Bad idea

whoops1

The thing about wealth in Canada is its relationship with houses. One minute, cuddles. The next, jaws.

Surveys consistently show about 85% of all the family net worth in the country sits in residential real estate. When house prices are going up, that number rises even more. And lord knows what it is right now, as governments busily pimp property with the rock cocaine of cheap money.

So what? I hear the real estate bulls cry.

So, this: If 59% of Canadians missed one single paycheque, by a single week, they wouldn’t be able to make ends meet. Worse, half of Canadians can’t even save 5% of their income. Even worse, a majority of our friends and neighbours have no retirement savings and don’t expect to get any.

At the same time, when the Canadian Payroll Association asked folks how much cash they thought they’d need for retirement, 52% of people said between $750K and $3 million.

Said CPA chairman Janice MacLellan “We were shocked… So many Canadians are now living so close to the line that if they miss a single paycheque, the majority will find themselves in financial difficulty.”

Okay, summary: People have assets, but no money. They may lead affluent middle-class lifestyles, but have no savings. They may own houses, but possess no reserves. They may know what they need, but have no way to get there.

Except one.

Now, see the problem?

The concentration of personal wealth in one single asset is a financial timebomb. While Canadians should have at least three months’ worth of cash to live on (and two years would be better), we have two-thirds of the population unable to survive seven days. But that’s just the start of our problems. Fast forward ten or fifteen years, when nine million Boomers are chewing cud and today’s Gen Xers have only a decade and a half to secure their financial futures and you can see the writing on the way. It says, ‘Screwed.’

This is one good reason why entrusting all of your wealth to real estate is a really, really bad idea. By buying houses at the top of the price cycle and taking on lifetime mortgages (what else would you call a 35-year am?), people are pretty much guaranteeing they’ll never be diversified. Even if they do pay down debt, build equity and see rising house prices – adding to their net worth – they’ll still have to convert this into actual money to live on.

Imagine what happens in five years as the mass of the boomers hits 65. Just think about the imbalance of listings over demand that could wash over the country for decade or more as millions of house-rich and cash-poor people scramble to get out. Now contemplate what that’ll do to the value of everybody else’s home.

I’ve said many times that real estate is cool with me. I own a few pieces myself. And we all need a place to live. But if you’re a boomer who still has a mortgage, or more than 40% of your net worth in a house, you’re probably in trouble. If you’re in your forties and don’t have a third of your net worth in financial assets, or at least $250,000 earmarked for retirement, watch out. If you’re a slave to your mortgage in your thirties, then what possible plan do you have to get financially secure?

I doubt many among us have any idea the toll house lust will take.

Or can see the bite already taken.

HOWE STREET BANNER

For Garth's latest podcast, go here.

152 comments ↓

#1 lgre on 09.14.09 at 10:02 pm

the % living paycheque to paycheque is higher then 59. I know many people like that and very little that can actually survive with no income for at least 3 months.

#2 PVC on 09.14.09 at 10:07 pm

I see debt people.

In your dreams?

While you’re awake?
Debt people like in graves? In coffins?

Walking around like regular people.
They don’t see each other.
They only see what they want to see.
They don’t know they’re debt.

How often do you see them?

All the time. They’re everywhere.

#3 hal smith on 09.14.09 at 10:17 pm

Garth you are a dinosaur. The world has changed. Housing is now and has been for a quite a while now the safest place to build and protect wealth. Tax free. What is the alternative? The stock markets? You’ve got to be kidding me. Remember the dot com bust? That was the final straw for most people and it was not coincidentally the beginning of the housing bubble. Who trusts the stock markets anymore especially after this latest bust which is not even over yet? Who wants to invest their money with companies that pay their ceo’s millions of dollars a year to run a company into the ground and then get a bonus for doing it? Remember Nortel? Breex? Bernie Madoff? Michael Milken? Enron? Sleight of hand accounting? INCOME TRUSTS ? Who in his right fucking mind would invest in something like that where everyone lies, cheats and steals, even the government? Only dinosaurs like us Garth, and our light is fading from the universe….It’s a new world out there and a new generation and no one gives a shit about our affordability index or recessions or interest rates or bubbles or boomer retirement or any of that claptrap we keep spewing forth. People today know that they can’t trust anyone but themselves and housing is the investment vehicle of choice and tax free. Ya gotta live somewhere right? Why invest with thieves, cheats, and liars? Why believe your own government? They are liars too. Their track records are horrendous. At least you have some control over your own home, may as well invest in that. However misguided this may seem to us “dinosaurs” that’s the way most people feel about it these days.

#4 Darren on 09.14.09 at 10:19 pm

After reading this blog for the past six months I guess one can understand why I’ve held off buying a house all summer. And for that I thank you for the info Garth. I have friends now who bought this summer and are now claiming to be “broke”. Seriously. Haven’t seen them out all summer. My question is this though. My wife and I are in our very early 30’s, we have respectable incomes, make weekly RRSP contributions, but can’t help but feel like we’re throwing money away in rent every month. So when do we get off the sidelines and make the plunge into real estate in Toronto? According to this blog, not anytime in the near future. Any suggestions out there? Any advice would help at this point. Garth?

#5 My_view on 09.14.09 at 10:20 pm

Garth,

Your message is clear as mud. Don’t ever buy a house, instead rent and save for retirement, the golden years!
You fail to mention the sandwich generation, I myself being one. My parents have been retired for several years now and are on a fixed income (All Government), parents never believed in RRSP’s. They are doing quite well in the same house I was raised in, in fact my father is grateful he has a paid off home and he couldn’t even imagine if he had to live in an apartment and pay rent (which would be higher than what they pay now to live). BTW if my parents were truly hurting and needed to sale their home (I’m sure this counts for others) they would sell it to their children instead of taking a kick in da nutz.

#6 Concessionman on 09.14.09 at 10:21 pm

Well like they say, common sense ain’t so common.

I agree that one should not have the bulk of thier net worth tied up in thier home, but, alas, I too am guilty, having 80% of my net worth tied up in my house, and having 20% in investments and cash.

Mind you this was by choice, as I hate debt and have fast tracked my mortgage since my starter house at 25. Paid off the starter in 10, sold it and made a little, bought a 3 acre spread (less than 30 minutes from downtown Toronto) with the pond full of bass on the front lawn at 35, it’ll be paid for by 45. Once gone, that same mortage money + is going into equities for retirement. Thats a plan for the common man.

It’s these 30-35-40 year ams that people get paying little more than interest that ultimately screw them in the end. Biting off more than they can chew to keep up with the Jones. Spending the equity on living or toys. Dumb.

It’s simple. If you can’t afford to pay it off in 20 years and also live comfortably within your own means, don’t buy it!!

#7 Jon B on 09.14.09 at 10:23 pm

Agree totally. So can somewhere tell me where the opportunity exists for the rest of us in this big house-rich cash-poor demographic mess?

#8 catamaran guy on 09.14.09 at 10:24 pm

And our housing bubble hasn’t burst yet since the govt
goosed the rates.what will next year look like when reality rears it’s ugly head?
And we laugh at the americans..we are following their
footsteps.
(ahm..well not me personally)

#9 ruraldude on 09.14.09 at 10:33 pm

I hate to be depressing but I think we are screeeeeded.

#10 GG on 09.14.09 at 10:34 pm

Garth. Your worries are tyical of 40 plus people.
The new generation 20 plus are already used to being in debt. From car loans, student loans, credit cards these kids are credit/loan savvy. They’re preconditioned not to worry over tomorrow however rainy it may seem. These kids will borrow till they die or end up in the streets. So will the new generation of policy makers.
They too will be accustomed to debt. Thus the whole society will have debt ingrained in their souls. They won’t live for a day, they will live for half a day.

Conclusion: Real Estate, stocks will keep rising, then crash then rise again because the need and thirst for debt is ever increasing. I guess you can say that our economic model follows the BIG BANG theory.

#11 conan on 09.14.09 at 10:42 pm

That dog’s bite looks worse then it’s bark and that lady in blue should count her fingers.

What kind of dog has a tail like a squirel? It looks half wolf.

#12 Real Estate Deal or No Deal on 09.14.09 at 10:45 pm

I have a plan, Garth.

I am gonna win the lottery.

Yup. That’s how I am gonna do it.

#13 Shawn Allen on 09.14.09 at 10:45 pm

The reality is that one missed pay check or even ten will not be an immediate disaster for the average over-mortaged middle classer.

These people have lines ofcredit and credit cards and they can and will of necessity borrow on the credit card to pay the mortgage, groceries and car loan.

And the joke is, as long as they keep paying the bills even with more borrowed money, their cedit will look good, the bank will increase their credit limits.

Only after months or a year or more of scrapping along and exhausting all sources would the typical family finally cry uncle and go for bankruptcy.

By then they will probably have a negative net worth of a minimum $100,000. In not a few cases, it will be $300,000.

Believe me if you are broke, you will use that credit card to buy the grocercies.

So the story is correct the situation is grim. But it’s not about a week a way from disaster. It’s about 12 months of really running up the debts before a much bigger disaster.

In a poor economy it can be disaterous to lose a job. Especailly a good paying job, in a field where new jobs are scarce.

#14 Joseph on 09.14.09 at 10:46 pm

We are reportedly in a unique place in history, in that the baby boomer generation is on the cusp of the greatest generational wealth transfer in human history. Having the majority of your net worth in houses is OK if you know mom + dad and grandpa plus grandma will be bequeathing trillions, yes trillions, in the decade or two ahead of us to their children. This is not all fable; there is actually alot of substance to these claims of impending generational wealth transfer. Garth, you said yourself that you own a few pieces of real estate, which I presume will ultimately be passed on to your children. So, if the generations currently in the workforce can just hold onto that much needed weekly paycheque for another decade to get by, they will end up having their cake (living in the McMansion of their dreams during the best years of their life) and eat it too (parents’ cash at the time of inheritance). Its called being in the right place at the right time. For us bloggers trying to make it on our own, it will be a difficult pill to swallow.

#15 $fromA$ia "Garths Nugget Boy" on 09.14.09 at 11:04 pm

Sorry Garth, too many Canadians taken on too much debt. Inflation is the only thing that can save em’ now.

#16 Marina on 09.14.09 at 11:05 pm

I came to Canada 8 yrs ago and now considering comig back to my country as Canada’s economy is going to hell slowly but surely. My country is Russia, city of Moscow. Talking with my freinds back home and comparing canadian reality I would say life is much worse here, in Toronto. I really feel sorry for canadians who have no choice but continue living in Canada – Noth America has quite dark future for the next 7-10 years to come.

#17 nonplused on 09.14.09 at 11:22 pm

I’ve always wondered how this “self financed RRSP” scheme was going to work. A quick summary:

http://danielamerman.com/MagicMoneyB.htm

Somehow we are all going to save a few hundred bucks a month, earn 10%, and magically retirement is funded! I don’t think so.

