Your mortgage

bear

They call it ‘jingle mail.’

That’s the sound an envelope full of keys makes as it hits a banker’s desk. In the US over the last four years, untold numbers of those envelopes have arrived as homeowners abandoned their real estate and surrendered their keys.

Why would they do that? In some cases because they could no longer make mortgage payments after losing a job or seeing interest rates soar. But in most cases, because they were underwater – a plunging real estate market had dropped the value of their homes to the point where they owed more than the places were worth.

So, why bother owning? Why make mortgage payments? Why pour more money down a housing sinkhole if you don’t have to? Why not walk?

After all US lenders have a weaker covenant than in Canada. If you welch on a mortgage, the bank must elect to chase you, or simply to take the house. In all but a few cases, they go for the keys.

Now, let’s talk about Canada.

The facts are simple enough: We’re in a housing bubble. Based on international measures of affordability, with the average home requiring more than 5 times the average income, Canadian real estate is currently “severely unaffordable.” Fact is, it’s more unaffordable here right now than US housing was when it collapsed. And this is with the lowest mortgage rates ever. Imagine what happens when 3% mortgages become 8% loans in five years.

Imagine what becomes of people buying today with 35-year mortgages and virtually nothing down if the housing market does the expected thing, and drops by 20%. Suddenly armies of newbie homeowners will be just like folks in Phoenix, Stockton or Dade – under water.

What happens if they have negative equity, can’t sell their homes for nearly enough to break even, and decide making payments on a mortgage bigger than their home is insanity? Will they walk? Fill Canada Post with jingling envelopes?

Lately this question’s been asked on this blog, with conflicting advice proffered, some it by lawyers who clearly got their degrees online from a welding academy in Tuvalu. Time for clarity.

In all of Canada but Alberta (figures), the lender has you by the shorts. Our mortgages are called “recourse” loans, which simply means the banker has full recourse to collect not only on the debt, but the costs of the debt. If you execute a standard mortgage document, and miss mortgage payments during the term, or fail to fully pay it off at the end of the term, or do not refinance it satisfactorily, then…

  • The lender can legally gain title to the property, and sell it, and
  • sue you for the difference between the mortgage amount and the sale proceeds, and
  • sue you for costs, including all legal activity, real estate commissions and taxes, and
  • if you cannot pay this amount, get a court order to garnishee your wages for the rest of your miserable life.
  • And, by the way, you will get sued, even if you have little in assets and your mortgage was CMHC insured. The banks have whole floors of lawyers. Not pretty.

Of course, you can avoid this by declaring personal bankruptcy. In that case, the bank gets the house and you get a black mark that lasts for several years. It can mean no credit cards, no loans, no new mortgage, no new car, no running for the school board or political office, a big problem with credit checks, more difficulty finding almost any white collar job and even hassles renting.

Or, you can be an Albertan.

Albertan law is more akin to US law (they like George W., too). In that province mortgage lenders have less recourse, and the easiest course of action is to seize the property for non-payment of a mortgage. That, however, ain’t the end of it.

Even after the property is gone and sold, it is quite possible the lender will sue for a shortfall between the sale price and the loan amount. Arguments under Alberta law will likely overturn that, but only after you’ve burned through ten or twenty grand in litigation fees.

And (of course), don’t try going back to the same lender in the future for a new mortgage.

But, as you know, Alberta doesn’t matter (at least here). That’s because 90% of Canadians don’t live in the republic. So, recourse mortgages are what nine in ten of us must fear.

This matters intensely because I’d say about 10 out of 10 first-time homebuyers now gorging on cheap debt, getting caught in bidding wars and laying down their treasure for houses worth a fifth or a third less than market value, have no idea of the consequences. Most have never experienced a falling market, and spend more time finding the right jeans than the best mortgage. That’s no indictment of the young, since I’ve yet to meet a person of any age who’s actually read the loan agreement or the personal covenants it contains.

Some people argue our inability to walk away from a falling house is one reason we’ll never have a US-style real estate collapse.

Maybe so. But I’ll bet once our market correction takes hold, once negative equity hits the media, and once we remember prices don’t rise forever, the notion of inescapable debt will bite hard and long.

96 comments ↓

#1 Calgary_rip_off on 09.26.09 at 10:42 pm

“Imagine what happens when 3% mortgages become 8% loans in five years.”

The prices are starting to drop already Garth, in Calgary.

If what you are saying happens, Calgary will implode. The faster the better. Bring it DOWN.

Enough of the $400K median crap on houses that are really worth only $110K. There is no reason for this insanity.

Lets hope for 12% interest. That would empty out all of the riff raff and delusion out of Calgary. Calgary is not a nice place. It’s vicious here. And what’s worse, its all covert. People act nice and friendly. The key word is “act”. Its all a load.

You say they like George W. Bush here. You are right. One physician I work with thinks he’s great. WTF???!!!

George W. Bush is a WAR CRIMINAL. That guy should have a life prison sentence. Unfortunately, things are whacked in Alberta. Crappy public assistance for people that need it, and stupid politicians such as Stephen Harper and Ed Stelmach. All of them should be fired.

The other solution would be just for Alberta to join the USA. That would tank the whole province housing issues, even faster.

Bring it on!!!

#2 Shawn Allen on 09.26.09 at 10:50 pm

Even in Alberta you CANNOT walk if you have an insured mortage.

Only mortgages that had at least 20% down payment which don’t require CMHC insurance are non-recourse.

(In the early 80’s maybe everyone in Alberta could walk, but the laww no says the non-recourse only applies to non-insured mortgages.

#3 Shawn Allen on 09.26.09 at 11:01 pm

Garth said: Fact is, it’s more unaffordable here (in Canada) right now than US housing was when it collapsed.

