise+gain+employment/1962314/story.html

30,600 (p-time) – 3,500 (f-time) = 27,100 (p-time)

That’s clear to me.

However, adding the new positions in retail, finance and RE, we get:

21,200 + 17,500 = 38,700 (full- or part-time?)

Then deduce the losses from manufacturing:

38,700 (new jobs) – 17,300 (losses) = 21,400 (net new)

21,400 is less than the 27,100 stated in the report. Also, I don’t know how to account for the 3,500 lost f-time jobs.

And to top things off, the caption of the picture in the article is wrong:

“A Service Canada location in Toronto. Statistics Canada said Friday that Canada created 27,000 jobs in August, but due to a rise in job seekers, the employment rate rose 0.1% to 8.7%”

It was UNemployment that rose, not employment!

What poor piece of news (at best). At worse, it feels as if the purpose of the article is to mislead and confuse readers.

I guess that’s the new way to “comfort” the sheeple.

#65 X on 09.04.09 at 11:17 am

#41 – if inflation really kicks in like that. The people I feel most sorry for are the baby boomers nearing retirement….their life savings will appear to be nothing if inflation really hits hard (imagine having a million saved up, and b/c of inflation it could have the buying power of 100 G)….some of them already choosing for early retirement b/c of job loss/buyouts…

#66 TorontoBull on 09.04.09 at 11:19 am

@59
I hear what you’re saying. In Garth’s defense, he did say in March/April to sell houses and invest in the stock market, which if you did you’d have made a lot of money. I have a problem with Garth’s more recent suggestions to invest in stocks, which can prove very damaging to folk who follow the advice today.
I don’t know how you all feel but from my perspective this blog has served it’s purpose. I wish Garth all the best with his political career…

Where did I say ‘invest in stocks’? Average investors should not be trying to pick equities. There are many superior options. — Garth

#67 Terry Coleman on 09.04.09 at 11:26 am

Recent changes to the Real Estate Education Courses in Ontario are the following:

1) Phase 1,2 and 3 courses now changed to Course 1,2 and 3.

2) Exam format for all registration courses are now multiple choice examinations.

3) All exams are now “closed book”, no more open book exams.

4) 75% minimum to pass all course exams is still required.

5) Articling/certificate courses still required within 2 years after obtaining provisional registration and being licensed and praticing with a Broker to receive permanent registration status.

6) Mandatory continuing education courses still apply to all salespersons and brokers during each 2 year registration period after receiving permanent registration status.

The course material is very detailed and expansive and very well developed. I have taken the Segment and the Phase courses in the past and am currently enrolled and studying Course #2 at the present time and in my opinion this is the Ontario Real Estate Association’s best education program ever!!

TC.

#68 debtfree on 09.04.09 at 11:29 am

Is this one more of the cracks in the bubble . Up to 25% off brand new condos in ok bc.
/www.legacyonmaralake.com/

#69 JET on 09.04.09 at 11:30 am

The low interest rates are really inflating the real estate bubble, not only from buyers jumping at cheap money, but also from sellers hesitating in selling because of the penalty to get out of their mortgages, which could amount to tens of thousands of dollars, resulting in lower than normal inventory. Pretty scary if you ask me. At some point in time, if it hasn’t been reached already, buyers will longer be able to afford a home, no matter how low the interest rate is.

#70 PVC on 09.04.09 at 11:31 am

Is this bash Garth day? LOL.

Don’t worry G it’s preparing you for your next round in the polictical ring.

It will toughen your nipples.

#71 Shawn on 09.04.09 at 11:35 am

Here is Bubble Buster for those with no mortgage but sitting on say a million dollar home and you are worried it could in the worse case fall to 50% of that.

Go take out a 79.9% mortgage, no CMHC insurance required. Invest that in something very safe again a basket of bank preferred will cover the mortage espeicially if you go variable.

Now if the worse happens and million dollar houses crater to $500,000, simply walk from your 79.9% mortage. You lost 20% on your house but that’s better than 50%. In Alberta at least you are allowed to walk from a conventiaonal mortage with no insurance. The bank gets the house that is the deal. It may be frowned on but I understand it is completely legal. A bank manager told me this.

Not sure about other provinces…

Now this is not a strategy many would follow but say you wanted to invest based on a home equity line, plan A is you simply make money on the investment. Plan B is you just limited your down-side to 20% or so just in case of a total melt-down.

In most of Canada you are 100% responsible for the entire mortgage amount plus arrears and costs. This is therefore not a sane or reasonable strategy. Even in Alberta you will be sued for costs. Regardless or legal consequences, it is unethical. — Garth

#72 Kelly McMae on 09.04.09 at 11:50 am

In leadership discourse some say the greatest unethical act is to lead without foresight. hence, ergo….

#73 D in London on 09.04.09 at 11:51 am

#65 – X

What you feel sorry about for the Baby Boomers has happened in the past – to the “Greatest Generation” that lived through the 1930s Depression and WWII. I know this because all of my grandparents were in this generation.

They saved and squirelled away for retirement, and even had company pensions. They paid into and expected to receive government pension benefits. Unfortunately inflation got them all by the proverbial nuts in the 1970s, 80s and even today.

Much of the savings this generation had were in “unsophisticated” interest-bearing instruments such as Canada Savings Bonds, GICs, private mortgages, etc. that were not easy to get out of quickly. As the inflation rate zoomed up (and compounded), the value of these assets did not. As a result they were playing catch-up from the get-go. For example, inflation ate away more than two-thirds of the value of a dollar between 1975 and 2000.

For those with company pensions, some were not indexed. Or, like my one grandmother, the company pension stopped indexing when it became a survivor’s pension. And, like many immigrants from the UK know, their government pensions stopped indexing once they moved to Canada from another developed country like Britain.

As the boomers entered their prime earnings years they were already behind in saving for retirement (too many toys, vacations, trips to Nepal to “discover themselves”, nights at discos like Studio 54, noses full of coke and their divorces I suppose). They welcomed the loosening of regulations in the investment world with open arms, and thought they could make up for lost time with outsized returns (see: DJIA rise over the 20 years 1988-2008, bubble in house prices, etc.).

Now they’ve been told in no uncertain terms that it was all a charade and there is no such thing as “free money”. Everyone thought they were Gordon Gecko, breaking their arms congratulating themselves on the performance of their investments, only to find out that they were really “the mark”.

So, all my cherished stereotypes aside, my point is that the Boomers did not learn from history. Being old and unable to do productive work has always equaled poverty for most old people throughout history. The Greatest Generation and the Baby Boomers weren’t/won’t necessarily be poor, but their dreams of “Freedom 65” are likely dead for most.

Get ready to restore the 3-generation household.

#74 debtfree on 09.04.09 at 11:53 am

a mortgage specialist inflating prices ….say it ain’t so !

http://www.calgaryherald.com/Business/topic.html?t=Person&q=Ilan+Levy

#75 Hopeless_in_the_GTA on 09.04.09 at 11:55 am

@66

You said: “In Garth’s defense, he did say in March/April to sell houses and invest in the stock market, which if you did you’d have made a lot of money.”

Yes and no. Consider how most people of modest means and limited financial expertise approach this question (these are the people Garth “targets”).

If you have the kind of home equity that most new home buyers have, you would have made the same money buying a house in Toronto. Take a $20K downpayment in early March, buy a house worth the average value of about $360K. Presently, the same house is worth about $387K (see the latest TREB report with homes up 6%!! from last August… and wait till they start comparing with last fall’s beaten down prices!)

The money nearly doubled in the case of a home buy, versus a 40% stock market advance. And which one’s safer?

Safety: That’s the real question where I agree with you. Garth thinks the 40% rally is SAFER than the home price increases!!!!

He can’t explain that idea with math, or economics, or clap-trap. Noone would bet that. And it won’t be fleshed out in any post on this blog because it is so obvious to anyone.

Jabs and quips can keep coming at me, but most people know this blog is done. Why else would you be going back to politics?

Also, people shouldn’t pick stocks, eh? Well then tell me how you profit with conservative investments when the market goes down? Are you talking about a FOREX play? Are you talking about shorting? Are you talking about GOLD? Are you talking about specialized derivatives? Which one of these is conservative?

Garth, you are not being responsible, unless you truly think there is a reason for the market NOT to go down and trample that 40% gain. THAT I’d like to hear. You could work for CNBC or even better, Yahoo Finance!

I’d debate you, but you need watering. — Garth

#76 Hopeless_in_the_GTA on 09.04.09 at 11:58 am

” Regardless or legal consequences, it is unethical.”

Somehow it is unethical to fleece a bank. But when you sucker new home buyers’ with your “Real Estate shorting” strategy then it’s OK.

Come on!

My strategies would only cause a financial penalty to those who walked away from a legally-binding deal. The comment on trying to screw a bank is entirely consistent. This may shock you, but nobody has a right to own a house. — Garth

#77 Ottawa_Tradesguy on 09.04.09 at 12:00 pm

Interesting to read this blog and note the number of people who believe that we are headed for a real estate ‘correction’.

I do, in general agree that prices are headed for a moderate correction. I don’t quite frankly see an additional 15% price correction in Canada, probably something more along the lines of 5%. The reason for this is quite simple — while interest rates will inevitably rise they are unlikely to reach extremely stratospheric heights in the near future. Furthermore, massive inflation appears unlikely given that the huge amounts of government debt that has been issued will act as a break on the economy through higher taxes, cutbacks of government services and the eventual removal of monetary stimulus.

Housing should and probably will correct more severely in those markets that have reached heights that are unsustainable by income (Vancouver anyone?). However, real estate is fundamentally a purchase based on region (location, location, location anyone).

It takes a cascading series of events to truly set-off a real estate correction. If you follow the US correction in broad terms it goes something like this: mortgage lenders (banks and others) lend money to people who should not qualify for a mortgage (at least not a big one), bank packages mortgages together and sells them thus off-loading the risk in the portfolio, these people begin to default on their payments, mortgages generate less income than planned for those who bought the mortgages, they can not meet their payments, less money to lend, fewer mortgages are written, people enter negative equity, many choose to simply hand the keys back to the bank and walk away, property prices continue to fall, real recession starts, people lose jobs and begin to default in ever larger numbers, the cycle continues until the system is cleansed of bad debts. Forgive me for the broad explanation, but it’s close enough for the point I’m about to make.

It takes all of these events lining up to create a serious price correction in housing. If one of more of the links in the chain is broken throughout the system the correction becomes far less severe (e.g., if all banks carried large amounts of cash they are better equipped to handle loan losses).

In Canada, while the recession has been severe, it has not been as devastating as the US recession. Furthermore, it wasn’t a collapse in domestic lending that sent our country into recession but rather the impact of the collapse of domestic lending in other countries (US, UK, etc.) which limited the demand for our manufactured products and our resources.