Even government sponsored plans are under scrutiny and potential public backlash now.

Social security is a Ponzi scheme that worked well as the boomers were entering the work force but won’t work at all as they leave.

Oh well, the world survived the collapse of the Soviet Union, it’ll survive the collapse of Western Finance too.

#18 "Gord" in Chinglish on 09.14.09 at 11:46 pm

Garth you have been beating this drum for a long time and still no love. You say 5 years now….
When will it end. Never. If you look at the long run…..everything goes up. Are you more wealthy when you own a big mortgage, well we all know that answer. There won’t be a meltdown. There might be a few dips along the way. But the machine is greased and running again. That’s life!

#19 absinthe on 09.15.09 at 12:08 am

Wow. A quarter million for retirement by our 40s? We’re well educated re: investments and are diversified; but we’re a median family income family with two kids, RESPs, childcare expenses, student loans, dental and optical bills, MSP, and insurance to pay for. No *way* are we going to make that.
It’s all right. As Gen Xers we hadn’t really planned on retiring, anyway.

#20 Davinci on 09.15.09 at 12:41 am

I finished reading a book by Ayn Rand call Atlas Shrugged. It was very entertaining and awakening for me.

The point I learn was A is A. Our current reality is people in power trying to convince the public that non-reality is reality.

Gold and silver is money and even though you believe differently you are wrong. A is A a ponzi is not an investment, it’s a scam, sure it can work for 30 years but the end result is the same.

Paper is money by force of government.

Deflation is not coming paper money will not be more valuable in the future, it’s a ponzi scam.

Your mind knows it. Something that can be created out of nothing is not more valuable than something that needs to be produced.

You still don’t agree? Then sell your gold and silver to me and reality will be our arbiter.

#21 Munch on 09.15.09 at 1:01 am

“If 59% of Canadians missed one single paycheque, by a single week, they wouldn’t be able to make ends meet. Worse, half of Canadians can’t even save 5% of their income. Even worse, a majority of our friends and neighbours have no retirement savings and don’t expect to get any.”

UN-frikken-BELIEVABLE!!!

Your country is sitting on the edge of a CLIFF, man!

#22 Nostradamus Le Mad Vlad on 09.15.09 at 1:02 am

It certainly is a bad idea — as investors discovered much to their chagrin — that pumping money into Nortel at $120 share, not taking into account that what goes up must eventually come down and subsequently got roasted. The lessons of life, no matter how hard, by far and away are the best teachers.

“People have assets, but no money.” What if those folks lose their one prized asset (home, due to foreclosure), along with everything in it, then their jobs go by the wayside? They won’t have that much in savings to live a bare-bones lifestyle anymore?

EI only lasts a year, then welfare. Could be that is one reason why war drums are beating a little louder; if govts. can’t help their own, what is an alternative evil?
——
Financial Armageddon — http://smallsizeurl.com/it/ — has a good article. Scroll down and see two charts — first shows OTC derivatives, second CDS.
——
Mish has a view on Greenspan — http://smallsizeurl.com/root/ — which says his policies could well have led to the current downturn; quite ironic that Obama would reappoint Bernanke to another term at the US Fed when he (Obama) has the right to insist on change, yet it is empty rhetoric.
Unexpectedly, Greenspan’s policies may have led to bankers in Iceland becoming so drunk with power and money they were the cause of their crash. — http://smallsizeurl.com/now/
——
Put these two together and whaddya have? — http://smallsizeurl.com/refer/http://smallsizeurl.com/476/

#23 Albertaboy on 09.15.09 at 1:06 am

Very insightful post Garth. Glad to see your opinion supported by facts rather than personal bias. In my continual search for what ISN’T being reported by the MSM – I came across this article and found it to be absolutely incredible.

http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html

Enjoy!

#24 JoeCalgary on 09.15.09 at 1:15 am

Neat photos of the ghost fleet of the recession:

http://www.dailymail.co.uk/home/moslive/article-1212013/revealed-the-ghost-fleet-recession.html

#25 Mike (Authentic) on 09.15.09 at 1:45 am

The financial balancing act

The one thing that cash for clunkers did in the USA was to show us was there is only so much money to go around to buy things with. The average Canadian/American family is greatly in debt (140% in Canada) and they can only buy so much with their $$ left over. Something suffers if people put too much into X and nothing enough into Y and Z.

You can invest in RE, then RE goes up because everyone else is doing the same, but only if people working at Y can afford it. If people don’t have any extra cash to buy Y’s product, then…

Mike

#26 Anon - GTA on 09.15.09 at 2:11 am

Agreed we are a consumer based economy, but if:
A) a loaf of bread starts selling at 10$ or 15$ a piece, or
B) a honda civic starts selling at 90K or 150K a piece, then
– would people still buy these stuff?
– would there be a outrage by people? Asking for govt. for answers?
– govt. would step in and take responsibility for letting this go out of control?
– govt. would take actions to bring these items to affordability?

How come not so for Real Estate? Why are both people naïve and govt. blind to this problem?

*Confused…….*

#27 Robert1 on 09.15.09 at 7:06 am

” So, this: If 59% of Canadians missed one single paycheque, by a single week, they wouldn’t be able to make ends meet.”

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

Skeeeeeery ! Very Skeeeeeeeery !!! and if you believe the majority of posters on this board ( which I do ) …. it can only get worse:

1. Unemployment or underemployment will persist
2. Interest rates WILL rise
3. Taxes ? the skies the limit !

And Harper and Flaherty are still singing the Don’t Worry Be Happy song.

Skeeeeeeeeery Pair They Are …. Very Skeeeeeery Indeed !!!

#28 JO on 09.15.09 at 7:14 am

Cmon Garth, the sheeple are convinced RE goes only one way – UP of course ! As i have said several times already, I have not seen such a level of extreme positive sentiment toward any asset class in my life. Not even tech stocks in March 2000 were as loved as Canadian RE now. If I were to chart Canadian RE, it would look like one massive double top formation…a classic chart that is usually bearish when it exists with such extreme optimism.

Tragically, all bubbles end badly. The extreme optimism, ultra cheap money (at expense of the prudent savers), gov’t intervention through CMHC/CDIC will simply mean the fall will be harder and longer than most expect. What you can count on is that when shit hits the fan, most of these “homebuyers” who put less than 10-15 % down will be the ones going to your friendly gov’t and requesting help to get them out of their stupidity and greed. Meanwhile, in many areas, renting the same place would have been a much safer and cheaper alternative.

I feel bad for any homebuyers who put 20 % or more down, even though they were stupid enough to not have rented instead to avoid buying a massively overvalued, illiquid asset and getting into a huge long term debt. If our clowns in Ottawa do what the US is doing, it will the people who bought homes they could not afford with less than 20 % down that will be first in line for “help” (AKA taking tax money from those responsible to help out the irrational debt slaves).

The one silver lining of this 5 yrs out is that people will come to realize how it was gov’t intervention and distortion that helped lead to this emerging disaster. The other silver lining is cheaper housing for all of us, rather than constant elevated inflation of housing thanks to the gov’t sanctioned debt ponzi scheme that has been artificially lifting home prices.

JO

#29 The 'VULTURE' on 09.15.09 at 7:24 am

Awesome post Garth!!

So true are your words of great insight and wisdom. So true…

It is nuts out there.

I have friends (professionals) whom have been out of work for almost a year now and I have seen a couple of what I thought were well established businesses (one was a family business for over 95 years!) go under.

I have gone through dump real estate at astronomical prices with sellers filled with arrogance and puffed up home pride. Most do not even stage their homes at all and many of them smell of B.O. and whatever their last meal was. One wouldn’t even move on a virtually clean (only condition was a home inspection) offer with a $25,000.00 deposit and whatever closing date the seller wanted. The seller just handed my cheque back and said he was waiting for the multiple offers to pour in and that I was to “get in line like the rest of the cattle”…

Keep spreading the good word about Garth….

I know I have been….

#30 X on 09.15.09 at 7:51 am

Today’s post ‘What took you so long’ offers that the US is indeed entering into deflation, that Americans (and us Canadians too) need to stop living above their means, and that loosening credit isn’t the problem.

http://market-ticker.denninger.net/

#31 lgre on 09.15.09 at 7:53 am

It still seems like a lot on this board still dont get it, nobody is againts RE, only inflated RE. If you buy at the top you LOSE, unless you are willing to hold for decades.

Also, the average person never ever makes money off RE, the increase they gain they have already paid in taxes, interest and up keep over the years..an expensive way of saving if you ask me..

#32 Darryl on 09.15.09 at 8:04 am

# 2 PVC

That’s good. thanks for the laugh.

#33 Weeping in Windsor on 09.15.09 at 8:16 am

The problem is that the majority of homebuyers today don’t know what a “brick and board bookcase” is.

Nor would they EVER have one in their homes.

signed
Weeping in Windsor

#34 dd on 09.15.09 at 8:22 am

#16 Marina

…now considering comig back to my country…

Leave then. But don’t come back in 8 years because Russia is going to hell.

#35 PVC on 09.15.09 at 8:28 am

#3 Hal Smith

Even though I believe this is one of the worst times to buy RE your post on not trusting any investment is awesome
and honest.

Only other alternative now is the precious metals.

I have found it is only the uneducated who make such blanket statements. The alternative to real estate is not just stocks. The bond market is 14 times bigger than the stock market and can build substantial wealth with little risk. There are commodity plays, ETFs, thousands of funds, currency transactions, futures and options, commercial properties and hockey cards. Those people without financial assets or diversification have no idea of the truck that may be heading for them. — Garth

#36 Jonathan on 09.15.09 at 8:29 am

#16 Marina,

What’s happening to Russia right now is much worse then what is happening in Canada.

#37 Jonathan on 09.15.09 at 8:30 am

#21 Munch,

What country are you from. These statistics are true across the developed world.

#38 dave99 on 09.15.09 at 8:36 am

#16 Marina,

Oh really? Russia has a better quality of life than Canada. Perhaps that’s why it is very difficult for Russians to get tourist visas to visit here (the gov’ts concern is that they will claim landed immigrant status).

Ok, off you go. Feel free to not come back.

#39 dave99 on 09.15.09 at 8:43 am

” So, this: If 59% of Canadians missed one single paycheque, by a single week, they wouldn’t be able to make ends meet.”

As compared to what? What was the % 20/50/100 years ago? Higher, lower?

As compared to what % in other countries?

And what does “make ends meet” actually mean? They would have to use a credit card? Or cash money in from investments? Or draw on their HELOC? Or cash in some of their RRSPs? Or sell a personal possession?

As Disraeli said, “There are three types of lies…lies, damned lies and statistics”.