Yes, but the U.S. collapse was caused not by unafforability but the fact that mortages were given out to people who could never afford to pay them (No documenation liar loans, teaser interest rates, etc.)

But in Canada I think we have our own version, the CMHC rule of thumb that up to 32% of gross income is affordable is probably not true. Paying 32% of gross income on mortgage (including property tax and apparently heating cost) may simply be unaffordable.

This rule of thumb basically allows people to blow their brains out with debt. Some people maigh be able to afford the 32% but there are lots of others that can’t – say you have kids and pension contributions and maybe even a support payments to the ex and the kids from the last marraige. There are tons of scenarios where 32% is just unaffordable. But sign here and you will get your mortage approved.

Consider too, in the old days of 10% interest and 25 year amort, most of the payment went to interest, but if you could scap up an extra $10,000 that was a nice chunk of f the princiap ona $130,000 mortage. These days an extra $10,000 paid on a $350,000 mortage does not go far. Basically in the old days there was alight at the end of the tunnel, you could foresee paying it off long before retirement. No more, with a $350,000 35 year amort you are looking at decades of unaffordable payments. At some point that chicken will come home to roost.

Housing collpasein U.S. also was fueled by the no recourse aspect which led to banks owning and then dumping tons of houses. Not applicable in Canada.

Dream on. Giving 35-year ams with 5% down to people without cash is different how? — Garth

#4 Larry on 09.26.09 at 11:02 pm

Still waiting for the crash here in Calgary.

#5 itutor on 09.26.09 at 11:08 pm

First time poster.

I must say : Thanks Garth that’s a VERY helpful clarification. This quesiton has been lurking in my mind for a long time.

Mortgage, … Till Death Us Do Part!!

#6 Onemorething on 09.26.09 at 11:15 pm

Thanks Garth, its simple really. Too easy to understand so maybe for most to easy to consider!

Whatever, this has become boring trying to help these people! Let’s get on with it!

AND WHEN THE CORRECTION BEGINS TO HAPPEN, you will see a flood of those trying to sell but NO BUYERS so first goes the first time home buyers, ruined and scarred for years. (5-95 loans)

Next to go the (10-90’s) right behind them. If you read my article from the previous blog you will see how many in the US are now walking away after 25% down and that numbers of 25% down nationwide are now under water.

This brings me to those boomers who in fact traded up but when did only had 25-30% down but at the time was a banks best lender.

These guys are falling like flies in the US with another 25% value to come off today’s hammered RE market going forward, more layoffs, salary haircuts on top of an already leveraged and beaten down investment portfolio (stock market bull run of not!).

When this next downward spiral takes off, the US will have half of the market in foreclosure and a RE inventory that will never be filled.

My crystal ball says (GREEN CARDS FOR ANYONE AND EVERYONE).

There is no silver bullet left (or any bullets) left in the gun for the Fed.

We as Canadians are just followers saved by the equity resurgence in the middle of our RE correction.

THIS IS HIGH STAKES POKER, THE HOUSE WILL WIN, CASH IN YOUR CHIPS!

As Garth says and repeats ” This will not end well”!

I would like to add that it will not end for a decade and will be a torturous for most.

#7 Shawn Allen on 09.26.09 at 11:16 pm

When will we see big mortage defaults in Canada?

Latest figures posted last week show that only 1 in 238 residential mortgages is 90 days or more in arrears as of July. 0.42% are in arrears 90 days or more No change from May or June.

In the 1992 recession we peaked at 0.65% so not very high then either.

In 2006 2007 we bottomed with only 0.24% in arrears 90 days or more. (Only one in 400, which is astounding)

So why not higher arrears given the unemployment and the number of people with unaffordable payments?

One reason is that house prices are robust so people may sell rather than getting foreclosed on.

Another reason is peopel still have borrowing power to tap. Credit card delinquencies were running at 4.72% annualized losses as of Q1 up from lows of around 3% annualized a few years ago.

http://www.cba.ca/contents/files/statistics/stat_mortgage_db050_en.pdf

It may be we need a little more time for the Class of 2009 unemployed to tap out their credit cards and hiome equity lines before they hit the wall and stop paying the mortgage. Time will tell.

Until we get a lot more people in arrears, we probably won’t get the foreclosures or panic sales that would really push house prices down in a hurry.

Is it like the frog in the warming water? All seems warm and cosy to the banks until suddenly after 6 months of unemployment the Sh*t will hit the fan?

#8 gylangirl on 09.26.09 at 11:20 pm

In many US states, mortgage loans revert from nonrecourse to recourse once the borrower refinances for a lower rate.
Because the values of homes increased AND rates dropped during the housing boom, many US homeowners had refinanced.
As a result many US mortgagees going underwater in the real estate price downturn will also be sued by banks for the full amount in the event of foreclosure.
You might inquire as to the law in Alberta on the status of refinanced mortages. It is possible that they become recourse loans also.

#9 Crikey on 09.26.09 at 11:26 pm

“But, as you know, Alberta doesn’t matter (at least here). That’s because 90% of Canadians don’t live in the republic. So, recourse mortgages are what nine in ten of us must fear.”

Garth, aren’t all CMHC-insured mortgages full recourse loans (even in Alberta)? If this is the case, anyone making use of this federal program would not be affected by provincial inconsistencies.

#10 Keith in Calgary on 09.26.09 at 11:41 pm

I have been bankrupt and as discharged 11 years ago.

It was the best thing that ever happened to me. I learned how to live on cash, and use a budget. You don’t really need credit to live, but the bank will never say that to you. Many of you have seen my posts here over the last year and know that we have mid 6 figures in cash tucked away.

1-It does not affect job applications unless you have to be bonded and are handling cash. I was a white collar 6 figure employee.