So why, ultimately, does this matter? Without the massive job losses, corporate bankruptcies and lending collapse there are few events which will distrupt the Canadian housing market to the extent which the US market has been disrupted. I do not believe that houses will continue to increase in price at astronomical rates but rather that we will see a few years of slightly negative activity or perhaps even flat activity. It appears that we are beginning to pull out of this recession as many of the indicators have turned positive, while downside risk remains it appears less probable than before that we will have a total economic collapse.

Which area’s will be hardest hit? Simple really — look to the outlying suburbs where the commute to work is greater than 30-45 minutes (can anyone say $150 oil with me) and the McMansions (yes Garth, I do indeed agree with you on this). As 26 year-old with two rental properties I have a fairly high degree of confidence in the housing market (mind you I bought in ’05 for good prices on both).

Cheers,

Tradesguy

Sorry, but you’re wrong. There was no ‘cascading of events’ in 1993 which clobbered the Canadian real estate market, but merely a rise in rates and a slowing in the economy. The average house price in Toronto, which peaked in 1989, would take more than 10 years to regain its pre-correction level, and more than 15 years for investors to just break even on an inflation-adjusted basis. Real estate investors lost money steadily. That’s when you were ten years old. This is why history is instructive. — Garth

#78 Brian on 09.04.09 at 12:15 pm

In my opinion, the Canadian economy and real estate market are bouncing upwards from the benefit of the US stimulus and the ongoing financial shenanigans in the US banking industry (e.g., banks deemed to be well financed, but upon being shut down are found to have 37% of their assets written off), and the absurd Cash for Clunkers program. From what I have seen, the Canadian stimulus does not appear to have had an effect. When the US economy returns to reality in the next few months and possibly as long as 1-2 years, the Canadian economy and housing will suffer an even worse decline than the US – as is almost always the case.

Check out the following to see what is really happening:

http://www.calculatedriskblog.com/2009/09/employment-report-216k-jobs-lost-97.html
Look at the second graph for a comparison between this recession and the recessions since WW2.

http://www.chartoftheday.com/20090821.htm?T
The Us stock market bubble is going to burst. A market wide PE ratio of 129 is ludicrous and will be brought back to reality by falling prices since earnings certainly will not materially increase for a long while.

#79 $fromA$ia "Garths Nugget Boy" on 09.04.09 at 12:17 pm

U hem, Has anybody notice the gold price. China is now recommending its people to buy gold.

Whats our Government doing? Telling us to spend their printed money through home purchases.

We need to get rid of the desperate conservatives.

#80 Men With Hats on 09.04.09 at 12:21 pm

Statscan:
“Lies,damned lies and statistics”

Reading their latest jobless numbers is to LOL .
What a bunch of morons .
They never include people that have used all their EI .
Magically they become moved to the employed column Allegedly there were 27,000,jobs created in August of the McJob variety ” Would you like fries with that ? “.
No high paying manufacturing jobs . Just minimum wage low tax jobs .
I don’t believe these numbers for a hot second .
They are part and parcel of the governments (?) propaganda machine .

#81 Live Within Your Means on 09.04.09 at 12:26 pm

#26 David Bakody on 09.04.09 at 6:19 am

I live in Dartmouth too. We’ve tried to hire a renovator since the spring. They’re either too busy, 2 small bathroom renos are too small a job, or as someone said, they don’t want to do it as I’ve purchased everything (last winter before the highly publicized but not yet legal) home reno tax credit came into being. Guess they can’t make a markup on items I’ve purchased with cash BTW. I guess we’ll wait till March 2010 when they’ll be crying for work. I’ve noticed many more homes for sale on my 2K drive to the grocery store. House on our street was put on the marker in May I believe. Still no takers. Going to try and convince my hubby to replace the 28 yo carpet in our 3 bedrooms with hardwood floors to match the rest of the house. Two rooms are very small & it’ll be easier for me to clean. He does no housework inside so really doesn’t care. Hey, even if we can’t the installers, we can buy the flooring and store it with the rest of stuff in the family room downstairs that we don’t use.

#51 Halifaxfamily on 09.04.09 at 9:41 am – We’ve been buying used Japanese cars (cash) for awhile now. Why buy new ones when they depreciate as soon as you drive them off the lot. I don’t like paying interest.

#55 Evangeline on 09.04.09 at 10:00 am

Yes, we saw Sarko promoting that last week on TV5. Bout bloody well time. Did I read/hear that Germans are not happy with Merkel’s policies? Are they not having an election soon.

#82 jess on 09.04.09 at 12:31 pm

ethics?… ketchup economics … good article !
http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=1&_r=1&em

…”But there was something else going on: a general belief that bubbles just don’t happen. What’s striking, when you reread Greenspan’s assurances, is that they weren’t based on evidence — they were based on the a priori assertion that there simply can’t be a bubble in housing. And the finance theorists were even more adamant on this point. In a 2007 interview, Eugene Fama, the father of the efficient-market hypothesis, declared that “the word ‘bubble’ drives me nuts,” and went on to explain why we can trust the housing market: “Housing markets are less liquid, but people are very careful when they buy houses. It’s typically the biggest investment they’re going to make, so they look around very carefully and they compare prices. The bidding process is very detailed.”

Indeed, home buyers generally do carefully compare prices — that is, they compare the price of their potential purchase with the prices of other houses. But this says nothing about whether the overall price of houses is justified. It’s ketchup economics, again: because a two-quart bottle of ketchup costs twice as much as a one-quart bottle, finance theorists declare that the price of ketchup must be right.

“In short, the belief in efficient financial markets blinded many if not most economists to the emergence of the biggest financial bubble in history. And efficient-market theory also played a significant role in inflating that bubble in the first place.

Now that the undiagnosed bubble has burst, the true riskiness of supposedly safe assets has been revealed and the financial system has demonstrated its fragility. U.S. households have seen $13 trillion in wealth evaporate. More than six million jobs have been lost, and the unemployment rate appears headed for its highest level since 1940. So what guidance does modern economics have to offer in our current predicament? And should we trust it?”

#83 Live Within Your Means on 09.04.09 at 12:35 pm

Hey, even if we can’t the installers, we can buy the flooring and store it with the rest of stuff in the family room downstairs that we don’t use.

Oops, meant to say even if we can’t – get – the installers – same ones …… They did an excellent job and I’d recommend Mirage flooring from Quebec.

Anywho, having friends over for dinner tonight and must pick some Haricot Vert from the garden – only thing our little groundhog hasn’t ate. Picky, I guess. :-)

#84 dontcallmeshirley on 09.04.09 at 12:41 pm

Meaningless. The longest rate commitment in Canada is five years. — Garth

Want me to do the math on an escalating renewal rate?

Even considering that, you’re counselling people to wait for a $100k+ price drop. Where’s the win after factoring in the rent paid while waiting for this drop?

A $100k+ drop in a country with recourse mortgages is a long shot.

#85 Denis on 09.04.09 at 12:46 pm

Sorry, but you’re wrong. There was no ‘cascading of events’ in 1993 which clobbered the Canadian real estate market, but merely a rise in rates and a slowing in the economy. The average house price in Toronto, which peaked in 1989, would take more than 10 years to regain its pre-correction level, and more than 15 years for investors to just break even on an inflation-adjusted basis. Real estate investors lost money steadily. That’s when you were ten years old. This is why history is instructive. — Garth
—————
Let’s take Toronto as an example (Last page of TREB’s Monthly Market Watch – I did this back in March):

From 1989 to 1996, the Toronto Real Estate Market went down 27.6% (See trend on last page of TREB’s latest MarketWatch.) As mentioned, Toronto’s market is currently down 9% – That’s a greater drop than in the first year after the last peak in 1989 to 1990 which saw a 6.8% drop.

Here’s how the market continued to drop year-over-year over the course of the downturn:
From 1990 to 1991, there was an 8.1% drop.
From 1991 to 1992, there was an 8.25% drop.
From 1992 to 1993, there was a 3.9% drop.
From 1993 to 1994, there was a bear market rally and the market actually increased 1.18%.
From 1994 to 1995, there was a 2.82% drop.
Finally, from 1995 to the bottom in 1996, there was a final 2.4% drop.

That’s a 3.94% annualized decrease in Toronto Real Estate Market Value over the course of 7 years. On a $400k property, that’s $15,760 per year or $1,313.33/month -> That’s a lot of money to lose. This is also a fairly conservative estimate as that annualized decrease is spread across 7 years. The first 3 years of the decline experienced a 7.72% annualized decrease ($30,880 per year or $2573.33/month).

#86 PVC on 09.04.09 at 12:55 pm

Garth,

Oil as an inflation hedge?

You’ve been spending too much time on Howest.com.

Oil is way to consumer dependent to be a pure inflation hedge.

And it’s to hard to store

Come over to the gold side.

#87 Shawn on 09.04.09 at 12:58 pm

Garth, regarding post 71 and your reponse.

I said in Alberta it is legal to walk away from a mortage that is not CMHC insured. That is what my bank manager told me. He called it a voluntary foreclosure it can go on a credit record (not sure why if it is legal)

I don’t see it as unethical, if the deal is you lend me the money and I will pay it back OR give you the house then that would be the deal. In that case if I am correct then one would simply be exercising a contractual right.

(albeit a right that may be in the contract only because the law requires that option for the borrower).

Maybe we will find out if such rights really exist in Alberta, if we get a real crash we will find out…
There must be a few people with say 75% uninsured mortages. I personally have bought three houses in my life and always avoided paying a CMHC fee even if I borrowed the down payment.

If you walk, you break a contract. Don’t expect to ever be offered another. — Garth

#88 Men With Hats on 09.04.09 at 1:01 pm

Gold is a loser investment for losers,here’s why :

http://thepoliticsofdebt.com/?p=224

#89 TorontoBull on 09.04.09 at 1:19 pm

@75
you said: “If you have the kind of home equity that most new home buyers have, you would have made the same money buying a house in Toronto. Take a $20K downpayment in early March, buy a house worth the average value of about $360K. Presently, the same house is worth about $387K”
you lost me there…need to consider the transaction costs of buy/selling a house vs cost of buy/selling stock.

#90 buy gold on 09.04.09 at 1:21 pm

sorry garth!!

#91 MPM in Van on 09.04.09 at 1:44 pm

I love how people in Vancouver and Toronto seem to think they are imune to the coming storms – or the great Mark Carney bomb.
I live in Vancouver, but I just spent the last year in Montreal, I have witnessed the pain of the death of manufacturing.
Has anyone seen the last months unemployment stats? Southern Ontario had 6 out of 10 cities with the worst unemployment in Canada. Surely this would affect Toronto, or maybe like Garth I’m just a dumb country boy.
And in Vancouver, well, we really don’t need to mention what happens when the Olympic party is over, the bills come in, construction stops, and interest rates rise. I just may need that Starbucks double shot extra hot no foam soy latte….if I can afford it.