If you swallow the propaganda inherent in that sentence without analyzing it, you are just as much sheeple as those who swallow Harper’s propaganda.

How can you possibly see any good in that statement? — Garth

#40 Anon - GTA on 09.15.09 at 8:49 am

US is smarter than Canada…
They let the real estate crash… Bringing folks to reality… They will rise stronger than before

Canada has been living in its own world… Still asleep in dreams… Living in denial…
Expect a fall that will be hard to recover from..

#41 janet shum on 09.15.09 at 8:53 am

Well garth… I think I am screwed
Due to timing and the fact that i didn’t plunge in… I think I am screwed. I am a 31 and screwed.
I was thinking about things along the ways you are talking about. I think it is a fragile deck of cards… but it is still managing to stay up. In the peg, it would appear we managed to scrape through this period o.k and the vacancy rate is at it’s lowest level yet. I don’t know how the numbers will work out. By the time the feds get around to raising the rates, because the interest rate is so low right now, even with the increase the mortgage may not increase to a point that is not affordable. People have their money in their houses I think…. The problem is they will sell them to get the money when they retire. If we went through this period without people throwing their houses onto their market in finacial distress, I have when the economy gets bad we will get hit but not as bad as everywhere else. If they run into trouble, someone will bale them out or American Express will work out a deal with them so they only have to pay half their debt.

All I have to say is I don’t think the correction will come that will be big enough or at a time when I will be buying a house. Maybe when I retire

People in debt win

#42 janet shum on 09.15.09 at 8:55 am

I should add the problem I mean is that people who got in now… will be selling their houses when they retire 30 years later … like I will

#43 janet shum on 09.15.09 at 8:56 am

I should add what i mean by people will sell their house when they retire is 30 years latter… at the same time I do.. These are the first timers that jumped in. And then they wills crew the people trying to get in because they will be downsizing

#44 PVC on 09.15.09 at 8:59 am

“The bond market is 14 times bigger than the stock market and can build substantial wealth with little risk.”
– Garth

Depends on the timing Garth. Blanket statements are for the uneducated.

Inflation is coming, interest are going up but, build wealth in bonds you say.

Like a true politico you speak out of both sides of your mouth consistently Garth.

Bonds will die when inflation rears its ugly bonce. Smart money is waiting to short bonds with both hands and feet.

You’re also are a fan of what Buffet referred to as diworsification.

It is abundantly clear Garth you are learning on the fly.

As with stocks, you can make money in the bond market whether prices rise or fall. Bond prices drop when rates rise, as bond yields soar. Few would buy a bond to maturity, for obvious reasons. Learn a little, friend. — Garth

#45 Al on 09.15.09 at 8:59 am

#4 Darren

“…but can’t help but feel like we’re throwing money away in rent every month.”

The best way to get over this feeling is figure out how much interest you would be paying each month to the bank. That money is just as much a ‘throw-away’ as rent. Quite often the interest component of a mortgage is higher than rent. You can throw in property taxes and house insurance to your calculation too.

#46 $fromA$ia "Garths Nugget Boy" on 09.15.09 at 9:04 am

US is smarter than Canada…
They let the real estate crash… Bringing folks to reality… They will rise stronger than before

Canada has been living in its own world… Still asleep in dreams… Living in denial…
Expect a fall that will be hard to recover from..- ANON
_____________________________________________

This is really so refreshing.

ANON, you know our current federal government is responcible for keep the loose lending going to keep Canadian home owners happy. This is highly inflationary. This is completely wreckless, just to hold on to power. This totally disregards Canadians, for what?

#47 Tony on 09.15.09 at 9:12 am

#4 Darren on 09.14.09 at 10:19 pm
Some townhouses in the west and southwest areas of Edmonton have fallen 50 percent in the last two years or so. This is where to buy.

#48 Calgary Rip off on 09.15.09 at 9:17 am

Garth,

You forget the facts of thousands of years: There is no security. “Retirement” is a delusion. It’s really just a fast way to the grave. People like Kanye West and other rappers and hip hops will be working at McDonalds. And rightfully so.

You mention you have places you own. What do you have to worry about? There is one very easy way to stop worrying about the future and that is to realize that you work until you die. Period. That way you dont worry about sickness or injury or pensions. Stay injury free and stay healthy. Maximize your person, your working machine.

I dont have “financial assets” and I dont own a house. I am 37. According to your “statistics” I am in a bad state. Not so. I am better off than many people with “assets” who dont have a clue about the reality of insecurity. At any moment anyone can be snubbed out in a blink of an eye. Are people really ready for that moment? Please tell me you can spend their assets when they are buried. Dont think so.

Having a house really is only something so you arent told when and how to mow your lawn by some idiot landlord. No more, no less.

#49 John on 09.15.09 at 9:26 am

Living paycheque to paycheque yet eating out 20 times a month.

Why is making your own diner an insurmountable problem for some people?

#50 Mansoor on 09.15.09 at 9:36 am

Interest is evil of all.

An eminent economist, Roy Harrod[7], regards the abolition of interest is the only way to avert a collapse of capitalism. Not only this, but he speaks with great admiration for an interest-less society in his work on Economic Dynamics. Harrod clearly recognizes that, “It is not the profit itself, earned by services, by assiduity, by imagination, or by courage, but the continued interest accruing from the accumulation that makes that profit taker eventually appear parasitical…” and he further states that an interest-less society which will be a totally new kind of society” would be the correct and final answer to all that is justly advanced by the critics of capitalism

#51 john m on 09.15.09 at 9:36 am

“So, this: If 59% of Canadians missed one single paycheque, by a single week, they wouldn’t be able to make ends meet. Worse, half of Canadians can’t even save 5% of their income. “………..Shocking!…i think our country is in for one hell of a crash,when that percentage of a countries population is that overextended in troubled times as we are now in (or even in good times) we are in serious trouble—is this not what caused the first wave of recession—and our leaders are promoting this lifestyle? We are balanced on the edge of a cliff with just a whisper of a breeze we are going to fall….and there is a storm brewing and no Government can save that many!!

#52 pezzazz on 09.15.09 at 9:40 am

My favourite part of speaking to real estate bulls is to listen to their fanaticism and pleading when referring to the RE market being something that perpetually goes up. When you even mention that interest rates are at a historical low for our country and that they only have one direction to go they look at you defuddled. I guess their mom/dad/mortgage broker/friends or real estate agent didn’t let them know of the pain that is in front of them when Mark Carney (ex GS whiz kid) starts easing up rates and they realize that the $200 they have left at the end of the month doesn’t cover the 50% increase in the mortgage renewal…But how are they going to afford the monthly payment on the new 3D TV’s coming out next year?

#53 lgre on 09.15.09 at 9:47 am

Stocks have their downfall along with every other type of investment vehicle/strategy out there. But as Garth has been saying, DIVERSIFY your money and your chances of losing big become small. Putting all your money into RE is a bad idea regardless of which way its sliced.

#54 Jonas on 09.15.09 at 9:53 am

I am sure most of us have seen this :
http://www.globeinvestor.com/servlet/story/RTGAM.20090915.whousing0915/GIStory/

Garth – you are fighting a loosing battle here. We had our correction that ended in March 09. Real Estate has roared back since then. There is no way we will see any sizeable correction in the foreseeable 2 to 3 years. Only aggressive rate hikes, a total collapse in the treasury markets and a catastrophy in the economy will have any meaningfull negative effect on real estate. Yes, it is nuts, it is totally nuts the kind of debt these fools are taking on. But you know what? there are thousands of fools just waiting to burden themselves with a lifetime of unmanageable debt. I sold a couple of years ago and have been renting since awaiting a correction back to historical norms in terms of affordability. It ain’t coming, this is the new norm, as crazy as it is, this is the new norm. At the end of renting for 35 years you have nothing, at the end of owning for 35 years you have a house free and clear that is probably worth much more that it was 35 years ago. I too am screwed, largely my own doing but also largely due to listening to people that seemed to make sense.

#55 Makeorbreak on 09.15.09 at 9:55 am

People aren’t even living from paycheque to paycheque. It is a lot worse than that. They are one paycheque away from homelessness. For too many people, the paycheque is already all spent before it is even cashed out. People are maxed out to the limit. Nowhere else to borrow. Not even on their home.

#56 Gregor Samsa on 09.15.09 at 10:05 am

For all of the obviously housing obsessed folks posting on this blog, all I have to say is what about living life for today? Why would anyone want to spend the best years of their life a debt slave, tied down in some suburban nightmare? When did a house become the central pillar of ones life, where all of ones time and energy and money are dumped into?

Not for me, thank you. Here is something that nobody seems to consider: when you “retire” are you going to need to live in downtown Toronto? In a country as big as ours is, surely there will always be some cheap places out in the country to retire to.

Nothing in life is free. You cannot get something for nothing. This idea that if you buy a house you will be instantly rich is a pipe dream. Sure, it happens to some. Some people also get rich from stocks. Some people also win the lottery…

#57 Makeorbreak on 09.15.09 at 10:14 am

http://eclipptv.com/viewVideo.php?video_id=7343

#58 Denis on 09.15.09 at 10:21 am

Harvard Business Review – The M-Shaped Recovery
http://bit.ly/tOhFc

Very interesting and riveting viewpoint – The same situation applies to Canada. The average family wage has been stagnant over the last few decades and goods have ballooned forcing us to take on more debt while transferring wealth from the middle class to the upper class (The top 5%).

Great Points:
“Most Americans took on significant amounts of debt not just because they wanted to, but because they had to. The math is as cold, brutal, and simple. Wages have been stagnant for thirty years. The cost of goods …and services — especially basic or durable goods and services, like cars, education, housing, and healthcare — has exploded. When your income isn’t going up, but the price of a degree is, borrowing becomes the least bad option. The result is an economy where the middle class has been forced into effective penury. Americans had to borrow because they weren’t part of a shared prosperity to begin with.”

“Rehabilitation begins with the understanding that it’s brain-dead to build an economy on Big Macs, SUVs, and McMansions. Why? They don’t make others authentically, durably better off. In fact, their net economic effect is this: they simply transfer value from the poorest to the richest.”

#59 POL-CAN on 09.15.09 at 10:26 am

.
.
.
“What have they learned on Wall Street? Sweet fuck all. Sorry to be so crude but that’s pretty much what I see on Wall Street and at the large “sophisticated” Canadian public pension funds. Behind the rhetoric, it’s business as usual. Who needs risk management when the markets are on fire and you’re looking to shoot the lights out?

I agree with Nassim Taleb, we still have the same disease. And Joseph Stiglitz is right, bank problems are bigger than pre-Lehman. That’s why James Galbraith says forget reform and move to a total restructuring of Wall Street.