2-It never impeded my ability to rent anywhere, because I always paid my rent on time and that is all they care about.

3-Running for the school board or elected office ain’t worth it. Sorry Garth, the brain damage you go thru doesn’t pay well enough.

4-You can still get a C/C, car loan or mortgage afterwards, albeit at a higher rate interest and not with anyone you had debt with before though. Thing is, you won’t want to borrow money afterwards, as you learned to live on cash.

5-The feeling of walking away with your absolute discharge and knowing that you are off the hook is wonderful. It makes reading about the Reichman’s, Trump, AIG, or all the other bankers and assorted Wall Street crooks and politicans that screwed the taxpayer and the system a little more palatable, because you have screwed them back.

6-There is no moral issue here……..if you can’t pay them, f-them…….because right now, they are doing it to you.

That is a pathetic statement. — Garth

#11 Roger on 09.27.09 at 12:27 am

Garth,

You can add Saskatchewan as a non-recourse province under one condition:

– the mortgage is non-recourse if the funds were advanced to initially purchase the house.

The mortgage is recourse in Saskatchewan under any of the following:

– The homeowner refinances with another lender
– The homeowner already owns the house and takes out financing ) i.e. a HELOC or second mortgage

So a lender that jumps to another lender to get a lower rate after buying the house is now on the hook for the entire loan.

The actual legal statute is available as a pdf by clicking my name….

Here is an excerpt…

Mortgages and Agreements for Sale and Leases of Land

s 2. Action on personal covenant prohibited in certain cases

2(1) Where land is hereafter sold under an agreement for sale in writing, or mortgaged whether by legal or equitable mortgage for the purpose of securing the purchase price or part of the purchase price of the land affected, or where a mortgage is hereafter given as collateral security for the purchase price or part of the purchase price of land, the vendor’s or mortgagee’s right to recover the unpaid balance due shall be restricted to the land sold or mortgaged and to cancellation of the agreement for sale or foreclosure of the mortgage or sale of the property, and no action shall lie on the covenant for payment contained in the agreement for sale or mortgage.

2(1.1) The benefit of subsection (1) extends to and includes a mortgage that secures, or is given as collateral security for, the purchase price or part of the purchase price of the land, whether or not the mortgagee was the vendor of that land.

#12 vantown on 09.27.09 at 12:27 am

… they were underwater – a plunging real estate market had dropped the value of their homes to the point where they owed more than the places were worth

What makes you think that people panic like this when their house is not worth exactly what they paid for it? Again, you’re assuming speculation and greed are the only reasons to buy and sell: if they lose money they will immediately put a sign out front, even though they can continue to make the payments. (And, by the same logic, they would sell immediately when the price was higher than they paid.)

And hey, guess what? We saw this in Vancouver in 2008-09. People lost 12-20% of the “value” of their homes, depending on the area. I don’t know and didn’t hear of anyone who listed as a result. Were they “underwater”? Yeah, I suppose that many were. But these people actually have lives, and got on with them, knowing that in all probability they wouldn’t lose on their homes in the long run–say 25 years out.

So, why bother owning? Why make mortgage payments? Why pour more money down a housing sinkhole if you don’t have to? Why not walk?

Because their homes are not stock certificates. Because they’ve put down roots. Because they are raising families, and building careers. Because when they bought they knew that the market value of their homes would go up and down over time.

Because they’re no fools.

#13 Steve on 09.27.09 at 12:30 am

Garth, we’re not a Republic yet, (but our finances and politics are definitely bananas) and we don’t like Bush jr.–but Alberta is kinda like the Betty Ford Clinic for Republicans, sadly. :(

#14 kansai_92 on 09.27.09 at 12:34 am

Garth,

Do you have any thoughts on the differences between US and Canadian rollover tax rules?
Does it make our RE market lean towards the “buy and never sell” paradigm?

In the US, I understand that one can sell a property and not get taxed so long as the funds are rolled over into another property later on.
In Canada, we don’t have such a luxury.

Do you think this has an impact on the RE market in Canada?

For investors, if they want to purchase a property, one way to fund that purchase would be to sell an existing asset. However, without a rollerover tax credit, an investor is more likely hold the existing property, re-finance it to take equity out and use it for the new purchase.

I like to sell RE close to the top of one market and put the proceeds into another market where the cashflow is better, but the tax situation is twisting my arms and I usually end up not selling the existing properties.

Thanks.

You misunderstand the tax laws. We have no cap gains tax on principle residences, while Americans do, unless they reinvest. — Garth

#15 My_view on 09.27.09 at 12:37 am

So how/when will the 20% correction occur?

– Unemployment skyrockets.
– In 5 years > 8% rates.

#16 Mark on 09.27.09 at 1:37 am

Garth,

Does Alberta law mean anything to the CMHC (an arm of the Federal government) insofar as their ability to obtain a judgement to recover money paid against a mortgage insurance claim?

From what I’ve read, the answer is *no*. So the no-money-down CMHC-insured crowd, is on the hook, until they get such a liability discharged in bankruptcy.

Most of my young, late 20s/early 30s-something, little-money-down homebuying friends are under the mistaken impression that if things get too bad — the mortgage insurance they paid heavily for will protect them from negative equity if they have to give up the house. I’ve told them that this couldn’t be further from the truth, but it falls upon deaf ears.

Occaisonally, a wise-ass engineer, banker, or lawyer friend of mine will claim that the federal government (you know, Stephen Harper, the guy who wants to get re-elected in Calgary someday) wouldn’t *dare* to file lawsuits against practically everyone in Calgary under 35, if prices corrected to a reasonable level given the economy there (ie: went down by 50-60% from current levels). You were a politician, what do you say about that?