#92 rory on 09.04.09 at 2:00 pm

#87 Shawn

GT said: “If you walk, you break a contract. Don’t expect to ever be offered another. — Garth”

Lots of people walked in the early 80’s in Alberta …I personally know one couple …they bought in AB again in the early 90’s …they may have been screwed for awhile but everything sure appears fine today…never really did talk to them about the experience.

Can’t buy ethics, cowboy. — Garth

#93 Men With Hats on 09.04.09 at 2:03 pm

#90 buy gold on 09.04.09 at 1:21 pm

sorry garth!!

Buy aluminum !

#94 Nostradamus jr. on 09.04.09 at 2:04 pm

Watch and Learn Folks

1/
Garth Turner will become the first Leader of the new Eastern Canada Party.

2/
…Before the U.S. Dollar collapses, the rest of the world’s currency will collapse first.

…Watch for the stock markets to collap, I mean correct….then watch the flight to safety of the U.S. Dollar.

3/
Gold is a Bull Trap.

4/
…The World is returning to “Protectionism and National Economies”.

5/
The North Shore’s West Vancouver is already being nicknamed North America’s Cote d’Azure….together with North Vancouver they are Canada’s safest and most desirable privately gated community.

Nostradamus jr.

#95 buy gold on 09.04.09 at 2:10 pm

Economist says national debt will grow by $160 billion

By THE CANADIAN PRESS

2009-09-04 14:15:00

OTTAWA – A new private-sector calculation shows the federal government cannot meet its budget balancing timetable without raising taxes, and will require eight years to return to surplus.

Toronto-based Dale Orr Economic Insight says in a revised analysis released Friday that Ottawa is still on track to add about $160 billion to the national debt, which will rise to about $620 billion in the 2016-17 financial year.

That’s a better prognosis than Orr’s previous calculation in July, which estimated the accumulated debt of 10 years of deficits would total $200 billion.

Currently, the government has only suggested that balancing the books may take longer than the budget projection of 2013-14, by which time it estimates about $100 billion in debt will have been added.

Orr said the changes to his earlier forecast stem from a different picture of the economy than existed in July. New numbers show that the economy was pulling out of the hole faster and stronger than previously expected.

Still, Orr says the new calculation leaves Finance Minister Jim Flaherty with little choice but to revise his projections this fall, either when he issues a stimulus update in September or his fall economic update, expected in October or November.

“This is an announcement that is becoming a bit overdue,” said Orr.

Orr did have some good news for Ottawa. He now believes the deficit for the current financial year ending next March will come in at $47.6 billion, rather than the $50.2 billion predicted by Flaherty in June.

Orr is among several prominent economists, including the TD Bank’s Don Drummond and parliamentary budget officer Kevin Page. who have called on the government to update the budget numbers.

Orr offers no advice to the government on how to eliminate the deficit, but cautions that the preferred route of “growing out of deficit” favoured by Prime Minister Stephen Harper and the Liberal opposition will take twice as long as the budget predicts.

And longer still if future governments are unable to stick to plans of keeping spending increases at four per cent, something neither Liberals nor Tories managed most of the decade.

Orr said the simplest way to shorten the time it will take to balance the budget is to raise taxes, but both the Tories and Liberals have rejected that option.

“You can wait (eight years), but while you are waiting you are exposing yourselves to risks and you are building up the debt,” Orr warned.

That’s what happened during the 1970s and 1980s as successive governments attempted to rein in ballooning deficits, Orr said, but were sent off track by unexpected surprises.

A sudden dip in the economy, or even something like lower oil prices could set the timetable for balancing the budget back, he explained.

Garth your right

#96 My_view on 09.04.09 at 2:12 pm

Sorry, but you’re wrong. There was no ‘cascading of events’ in 1993 which clobbered the Canadian real estate market, but merely a rise in rates and a slowing in the economy. The average house price in Toronto, which peaked in 1989, would take more than 10 years to regain its pre-correction level, and more than 15 years for investors to just break even on an inflation-adjusted basis. Real estate investors lost money steadily. That’s when you were ten years old. This is why history is instructive. — Garth

What was the rate in 1990? Double digits, very highly unlikely that will happen in the next 5 yrs. Plus lets not forget about the buying (new development sales office) in the front door and selling immediately out the back door. Rules have changed! Canada is solid, Canada will lead North America in this recovery, banks are solid and the deficit is merely nothing for this country. The Liberal party should back off, how is another 100 million for another useless election going to help the average Canadian? How many times have we been to the polls in the last 5 years?

Try to stick to one topic. However, if you like deficits and a reliving of history, vote Harper. — Garth

#97 Hopeless_in_the_GTA on 09.04.09 at 2:12 pm

#77 Ottawa Tradesguy is bang on. An astute analysis that makes sense and attempts to price in fear and greed (which bank economists and government statisticians won’t do, leaving us to fill in the blanks).

As for Garth’s retort, I think you struck the nerve! If history repeats then the people loading up this year on Toronto homes are geniuses! Garth, were you personally burned by real estate in the nineties?

The S&L crisis occurred in and around 1986, amidst other factors including the international debate on stimulus spending and wind-down, then Black Monday in 1987. That crash is still unparalleled.

But what happened to Toronto real-estate from that point on (i.e. AFTER THE CRASH)?

Just like in 2008, sales had peaked in 1986 just prior to the `87 stock crash. Sales didn’t exceed 1986 levels until a decade later.

But what happened to home prices? –An unprecedented rise in home values in Toronto between 1987 and 1991. Home prices doubled by 1991 and even after “crashing”, they remained 30% higher than 1986. In other words, if you bought in 1986, just before the worst stock crash in history, and during a sales peak that took a decade to be reached again, you still were up 30% MINIMUM! If you bought in 1987, you were up at least 15% MINIMUM.

I’m sure that Garth thinks that repeating this ‘instructive’ history is impossible… but what says his version is correct? Just because it fits nicely with “property-bear” theory?

The real estate wallowing of the nineties was indeed due to a perfect storm of rates, an incredible Canadian-style recession with Quebec separatism thrown in for ultra-good measure. Is that something predictable Garth? And where does the TSX go if Quebec gets upset again, and we get fear mongering on the deficit daily like in the nineties?

You’re so totally off.

Why did rates rise in the Nineties? — Garth

#98 jess on 09.04.09 at 2:16 pm

Sorry, but you’re wrong. There was no ‘cascading of events’ in 1993 which clobbered the Canadian real estate market, but merely a rise in rates and a slowing in the economy.
….How about the events that humans have no control over? Wasn’t hurricane andrew costly? Didn’t insurance events such as portfolio insurance cause some grief?

Worldwide during the 1990s there were:
more than 2,500 natural disasters
more than 650,000 people killed
more than CDN$ 1 trillion in damage
losses were 10-fold greater than during the 1950s

#99 Men With Hats on 09.04.09 at 2:27 pm

Hoo doo Voo doo :

Since employment peaked in October 2008 — just as the recession began to set in — total employment has dropped by 2.3 per cent, or 387,000 jobs.

But in the past five months only 31,000 jobs have been lost, suggesting the rate of decline is slowing as the economy begins to stabilize.

But the news was not all good. All of the new jobs were part-time positions, and the number of full-time jobs in Canada fell by 3,500 in August.

Job losses in August were largely in business, building and other support services, education services and manufacturing, which lost another 17,300 workers.

#100 Future Expatriate on 09.04.09 at 2:28 pm

#49- When Garth becomes a gold bug bunny, it will be because of Chinese economic warfare against the central banks and the US and the resulting gold bubble from convincing, through massive advertising, their enormous population to become private gold holders on a scale never before seen. This will make gold more desirable than oil and, in time, the world’s de facto reserve currency. Apparently the Chinese have decided that the gold standard is the only way to defeat the west economically for the long haul (i.e., permanently), and I think they’re right, as I can think of no way for the Central Bank mob and the US Wall Street mob to counter such a move. Garth, if you can think of any, please jump in.

Unfortunately for the west, what’s good for China usually results in what’s good for the rest of the planet. Daily China moves inexorably closer to true capitalist Democracy as the US moves deeper into outright desperate fascism.

#101 Two-thirds on 09.04.09 at 2:31 pm

#75 Hopeless said:

“The money nearly doubled in the case of a home buy, versus a 40% stock market advance. And which one’s safer?”

The blazing tone of the post aside, Hopeless has a point here. The stock market rebound and the housing market record sales in Canada have been fed by the same hand: massive governmental and central bank intervention, world-wi-de.

If that’s the case, why should we expect the former to be sustainable, but not the latter? Why should housing correct, but not the TSX?

I’m afraid I might turn into a goldbug, seeing that nothing is “safe” anymore in the absence of governmental intervention…

#102 Future Expatriate on 09.04.09 at 2:32 pm

#61 – Now we know the West is doomed. Nostradamus Jr. is running foreign policy economic strategy for the Obama Administration against the Chinese.

Explains EVERYTHING.

#103 PVC on 09.04.09 at 2:54 pm

Men with Hats but, without brain.

Gold is a loser investment for losers,here’s why :

http://thepoliticsofdebt.com/?p=224

#104 Shawn on 09.04.09 at 3:04 pm

Garth regarding my posts 71 and 87.

I am saying in Alberta walking from a non-insured mortage is a legal right. The contract must allow it by law.

The following web site although not authorative backs me up

http://www.blakes.com/english/view_disc.asp?ID=1232

It says

************************

Restrictions on Suing on Personal Mortgage Covenants The Law of Property Act (Alberta) restricts the recourse of a lender holding a mortgage to the lands, and no action lies on a covenant by a person, not being a corporation, for the payment contained in the mortgage.

This is the case whether the mortgage was granted on commercial, farm or residential properties, with certain exceptions. However, if the person acquires land subject to a mortgage granted by a corporation, the person will be bound by the covenant for payment of the mortgage unless that person or a family member has personally used the land as a residence or farm.

In a proceeding to enforce a mortgage given by a corporation or given by a person to secure a loan under the National Housing Act (Canada), the restriction does not apply and the covenant to pay is enforceable.

************************

See? it says the mortages in Alberta are non-recource by law except when insured under the National Housing Act.

Perhaps this is a little-known secret that your bank does not want you to know.

Yeah bank will not like it but it does not apparently break the contract.

Your apology is accepted in advance.

I said if you pull that stunt, it will be your last commercial mortgage. Go ahead. Try it. — Garth

#105 Barb .. a reader in Calgary on 09.04.09 at 3:10 pm

#55 Evangeline: on ethics in another arena

Evangeline, yesterday I saw an item that suggests the wild salaries and perks, like the canary in the coal mine, should have caught much more of our attention. Also for your perusal, along with your article, goes an item from 15 months ago:

http://uk.biz.yahoo.com/23052008/323/eu-commissioner-slams-irresponsible-executive-salaries.html

and, U.S. a month ago:
http://www.house.gov/list/press/md07_cummings/20090731execcomp.shtml

As you mention, the ethics.. I think public scrutiny of what execs are getting away with is the next new hot topic — it seems germane as to why we all feel more like slaves these days.