But total restructuring won’t happen because every administration panders to the banksters on Wall Street. That is the one thing you can count on. Intense lobbying has totally corrupted the U.S. financial and health care industry.”
.
.
.

http://www.zerohedge.com/article/lessons-learned

#60 Another Opinion (AO) on 09.15.09 at 10:33 am

People in debt do not win. People in debt who cannot afford thier debt (looks like a lot of Canadians) can cause a rippling effect across an entire economy when defaults start happening on mass and I fail to see how defaults will not begin to happen more often.

I think the scariest part about the Canadian Real Estate Market is the mortgage liability home owners are responsible for if they cannot pay thier mortgage. No running away with strategic defaults like in the US. This might be what is delaying the bubble popping and may slow the descent but ’cause and effect’ says it’s going to have a big effect on other areas of the economy.

#61 Bailing in B.C. on 09.15.09 at 10:33 am

Weeping in Windsor on 09.15.09 at 8:16 am
The problem is that the majority of homebuyers today don’t know what a “brick and board bookcase” is.

Nor would they EVER have one in their homes.

I have a cider block coffee table. Mind you, it has a granite top.

But the granite top was left by a tenant.

I got the worlds fanciest cider block coffee table for free!!!

#62 Makeorbreak on 09.15.09 at 10:34 am

http://www.theglobeandmail.com/report-on-business/crash-and-recovery/canadian-home-sales-remain-strong/article1288256/

#63 Live Within Your Means on 09.15.09 at 10:34 am

#33 Weeping in Windsor on 09.15.09 at 8:16 am
The problem is that the majority of homebuyers today don’t know what a “brick and board bookcase” is.

Nor would they EVER have one in their homes.

Ha, ha. So true. Brings back old memories. :-)

#64 Greg W., Oakville on 09.15.09 at 10:42 am

Hi Garth,

Ron Paul, 9/15/09 10min youtube video
http://www.campaignforliberty.com/

You Can’t Solve an Existing Bubble by Creating a New One!

On Tuesday, Congressman Paul appeared on MSNBC’s Morning Joe to discuss the failures of Keynesianism, the true cause of the financial crisis, and the need to end the Fed.

#65 PeckedToDeathByDucks on 09.15.09 at 10:51 am

Resale sales up 18% in Aug.
Housing start forecasts up
Affordability up, they say

party on dudes
:-) going forward :-)

#66 debtfree on 09.15.09 at 10:52 am

josef 14 I have a horrid little pill for you to swallow and that is something that is a dirty little secret that the sixty plus crowd that are living large in their big cars , r.v.’s and snow bird life styles still keeping up with the jones ….. THE REVERSE MORTGAGE……. can’t see myself ever getting one but I know a few that have one and I believe they are the tip of the iceberg . I’m surprised that a light has not been put on those blood sucking cockroaches .

#67 Greg W., Oakville on 09.15.09 at 10:55 am

Hi Garth,

another 6min video 09/14/09

Dr. Paul discusses “End the Fed” on CNN American Morning.
http://www.campaignforliberty.com/#25154

(Tune in at 7:30 AM ET to see John Roberts interview Dr. Paul on the new book (due out Thursday.))

#68 Chris L. on 09.15.09 at 10:56 am

Gee, the G&M is really pumping it up lately!

Canadian home sales remain strong

http://www.theglobeandmail.com/report-on-business/crash-and-recovery/canadian-home-sales-remain-strong/article1288256/

#69 Chaostrology on 09.15.09 at 10:57 am

Chorus:

Happy days are here again
The skies above are clear again
Let us sing a song of cheer again
Happy days are here again

Altogether shout it now!
There’s no one who can doubt it now
So let’s tell the world about it now
Happy days are here again

Your cares and troubles are gone
There’ll be no more from now on
Happy days are here again
The skies above are clear again
Let us sing a song of cheer again
Happy days are here again (jazz hands)

Milton Ager, 1929 (YIKES)

#70 kc on 09.15.09 at 11:05 am

The wheels are spinning again here in Vancouver. These 3 articles jumped out at me screaming this morning as I glanced the “vancouver’s suns” web page…

“A sign of the times — Ritz-Carlton back on track”

closing para… “But lower prices may not be here for long.

“Prices are coming back to where they were and the activity is definitely there again,” McTavish said. “It’s a very healthy market.”

http://www.vancouversun.com/business/sign+times+Ritz+Carlton+back+track/1993809/story.html

Vancouver home sales up 117 per cent in August compared to one year ago

http://www.vancouversun.com/business/Vancouver+home+sales+cent+August+compared+year/1996015/story.html

And then this nasty piece of wake up call to just bring everything into perspective of how much of a BUBBLE it all really is…..

World wealth falls 11%, first drop in almost decade

Return to 2007 levels will take six years: study

http://www.vancouversun.com/business/World+wealth+falls+first+drop+almost+decade/1995710/story.html

cheers

#71 Live Within Your Means on 09.15.09 at 11:10 am

#31 lgre on 09.15.09 at 7:53 am
It still seems like a lot on this board still dont get it, nobody is againts RE, only inflated RE. If you buy at the top you LOSE, unless you are willing to hold for decades.

Also, the average person never ever makes money off RE, the increase they gain they have already paid in taxes, interest and up keep over the years..an expensive way of saving if you ask me..

Igre – To me a house is a home within a community. To me its not an investment that one hopes to make a profit within a few years. I’ve seen the ‘profit’ attitude on our extension of the street and those people who did so never connected with ‘their community’ of neighbours. Most on our end of the street have lived here for around 18-25 years. I believe that our society is made ‘poorer’ by people who only look at a house as a short term investment and as a means of moving on to a larger and more expensive home. Maybe I’m naive.

Igre, I’ve lived in many rentals when younger. As a renter, you’re still paying for all the maintenance, taxes, etc. It’s just hidden in the rent.

#72 R on 09.15.09 at 11:11 am

#4 Darren……WAIT….. With the high flying loonie the interest rate won’t stay low for long. Don’t buy into the b.s. that it will stay low for another year. Over priced garbage at teaser rates. I don’t get it! Don’t trade places with your house rich cash poor friends. That’s not a nice way to live. I know alot of people who have made this mistake and they are not happy. If you are in your 30s you have alot of time . It’s easier to dump a rental unit than to sell a house. WAIT……Watch/Vulch……and sleep at night.

#73 HalifaxFamily on 09.15.09 at 11:13 am

I put that up on our blog yesterday, as I thought it was quite interesting. As a frugalista, that is precisely what we don’t want happening. I guess you can interpret the stats in various ways. One way would be the obvious one – where people can’t make ends meet. The other, which holds slightly less water, is that people are now ‘payment based’ or slaves to the payment schedule.

As a family we buy everything large by saving up cash for it (yes, we don’t believe in using a LOC at all) we don’t really have experience with this other than our weekly payments that go towards the mortgage (our only debt). I expect that if you have payments on things like furniture, appliances, car loans/lease, house (rent or mortgage), other loans, etc, that a missed paycheque sets off a huge chain reaction because everything has a deadline and penalties for not paying by it.

I do think that the survey result indicates reality – that people are living on a razor’s edge – but it is mainstream media, and it does tend to exaggerate. I would really want to see the question, exactly the context and how it was worded, to see if it could have been misinterpreted. If people do have enough to get by in the month, perhaps it’s just the timing of the cheque that is crucial to meet the payment schedules. Still, that suggests a razor’s edge way of living… but causes the article to be interpreted differently.

If anything, this article should be a wakeup call for all of us.

#74 Davinci on 09.15.09 at 11:17 am

Garth said
“I have found it is only the uneducated who make such blanket statements. The alternative to real estate is not just stocks. The bond market is 14 times bigger than the stock market and can build substantial wealth with little risk. There are commodity plays, ETFs, thousands of funds, currency transactions, futures and options, commercial properties and hockey cards. Those people without financial assets or diversification have no idea of the truck that may be heading for them.”

I find that only the incorrectly educated people make statements of someone’s intelligence as proof of the superiority of their incorrect knowledge. A rational argument of reality is not part of their capabilities.

The blanket statement you insulted a commenter on was …

‘Only other alternative now is the precious metals.’

This statement is a an absolute truth since what we use as money is paper created out of debt. When a number of people borrows (creates the money) to buy an asset class they increase the price of that asset class. This distorts the value of that class beyond reality. Once reality sets in prices of that asset class collapse far lower than it’s fair value because of forced liquidation of the asset.

Since Gold and silver have been asset class that have not seen such expanded growth priced in paper it’s meets the classic definition of buying low to selling high.

Finally the multitude of product you suggest hold 2 risks. Counter party risk and the risk that you own a derivative that does not affect the underlying price of the asset. In layman’s terms the holder of your asset could go broke and/or you may not own actual asset such as gold, silver or even a stock or bond, you simply own a bet that it will go up in value.

As our economy contracts and more paper money is printed to bail out failed institutions, the less the paper money is worth. Since people are losing jobs and the economy is producing less, paper money has less places to go for consumption and investment causing prices of everything to rise.

Now you see Garth – that was a rational argument that gold and silver is money. I expect a nice quip about an inconsequential issue of my argument, don’t disappoint. :)

Gold is not money, just as houses are not wealth. — Garth

#75 nonplused on 09.15.09 at 11:17 am

Most important news story of the year. If the judge in this case actually forces the SEC to start enforcing regulation instead of accepting “settlments” (bribes, examples of corruption) the whole thing is going to blow wide open and be exposed for the fraud it is.

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

#76 Onemorething on 09.15.09 at 11:29 am

Garth is stating the facts! If they mean nothing to you then you are lost like most Canadians!

The most interesting gap between the US and CAN is the one of not only the Dive in RE but accompanied by the ability to walk away from the debt. In Canada, you are enslaved to the debt.

Again, only facts and again only disbelief!

Good luck kiddies!

#77 cashman on 09.15.09 at 11:54 am

As a former real estate appraiser, I know this story all too well. In fact I appraised a house in my hometown, 40 mins. north of T.O. last year. It was a 2 storey detached house built into a hill with a 1 car attached garage with a walkout basement on a very busy corner. I must tell you also, that the homeowner was “renovating” at the time of my inspection, but the reno’s were incomplete and the rest of the house was well, not very nicely maintained. When the mortgage broker sent in the deal (the appraisal request) I looked at what the homeowner estimated thier home to be worth, $750K. I couldn’t restrain myself from saying “what’s it made of gold and signed by the queen?”. In other words, I knew going in that this house wasn’t anywhere near the $750k the homeowner thought it was worth. But being a business person, I accepted the deal and took the fee from the homeowner and afterwards I killed it. Not by a mere $10k or $20k but by a whopping $200k! The house was set up as a triplex, however, it was zoned single family residential. I had to appraise it at it’s highest and best LEGAL use and not the illegal triplex use. Subsequently, it went power of sale this year and was listed exclusively, meaning not on the mls, for $699k as a triplex. Weeks went by and no sold sign. It is now listed on the mls @ $479,000 where it now sits, vacant and gathering dust on the open listing market. It has been listed for sale for well over 60 days and counting!