#17 Mortgage Blog on 09.27.09 at 3:29 am

[…] the rest here:  Your mortgage — Greater Fool – The Troubled Future of Real Estate  Mail this […]

#18 Future Expatriate on 09.27.09 at 6:44 am

Canada is a very, very large country. With far more places to hide than the US, and far less population. Not to mention how easy it is to go south and hide.

I would plan on there being every bit as much jingle mail in Canada as there was in the US, if not more, once the crash hits, and of course jingle mail makes the situation far worse no matter how much banks try to hold the foreclosures off the market.

Folks who think they’re immune, for whatever reason, always have an Achilles heel. In this case the problem will probably end up being just to large to pursue effectively.

Which will be no small consolation to the few who are caught and made examples of.

It will probably end up like the lottery of the “war” on “drugs”.

#19 Samantha on 09.27.09 at 6:48 am

When the US revised their bankruptcy laws, I warned people that we would probably follow suit, and not in the too distant future due to the insanity running rampant in real estate and other lending.

When I read today’s blog post, I decided to do some digging and sure enough here it is from a couple of days ago. The changes were quietly pushed through in August of this year.

I am going to keep looking and see if there are any other changes pending to bankruptcy laws in Canada, and if so, will post the results.

From the link below, a Sept. 25, 2009 article regarding changes to Bankruptcy laws with the following lead to the article:

“At a time when consumers are going broke in increasing numbers, filing for bankruptcy is now going to cost some people a lot more and take a lot longer”

http://www.theglobeandmail.com/globe-investor/personal-finance/changes-to-canadas-bankruptcy-laws-kick-in/article1292325/

#20 Samantha on 09.27.09 at 6:57 am

Re previous post on bankruptcy law changes, here is a link from the govt which outlines the changes:

http://www.corporations.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02282.html

Note the changes are listed for consumer and business bankruptcy.

#21 Mel Eager on 09.27.09 at 7:27 am

Hi,

If the value of your home declines, and you end up owing more than what your house is worth, will the terms of the mortgage change?

Mel.

No. That’s your problem, not the bank’s. — Garth

#22 Don't Believe the Hype on 09.27.09 at 7:39 am

You know it’s bad when a TV show like Property Virgins shows unsuspecting couples roped into homes that always cost more than they budget for because they must have the right house in the right neighbourhood with the right look, etc…. and this is normal.
I’m still floored that 350 – 400k is considered starter prices and that the ReMax scum et al continue to preach affordability to the masses.

#23 Don't Believe the Hype on 09.27.09 at 7:49 am

And this will be their future:

http://www.theglobeandmail.com/news/national/offer-of-free-potatoes-causes-massive-traffic-jam/article1302977/

Who lines up for 8 kilometers burning gas in their cars at 80 cents a litre to get some free potatoes that cost about 20 cents a pound for a 50 pound bag?? Desperate people? Why are they desperate? Giant mortgages, lease payments for the SUV, crappy Leons furniture payments, etc.

Wow.

#24 Chris L. on 09.27.09 at 8:36 am

I read mine, among other things it says callable at anytime. It also says prime + 5% (when I signed at only prime). Also they can take my contents and sell it, enter my premises at anytime and the key one that I find most comical….it’s payable in full on demand “without notice”! How would I know! Thus, they could by they agreement show up and start riffling through my stuff or start a garage sale and I wouldn’t know why and they wouldn’t even have to tell me! Who owns what now? This is a TD HELOC in case anyone is curious.

#25 DaleFromCalgary on 09.27.09 at 8:46 am

“Calgary is not a nice place. It’s vicious here.”

Speak for yourself. I moved to Calgary in 1978 and it is as good a place to live as any other big city in Canada. We’re not all rednecks here.

“In the US, I understand that one can sell a property and not get taxed so long as the funds are rolled over into another property later on. In Canada, we don’t have such a luxury.”

If it is your principal residence, Canadians can roll over the money tax-free into another house. Your cottage or hobby farm may be different.

“I like to sell RE close to the top of one market and put the proceeds into another market where the cashflow is better, but the tax situation is twisting my arms and I usually end up not selling the existing properties.”

If you do it within a corporation, then the capital expense of the next purchase can be used to cancel out the previous capital gain. I don’t flip real estate, but this is something I’ve done on other investments, but only through a holding company, not under personal income. This is one advantage of incorporating, that you get more and better deductions or tax advantages.

#26 sutluc on 09.27.09 at 8:51 am

I keep seeing 32% of gross income mentioned as the ceiling for mortgage payments.
Are we back down to that now? I haven’t enquired lately, but about two years ago my bank was willing to lend me an amount that would result in payments of up to 43% of gross income. (I’m not that stupid, but apparently my bank is.)
I didn’t get the impression that it was because I’m an exceptionally fine fellow either, I got the impression that payments in excess of 32% were SOP.

#27 dd on 09.27.09 at 9:08 am

#1 Calgary_rip_off

“Enough of the $400K median crap on houses that are really worth only $110K. There is no reason for this insanity”

Ripoff … houses will not implode to $110k in Calgary. If you are waiting for that magic number … . For a $400k to be $100K income will have to drop like a stone.

#28 jess on 09.27.09 at 9:17 am

A real estate agent was handing out ads in front of my Kitchener LCBO. She told me that in her thirty years of being in the business this is the worst she has seen it!

#29 dd on 09.27.09 at 9:18 am

.#23 Don’t Believe the Hype

“Desperate people?”

Hey might. But people have been living from paycheque to paycheque for years. Futhermore people will drive 1/2 way across the city for $0.02 savings on gas. I would like to think it is because it was “free.” Hopefully your augument is wrong.