#106 Men With Hats on 09.04.09 at 3:20 pm

Friggin’ hilarious .
All these mental midgets that try and tell Garth he
is, so ,wrong .
No facts to back them up .Just an eerie feeling .
If you are so smart start your own blog .I’m sure you’ll get three or four hits a month .
In the meantime show some respect .
No one comes here to read your BS .

#107 victoria reader on 09.04.09 at 3:25 pm

Was there a housing boom in the eighties before we had 18% mortgage rates? and are we going to revisit this?

#108 Vancouver IS NOT Immune on 09.04.09 at 3:27 pm

#84

Meaningless. The longest rate commitment in Canada is five years. — Garth

Want me to do the math on an escalating renewal rate?

Even considering that, you’re counselling people to wait for a $100k+ price drop. Where’s the win after factoring in the rent paid while waiting for this drop?

A $100k+ drop in a country with recourse mortgages is a long shot.
***************

Hate to burst your bubble, but Vancouver saw over a $100k drop in prices from Feb 08 to December 09, as benchmark prices declined over 14%….

#109 Denis on 09.04.09 at 3:27 pm

@ #84 dontcallmeshirley on 09.04.09 at 12:41 pm
——————-
Happened in 89-96 … Apply the same percentage drop to Toronto’s current average and it’s quite foreseeable to see a $100k+ drop in TO.

Also … What part of mortgage is actually principle pay down vs Interest (which in my opinion you’re pissing away to the bank) anyways? People seem to think that a mortgage payment is 100% better than a rent payment, but 100% does not go towards paying down the principle. Just as much as you “piss away your money to pay someone else’s mortgage” (the buying is better than renting common argument)… well … on a $400k Condo … 25% down … That’s 300k Mortgage @ 5yr 4.19% … That’s a $1609.11 per month payment (In year 1 – 63.85% of that is INTEREST or $1027.48 per month) Add Condo Fees at $700 (in my building 1300 sq ft condo) that’s 1727.48 + taxes at 183.33/mo = $1910.81/month.

I pay $1900/month RENT (deducting Rogers VIP cable which is also included in RENT) which is what would go to INTEREST, Condo FEES and TAXES anyways with NO downside RISK.

To answer your question – “Where’s the win after factoring in the rent paid while waiting for this drop?”

There’s no down side risk and I pay just as much in RENT as I would in INTEREST, CONDO FEES and TAXES anyways … So what’s the difference?

My win also comes from having the extra cash flow (which would have gone to paying down the principle on a mortgage of a most likely depreciating asset over the next 6 years) and bank it. If the market goes down (which it will -> Rising interest Rates = Less Affordability = Prices go down since people buy based on what they can pay per month) … it either eats into my principle pay down and/or my down payment that I have worked hard to save up over the years.

Running the numbers … I’m very happy renting!

#110 Vancouver IS NOT Immune on 09.04.09 at 3:31 pm

#84

Hate to burst your bubble, but Vancouver saw over a $100k drop in prices from Feb 08 to December 08, as benchmark prices declined over 14%….

#111 BigAl (Original) on 09.04.09 at 4:01 pm

Re: #35 Sampson
This seems to be exactly what I spoke about in a previous entry weeks ago: The huge generational download of big money from the boomers to their children, in the form of inheritance (property or otherwise).

I’ve seen so many examples of this – “I have $100K cash….”, “I have $200K cash laying around….”, and in this case “I have 280K cash around….”. Not just in this blog, but acquaintances across the country. Large numbers of people simply falling into money from aging parents.

Yes I don’t have this luxury money coming in. But I think this demographic download of wealth is creating a significant portion of this housing bubble. Whether the parents are dying off, cashing in investments, or going the ‘reverse mortgage’ route I don’t know. But if this is the case, there are going to be plenty of buyers for years and years to come, and with these large amounts of money just ‘laying around’ for them, I don’t think they’ll care about either interest rates or price….its free money.

This is the under-reported story both here and in the media.

#112 TheComingDepression on 09.04.09 at 4:20 pm

Check what is in store for VANCOUVER and TORONTO
In 2006 a house not too far from mine came on the market at a very rich price. $2.7mm for a five bedroom home on four acres. It was a nice place.

The house was sold this week. It was a short sale. The sale price was $600,000. Less than 25% of its asking price three years ago.

http://www.zerohedge.com/article/metro-nyc-real-estate-horror-story

#113 bill on 09.04.09 at 4:53 pm

I agree ,1%’ers are more ethical than many realestate agents.
Is that a policeman’s hat on ralph’s headlight?
Keeps the bugs off the headlight I expect.

#114 Keith in Calgary on 09.04.09 at 4:58 pm

“When it comes to the housing business, my gang of biker friends stands in stark moral contrast.”

Truer words have never been spoken.

#115 Jonathan on 09.04.09 at 5:12 pm

What is real funny are all you individuals saying “why would we raise interest rates, it would hurt housing, so the therefore the government won’t do it”

If the government could prop up assets at will, don’t you think we would still have stocks in record territory, and US housing in the same? Why did those markets fall – certainly the elimination of 10’s of trillions in world wealth is more important than anything to do with just Canada, so why was it let to fail? The catch is it wasn’t. But once consumer attitudes change towards an asset, and it is in bubble territory, then it crashes. You can’t prop up something that has no legs.

#116 Cam on 09.04.09 at 5:30 pm

#75 – Hopeless

The analysis ignores the amount of leverage used.

In your example, the buyer puts up $20k, and borrows $340k, which is 95% leverage. The house value went up to $387k. The profit, excluding transaction costs, was $27k or a 135% Return on Equity.

The stock market went up by 40%. You suggest this is a profit of $8,000 on the $20,000 cash. The ROE is 40%. But, using equivalent leverage of 95%, and investing $360k in stocks, the profit would be $144k or a 720% ROE.

If you’re going to compare returns, you have use an apples to apples baseline for risk. A 0% leverage investment in the stock market has a much different risk profile than a 95% levered investment in the housing market.

You compa

#117 Shifty on 09.04.09 at 5:45 pm

“The overriding principle of regulators is investor protection”.

I agree the mortgagor should have more regulation when the tax payer is the last one standing when bailouts are the last resort. How to regulate the mortgagee without treading on their rights is another question. How does one regulate stupid?

#118 steven rowlandson on 09.04.09 at 6:01 pm

Garth I think its long past time to abolish 5 year renewal periods on mortgages.. If people and corperations can’t hack a 25 year mortgage with fixed terms then they should pay cash with out debt when they buy properties. Having a rate renewal every 5 years sounds like a financial game of russian roulette to me. Better a long term reasonable deal than chaos every 5 years. Since rates are low all ready that just leaves one direction for rates to go and thats up.

Steven

#119 Nostradamus Le Mad Vlad on 09.04.09 at 6:05 pm

A brief overview on the state of politics in B.C. (joke) . . .
——
A man died and went to heaven. As he stood in front of St. Peter at the Pearly Gates, he saw a huge wall of clocks behind him.

He asked, “What are all those clocks?”

St. Peter answered, “Those are Lie-Clocks. Everyone on Earth has a Lie-Clock. Every time you lie the hands on your clock will move.”

“Oh,” said the man, “Whose clock is that?”

“That’s Mother Teresa’s. The hands have never moved, indicating that she never told a lie.”

“Incredible,” said the man. “And whose clock is that one?”

St. Peter responded, “That’s Abraham Lincoln’s clock. The hands have moved twice, telling us that Abe told only two lies in his entire life.”

“Where’s Gordon Campbell’s?” asked the man.

“Gordon’s clock is in Jesus’ office. He’s using it as a ceiling fan.”
——
#19 Nostradamus jr. at 1:28 am — “. . . the writing on the wall. Contemporary Govt’s as we know it have hit the wall. . . the rest of the world’s currency will collapse first. . . The World is returning to “Protectionism and National Economies”.

Indeed, the writing is on the wall but where has the education system gone, which taught us the 3 R’s but teaches today’s would-be grads texting, IM, using calculators instead of the mental functions?

The Protectionism and National Economies will be the ones that lead to fisticuffs between countries. Free Trade is not Fair Trade; it is only fair for one — the US.

#36 X at 7:50 am — Excellent link which shows just how close the entire deck of cards is close to collapsing.

#95 buy gold at 2:10 pm — “. . . by unexpected surprises.” — Quite possibly, an ‘unexpected surprise’ (like the October and / or Spring Surprise) is what would lead to #36 X’s link taking formation.

Gaining momentum, it speeds up until just after the ‘lympix are finito. The west follows suit.

#100 Future Expatriate at 2:28 pm — “. . . for China usually results in what’s good for the rest of the planet.”

Good reading today. China is very quietly and efficiently buying up companies all over. This — http://ncane.com/5eb and http://ncane.com/mht — are good reasons they are putting themselves in a strong position.

Meanwhile, the west continues struggling in a quicksand of debt, while China and Russia are using the west’s shortcomings to better their own selves.

Guess we are The Greater Fools!

#120 X on 09.04.09 at 6:15 pm

Garth – Any thoughts on how ethical the HVTP’s are?

High velocity target practice? — Garth

#121 The 'VULTURE' on 09.04.09 at 6:34 pm

Hmmmmm……Soups On!

A young couple just barely raised the 5% down payment on a re-sale home in Toronto.

They just had to have the house. Any house at any price…it just has to be a house.

Let’s just say that they have a strong sense on entitlement. There are basically “bubble-heads” duh!

“We deserve a house Honey Bunny…thanks Bearkins I love you too (thought not as much as the new house or the guy at the office who doesn’t make the same type of money as you hon but he sure is good in bed). Hey wait a minute Bearkins…we don’t have any money to buy a house. Don’t worry Honey Bunny, the bank has all the money we will ever need and they have it sitting there waiting for us to take it. It is practically free Honey Bunny”

We don’t know how to save or work hard or even invest smartly because all of our wealth is tied up in “toys”. As soon as a new pay cheque comes in out we go to the mall to do some kamikaze shopping baby cakes! Hell, honey bunny goes through credit cards like a Casino Rama queen on crack. “Charge me up Baby”. “Lay down some heavy plastic people”

One problem in “Bubble Head” land…They are so maxed out buying a tiny dump of a town house that there is no more free money left to buy such essential things as food, heat, lights, furniture, hot water, clothing, medicine and no satellite TV either. No money for vacations, music lessons, hockey, baseball and video games. That is all right Honey Bunny, just put on this wig and down we go to the local food bank for food, the Goodwill for clothes and furniture, I can siphon the neighbors’ gas at night, we can start a grow op in the basement and get our Hydro tapped, as for satellite we can get out dirty movies off the internet down at the library, you can give the kids bowl cuts in the kitchen to save money on haircuts, bang on the pots and pans instead of music lessons, let the kids play street hockey without helmets and if I get laid off I can go out and purse snatch off little old ladies.