#78 daystar on 09.15.09 at 11:55 am

#4 Darren on 09.14.09 at 10:19 pm

After reading this blog for the past six months I guess one can understand why I’ve held off buying a house all summer. And for that I thank you for the info Garth. I have friends now who bought this summer and are now claiming to be “broke”. Seriously. Haven’t seen them out all summer. My question is this though. My wife and I are in our very early 30’s, we have respectable incomes, make weekly RRSP contributions, but can’t help but feel like we’re throwing money away in rent every month. So when do we get off the sidelines and make the plunge into real estate in Toronto? According to this blog, not anytime in the near future. Any suggestions out there? Any advice would help at this point. Garth? – Darren

I’ll bite, Darren. When interest rates rise, housing valuations will fall, we all know that. Its the timing. Mark Carney has indicated that he won’t raise rates until after June of next year. Bet on rates rising some time over the summer and by half points or higher.

Note that mortgage affordability will begin to collapse if rates rise to 5%. I’m predicting rates to be around 8% or higher within 4 years. What that will do to housing…

If you are on the sidelines in any of the 3 major cities (or cities in general), you will likely have to wait 18 to 24 months to see home valuations come down 30 to 50% from their highs which will most likely peak sometime next spring.

Note that as Re values continue to rise into next spring, Canada will experience (and is now, retail is up, home starts, construction, financials) a wealth effect created by beaming consumer confidence and positive equity created by higher RE valuations. As interest rates rise, the wealth effect becomes the “poverty” effect, as evidenced with the U.S. real estate bubble collapse there. There will be less spending and consumption, fuelling unemployment in this nation. There will also be growing resentment towards those responsible (government). This will end badly for obvious reasons but especially if there is a majority government in power that is fully responsible for this mess and that outcome is quite possible.

#79 Live Within Your Means on 09.15.09 at 11:57 am

#55 Makeorbreak on 09.15.09 at 9:55 am
People aren’t even living from paycheque to paycheque. It is a lot worse than that. They are one paycheque away from homelessness. For too many people, the paycheque is already all spent before it is even cashed out. People are maxed out to the limit. Nowhere else to borrow. Not even on their home.

Makeorbreak – I was in a similar situation about 24 years ago with a Line of Credit and a charge card. Granted it was only $1,500 but I always seemed to be behind the 8 ball. After a 3 week vac. in Europe & taking out a ‘bill payer loan’ I swore I would never charge more than I could pay off at the end of the month. I can happily say that I succeeded. Anything I buy is done with a debit card. Though we lost about 40% (;-()
on our investments, we did not bail out, and I’m starting to see small gains on our quarter statements. Yes, we did change our portfolio to a more conservative one.

#80 Dan in Victoria on 09.15.09 at 11:57 am

I read this post to the wife last night not really totally believing it.Oh oh,did I get straightened out, she is the hr person for a company,she said where the hell have you been,we have gone to job “sharing” a little bit over the past six months she said some of these guys that miss a day every two weeks or so, are panic stricken,and are quite desperate for full hours.I’m still in shock this morning actually.At least we learned to save for a rainy day.This is a ticking time bomb,that keeps having the fuse extended.It will correct,it always does.

#81 Kevin in Winnipeg on 09.15.09 at 11:59 am

“Average price climbs 11.3 pct to C$324,779 from year ago”

Are people insane?? 60% of Canadians living one paycheck away from disaster and there is an 11% increase in house prices. Average household income is $71,900. Unless there is some hidden wealth in Canada I don’t know about, these numbers just don’t add up.

I refuse to go along with this gong show and I am certain I will be the one who will lose out in the end. What is the incentive for being responsible? Buy buy buy!

Ignorance is bliss in this economy.

#82 Al on 09.15.09 at 12:14 pm

#74 Davinci,

You haven’t done anything near establishing gold as money in your post. You explain the obvious; that under inflationary pressures gold can outperform currency, but then so can oil, copper and houses.

Start by defining money. Pick a dictionary, any dictionary and figure out what money is.

#83 lgre on 09.15.09 at 12:18 pm

“Igre, I’ve lived in many rentals when younger. As a renter, you’re still paying for all the maintenance, taxes, etc. It’s just hidden in the rent.”

It’s not againts the law to buy and sell property, I have bought and sold several in the last 5 years and made a bundle. Now, I rent a 1 bdrm+den for $1060 with 2 parking spot and all utlities, including A/C in Miss/Oakville. As for the community, that is long gone, if those are your hopes, I think you will have a lot of dissapointments along the way.

When I was looking at renting, friends looked at me like I was crazy given my financial situation. Now, they understand as my rental costs me $500 less then their condos on a monthly basis. All I put down was first and last, while they dropped 10’s of thousands. With $500 you can take a 7 day all inclusive trip in a 4 star hotel with a last minute deal…and do it monthly, now try to beat that.

on an other note, just because you dont consider it an investment it dosent mean that you have to over pay for it and become a bank slave at the same time..

I always had this weird idea that,my money should be doing the working not me..but, most would rather rely on the man and bust their ar$e 50 hours a week just to make it. Sorry, cant convince me.

#84 Blobby on 09.15.09 at 12:19 pm

@hal smith: Yes I remember the Dot Com bust.

It was when something became so hideously overvalued and bubbled like, that a lot of people put ALL their eggs into one dotcom basket and invested soley in it – so that when it crashed it a lot of people lost everything

Obviously you dont remember it, or you wouldn’t think real estate is the best and only investment in the world.

BTW – I’m English, relatively new to Canada.. What on earth do they teach kids in school out here? Obviously not maths!

#85 PVC on 09.15.09 at 12:32 pm

Dear Garth,

For your bond education I suggest you start reading Bill Gross’s Outlook letter from Pimco.

So, you don’t get too hung up on just the rudementries of the bond investing.

here’s the link…

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+July+2008.htm

That actually has nothing to do with bond investing. American, too. Try harder. — Garth

#86 DonkeyPunch on 09.15.09 at 12:47 pm

#4: Darren, when you can purchase real estate on one of your salaries (don’t include both of your salaries into the calculation) that costs approximately 3 times that salary, it is a reasonable cost.

Why one salary? You never know whether your wife will want to stay home after having kids, whether one of you will become unemployed, et cetera.

Unless condo fees are ridiculously expensive, you can sustain a 40% gross ratio of housing costs (mortgage/utilities/property tax) to salary with a 3xsalary multiplier … and if you happen to have two salaries at that point, it’s a complete bonus because you can continue to support RRSP payback and pay down your mortgate faster.

3 times average household income also happens to be the longterm average price of housing in most neighbourhoods. In most Canadian cities, a single-family home is still running at 5-6 times average household income, and we’ve been stalled on regressing back to the average by once-in-a-lifetime interest rate deals.

Once interest rates stop scraping the bottom of the barrel (and the boomers start selling), most neighbourhoods in Canada will rapidly regress back to the 3 times average household income. They’ve almost got there in the US, but we’ve probably only undone 15-20% of the bubble here in Canada. Have faith, and rent unless you can find a cheap townhouse that you’d be happy to live in for a few years while those people with single-family homes watch their investments evaporate.

Disclosure: I do not practice what I preach. I own a sfh in a Canadian bubble city. If I thought I could convince my spouse to sell, I would.

#87 TheComingDepression on 09.15.09 at 12:58 pm

I see why you did allow me the link to my site after I found that article yesterday…
Many may want to look at the Unemployment rate chart of CANADA here its SCARY:
http://thecomingdepression.blogspot.com/2009/09/majority-of-canadians-are-paycheck-away.html

#88 PVC on 09.15.09 at 1:04 pm

Bonds can default physical gold can’t.

GoC bonds do not default, never will. Now tell us about the income stream from gold. — Garth

#89 Live Within Your Means on 09.15.09 at 1:05 pm

#73 HalifaxFamily on 09.15.09 at 11:13 am

Hi HF, we also buy in large quantities when I see a really good sale. Unfortunately, I sometimes forget that I bought 8 cans of tomato sauce during the spring & go out and buy 2 tins for 50% more (which happened yesterday). :- ( I have pantries upstairs & in the basement.

I talk to one of my sisters daily who tells me what’ s on sale at Sobey’s & Stupid Store. But, she & her DH live from Ck to Ck (actually CPP & OAS & a small vet’s pension) and can’t afford to take advantage of sales. Their own fault as they have always lived beyond their means. Family & friends gave up years ago trying to talk sense into her. I also have another sis who’ll be putting their house on sale. She lost her job on Jan 4/09 & was 12 hours short on EI tho had worked for 32 yrs & never claimed EI. Her DH hasn’t worked for 2 years except as a sub teacher (without qualifications) in a very dysfunctional area of Mtl. He’s fluently bilingual, my sis is not. They lived for 2 years on an inheritance & it has run out. Right now my sis & I are not on speaking terms as I said what was on my mind re her husband & their lifestyle. I & my husband did research, offered as many positive suggestions as we could but met a blank. Unfortunately, my BIL has always been someone who likes to put on the dog – spending $80. for a prime rib roast – when they invited a couple over for dinner. My sis was apparently suicidal this summer – so I’ve heard. I’ve tried to help so many times but I meet a blank wall. We helped them financially years ago but they blew it on a f’n bedroom suite! Sorry for my rant. I dearly love my sister – but .

#90 Investx on 09.15.09 at 1:07 pm

Darren:

” So when do we get off the sidelines and make the plunge into real estate in Toronto? According to this blog, not anytime in the near future. Any suggestions out there? Any advice would help at this point. Garth?”

End of year may be good. Back in March, Garth said RE prices would be lower by Christmas (then they were in March). Not sure if he still maintains this, though.

#91 Makeorbreak on 09.15.09 at 1:10 pm

Ireland, a ghost town?

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aDNRNO_7POaI

#92 Dean on 09.15.09 at 1:18 pm

It’s sure easy to criticise people in their 20’s. I feel sorry for them. Renting or buying in this market sucks. Getting educated costs you a fortune and there are no jobs anyway. Your two options appear to be to live in your parent’s basement, or above their garage.