#30 dd on 09.27.09 at 9:23 am

#3 Shawn Allen

“Some people maigh be able to afford the 32%”

The only reason people can afford the 32% rule is because of cheap money. This affordability index will change once rates increase.

#31 steven rowlandson on 09.27.09 at 9:23 am

Hello Garth.
I still think its safe to say that Canadians have to find out the hard way. Apart from the lucky few with 6 figure saleries and lottery winners who is going to buy the homes sold by boomers and reposessed homes?
Is it going to be guys like me who make a 10 to 16 thousand dollar a year profit on workng for a stair company or others making non union ,non government rates of pay? I think not. Our pay relative to real estate prices are out of date by 30 to 40 years and no chance of getting corrective raises in pay.
So in my judgement a 90% plus drop in prices is the only way to get to a stable bottom where mortgages can be safely carried and new home buyers can live at the same time. Thats providing that wages don’t collapes as well……………

Like it or not the real minimum wage is 1/6000th the price of real estate. Anything less is chump change or pay for teen agers. That is the cruel reality that canadians must learn the hard way.

Steven

#32 Downsized and Delighted on 09.27.09 at 9:27 am

# 12 Vantown – Well said!

Personally I’d enjoy seeing interest rates soar but I think you base this prediction on an outdated model Garth. To pretend that you can predict the future of interest rates in this crazy financial environment illustrates there are more ways than one to be the greater fool.

Come and revisit that in five years. Bring crow. — Garth

#33 dd on 09.27.09 at 9:29 am

#6 Onemorething

“When this next downward spiral takes off, the US will have half of the market in foreclosure and a RE inventory that will never be filled.”

Yes, 1/2 off all mortgaged houses in the states will be underwater. There market if not already bottomed will go sideways for years.

#34 Keith in Calgary on 09.27.09 at 9:31 am

Actually Garth, what is pathetic is politicians stealing money from my pocket to garner votes from people who would otherwise be unemployed, as not enough consumers bought their crappy products………or they made huge financial gambles and lost, or just outright bad business decisions, but as they hold too much sway over the politicians, and too many people would be out of work, they get bailed out thru “economic subsidies”……..

That is pathetic. Going BK because Revenue Canada wouldn’t acccept a 24 month repayment plan for back taxes owed due to a re-assesment was my personal economic stimulus plan in 1998.

#35 dd on 09.27.09 at 9:34 am

#7 Shawn Allen

“Is it like the frog in the warming water?”

Interesting. Where do you pull the facts from? Furthmore if this downturn last longer EI and support cheques will soon be running out. This is not the typical recession and jobs will no be coming back in a hurry.

#36 ted on 09.27.09 at 9:57 am

#22 (don’t believe the hype) I agree with you about Property Virigins. That realtor has to be the most shameless on tv. Every episode ends with her egging on the buyers by telling them to bid over the asking price. Her advice is how high can you go. Not what the house is worth. And every other episode she comes back with “the owner wants you to do better” No counteroffer even presented. I would tell her if I were on that show my offer is now lower if you don’t present it your gone as my realtor.

#37 dd on 09.27.09 at 10:04 am

#15 My_view on 09.27.09 at 12:37 am
“So how/when will the 20% correction occur?- Unemployment skyrockets.- In 5 years > 8% rates.”

It will depend on a number of inputs. There will be more strain on paying the basic costs just to live. For example expenditures today will be different from tomorrow. The $100 you earn today will have to go more to higher food and energy prices, higher taxes to pay for the deficit and health care, higher payroll costs (EI and pension), higher interest rates, and to top it all off the wages will stagnant for years. Going forward there will be less to spend on housing. Period. Even if there is no major adjustment going forward prices will flat line for years.

Or another way to look at it: If wages are not increasing how can house prices increase long term? Cheap money is the only reason for the increase in prices, especially at a time of increasing unemployment. People values have changed in the last generation: The house is the holy grail of wealth creation. However with the coming onslaught of increasing living costs, this will soon reverse. When it comes to food on the table or a marble countertop, food wins every time.

#38 dd on 09.27.09 at 10:11 am

#30 Downsized and Delighted on 09.27.09 at 9:27 am

…To pretend that you can predict the future of interest rates…

You have got to be kidding. Really. So there are trillions (yes I said trillions) of dollars coming to the market in the next few years to pay for all the government stimulus and this will not effect interest rates?

Do us all a favour. Google the great money managers – Warren Buffet, Eric Sprott, Jim Rogers and see what there take is on it.

PS. Predicting that interest rates will go higher in the future is no prediction at all. This is a no brainer.

#39 T.O. Bubble Boy on 09.27.09 at 10:13 am

As long as the oil is flowing from the sands, Alberta won’t have a problem with people walking from their mortgages. If inflation starts to come back, it will likely be paired with higher oil prices, so everyone in the province will still be feeling good and the Alberta RE bubble will keep going even if rates increase a couple of percent. Households making $100k-$200k will be able to afford a 6% mortgage ($2560/month for $400k principle) just as easily as a 4% one ($2100/month for $400k principle).

However – if/when oil crashes again, I’d be shocked if 80% of Ft. McMurray doesn’t walk from their mortgages. It’s not like you can readily find a new career that will pay you that kind of money when you’re an oil worker in the middle of nowhere.

#40 Bill on 09.27.09 at 10:24 am

God Bless Alberta.

#41 tjmikey on 09.27.09 at 10:36 am

#10, Keith in Calgary,

Sorry Garth,

If we are talking pathetic….let’s expand the critique to all of Canada.

Right from the way the country handles it’s supply of food for it’s citizens, our lack of an energy policy… all the way to Afganistan and all points between.

Now THAT”S pathetic.

#42 Gord In Vancouver on 09.27.09 at 10:37 am

Garth – thank you for taking time out of your weekend to educate us on Canada’s mortgage rules.