Hey Bearkins….Soups On!

#122 Future Expatriate on 09.04.09 at 6:39 pm

#103- Gold a “loser investment for losers”? First of all, that’s not what the article you linked to says at all.

Second of all, more than a half a BILLION goldbugs entering the market at the urging of the Chinese government will make people who put their faith in Central Banks, governments, and wall street ephemera instead of gold, or at least other solid commodities, the biggest losers of all.

#123 CalgaryRocks on 09.04.09 at 6:42 pm

The stock market went up by 40%. You suggest this is a profit of $8,000 on the $20,000 cash. The ROE is 40%. But, using equivalent leverage of 95%, and investing $360k in stocks, the profit would be $144k or a 720% ROE.

Except that nobody would use 95% leverage on stocks because they are a ponzi scheme that benefits mostly insiders.

Besides, if you wait a couple of months, your 720% theoretical return can just as easily turn into a wipe out situation where all your savings are gone, and then some, leaving you ‘homeless’. No pun intended.

I’m not saying that investing in the stock market is always a bad idea, but when you are talking about taking the house money and throwing it at the market, that’s when you guys lose me.

#124 Hopeless_in_the_GTA on 09.04.09 at 6:50 pm

#116 Cam – The analysis ignores the amount of leverage used … If you’re going to compare returns, you have use an apples to apples baseline for risk.

Are you an economist Cam? Of course there’s a difference between the leverage. What you’re forgetting is that 95% leverage to buy a HOME, and 0% leverage to buy stocks are the common things that most people really CAN do with their money. Tell a regular guy what a margin call is and he’ll freak out.

People are not out their calculating alpha and beta on their investment strategies, they either buy homes or invest conservatively. You didn’t mention the difference in liquidity which is in your favour also, or fees, or any other counterargument that is so obvious to a financial type.

But regular people don’t know how to do these calculations, so they will not react the way you expect because they perceive risk differently than you do, or me, or Myron Scholes.

Besides, my point is not that housing is a better investment over 6 months anyway. It’s that Garth is wrong because he is recommending extremely aggressive alternatives to people who can not manage the risk. That is foolish. He wants to be right about real estate crashing, or correcting, or whatever version of “go down” he thinks he can sell… but his alternative for people is financial suicide. He wants people in equities. Ridiculous! Garth talks about lessons from the great depression being learned by old sages etc.. but one of those lessons is staying the hell away from putting too much net worth is stocks!

That’s my point. And that’s why he’s wrong and so out of touch. Why did rates go up in the nineties? You tell me Garth, weren’t you working for the Sun at the time, one of the most unabashed conservative leaning, C.D. Howe institute quoting, deficit-fear mongering papers in Canada?

They went up because that was what power elite needed to keep bonds producing $$$$$. Are these guys interested in bonds again? How the hell would you know? You never talk about it anyway so why would I follow what you say. You’re not in touch with reality.

This place is filled with rhetoric, but not reality.

The maximum margin for long stock purchases is 70% – and that is only on companies with exceptional liquidity and very qualified, experienced investors. The maximum leverage on houses is 100%, typically extended to people without experience and no money. You have much to learn. — Garth

#125 RM in Oakville on 09.04.09 at 6:55 pm

#94 Nostradamus jr. on 09.04.09 at 2:04 pm

Uh oh, who the hell woke up the Vancouver propaganda machine?

#126 Shawn on 09.04.09 at 6:55 pm

Regarding my post 104, Garth said

I said if you pull that stunt, it will be your last commercial mortgage. Go ahead. Try it. — Garth

The evidence I gave shows that residential conventional (non-insured) mortages are non-recource in Alberta.

That means, having paid at least 20% down (to avoid the CMHC insurance) you the buyer are fully at risk to lose the first 20% on the property but you have the contractual right at any time to just give them the house and land instead of the money. At least as I understand it. (like say if the value drops 70%)

If the bank can’t accept that then they should not write any conventional mortages in Alberta.

Any way I said this was a plan B strategy a way to avoid say a 50% loss on a million dollar house in the event of real crash. If that happens any lack of future welcome at the bank might be the least of our problems.

What I was doing was giving an example of a Bubble Buster.

I persoally have no intention of trying this whatsoever. I’m happy to live in my mortage free house and it really won’t affect me a lot if the value of it drops. I’ll still live in it.

The Bubble buster was just a thought for mcmansion crowd, maybe useful for someone who has a couple mcmansions and wants an idea how to insure against a crash.

Point is in Alberta, being in a conventional mortage at say 79% loan to value means if the house value drops the bank has just a big a problem as you do (gives you bargaining power at least)

eschew mortage insurance in Alberta!!!

I think you can agree on that?

#127 billy on 09.04.09 at 7:16 pm

The candian gov set aside billions for the banks if they run into bad assets.
This in turn let’s to banks give out way to big of loans to anyone.
Hence a bubble that will not stop untill this giant fund is depleted.
we are on the Bush “throw loans at them” policy, and it does not end well.

#128 Interest Rates Going Down on 09.04.09 at 7:17 pm

BMO’s lowered mortgage rates today

Variable Rates: To: Change:
5 year variable closed term 2.55% -0.10%

Fixed Rates: To: Change:
6 month fixed convertible 4.55% -0.20%
6 month fixed open 6.35% -0.20%
1 year fixed open 6.80% -0.20%
1 year fixed closed 3.70% -0.20%
2 year fixed closed 3.85% -0.20%
3 year fixed closed 4.35% -0.20%
4 year fixed closed 4.94% -0.30%
5 year fixed closed 5.49% -0.36%
6 year fixed closed 6.10% -0.20%
7 year fixed closed 6.60% -0.20%
10 year fixed closed 6.75% -0.20%
18 year fixed open 8.95% 0.00%

********************

Gee, those interest rates sure are going up with the economic recovery announced by BOC.

IF we are out of the recession, so much for rising interest rates.

Oh yes, I know, “just you wait – rates will rise”…”its coming”…maybe in 5 years….keep waiting :)

#129 John m. on 09.04.09 at 7:17 pm

#107 victoria reader on 09.04.09 at 3:25 pm……..yes there was!

#130 jess on 09.04.09 at 7:18 pm

ethics down under

Storm Financial

http://business.smh.com.au/business/how-cba-deal-fuelled-storms-grand-delusion-20090904-fbet.html
STUART WASHINGTON
September 5, 2009 .
A SECRET agreement between Storm Financial founder Emmanuel Cassimatis and Commonwealth Bank greatly increased the investment risks for Storm Financial’s customers. But the bank failed to tell them of the risks….

the pitch…

The Storm process was described, approvingly, this week by former Storm staff as a ”Ford motor plant production line”, a factory only making one type of vehicle or a McDonald’s restaurant serving only hamburgers.

That factory was built on individual Storm ”cells”, each doing a part of the production line process, broken into individual steps as tiny as data input or typing up statements of advice.And the business model had little scruples in serving up its financial advice hamburger to almost anyone who decided to sign up with Storm. Former Storm staff said almost no applications were turned away.The hearings heard evidence of a 180-day turnaround for customers as they were inveigled through Svengali-like ”education sessions” to put their houses on the line. And in practically every step of the way, there was the salesman’s pitch that Storm whispered in everyone’s ear: you will not have enough money to fund your retirement; the Government is going to cut the pension.Or, in the generic words appearing on every statement of advice: ”We have identified that your current asset base is not large enough to fund the lifestyle you desire now or in the future.”

#131 Samantha on 09.04.09 at 7:24 pm

There is a definition of good manners that says: Good manners are when you remember your manners when others forget their manners.

The same definition could apply to ethics.

I have little use for some of the tactics used by many of the players in this real estate debacle. However, purposely entering into a contract with the intent of nonpayment is by definition fraud.

It doesn’t change the wrongful tactics of others. It hurts innocent people. It hurts the person who does this, even if credit is restored in [x] number of years because a line got crossed, a boundary shifted. It becomes easier to justify moving that line again in the future.

I have had the SHTF big time while I was on the hook for a mortgage – flying solo and by the seat of my skirt. Dropping keys off in a mailbox was out of the question. It had nothing to do with saving my credit. It had everything to do with keeping my word. I made a deal – period.

The house was listed. I sold much of my furniture and lived on white rice, and pounded the street on foot looking for work. The house sold, I got a job and carried on with my honour intact. No one knew how bad it was because I dealt with it myself and not one mortgage payment was missed. Furniture, a job, a house can all be replaced – honour is a bit trickier to restore.

Screwing someone else over isn’t a great way to be defined or remembered, nor is it a way to change things that are wrong.

#132 X on 09.04.09 at 7:49 pm

RE:120 High Volume Trading Programs utilized by most of the American banks…..(not sure about the CDN banks use of them though)

I mean how ethical is it that certain banks can trade faster than other banks/individuals. Making money on momentum of the market.

Same for flash trading.

As far as I know, this is unutilized in Canada. — Garth

#133 Hopeless_in_the_GTA on 09.04.09 at 8:52 pm

As far as I know, this is unutilized in Canada. — Garth

Good Lord, and you are advising people on investing? This is old news on the street, and is definitely part of the 40% gain you keep citing as a rock-solid counter to real estate. Ever heard of Goldman Sachs?

I like the post from #128: Mortage rates ARE going down. Garth never ever mentions what governs spreads between mortgage rates and the BoC rate and why the BoC rate might go up versus mortgage rates going down.

And obviously based on his response to my post on leverage, he hasn’t a clue why a bank might allow 100% leverage on a home versus “only” 70% on speculative long bets. Could it be that the banks have good reason to believe that home prices are much more stable, i.e. less risky, than stocks–your golden alternative to real estate?

A smartypants like you will know that this kind of trading is not available to retail investors, only present on marginal derivatives exchanges in Canada and has had a zero impact on the TSX S&P. As for margin, the 70% available to the sophisticated investors is not on ‘speculative’ buys but rather normal long purchases. There is no margin available for short sales – in fact investors have to provide at least 130% of their own money to open a short account. Finally, mortgage rates rise and fall by small amounts with some regularity, pacing bond market fluctuations. Finally, we all might be happier if you took your anger and alienation elsewhere. — Garth

#134 hal smith on 09.04.09 at 9:03 pm

#52 smw

1.Learn how to spell.2. You think I’m sniffing glue? How about average house prices at 8x income? How about .25% interest rates? You think I’m sniffing glue? The people want the bubble and the government is giving it to them. Everyone will do everything possible to keep it inflated. Two dollar a liter gasoline? Six bucks for a loaf of bread? Who gives a shit? We’ll all be millionaires bwahahahaha……

#135 Jonathan on 09.04.09 at 9:21 pm

To all these real estate agents or brokers in the forum. I welcome your presence to bring balance.