#93 John Warnock on 09.15.09 at 1:25 pm

Not the right time to buy. Rent.
I have a friend now 40 who desperately wants to buy a house in Regina. Fortunately for him, he does not have enough income. He has a “good job” — union protected, in the Superstore, and makes $16 an hour. But like all people in this industry, he can only get 27 hours of work per week. So no mortgage company will give him a mortgage.
I have urged him to keep renting. Sooner or later the Canadian housing bubble has to break, as it has in all the other advanced capitalist countries. The problem in SK is that there is nothing to rent. There are fewer social housing units available than 10 years ago, as the government has been selling them off as need increases. Very few apartments have been built in the past 15 years, all at the high end. “Affordable” apartments were bought by Boardwalk after rent controls were eliminated by the NDP government; they did splash redecorating and raised rents substantially. The city governments no longer do city planning; it is now done by developers. Thus, no apartments were required in new development areas. Only condominiums are being built.
So one of the real serious problems in Saskatchewan is no place to rent, and with landlords dramatically increasing rents. This has helped to boost the price of homes on the market to generally unaffordable levels.
But affordable housing is a requirement for the economy to work. Everyone needs housing. A recovery from the Great Recession, even in Canada, requires a major correction in the grossly inflated prices of houses. As Garth points out, this will happen when interest rates start to rise again and people can’t make ends meet. The only alternative is deflation as in Japan after 1989, with the central bank keeping interest rates near zero.

#94 molson cdn on 09.15.09 at 1:26 pm

Garth,
i catch up and read all of your thoughts, every 3/4 days.

You missed the boat about the house at bathurst and bloor. great area. this house had mutiple offers-went over asking. its all about location, location , location.

remember-you need 3 requirements in this life. 1)food 2)shelter 3)clothing.

i hope everyone in caledon votes you in; i would like to see what changes you will make. pucker up those lips for the *ss kissing your about to do.

one more thing- a suggestion; maybe you could model yourself after micheal moore with a canadian theme. travel to exotic distant places ,meet exciting new people and laugh at canadian home owners.

#95 Live Within Your Means on 09.15.09 at 1:47 pm

#83 lgre on 09.15.09 at 12:18 pm
“Igre, I’ve lived in many rentals when younger – Mtl, Ottawa, Hfx. . As a renter, you’re still paying for all the maintenance, taxes, etc. It’s just hidden in the rent.”

It’s not againts the law to buy and sell property, I have bought and sold several in the last 5 years and made a bundle. Now, I rent a 1 bdrm+den for $1060 with 2 parking spot and all utlities, including A/C in Miss/Oakville. As for the community, that is long gone, if those are your hopes, I think you will have a lot of dissapointments along the way.

When I was looking at renting, friends looked at me like I was crazy given my financial situation. Now, they understand as my rental costs me $500 less then their condos on a monthly basis. All I put down was first and last, while they dropped 10’s of thousands. With $500 you can take a 7 day all inclusive trip in a 4 star hotel with a last minute deal…and do it monthly, now try to beat that.

on an other note, just because you dont consider it an investment it dosent mean that you have to over pay for it and become a bank slave at the same time..

I always had this weird idea that,my money should be doing the working not me..but, most would rather rely on the man and bust their ar$e 50 hours a week just to make it. Sorry, cant convince me.

Igre – I never said it was against the law to buy & sell RE. You’re obviously single. Do you actually know your neighbours. No, I’m not disappointed living where I do. I’ve lived here for more than 18 years & have a great relationship/social one too with my neighbours. For us, our houses are homes more than strictly an investment. Sure they’ve risen in value, but what’s the purpose of selling if one ends up paying more in another ‘hood’ for a home less well built than we currently have. Plus, we’ve got lots of trees & property. We’d end up paying the same for half as much as we have here – smaller lot & home. When my time comes to sell, I’ll move to an apt. not to a condo – been there – too many restrictions, plus high condo fees.

#96 Albertaboy on 09.15.09 at 1:52 pm

People in Edmonton who bought at the top of the market (1981-82) did not recoup their money until 2002 or later. It’s not that RE is a bad investment all the time, its that – like all things, its cyclical and right now it would be a bad decision to purchase RE. In 10yrs time when interest rates are where they should be, RE may be a much more attractive option, but not now. A prime example is my neighbor who had a builder build him a home in 2002. He paid $177,000. The builder today wants $475,000 to build the exact same house.

#97 Live Within Your Means on 09.15.09 at 1:56 pm

A PS to my previous #93 post which didn’t allow me to write more. ??? I live in the M’times – HRM. I rented many places when I lived in Mtl & Ottawa when I was young.

#98 Jonas on 09.15.09 at 1:59 pm

#90 – there is no way in H.E. double hockey sticks Canadian real estate will be lower in December than it was in March. Every province is at an all time high TODAY except for Alberta which is very close. I will go as far as to say that by March 2010 it will be another 5-10% higher than it is now. The bears have been blowing this horn for 7 years and have been wrong all along. Garth, an updated prediction is in order.

#99 Subversive on 09.15.09 at 2:03 pm

For all of the obviously housing obsessed folks posting on this blog, all I have to say is what about living life for today? Why would anyone want to spend the best years of their life a debt slave, tied down in some suburban nightmare? When did a house become the central pillar of ones life, where all of ones time and energy and money are dumped into?

Talk about blanket statements. Everyone buys houses for different reasons. Me, I just moved from Calgary to a small town within commuting distance. I still paid a lot for my house by some standards ($350k, with $84kdown) but I got a lot more house than I could have for the same amount in the city. As well, we now live a 5 minute walk from the grandparent’s house, have easier access to pools and libraries, and I have yet to read a news story about a gang related killing in town. The biggest challenge is the 18 year old kid and his loud Camaro on the street. I’ll take that in a heartbeat over the scary stuff happening in the city every week.

I have to live somewhere, and I choose to own. Moreover, I choose to own in a specific place. There are number of reasons, none of which relate to an investment. I would rather be free to modify the house as I see fit, have the ability to some day own it free and clear, and have the sense of permanence that I’ve never been able to feel when renting. Stop lumping all home buyers in together. There are lots of valid reasons to buy a home, even if everything Garth says is true.

#100 Devil's Advocate on 09.15.09 at 2:10 pm

#88 PVC on 09.15.09 at 1:04 pm
Bonds can default physical gold can’t.

GoC bonds do not default, never will. Now tell us about the income stream from gold. — Garth

Never say “never”… We do live in interesting times after all.

In this case never means never. It will never happen in your lifetime. — Garth

#101 Devil's Advocate on 09.15.09 at 2:13 pm

If you had a stash of gold, which you bought for $600.00 an ounce, burried in your back yard and it rose to $1,600 an ounce. or more, would you pay a capital gain tax on it? I’m sure the CRA could find good arguement that you ought to… but would you… would the CRA even know?

Depends where you liquidate it. Banks report. — Garth

#102 Investor on 09.15.09 at 2:13 pm

Davinci,

Well Alan Greenspan was a big fan of Ayn Rand.

Well if paper currency is gone how are you going to value gold?

#103 Barb .. a reader in Calgary on 09.15.09 at 2:23 pm

Garth,
My neighbours are your typical “Bad Idea” people. Their house has been for sale 6 months. I kidded that they are looking for a ‘greater fool’ but then she laughed and said that they had been the greater fools buying 3 years ago. Now they are asking $100,000 less than they invested. They are focused on retirement in a handful of years and decided to unload right now to protect what remains for that.

#104 Barb .. a reader in Calgary on 09.15.09 at 2:42 pm

because everything has a deadline and penalties for not paying by it
— #73 HalifaxFamily

“Frugalista”, I enjoyed your site! I’ve also got a tip..

An Airdrie family asked their lender how much the penalty would be for selling their home before their mortgage was paid off. They were told it would be $6,000. When their home sold they instead had to pay more than $15,000. Their mortgage contract had given the lender the right to use another formula.

TIP:
Protect yourself from prepayment penalty shock by getting a payout quote, in writing, from your lender stating exactly how much you’ll have to pay.

#105 jess on 09.15.09 at 2:53 pm

jobless recoveries ….what is FULL EMPLOYMENT ?

1nd Session, 35th Parliament,
42-43 Elizabeth II, 1994

The House of Commons of Canada

BILL C-209

An Act to provide for full employment in Canada

Preamble
Whereas all federal economic and monetary policy has an impact on employment;

And Whereas chronic high unemployment represents an unacceptable waste of both human and economic capital;

And Whereas full employment should be the primary economic goal of the federal government;

Now, Therefore, Her Majesty, by and with the advice and consent of the Senate and the House of Commons of Canada, enacts as follows:

#106 PVC on 09.15.09 at 3:05 pm

What Garth Doesn’t Want You to Know

Gold is money.

http://www.e-gold.com/

When PetroCan and Sobey’s trade product for bullion, it’s money. Until then, rocks. — Garth

#107 blobby on 09.15.09 at 3:15 pm

I’ve always lived with my means, I’m 33 and have 6 figure number in savings/investments.

But sometimes I wonder – Why live within your means? We all know the government will bail out the idiots who overborrowed sooner or later.

#108 Calgary_Rip_off on 09.15.09 at 3:28 pm

Hi Garth.

Here’s the latest garbage from the Calgary Herald. These realtors sound like they are selling hamburgers at mcdonalds.

I hope your predictions come true about the interest rates. It will screw these idiots to the wall and all the other fools who support this overpriced housing crap.

http://www.calgaryherald.com/business/National+home+resale+posts+largest+gain+years+CREA/1995922/story.html

#109 JET on 09.15.09 at 3:31 pm

Multiple offers being the norm nowadays in Toronto is simply not normal, just insane. In a normal market even if it is rising, you wouldn’t see crazy multiple offers like today (even worse than 2007!) Herd mentality = bubble.

#110 OttawaMike on 09.15.09 at 3:33 pm

I’m so confused. The “weathermen” are predicting everything from blue skies here on in:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a1NlKf1b_GjY

To hurricanes and tornadoes for years to come.
Who’s got it right and why does anybody even pay any attention to economists anymore?

http://www.ft.com/cms/s/0/e6dd31f0-a133-11de-a88d-00144feabdc0.html?nclick_check=1

#111 Barb .. a reader in Calgary on 09.15.09 at 4:11 pm

#95 Live Within Your Means, we too, enjoy knowing our same neighbours of 28 years, enjoy our 60-year-old well-built albeit small home, large lot and mature trees. We rented the first decade, then bought. I didn’t plan it, it just happened, but I’m glad we’re so settled. We can sell our home for ten times it’s purchase price, but won’t. Money can’t buy what we have.

#112 BillMuskoka (NAM) on 09.15.09 at 4:28 pm

Thanks to INFLATION this the ECONOMIC REALITY it created. Kill all the economists, er, wasn’t that lawyers? Oh, same genre of scumbags who lie, cheat, and steal to manipulate the public.

Now you know how that surrey horse fells as it mistakingly took one step after another always believing that the carrot would be its reward.

#113 BillMuskoka (NAM) on 09.15.09 at 4:31 pm

#111 Barb .. a reader in Calgary

Ah, you have the Secret that makes life worth while. Live long and prosper!