Things will be very interesting a few years from now – many baby boomers (born between 1946 and 1950) will be retiring and trying to unload their homes at a time when today’s young naive buyers will be facing higher interest rates.

As pathetic as this scenario appears, don’t be surprised if the federal govt. bends the rules to minimize its impact as they won’t want to lose baby boomer support.

#43 Fool me once... on 09.27.09 at 10:52 am

For those of you who keep suggesting that interest rates may not go up, have someone explain how the bond market works. Then look up how much money the folks in Ottawa printed.
You’ll quickly realize the idea of interest rates going up isn’t someone’s personal opinion. Nor is it the folks at Beemo deciding arbitrarily that they think its a nice idea to keep them low for as long as they feel. At this point there is little anyone can do to avoid the painful fact that interest rates will have to rise. The question then becomes how to be prepared for it.

#44 artisuseless on 09.27.09 at 10:53 am

There seems to be a lot of people who expect bankruptcy will be a get out of jail free card.

And if they are ‘only’ in their twenties, they figure they’ll be free and clear by 35.

I’m wondering if I should just hunker down, save every penny I have right now, sell the rest and find somewhere to retire where I won’t have to have any part of the future tax burden these fools are ensuring.

#45 Gord In Vancouver on 09.27.09 at 11:18 am

#10 Keith in Calgary

I have been bankrupt and as discharged 11 years ago.

It was the best thing that ever happened to me…….
___________________________________

Make sure you copyright that post as Global BC may want to use it if Vancouver’s real estate market implodes.

#46 Downsized and Delighted on 09.27.09 at 12:16 pm

Well Garth, if interest rates hit 8 percent in 5 years I’ll revisit with prime rib, not crow.

Everyone’s an expert – in the past year the experts have predicted it all – inflation, deflation, stagflation. Why wouldn’t I doubt the experts?

#47 absinthe on 09.27.09 at 12:18 pm

Can a country go bankrupt? And what does it mean? I imagine, for example, if the States went bottoms up they’d be defaulting on domestically held bonds, and lots of foreign deficit; there’d be a lot of pain worldwide. Would it lead to war? Would it, with the size of the American market, be the event of much saber rattling but not much else? (Especially given the size of the American military?)

Now, certainly, a country going down it won’t be 7 years of clean living to make it better: but if that country still had resources and production, it would at least still have an economy, wouldn’t it?

#48 Another Albertan on 09.27.09 at 12:32 pm

A set of comments from a colleague who is a senior executive in the Calgary commercial real estate sector:

“We just helped an owner ink a deal to lease out an entire floor of a building whose occupancy has been dropped. The building certainly isn’t the best, but it’s also not a shack and it is downtown. The client and their rep drove such a hard bargain that, with the current vacancy rate downtown and the owner concessions and incentives, the owner will only be getting about $4/sqft gross margin for a 5-year term. But that’s what you do if you are desperate to lease space.”

Ultimately, his commentary pointed to the idea that downtown Calgary CRE is going to become a progressively worse market over the next 18 months as Encana’s Bow, Eighth Avenue Place and other buildings are completed. The sheer scale of the potential sum of the surplus across all buildings is “in the multiples of whole office towers”.

“We haven’t seen anything yet. It’s going to worsen through the beginning of 2011. And if we have a lumpy global economic recovery – or worst, a double dip recession – it’ll be over 5 years before downtown Calgary recovers. The pension funds backing a lot of this work are already taking baths and this could just be the start.”

Everyone else’s mileage may vary.

#49 asp on 09.27.09 at 12:44 pm

#18 Future Expatriate, nice idea! Take out all you can out of your HELOC and head way south, to someplace where the cost of living is a fraction of what it is up here.

The banks won’t care, mortgages are securitized and insured up to their eyeballs. They just need to follow due process a bit and then forget about it.

#50 The Vulture on 09.27.09 at 1:05 pm

Great post today Garth!

Great post fellow bloggers as well.

I was in a builders office recently looking at homes in the 500,000.00 – 600,000.00 range to purchase and a young couple came in and bought a linked by the garage home for 449,000.00 on a 30 foot lot with a large easement on the property . I asked them how much they were putting down and they said less than 20,000.00 (around 15,000.00) but they said it would go up in value over the next couple of months anyways so they were not worried, “houses always go up in value, never down” was their response…Young, invulnerable, silly, over-confident, naive and all too trusting…I walked away in literal shock at the foolishness that is going on right now in teh RE marketplace. I guess these people want to be house poor the rest of their lives.

Calgary_Rip_Off #1 was particularily humerous…I have never been to Calgary before but it sounds really red-neck (no offense intended to non red neck Calgarians which is 100% of you!) …Cowboy corral kind of stuff…on your typical Saturday night on the town, throw a guy through the front window of the saloon type stuff…nationalism..guns and glory…yee haw…Ride em’ Cowboy…..Neo Cons Rule Dude…

#51 Shawn Allen on 09.27.09 at 1:06 pm

# 39 T.O. Bubble Boy suggests that $2500 on a mortgage is easily affordable if you make $100,000 or more.

I diasagree and that is “only” 30% of gross and would be approved by CMHC.

It’s really not affordable. I am in Alberta mortgage free. I know what we spend yearly and it’s frightening and we are not big spenders (nor are we frugal at this point in our lives – age 49 with two young teenagers).

Consider some of the other costs of living for a family of four.

Lop about 25k off for income taxes and 30k for the mortgae and the family is living on 45k or $3750 per month. Does that comfortably pay the grocerics, car payments, car insurance, gasoline, cloths, a bit of entertainment, cable TV, phone, internet, furniture, the odd house repair, a kid or two in hockey, vacation, and on and on with normal middle class expenses? And what about RESP contributions up to $2500 per child and pension or RRSP contributions which ought to total at least $10,000 per year at $100 k income.