But 5 year terms occupies about 50% of the market. 30% of the market is in variable. 15% in 3 years. 5% in other. Don’t be bring 30 year ams into the equation. This isn’t the good ol honest US of A where you lock in for 30 years. This is subprime Canada.

#136 Mike on 09.04.09 at 9:24 pm

#128 Interest Rates Going Down on 09.04.09 at 7:17 pm

Thanks for this information. It is interesting how they say we’re coming out of this recession and yet they continue to lower rates. I wouldn’t be surprised if they are kept down, artificially, for many, many years to come.

Dreamer. — Garth

#137 Alex on 09.04.09 at 9:29 pm

What a world, Chinese (communists) government advices its citizens to buy gold, and Canadian government is advising to get more debt to its people( through its quantative easing policies.
Another point is why don’t we see any discussions of Garth-like minded people in newspapers and TV?
Sometimes I feel monarchy is better then this (4 years one group of people in another one out) democracy model.

#138 TaxHaven on 09.04.09 at 9:41 pm

If these idiots would stop thinking of housing as an “investment” and start considering it as a commodity-with-carrying-costs, prices would return to earth. Our world-saving central bankers could help by disappearing and letting interest rates rise to market levels. People who can’t pay for a house outright, in cash, shouldn’t be buying one. Or, failing that, they should have to pay in borrowing costs what the lender asks…non one, least of all central banks, should be lending money unless they actually have real savings – or gold! – to back it up.

#139 Mike on 09.04.09 at 9:59 pm

#136 Mike on 09.04.09 at 9:24 pm
#128 Interest Rates Going Down on 09.04.09 at 7:17 pm

Thanks for this information. It is interesting how they say we’re coming out of this recession and yet they continue to lower rates. I wouldn’t be surprised if they are kept down, artificially, for many, many years to come.

Dreamer. — Garth
————————–

Garth, with all due respect, I’m starting to think that you may be the dreamer here, unfortunately.

Oh, and, by the way, high velocity trading does exist in Canada/TSX… so do dark pools and other methods of self dealing amongst the investment dealer/houses. But, you already knew that, didn’t you?

Canada’s yield curve will follow that of other jurisdictions. In a new world in which we must sell $50 billion of fresh debt annually there is no doubt rates will be rising. — Garth

#140 Men With Hats on 09.04.09 at 10:01 pm

#103 PVC on 09.04.09 at 2:54 pm

Men with Hats but, without brain.

Gold is a loser investment for losers,here’s why :

Your lack of investment sophistication is,simply, breath taking .
A balanced portfolio should have no more than ten percent in precious metals .
I have both American eagles and krugerrands .
Less than five percent .

#141 Mike on 09.04.09 at 10:16 pm

I’d also like to hear any responses to this post below. Clearly, Garth ignored it…

#21 NoFreakinClue on 09.04.09 at 2:10 am
Hi Garth,

Do you know how long does it usually take for the effect of Governement spending and borrowing from Bond Markets to appear in rising Mortgage interest rates? Any historical evidence?

My Economics prof says about a year or … so it should not be very far that mortgage rates rise if this guy knows his stuff… else, waste of his 4 yr spent on PhD…
Thanks,
AA

The spending orgy started in January, and your prof is right. — Garth

#142 kt on 09.04.09 at 10:39 pm

#131 – Samantha … I so wish everybody else felt the same way. I know too many people who believe that bankruptcy is “a great idea!!!” And they aren’t people who have through no fault of their own suddenly found themselves in a very bad situation. They’re simply people who have *always* lived completely irresponsibly, etc, and who have zero decent morals, ethics, whatever, and who have never had to make any kind of sacrifice or concession in their lives.

My income level has always sucked. I’ve been unemployed for only 3 months of the 25+ years that I’ve been in the workforce, and never touched EI. I’ve maintained a flawless credit rating ever since I was a teenager making minimum wage, living in a dirt cheap scary basement apartment in Scarborough, supporting myself and my dog, and maintaining my lovely ’73 VW Beetle (R.I.P. ’73 Beetle) as well. I cherish that credit rating and do all that I can to protect it, just as I do with my similarly clean driving/insurance record (way OT there … oops!).

And actually because of that, it really annoyed me when I was looking at buying my first home (far outside of Toronto of course) that my bank of several years was offering me a lousy interest rate, one that would not enable me to buy any half-decent house south of Pickle Lake, ON. In the end I used the services of a mortgage broker who was able to secure a mortgage at a rate at least 2 percent lower than my bank’s, which enabled me to purchase my first place. (and I’m in my second one now, so it all worked out okay in the end! LOL).

#143 Nostradamus Le Mad Vlad on 09.05.09 at 12:59 am

A link I posted earlier about China’s rare earth, used in various applications has become quite the ‘in’ thing — http://ncane.com/i26g.

Apparently, China seems to be moving ahead with their talk of defaulting deliberately on trillions of US-backed debt, as that debt — http://ncane.com/e204 — is worthless, empty paper created by western banks so as to screw China.

Seems to have blown up in the west’s face, as now there is nothing for China to collect so they may as well walk away from the deal, leaving the US holding the bag and a variation on the theme of the October or Spring Surprise is that it may very shortly be a huge western financial implosion.

Obviously, there are other countries involved — http://ncane.com/ap9 — and it appears to be much larger than anything preceding it.
——
Things are starting to fall into place. — http://ncane.com/9fqe
Keep in mind who runs this ship from behind the scenes.
——
The motto of the Mossad is: “By way of deception thou shalt do war”. Comment from wrh.com is also good. — http://ncane.com/ynju
“Why Georgia is attempting to “bait” Russia into a military confrontation makes no sense, except for one possibility.

“If Russia is involved in a major military altercation with Georgia, and Pakistan becomes even more destabilized than it currently is, Russia would be hard-pressed to supply Iran militarily by ground if there is a US/Israeli strike against Iran.”

Unless China slides in and, as said above, it already has told the west to take a hike and will default. That is why this whole thing amounts to a much larger series of events than we have ever seen.

#144 Bailing in B.C. on 09.05.09 at 1:08 am

#8 impulse on 09.03.09 at 11:19 pm
Vancouver IS Immune = ETB, she is a resident troll of BC Real Estate Talks forum.

lol :) I was thinking the exact same thing

She refutes it in post #60

I suppose it’s possible, there could be two of them.

They do say that everybody has a twin somewhere in the world!

#145 dd on 09.05.09 at 1:29 am

#136 Mike on 09.04.09 at 9:24 pm
#128 Interest Rates Going Down

…I wouldn’t be surprised if they are kept down, artificially, for many, many years to come…

So who is going to buy Cdn debt if interest rates are ultra low? There is going to be trillions coming to the market and rates will have to go up to attach buyers.

#146 Men With Hats on 09.05.09 at 1:36 am

Finally, we all might be happier if you took your anger and alienation elsewhere. — Garth

Another in a long line of anonimosities .

#147 dd on 09.05.09 at 2:29 am

#10 Calgary_rip_off

…Why would housing prices drop more?…

Easy. 1000 people layed off at Suncor. These are white collar jobs. Calgary Central.

#148 Dave on 09.05.09 at 2:48 am

nd why is it that no one comes by this site talking about how Garth’s strategy has personally paid off for them in recent months? There is NOONE writing Garth about how they made a ton of money doing anything he recommended. All these letters are from people that are afraid, or at best have quelled their fear by selling houses and renting… but they’ve MADE NO MONEY.

——————————————-

not everyone has to air out how well they did. I will bet my balls that my investments, in areas that Garth suggested, are dozens of times ahead of what you’re holding. I recall him liking commodities. I won’t divulge a lot of relevant information to a clown like you.

There’s a group of 17 metals that have brought me returns that you couldn’t dream of. There’s people on here that know what I’m talking about. Now go back to 2007 you lemming

#149 DG on 09.05.09 at 7:10 am

Sorry Garth, I think you’re wrong about the Alberta mortgage scenario. My father-in-law walked away from his mansion in Mount Royal (Calgary) in the 80s. He moved to the US, made a fairly large amount of money again, and eventually came back to Canada. He’s been able to get plenty of mortgages from plain old Canadian banks on plenty of properties since then.

#150 X on 09.05.09 at 8:11 am

#138 Tax Haven – you might be on to something here.

In that if Home owners thought of their house as a business, a rented room as income, perhaps a home office as a tax savings), a mortgage the business loan, and the taxes, heat, hydro etc. as the expenses. The RE market might be alot different.

It really is no different than an individual starting a printing co., taking some orders, getting a loan for their printing press, paying salaries and such. But one would do that with the expectation to become wealthier.

Unfortunately for some, all they know is rising home prices, and have a need for instant gratification. So when someone writes that they think the RE market may be at/near the top of the cycle they expect the market to tank the next week.

It is true that we do need to live somewhere…we just don’t NEED to live in a McMansion.

Thinking of your home, the same way as running a productive business, would help in making someone wealthier.

#151 Evangeline on 09.05.09 at 8:14 am

((The motto of the Mossad is: “By way of deception thou shalt do war”. ))

Mossad’s motto, Be’ein Tachbulot Yipol Am, Uteshua Berov Yoetz, is from Proverbs 11:14. Your offering is the rather uncharitable ‘anti-zionist’ translation of Proverbs 11:14.

The word that has been translated by anti-zionists as as ‘deceit’ is usually translated as ‘counsel’, ‘guidance’ or ‘strategy’ . ‘For by wise counsel thou shalt wage thy war’ is the actual ‘motto’ of Mossad.

Translations of Proverbs 11:14

“For want of a skilful strategy an army is lost; victory is the fruit of long planning.” New English Bible

“A nation will fail if it has no guidance. Many advisers mean security.” Good News Bible

“Where no counsel is, the people fall, but in the multitude of counselors there is safety.” King James Bible

#152 Mike on 09.05.09 at 8:56 am

#145 dd on 09.05.09 at 1:29 am
#136 Mike on 09.04.09 at 9:24 pm
#128 Interest Rates Going Down

…I wouldn’t be surprised if they are kept down, artificially, for many, many years to come…

So who is going to buy Cdn debt if interest rates are ultra low? There is going to be trillions coming to the market and rates will have to go up to attach buyers.
—————————–

Ever heard of Quantitative Easing? The gov’t will just sweep those billions under the rug at the CMHC or other off-balance sheet corners of our faux economy thereby sopping up supply of debt and keeping rates artificially low for many, many years to come.

#153 miketheengineer on 09.05.09 at 9:14 am

My thoughts on gold:

If you have the cash to invest in gold, to save you, remember that gold is now being pumped as the saviour, buy gold etc. Like RE in the USA a few years back. So everyone and his grandma is buying it.