#114 PVC on 09.15.09 at 4:35 pm

$5,000/oz gold? Rob McEwen says it’s coming in 2014 or 2015

http://www.mineweb.com/mineweb/view/mineweb/en/page31?oid=89220&sn=Detail

#115 jess on 09.15.09 at 4:43 pm

sign of the time
September 15, 2009

By David Stringer
LONDON — British Prime Minister Gordon Brown acknowledged for the first time Tuesday that hard economic times will mean substantial cuts to government spending on the country’s already strained public services.

#116 lgre on 09.15.09 at 4:46 pm

#95 Live Within Your Means on 09.15.09 at 1:47 pm

I dont stay around long enough to get to know my neighbours, to me life is an adventure..living in the same place for 18 years is boring. I have my friends who I sociallize with and people I meet along the way. knowing my neighbours is a bonus, but not something I strive for, and deffinately not something I would consider when it comes to making financial choices. I wonder how many of your neighbours would bail you out if needed. The answer =0

#117 Sue on 09.15.09 at 4:50 pm

#66 debtfree –

There is an interesting article in the September 2009 issue of Consumer Reports in regards to reverse mortgages, who declares that they are poised to be the “next financial fiasco”. As you say, there are many seniors that were talked into these products, not fully aware of how they worked (high fees and interest charges). Many are now suffering tremendously, and taxpayers are being tapped to subsidize potential losses brought about by the real estate downturn.

Garth, weren’t you a proponent of reverse mortgages not that many years ago? I seem to remember something to that effect. A risky proposition, no?

#118 T.O. Bubble Boy on 09.15.09 at 4:50 pm

Garth – the one factor I don’t see mentioned here is how long (post-retirement) the average boomer would wait to sell.

I think that a lot of boomers see cashing out of their house as something they’ll only do as a last resort. They are comfortable in their home, and won’t move unless it’s for a medical reason (e.g. they can’t get up and down the stairs, can’t get home care, etc.)

Also, if they need to get income from their house, a reverse mortgage seems like an equally likely scenario to selling.

So – the only way that the boomer retirements are as big a factor as you are suggesting is if most boomers sell immediately at age 65 vs. waiting until age 75 or 85 or doing the reverse mortgage for income.

Also — I think that general affordability will kill the real estate market far before the boomer sellers even get a chance to cash out. From what I can see, all signs point to either mild inflation in Canada (due to rising prices of oil/commodities), or hyperinflation (reaction to insane public debt levels)… both of those scenarios mean higher interest rates, which automatically should reduce house prices. This should happen within 1-2 years MAX vs. 5-10 years for the boomer sell-off.

#119 Bilbo Bloggins on 09.15.09 at 5:52 pm

Okay bulls. How is it not a bubble when everyone who is buying is expecting prices to be higher.

They ALL believe that if they don’t buy now, they’ll be “priced out forever”.

In their minds, they will be able to sell it to someone else down the line for a higher price.
Just that mindset alone already tells you there’s absolutely no justification for current prices.

What happens when you run out of these people who are coming behind you to buy from you at a higher price?

Can you say house of cards?

#120 Jody on 09.15.09 at 6:01 pm

“Gold is not money, just as houses are not wealth. — Garth”

Paper is only money when people agree it is, when the US dollar goes tits up and the Canadian dollar follows suit I want to see you buy some food with your now worthless fiat currency. Ever heard of the Weimar republic? Gold and silver denari were used in ancient Rome, hello? NWT mint has began to offer silver that you can break apart for purchases. I pay seasonal help in silver maple leafs, I bought 2 lambs and 1 calf for two 1/2 ounce gold maple leafs, that is how I do business on my farm if people accept it, sure, not everyone does, in fact the majority don’t, but a few years ago none of them would, now some of them do, the smart ones anyways. I understand the problem of breaking metals up into viable units, but if a currency is metal backed you don’t need to lug metal around, which we already do, you know, those things called loonies and twoonies, they get pretty heavy. You can always have silver built right into paper currency. You have never responded to the question of having multiple competing currencies in one country Garth.

Pre-war Germany. Ancient Rome. Very convincing. In this lifetime, money is money. And it isn’t gold. — Garth

#121 jess on 09.15.09 at 6:35 pm

I do not understand how a company can be so far behind on it’s taxes and yet claim to be booming?

Sept. 15 (Bloomberg) — New York state made claim for $1.2 billion in taxes, interest and penalties from Lehman Brothers Holdings Inc., the investment bank that filed the largest bankruptcy a year ago.

The demand was made in a claim received Sept. 10 by the bankruptcy court in Manhattan that is overseeing Lehman’s case. The state is seeking payment for tax bills dating to 1994, according to the claim form.

New York-based Lehman owes $393 million in tax and interest for the 2003 tax year and $387.9 million for 2007, according to court papers.

New York said it has $1.09 billion in “unsecured priority” claims and $131 million in “general unsecured” claims against Lehman.

New York City previously filed a claim for $627 million in taxes, interest and penalties against Lehman and said the bank must pay the amount in full before giving money to other creditors.

Lehman owes about $414 million in corporate taxes, plus $201 million in accumulated interest from 1996 through 2008, the city said in the claim filed June 1 in U.S. Bankruptcy Court in New York.

Lehman filed the biggest bankruptcy in U.S. history with assets of $639 billion.

#122 Nostradamus Le Mad Vlad on 09.15.09 at 6:52 pm

Loadsa stuff today, but one thing of interest was Nilus Mattive’s article on Money and Markets — http://smallsizeurl.com/plan/ .The first sentence was curious . . .

“. . . corporate pension plans before, but in a few short weeks I think we’re going to get some shocking news.” The words ‘in a few short weeks’ stand out, and it would have been helpful to know what he means, whether fiscally or politically.

Of course, the report deals with US pensions, but the fall-out may have much wider implications (could cover Cdn. pensions, too).

As plenty of US financial blogs have stated, American Social Security is unfunded (or words to that effect). What of CPP / OAS / GIS?

Another is a local guest column in today’s KDC by David Bond (Economic Letter). Bond is a retired chief economist with HSBC (email [email protected] ).

The headline is straightforward for those who know a little common sense: “Only tax hikes can slay deficits” (not including overall debt), so I guess we know where taxes are going (next year).

Then he puts reality into play by stating that The Tooth Fairy may actually be in charge of the BoC, and it makes sense compared with who is there now.

Consider: If Tinkerbell, Captain Hook, The Seven Dwarfs (Cinderella is on maternity leave for the foreseeable future), The Three Musketeers and others actually RAN this country, it would be fairly stable, a feasible option.

#123 Live Within Your Means on 09.15.09 at 6:57 pm

#107 blobby on 09.15.09 at 3:15 pm
I’ve always lived with my means, I’m 33 and have 6 figure number in savings/investments.

But sometimes I wonder – Why live within your means? We all know the government will bail out the idiots who overborrowed sooner or later.

…………..

Because I could sleep well, not worrying about how I’d pay the next bill that arrived in my mailbox.

#124 Webster on 09.15.09 at 6:58 pm

#49 John
“Why is making your own diner an insurmountable problem for some people?”

Maybe the same reason that spelling correctly is an insurmountable problem for you. Live and let live.

#125 Live Within Your Means on 09.15.09 at 7:02 pm

#116 lgre on 09.15.09 at 4:46 pm
#95 Live Within Your Means on 09.15.09 at 1:47 pm

I dont stay around long enough to get to know my neighbours, to me life is an adventure..living in the same place for 18 years is boring. I have my friends who I sociallize with and people I meet along the way. knowing my neighbours is a bonus, but not something I strive for, and deffinately not something I would consider when it comes to making financial choices. I wonder how many of your neighbours would bail you out if needed. The answer =0
……….

Each to his own Igre. I wouldn’t look to my neighbours to bail me out. I’ve enough financial security not to have to worry. But, they’ve been great support in my battle with cancer.

#126 john m on 09.15.09 at 7:06 pm

Borrow,borrow,borrow beg borrow and steal to get a down payment and approval- get every dollar of your cash out there in the economy—thats the policy of our present government for recovery……when 59% of our population can not survive a week with out a pay cheque it gives a pretty damn clear picture of where we are headed!Its not only real estate its every damn thing in the house and in the driveway that requires a monthly payment. We are going down…things are not getting better for the average Canadian,jobs are still disappearing,UI benefits are running out,winter is coming.As a previous poster stated the US will recover long before us, we are just following in their footsteps with one huge difference–our powers that be never learned by there mistakes.The US and other countries own our resources for pennies on the dollar—so when recovery comes who will be the first to prosper? This will not end well….in fact any one with any sense of awareness knows things are not well now. IMO

#127 Live Within Your Means on 09.15.09 at 7:17 pm

#111 Barb .. a reader in Calgary on 09.15.09 at 4:11 pm
#95 Live Within Your Means, we too, enjoy knowing our same neighbours of 28 years, enjoy our 60-year-old well-built albeit small home, large lot and mature trees. We rented the first decade, then bought. I didn’t plan it, it just happened, but I’m glad we’re so settled. We can sell our home for ten times it’s purchase price, but won’t. Money can’t buy what we have.

Hi Barb (the Proofreader :-) Agree wholeheartedly. When we bought our current home we didn’t think about living here for the rest of our lives. Three years before I retired my hubby landed a good job 10 minutes away from home. We’re happy here so why would we consider moving. Our house might be worth 2-1/2 X what we paid for it. Just a guess – might be worth more. Its small in comparison to the McMansions at the end of our street, but we don’t need more space for me (:-)) to clean.

#128 pjwlk on 09.15.09 at 7:32 pm

#31 lgre on 09.15.09 at 7:53 am said:

“Also, the average person never ever makes money off RE”

I put together a spread sheet of all my expenses related to owning the (Oakville) house that I sold in Aug 2007. Bought it for 160 in 92 sold it for 365 in 07 but paid somewhere around 370 when I had everything figured in. Although it seems like I doubled my money, in reality it was nothing more than a forced savings plan where I just got to keep my money.

#129 pjwlk on 09.15.09 at 7:46 pm

#54 Jonas on 09.15.09 at 9:53 am said:

“At the end of renting for 35 years you have nothing, at the end of owning for 35 years you have a house free and clear that is probably worth much more that it was 35 years ago. ”

Having nothing that the end of 35 years of renting would be “largely your own doing” as well. Saving & investing the difference between renting and owning is the key to success. Most people however spend everything they make so you’re not alone at least…

#130 David Bakody on 09.15.09 at 8:03 pm

I was in to the bank setting up a TFSA and over conversation mentioned to the person that I have no mortgage and perhaps I should buy a larger sailboat,
(just a thought) and she said perhaps you should buy another bigger home! I made no comment and changed the subject. Y’all see how it works, even the financial people who should be working with people to help remove financial stress and keep it that way are now in the house selling mode.