30k in mortage payments is simply not reasonably afordable at $100k you will scrimp to make that mortgage and if you are looking at decades of that you are not a happy camper.

And you have put yourself in a position where if you lose your job or one of the incomes in the house you are toast. You live in abject fear of getting “laid off” (polite word for fired). You buy lottery tickets out of sheer desperation.

The days of abundant good jobs in Alberta are gone for a while at least. Government is on a hiring freeze and trying to get rid of people, as one example.

Every unexpected expense is a nightmare.

I would say it takes closer to 200k to pay $2500 per month comfortably on a mortgage

CMHC is letting people blow their brains out with debt when they approve 30% or 32% of gross income for mortage/property tax and heat as is their standard rule.

Once you sign up for that you are (at best) barely able to make it and the unexpected expenses start to be paid by credit card. And if the mortgage is $350 k or something then you are stuck because even working overtime or whatever it will take years to make a dent in that sucker even if you try to pay extra.

A young couple can afford (barely) the $2500 with say combined incomes of $120,000. But what about when the kids come along and daycare is like an extra mortgage?. Wages better be going up in leaps and bounds (and those days are over) or the budget just will not work.

#52 Jiminy Cricket on 09.27.09 at 1:27 pm

How would they “bend the rules,” Gord? A special interest rate reduction for Boomers? Although I suppose that wouldn’t be much different from all the other ways the Boomers have re-written the rules to suit their advantage (the nullification of mandatory retirement as just one particularly heinous example)

#53 FTHB (forget that house buying) on 09.27.09 at 1:34 pm

Some of these posters sound like they were alive when JFK was shot.

“I remember 10 cent chocolate bars and 50 cent bread, and 50k homes”

Well guess what? Chocolate bars are now over a buck, and bread is $4.

Homes are now 400k. Is that so hard to grasp?

A buddy of mine said it costs $290/sqft to build a decent house. Unless we experience severe deflation, then buying land and building a 1200 sqft house is going to cost you 400k.

Just because it’s a ‘high’ number doesn’t mean it’s over-priced. Just like a stock, google at $450 may be cheaper than a penny stock; it’s all relative to the actual underlying value………

#54 Kate on 09.27.09 at 1:36 pm

I do not know about personal bankruptcy (thanks God) but I know that for a newcomer to this country w/out credit history, it is damn hard to get even a secured credit card for $500 and life is miserable w/out a credit card – just try to rent a car, open hydro account or buy a cellphone – they will all ask for significant deposits. Even with excellent credit history and good paying job, renting my last two places was like going through a hiring process. They check your credit history, call all your previous landlords and current/previous employees religiously. I wonder how people without a job or with bad credit history rent any places at all…

#55 Andrew on 09.27.09 at 1:37 pm

#10 Keith in Calgary

“if you can’t pay them, f-them”

It looks like you’re intellectually and morally bankrupt, too.

#56 InvestX on 09.27.09 at 1:47 pm

sutluc:

“I got the impression that payments in excess of 32% were SOP.”

I do to, so what good is this rule? Who even follows it if the banks don’t?

#57 Bankruptcy=Immigration problems on 09.27.09 at 1:53 pm

Just thought I’d mention that there is one additional very significant penalty to declaring bankruptcy in Canada that you have not mentioned.

If you declare bankruptcy you can NOT sponsor anyone to Canada until you are discharged from it (which can take anywhere from 9 months to several years depending on complexity).

Here’s the details:

“You may not be eligible to sponsor a relative if you:
have declared bankruptcy and have not been released from it yet.”

SOURCE: http://www.cic.gc.ca/english/immigrate/sponsor/relatives-apply-who.asp

#58 Fritz on 09.27.09 at 1:59 pm

excellent post Garth! And once again we know why we love you!

#59 DG on 09.27.09 at 2:13 pm

@25 Dale: You don’t have to roll the proceeds into a new house to be exempt from capital gains tax on the sale of a principal residence. You can do whatever you want with the money and still not be taxed, providing it was your principal residence.

PS: I agree with you about Calgary. I’ve lived there on and off in the past and there is lots to like. Clean air, proximity to the mountains, people are generally friendly, etc. I’d live there again in a heartbeat.

#60 Genghis on 09.27.09 at 2:24 pm

#12 vantown :“And hey, guess what? We saw this in Vancouver in 2008-09. People lost 12-20% of the “value” of their homes, depending on the area. I don’t know and didn’t hear of anyone who listed as a result.”

The 2008-2009 downturn lasted less than 6 months. If you really think that is as bad as it can get think again. Try 6 years. If you don’t believe it can happen just take a look back at the busts that have happened in Vancouver, Calgary and Toronto over the last thirty years. They are well documented with numbers and graphs.

#61 Boombust on 09.27.09 at 2:47 pm

“Make sure you copyright that post as Global BC may want to use it if Vancouver’s real estate market implodes.”

Why would RE pumpers like Global TV want to share THAT?

And, it’s not “if” it implodes, it’s “when”.

Even then, Global will have Michael Campbell et al on as “an expert” flappin’ his gums about how wonderful everything is.

#62 Makeorbreak on 09.27.09 at 3:03 pm

http://www.nytimes.com/2009/09/27/business/economy/27jobs.html?_r=3&hp

#63 confused and a little crazed on 09.27.09 at 3:12 pm

Hey Garth,

when this all over correction or no? do u think they will make a documentary od the whole global real estate boom / bust?
Will u be hero or zero? The lone fighter standing against landslide of liers …more debt is good or the evil pied piper leading good people into bad decisiions.