So, think about it. If and when the SHTF, people on mass are going to cash it in. Guess what, the price will drop. (remember buy low, sell high).

So, if you have some bucks, would it not be better to get a chunk of land, and grow your own fruit and chickens and eggs. A hobbie farm? Garth has is bunker, and stock of food. If you have a stock of food, a means to produce more, are you not better off?

No is pumping “start a farm”! Grow your own food? Why because it is real work. Buy gold, get rich quick.

Once again to Garth’s point over and over, if you must own it, just a bit. YOU CAN’T EAT GOLD.

God I wish I had a job, so I could get a motorcycle…..what a beautiful day for a ride. Nothing like being on Bike in the fall.

#154 TS on 09.05.09 at 9:46 am

As the old saying goes…”It ain’t over ’till it’s over.” While there seems to be a wave of optimism in many circles the underlying fundamentals of our biggest trading partner are still very serious. Without a US recovery Canada will continue to languish.

Here’s a link to a piece about the most recent bank failures in the US…bringing it to 88 so far this year. The reason is not the ‘sub-prime’ issue…but rather rising deliquencies from folks who can no longer meet their debt obligations due to unemployment or being underemployed…does that ring a bell with anyone?

http://finance.sympatico.ca/Home/ContentPosting?newsitemid=043358826&feedname=CP-BUSINESS&show=False&number=0&showbyline=True&subtitle=&detect=&abc=abc&date=False

#155 Herb on 09.05.09 at 10:00 am

Sick joke or sick minds?

http://www.facebook.com/group.php?gid=111256528714

#156 TS on 09.05.09 at 10:07 am

RE posting #152 that references “quantitative easing”. I’m not sure that Mike understands what this term really means as he hints that governments will use this strategy to somehow make billions of dollars disappear by ‘sweep billions under the rug’. This is not factually correct.

The objective of quantitative easing is to force banks to loosen up their credit lending policies to help stimulate the economy. Central banks accomplish this by two tactics: the first is buying toxic assets from banks to encourage more risk taking by the banks, and the second is by purposely driving down the value of treasury notes and government bonds by flooding the market to force banks to search for other ways to make money rather than simply borrow money at close to “0” from the central bank and then use it to buy treasury bills and bonds that would pay them a reasonable spread of 2% to 3%.

Let’s keep in mind that the Bank of Canada has already done some quantitative easing to some degree earlier on during the recent economic crisis by buying about $75 billion in high risk mortgages from Canadian banks.

Make no mistake quantitative easing is a very serious and severe tactic – one that a central bank would only do under very extreme circumstances. While the Bank of Canada was doing this last fall the Harper Conservatives tried to avoid talking about it and the media reported it as almost a sideline story (probably since the average reporter has no idea how serious economic conditions must be for a central bank to take these kinds of actions).

At any rate, the attached link will take you to a very good video that explains quantitative easing in layman’s terms as well as a link to a description and definition of the term.
http://www.youtube.com/watch?v=ohKQP_wSO9k

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

#157 homeboi on 09.05.09 at 10:11 am

I agree that the economy is in the gutter and will be so for the longest time to come.

That being said, the price of homes will not drop for at least the next 10 years; why is this? Interest rates will not rise, because China and Japan will not be calling in their loan. Where are they going to invest their money? If they do that, their currency will explode to the ceiling, thereby crashing their export market.
Right now China is doing everything it can to artificially keep the Yuan trading at a low vs the USD. They might talk the crap publicly, but nothing is going to happen.
Have you people even looked at the yield on the term bonds? It is pathetic. No wonder the P/E ratio of stocks are over 90 and counting.

Second reason why homes will not drop. People are pretty much renting their homes with a long amortization term and very low interest rate with pretty much nothing down.
Since the market will remain like this, the demand from people who don’t have to put any money down to own a home is still huge. Think about it, you can walk into a bank, get a home with 5% down and very low rates. Why wouldn’t people not do this and if something hits the fan, then walk away and another person will be there to take the house with 0-5% down.

In addition to this,let’s not forget all the potential home buyers on the sidelines with cash in their hand, praying and coming up with all reasons why homes will crash -40% when in reality we know that if homes were to drop -10% they would be on their knees begging to purchase the house.

Face it people, the government and banks will ensure current homeowners stay in their home for at least the next 10-15 years.

Mark Carney even said this, that interest rates will remain low for the foreseeable future.

I know in my area I paid 199k for my home 10 years ago (it is paid off now)

The last 10 homes sold within price tags of 400k and above within a matter of days.

Today sounds like a good one to have a BBQ.

Enjoy your time and my suggestion to you people would be to hide your assets and transfer it to someone else and then just put down the 5% down and something happens just do what everyone else would do, WALK AWAY. :)

This post is about ethics, and you fail. — Garth

#158 Nostradamus jr. on 09.05.09 at 10:23 am

Canada’s “New Centre of the Earth”

…Vancouver British Columbia…

And where all the world’s elite relocating to?

Why the North Shore of course…Canada’s largest and wealthiest private gated community.

Nostradamus jr.

…North America’s Cote d’Azure…

#159 smw on 09.05.09 at 10:33 am

#134 hal smith

Settle down teach and don’t get your knickers in a knot. I’ll work on the spellin’ and you explain to a homer like me how “they” will prevent a “correction” from taking place.

If you can, I’ll offer up a 500ml of Elmer’s finest your for ya!

#160 Herb on 09.05.09 at 11:31 am

I have avoided commenting on the “ethics” topic for two days, but, as Nietzsche wrote, “The bite of conscience is indecent.”

You want ethics, join a convent, monastery, any group that swears off the primacy of personal benefit, or become a hermit. But do not expect to find ethics in society, politics, government, business, economics or finance. The ethics there is utilitarianism, whatever serves individual benefit, collective advantage, or corporate profit. That is the “ethics” of the corporate world, and also much of our interpersonal relations. ”Can’t buy ethics …”? Of course not, there is no market since ethics not only would be irrelevant but counter-productive.

To get ethics into the business world, we would have to start by observing the Law of Identity or Non-contradiction of ancient Greek philosophy: A thing is what it is; it is not what it is not. In other words, we would have to deal in realities, in the actual value of goods and services vice what the market will bear – in steak, not sizzle. Know a business (or political party) that does that? As to interpersonal relations, we would have to act as if every human being had the same rights we do. I don’t know many saints either.

The whole world of business and finance is built on lack of ethics, actual ethics that would inform all participants to act in a manner consistent with their humanity. Instead, it is dedicated to creating the “greater fools” who will buy whatever commodity (or stock) at the highest price that can be extracted, and pocketing their money as personal or corporate profit. Forget the eyewash; that is the way of the world.

Thus endeth the lesson. Back to unreal real estate.

P.S.: Samantha, I embrace you and your #131.

#161 DAN on 09.05.09 at 11:35 am

Here’s a piece of advice I just got from a very good friend of mine, who just closed on an overpriced 50’s hi-ranch this week, and happens to have an MBA and be working on her CMA designation:

“Anyone who worries about the housing market right now is clearly not a person with a business background. Land is an appreciating asset, and if you do a balance sheet, you will see the leverage is offset by your asset title. And what’s the worst that can happen? You lose your job, you cannot pay your mortgage, you sell the property and you walk away with the gain on the land and it is just like before you bought the house, with a little extra bonus…”

So, do I tell her what I think of the value of her $75K MBA and $350K money pit with that kind of logic? Or, do I just smile, nod, and offer my congratulations?

#162 Rural Rick on 09.05.09 at 12:03 pm

Oregon Housing Bubble Plays Out

If it is not different here. This is what we will get.

http://news.bbc.co.uk/2/hi/americas/8239227.stm

#163 hal smith on 09.05.09 at 12:23 pm

#134 smw
“They” are the the bubble participants.
The buyers keep buying at any price. They don’t care about the fundamentals or the risks.They are getting rich.

The “enablers” are the powers that be(govt.,boc,vested interests etc). Lower interest rates, loose lending standards, lies and misinformation, and immigration all create more demand and less supply

If the bubble pops we end up like the USA, maybe worse.So “they’ are all trying to keep this thing inflated and only an act of God will change their course. And God doesn’t hang around here much anymore……

#164 dd on 09.05.09 at 12:39 pm

#161 DAN
…happens to have an MBA and be working on her CMA designation…leverage is offset by your asset title…

MBA and a CMA = book smart. That is it. Does she know what leverage also works on the downside?

#165 dd on 09.05.09 at 12:51 pm

#152 Mike

…Ever heard of Quantitative Easing…

YA, it called printing money. It has been tried in several countries. And it lead to higher inflation (devalue of the currency) and higher interest rates.

Nothing is free. We will have to pay sooner or later.

#166 dd on 09.05.09 at 1:32 pm

#19 Nostradamus jr.

…the writing on the wall…Canada’s will at some point reduce or stop delivering Social Contracts…investment security would be in their own Homes… a home is a home….you can always rent out a room or two…

If the world implodes it won’t be the masion on the side of Vancouver’s north shore that will go up in value. It will be the house by a lake that will be worth value. The property that can produce food goods and fresh water.

#167 Dan on 09.05.09 at 1:38 pm

Has anyone noticed that all those house “fires” we were having almost on a daily basis have stopped since homes are selling again. You know homes have stopped selling when we see those “fires” happen again every second or third day.

#168 jess on 09.05.09 at 1:59 pm

My father-in-law walked away from his mansion in Mount Royal (Calgary) in the 80s.

…Texas had similar problems. The entry below provides an excellant summarry.
http://en.wikipedia.org/wiki/Savings_and_loan_crisis

#169 Barb .. a reader in Calgary on 09.05.09 at 2:02 pm

#161 DAN “do I tell her..?

Dan, generally speaking there’s nothing you can say. The usual mindset of an MBA is they are too molded by an unproven and wrong-thinking school of thought.

She will simply have to re-learn the hard way, by her personal trial & error.

Or…. you could tell her. What’s to lose? You can sit idle while she loses …. or say something she’ll ignore anyway. At least you got it off your conscience. Your choice.

#170 Investx on 09.05.09 at 2:07 pm

RBC and BMO have dropped mortgage rates.

I thought rates had only one way to go – up?

Garth?

Try not to be an idiot. It’s embarrassing. — Garth

#171 Barb .. a reader in Calgary on 09.05.09 at 2:54 pm

re: ethics

Did anyone see Bill Moyer’s last night? I’m pretty sure you’ll appreciate Bill Moyers passion in this 5 min clip:

http://www.pbs.org/moyers/journal/blog/2009/09/bill_moyers_on_obamas_moment.html

A friend of my late father-in-law said it well last week, “What does it say about a nation who want to interfere with 50 million of their people accessing health care?”

And another note on ethics, same show last night:

Corporations (artificial persons existing solely to make money) have no ethics as discussed in the interviews by legal experts, yet have same rights as individuals.