#131 * Is this the Govt's plan? on 09.15.09 at 8:14 pm

Let’s look at the future problem in reverse: How/What will the govt deal with retiring baby boomers that cannot support their retirement/health/lifestyle?

The govt has to find a way to keep them off welfare, or else the system goes bust.

If they all sell their homes in order to generate the cash they need to survive, how will the govt prevent a freefall in housing prices?

Infaltion alone will obviously not help, unless there is is a buyer for their home.

Will the govt. allow housing to tank, similar to the US, hoping to re-build it slowly?

Will the govt. dramatically increase immigration, hoping to find buyers for the retired baby boomers? If so, added benefits are more tax revenues to the govt (which would help fund the expanding medical care)

Will the govt become landlords, ie buying the home and renting it to the former baby boomer owners? Govt. intervention to support housing prices (govt benefits from increased taxes and increased property taxes). If so, the govt would have to fire up the printing presses, resulting in further inflation. The govt may also rationalize it by saying it’s an alternative to building new nursing/retirement homes.

Any ideas people? Garth?

#132 Jonas on 09.15.09 at 8:41 pm

#129 pjwlk

Where did I say I was spending everything I was making? What a mindless assumption. In reference to a house only… at the end of 35 years of renting a house what do you have? nothing. At the end of a 35 year mortgage that you paid for what do you have? A house. That is probably worth considerably more 35 years from now. As an fyi, not that it is any of your mindless assuming business… I save and invest roughly 30% of my income.

#133 X on 09.15.09 at 8:42 pm

Funny how the TSX seems to be heading for the moon lately. Personally I don’t think it is warranted. Not much has really changed in regards to the banks debt/leverage levels, the real difference is moreso in consumer confidence of the markets. If I were to argue that I felt the TSX could fall to 8000, or the DOW to 6000, most people would hear my explanation and wonder if it could be true.

But to tell someone that their house could actually be worth less in the future. Inconceivable. Too many people think these low rates are the norm, and all they know if rising house values. Especially when all they own is in that house.

Perhaps we should receive more US news up here.

And really the TSX at 11,500. Whatever happened to realistic P/E. The market is supposed to rise about 6 months prior to the real economy, but in 6 months do you really think we will be out of the woodwork?

#134 PVC on 09.15.09 at 8:49 pm

Pre-war Germany. Ancient Rome. Very convincing. In this lifetime, money is money. And it isn’t gold. — Garth

How naive and close-minded can Garth get.

Gold is insurance on money. So, it is in fact more valuable than money because it protects money from loss.

That’s why Greenspan calls it “the ultimate money”

Notice Garth didn’t respond to Greenspans take on gold is money. Because it’s beyond his range and pay grade.

When you can carry on an argument without descending to personal attacks, you can come back and play with us. — Garth

#135 X on 09.15.09 at 8:54 pm

Future Megatrends as per zerohedge:

http://www.zerohedge.com/article/guest-post-economic-megatrends-will-drive-our-future

I might want to add another megatrend – true value of natural resources is realized.

#136 taxpayer like you on 09.15.09 at 9:21 pm

113 Bill “Live long and prosper”

Indeed captain. Curious creatures these humans with their real estate. So emotional……

#137 $fromA$ia "Garths Nugget Boy" on 09.15.09 at 9:36 pm

What do you say Garth?

Real estate is still going up and Gold isn’t $500…

You know I just was thinking, you can take a mortgage out for Real Estate but you can’t take a mortgage out to buy GOLD, STOCKs or anything else. Thank goodness the blind sheep are priced out of something. Is there no common sense in this country?

Money borrowed to buy investment assets is 100% tax-deductible. Money borrowed to buy houses must be repaid in after-tax dollars. — Garth

#138 "Gord" in Chinglish on 09.15.09 at 9:41 pm

PVC is your name = pipe dream on gold at $5000.

#139 oblio on 09.15.09 at 9:44 pm

# 16 Marina – life’s good where your real friends are. In a way, I envy you. Good luck!!!

#140 Basil Fawlty on 09.15.09 at 9:56 pm

“When PetroCan and Sobey’s trade product for bullion, it’s money. Until then, rocks. — Garth”
Wrong, then it’s also a currency, while remaining money. Every currency in history has reached it’s intrinsic value of zero and disappeared. Gold has remained money for 5000 years and continues to represent a store of value. The US currency has lost 96% of it’s purchasing power since 1913, and yet you call gold “a fetish”?

No, just you. — Garth

#141 taxpayer like you on 09.15.09 at 10:09 pm

Garth @137

“Money borrowed to buy investment assets is 100% tax-
deductible. Money borrowed to buy houses must be
repaid in after-tax dollars. — Garth”

Just to clarify Garth (I know it’s late 4U) the actual
money borrowed is paid back apres-tax for investments
as well n’est-ce pas? It is the interest that is paid with
before tax $$.

What else would be deductible but interest? Must be yesterday where you are. — Garth

#142 debtfree on 09.15.09 at 10:16 pm

thanks sue I have been wondering why the reverse mortgage has been ignored on this blog ……..and politicos think we have short memories ….. now with the internet we don’t need memories at all . just a mouse .

Reverse mortgages have been ignored because they are a bad idea. — Garth

#143 steven rowlandson on 09.15.09 at 10:25 pm

What we need in Canada and the northern united states is a major ice age to set in soon. That way all this worship of real estate values, political correctness and funny money will be rendered useless and buried under miles of snow. End of story! What will count is survival and hopefully with a bit of style.
Steven

#144 Jan Etter on 09.15.09 at 10:29 pm

As logical as Garth’s argument for diversification may be, I think there’s very little risk that any significant number of Canadians will see the light and reallocate the weightings of their principal residence in their overall asset allocation, including myself. While many on this blog are able to treat real estate like any other asset that would be classified loosely as an “investment”, by the very nature of the type of people attracted to this blog, that viewpoint is overrepresented here as compared to the population at large.

The general population places a premium on particular human needs that overrides the need to accumulate wealth which would be more likely achieved through proper asset diversification. For example, the recent comments re neighbours and neighbourhoods highlight the importance and durability of those basic human needs for community, friendship, stability and security which will, for the majority of people, outweigh any otherwise rational behaviour to not concentrate their wealth in that one asset that can provide that sense of community, friendship, stability and security. Certainly some derive the greatest utility from the financial security of diversified assets but most would not.

As an extreme example, I could, in a matter of weeks, achieve the suggested maximum 40% principal residence allocation, but that would mean moving from my good neighbours, good school and great house to not-as-great neighbours, not-very-good school and not-very-nice house. Similarly, if one is sitting at 40% but the mortgage lending regime of the day allows one to move to an even “better” neighbourhood with a greater sense of community, friendship, stability and security, the vast majority will throw asset allocation to the wind and seize the “opportunity” to greater indebtedness.

And this is why people will reap what they sow. — Garth

#145 debtfree on 09.15.09 at 11:07 pm

That’s too lazy an answer …like saying 40, 35 , no down payment is a bad idea . No need to say more .

#146 Another Albertan on 09.15.09 at 11:10 pm

#135/X:

As another Garth commenter (the former HK Kid) will attest, these are essentially the same trend that Gary Shilling has been espousing in his newsletter for quite a while.

In regard to your natural resource valuation comment, we are likely entering a new era where mercantilism will be a very interesting option for many goverments around the world.

#147 Blobby on 09.16.09 at 2:19 am

Why is everyone here so obsessed with gold?

Surely the smart money is in oil? (and a well diversified portfolio).

I dont understand anyone who puts ALL their money in one investment – be it property, gold, oil or the dotcom boom.

I mention the dot com boom as an example of what can happen…

#148 WillsDad on 09.16.09 at 2:26 am

In this city, most people are employed. Many women stay home or have a mother or mother-in-law take care of the children, negating the need for daycare.

House and apartment purchases require a 50-70% mortgage. Most couples have their house paid off in under 10 years. Low cost housing is readily available. A friend just rented a good size apartment for $350/month.

Children have their university (which is very expensive) paid for by their parents. It’s the cultural expectation, and most children go to university.

People eat out frequently, and it a tasty, nutritious meal with great service (and no tipping!) is $5-10.

Health care is very affordable. A trip to the doctor is $3. No appointments necessary to see a specialist. A scaling at the dentist is around $50.

Most families have a relatively new car. Old cars are almost unheard of here. You never see rusty cars.

Subways, buses, taxis are ubiquitous and cheap. $1 for a subway or bus ride, $3 for a 10 minute cab ride.

Where is it? Korea of course. Something to think about Canadians…

#149 Future Expatriate on 09.16.09 at 4:26 am

#120 – Pre-war Germany. Ancient Rome. Very convincing. – Garth/i>

Garth, agreed Canada is NOT Pre-war Germany. Nor ancient Rome.

It just happens to sit right next door to them. Put together. There is no greater analogy right now between the US of today and pre-WWII Germany on the cusp of Hitler. Unless it would be the wane of Rome.

Call Canada Austria. If it’s lucky, and very very lucky, perhaps Switzerland.

#150 Basil Fawlty on 09.16.09 at 8:05 am

“No, just you. — Garth”
Tell that to the Chinese, who are giving up US “money” for gold mines.
What a fascinating time to be alive!

#151 Barb the proof reader on 09.16.09 at 1:12 pm

“but we don’t need more space for me :) to clean”
#127 — Live Within Your Means

Exactly! (Unless we win the lottery and can afford a housecleaner!)

“you have the Secret that makes life worth while.
Live long and prosper!”

#113 — Bill Muskoka

And Bill you have more of the secret. I remember several months ago both you.. and.. uh, I think it was another post from.. “Irene”? both mentioned your contentment with your homes and decisions and why and how you made your choices.. it gave me a refreshed perspective about the joys of a simple life that we are so lucky to know.

#152 "Gord" in Chinglish on 09.16.09 at 10:02 pm

#148 Willsdad

I lived in a different Korea than you know. Painfully brutal bus service out of Seoul. Parents and grandparents that pressure their children to perform as they are the next golden goose to lay the egg. Property prices high rents low……..hmmm. Come on who are you fooling. Your friend probably lives in a crap hole that is a few feet by a few feet………..I could go on an easily find a few Koreans that have moved to Canada to escape their country.
And yes Canadians should pay attention only to the fact that they are screwing us over on trade. They need to open their markets if they want us to buy their stuff.
Anyway……..you probably won’t read the rant. But I just get tired of expats that scream at the top over their lungs how great it is over there. Get real. If it’s so good give up your passport and stay. I don’t know if your an expat but it sounds like it. Cheers…..my rant for the nite.