Part one
http://www.pbs.org/moyers/journal/09042009/watch.html
Part two
http://www.pbs.org/moyers/journal/09042009/watch2.html

We all need to take note it’s no different in Canada.

Bill Muskoka, thanks for that link yesterday New climate plan would favour oil sands.

#172 Men With Hats on 09.05.09 at 3:56 pm

Try not to be an idiot. It’s embarrassing. — Garth

Amother one joins the long line of anonymosities.
Sheesh !

#173 Evangeline on 09.05.09 at 4:50 pm

Happy Labour Day, Garth!

Thank you for running this very interesting and informative blog.

#174 Evangeline on 09.05.09 at 4:51 pm

Being as it’s not Labour Day yet … guess I should have said Happy Labour Day weekend!

#175 Finanzkrise on 09.05.09 at 6:29 pm

Garth – has your forecast probability of a deflationary spiral / depression changed from the 20% that you discussed around the time you released After the Crash in early ’09?

Isn’t the US banking system so broken that no amount of QE could offset the yet to be realized losses on toxic securities, bad loans and losing derivative bets? I would think that even trying to print money as fast as credit destruction would crash global bond markets anyway (soaring rates) resulting in the same deflationary effect as if the Fed left the banks to collapse in the free market. Can the banks and the Fed really hide the toxic paper for much longer?

#176 daystar on 09.05.09 at 6:30 pm

I’m blown away by how many commentors on this thread don’t understand bond markets. Boy, do they need an education and profiling Japan is an excellent place to start.

I’ll try throwing my two cents worth when I’ve got the time but in the meantime, some commentors out there really need to do some online searches concerning what moves bond markets, currencies and interest rates before making ascertions that Canada is like Japan and Japan can run low rates for another decade themselves.

If commentors can’t humble their own selves concerning false pontifications that Canada can run near zero fed rates for a decade… I will and I’ll likely be quite grumpy in the process.

#177 Peter Wiener on 09.05.09 at 6:39 pm

re # 161 Dan

Don’t engage in any way in a conversation / debate / argument re this topic. I can assure you that it will not be welcome, and should you be proven to correct (which I personally think is a complete certainty), it will be remembered not as good friendly advice given in the spirit of genuine concern for her, but rather may only serve as a remnder of her mistake every time she sees you in future and it will erode the positive dynamics of your friendship with her. DO NOT SAY A WORD!

P.S. Thanks for posting this anecdote. It gives me hope that I can UNLOAD some lots I intend to take back next month from a builder who can’t make a go of it and will default on his mortgage that I hold. I was concerned that we had run out of greater fools spending 7 plus times their gross incomes on a shack. Hooray for higher education!

#178 Peter Wiener on 09.05.09 at 6:44 pm

Ah, the Labour Day Weekend!

How appropriate.
Just imagine how many years of ‘labour’ any fool will have to work to retire this debt, let alone service it through, what, 30 to 40 years?

F’ing morons!

HAHAHAHAHAHAHAH!!!!!!!!!!!!!!!!!!!!

#179 Eduardo on 09.05.09 at 6:45 pm

On Ethics… Every time you say it’s the conservatives who wanted to spend all this stimulus you should remember that it was the other 3 parties who banded together to make them do it.

They were actually upset that they didn’t spend more…

And that has what to do with the topic? — Garth

#180 Gonzo on 09.05.09 at 6:56 pm

Shirley,
Do you think the people in the U.S. are happy they bought with super low rates a few years ago? You should show them your spreadsheets.
Please people, LOOK AROUND YOU! I feel like they are warning shots being fired at us from every direction, but us up in Canada will just keep going on living happily ever after. Even cows learn to avoid electric fences.

#181 Blobby on 09.05.09 at 7:07 pm

HANG ON A MINUTE

40 years, 0% down? I thought more than 35 years and nothing down was outlawed last october to help prevent an American style crash in our future?!?

#182 jess on 09.05.09 at 7:16 pm

shakedown on the tax havens ?

http://www.guardian.co.uk/business/2009/sep/06/tax-havens-jersey-financial-crisis

…”Last week, it emerged that the Caymans are in the midst of a serious budget crisis. Home to 80% of the world’s hedge funds and the fifth biggest banking centre in the world, it is so financially stretched it could not afford to pay its own civil servants’ pensions and health insurance. Contractors and suppliers to the government had bills left unpaid.

The situation is so grim that the authorities were forced to ask permission from the Foreign Office to borrow £278m. The response was withering. Chris Bryant, the UK’s junior foreign office minister, refused to sanction increased borrowing, saying he was unconvinced the authorities had the wherewithal to repay the money.

The Cayman government is now in protracted negotiations with the Foreign Office to secure a smaller emergency fund package. If it cannot get hold of the cash within three weeks, the tax haven, which is home to 51,900, will not be able to pay its own bureaucrats.

#183 Men With Hats on 09.05.09 at 8:52 pm

What are ethics to a government that deliberately squanders a thirteen billion dollar surplus to hamstring any government of the future ?
Flanagan,Finley et al have been bragging about their annihilation of Canada’s economy to all who will listen .
Stooges all .
They sgould be charged with conspiracy to commit treason .

#184 Investx on 09.05.09 at 9:56 pm

Invest:
“RBC and BMO have dropped mortgage rates.
I thought rates had only one way to go – up?
Garth?”

“Try not to be an idiot. It’s embarrassing.” — Garth

Why should I be embarrassed? I didn’t make the apparent wrong prediction. Try answering my question.

Short-term rates fluctuate regularly, pacing changes in the bond market, where many mortgages are funded. This is unrelated to the BoC`s key rate, yet influenced by the central bank`s use of drawdowns and redeposits, as well as Specials and SRAs. The long-term direction of rates is higher for the many factors listed here previously, including the need to issue $50 billion in additional GOC long-term bonds competitively priced on the domestic and Eurobond markets. Now stop wasting our time. — Garth

#185 ESL on 09.05.09 at 10:07 pm

The best outcome your biker buddies can hope for is a temporary reprieve from the Bail Bondsman until Madame Justice tosses their sorry butt in the clink. But if you’re in the Housing Business & connected then by all means fill your belly with CMHC Bailouts ’til it bursts courtesy of government-sponsored taxpayer pickpockets and enjoy life on the beaches of Bermuda.

Our economy will never fully recover until someone in power dares stop the sociopathic Hedge Fund crooks that take advantage of the unwillingness of financial regulators to enforce security laws. I have long ago lost hope Conservative’s would stand up for the welfare of the average Joe. The whole system is rotten to the core.

#186 Investx on 09.05.09 at 10:18 pm

Thanks for your answer, Garth.

Sorry, didn’t know that this blog was for experts. Just trying to learn here. Chill.

#187 Peter Wiener on 09.05.09 at 11:21 pm

# 183 Men with Hats

Hear! Hear!

Why sugarcoat it – charge them with treason!
Could not agree more.

#188 TS on 09.06.09 at 11:44 am

#169 Barb .. a reader in Calgary on 09.05.09 at 2:02 pm

Hey Barb! I agree with you that it is sometimes impossible to get folks to see things from another perspective. On the lighter side, not all of us with an MBA are “mediocre but arrogant”.

#189 Barb .. a reader in Calgary on 09.06.09 at 2:39 pm

#188 TS

Hey TS,
Okay, one google and I got it. The novel! :) ..good giggle.

What I’m fascinated with is how stubborn people are even in the face of facts, history and common wisdom.

And it’s of note that business schools institutionalize some of the problems with an outright lack of focus on ethics. But worse.. add to that .. as my brother’s saying goes .. “someone’s gotta graduate bottom of the class”. There are more than a few grads dangerously “licensed to kill” (their own finances :)

Trying to help is akin to feeding a tiger.. be careful how you do it

#190 Men With Hats on 09.06.09 at 5:39 pm

#187 Peter Wiener on 09.05.09 at 11:21 pm

# 183 Men with Hats

Hear! Hear!

Why sugarcoat it – charge them with treason!
Could not agree more.

Thank you Mr.Wiener .

#191 jess on 09.07.09 at 4:23 pm

what innovation securitization of death!

“Defenders of life settlements argue that creating a market to allow the ill or elderly to sell their policies for cash is a public service. Insurance companies, they note, offer only a “cash surrender value,” typically at a small fraction of the death benefit, when a policyholder wants to cash out, even after paying large premiums for many years.

Enter life settlement companies. Depending on various factors, they will pay 20 to 200 percent more than the surrender value an insurer would pay.

But the industry has been plagued by fraud complaints. State insurance regulators, hamstrung by a patchwork of laws and regulations, have criticized life settlement brokers for coercing the ill and elderly to take out policies with the sole purpose of selling them back to the brokers, called “stranger-owned life insurance.”

In 2006, while he was New York attorney general, Eliot Spitzer sued Coventry, one of the largest life settlement companies, accusing it of engaging in bid-rigging with rivals to keep down prices offered to people who wanted to sell their policies. The case is continuing.

“Predators in the life settlement market have the motive, means and, if left unchecked by legislators and regulators and by their own community, the opportunity to take advantage of seniors,” Stephan Leimberg, co-author of a book on life settlements, testified at a Senate Special Committee on Aging last April.

new york times

#192 Live Within Your Means on 09.07.09 at 6:49 pm

#53 613 Happy where I am on 09.04.09 at 9:51 am

About 26/28 years ago when my sis & I bought a townhouse/condo we first took an evening course on what was involved in purchasing a place. It opened up our eyes. As a 1st time buyer, one doesn’t realize all that’s involved. Nowadays, I think its even more important. I think there should be mandatory courses in high school in personal finances, how the banking system works as well as our parliamentary system. Watching and reading comments from average Canadians during the last election astonished me how ignorant they were about our form of democracy. And, the cons promoted their lies knowing the average Canadian did not understand our system of governance. Its all about keeping people dumb & dumber in order to control them.

#193 Live Within Your Means on 09.07.09 at 7:30 pm

#183 Men With Hats on 09.05.09 at 8:52 pm
What are ethics to a government that deliberately squanders a thirteen billion dollar surplus to hamstring any government of the future ?
Flanagan,Finley et al have been bragging about their annihilation of Canada’s economy to all who will listen .
Stooges all .
They sgould be charged with conspiracy to commit treason .

I totally agree. But, ask the average man/woman on the street if they know who the hell Flanagan is or have ever heard of The Beaver. Most Canadians have NO idea that its been the Reformer/Cons goal of creating such indebtedness that we’ll be forced to cut most of our social services. They’d much rather spend our taxes on military prowess.

#194 John on 09.08.09 at 2:47 pm

This guy makes $56k/yr AND rents rooms out and he can’t pay down a $187,500 mortgage? Where the hell does his money go? He should be able to pay that off in 10 years with that much income + rental income. Makes you wonder how people in the rest of the country *cough*Vancouver*cough* can afford to buy houses 3x the price with similar incomes.