Van people here are crazy. we have the highest living cost..lowest min wage. olympics will end in Feb and interest will rise shortly afterwards plus increase in tx

my uncles duing the 90’s they pesonally exp the downturn
thet bought a property or 2 to rent and sell but no takers for almost 2 years . they rented it out but it’s so hard to move out unwanted tenants. They let the grass grow until iy was 2 1/2 high and when thet finally left . they left about 8 garbage bag size od alcohal beverages littered all over the basement. Of course we needed to repaint the place. It’s not always as easy as suggested on TV

and they are also dumbstruck at how long this lasted…they are even thinking maybe it is diffrent this time but that doesn’t mean they buy another invest proprty.
There will always be a place to live here. we are nowhere near as populaated as Japan… UK and manhatten and they exp dowturns. imust admit the stock i bought ( may -Jun) have brought me enuff capital gain to pay the rent for most of the year.

It’s a nice feeling but no worries I put stop losses on them :)

#64 betamax on 09.27.09 at 3:27 pm

re. #10 Keith in Calgary on bankruptcy: your ‘mild’ experience of bankruptcy in this last decade is indicative of the banks’ recent lax credit standards and miscalculation of risk.

I know people who went bankrupt previously who couldn’t even get a chequing account afterward, let alone a credit card. And when enough people go bankrupt, some repeatedly, those more onerous standards will be back in vogue among bankers.

#65 vantown on 09.27.09 at 3:48 pm

Downsized and Delighted:

# 12 Vantown – Well said!

To pretend that you can predict the future of interest rates in this crazy financial environment illustrates there are more ways than one to be the greater fool.

My point is that, for most reasonable people, increased interest rates will (or might) mean higher payments. Again, I would like to point out that, contrary to perhaps the entire premise on this blog, most people are not fools. So they know it may be coming, pay the higher payments, and get on with their lives. Maybe after another five years the rates will go down again.

And, I screwed up the markup to my original post. To be clear, for the record:

… they were underwater – a plunging real estate market had dropped the value of their homes to the point where they owed more than the places were worth

What makes you think that people panic like this when their house is not worth exactly what they paid for it? Again, you’re assuming speculation and greed are the only reasons to buy and sell: if they lose money they will immediately put a sign out front, even though they can continue to make the payments. (And, by the same logic, they would sell immediately when the price was higher than they paid.)

And hey, guess what? We saw this in Vancouver in 2008-09. People lost 12-20% of the “value” of their homes, depending on the area. I don’t know and didn’t hear of anyone who listed as a result. Were they “underwater”? Yeah, I suppose that many were. But these people actually have lives, and got on with them, knowing that in all probability they wouldn’t lose on their homes in the long run–say 25 years out.

So, why bother owning? Why make mortgage payments? Why pour more money down a housing sinkhole if you don’t have to? Why not walk?

Because their homes are not stock certificates. Because they’ve put down roots. Because they are raising families, and building careers. Because when they bought they knew that the market value of their homes would go up and down over time.

Because they’re no fools.

#66 vantown on 09.27.09 at 3:50 pm

Oh, and by the way, I’m not a “dink.” I’m a siwk (single income with kid).

#67 Dan on 09.27.09 at 4:21 pm

“-There is no moral issue here……..if you can’t pay them, f-them…….because right now, they are doing it to you.

That is a pathetic statement. — Garth”

Garth this is how 90% of those in debt think. My brother inlaw says if he can afford his mortgages he will max out his card and home line of credit and go bankrupt. People don’t care and have ZERO plans to pay bac k the mortgage or their debt. The stupid communist CONservative party of canada has ruined the FREE MARKETS and bankrupt Canada as when the house of RE cards crashes so does Canada. Anyone who is a CONservative is a communist who hates free markets.

#68 Shawn Allen on 09.27.09 at 4:37 pm

Some people have questioned whether or not the 32% of gross income rule still applies. (Annual housing payments to be no more than 32% of gross income.

Here is what CMHC says

“This calculation is based on two simple rules that lenders use to determine how much of a mortgage you can afford. The first rule is that your monthly housing costs should not exceed 32% of your gross monthly household income. Housing costs include monthly mortgage payments, taxes and heating expenses. If applicable, this sum should also include half of monthly condominium fees.

Secondly, your entire monthly debt load should not be any more than 40% of your gross monthly income. This includes housing costs, and other debts such as car payments, personal loans, and credit card payments.”

Check it out here:

http://www.cmhc.ca/en/co/buho/buho_005.cfm

It’s ironic that they call this two”simple” rules.

One meaning of “simple” is to denote mentally challenged, i.e. stupid or mentally defficient.

Like I said before these simple rules are way too simple to actually predict affordability as it does not include so many other expenses that can vary between families like the cost of commuting, whether they have kids or not, and just so many other things.

And what about calculating in the security of the job, or the ability to replace that job? CMHC is by it’s own admission a simpleton and its formula I don’t think has changed in decades.

This formula along with 5% or zero down combined with (temporarily?) low interest rates is a clear inviatation to blow your financial future with too much debt.

Number 53 FTHB, yes some of us were alive when JFK was shot. Along with age comes life experience and sometimes some wisdom. Some of us saw house prices spike in the early 80’s saw a large number of foreclosures in Alberta in the early 80’s and Ontario as well. Lived through interest rates temporarily at 20%.

Yeah everything is way up in price since JFK was shot, Most things including wages are up probably close to 10 times. But house prices in relation to income are too high. It’s not the absolute price of the house that matters, it’s the fact that the multiple of the house price to income is way up.

#69 dd on 09.27.09 at 4:47 pm

#39 T.O. Bubble Boy

…As long as the oil is flowing from the sands, Alberta won’t have a problem with people walking from their mortgages…

…Households making $100k…$2560/month for $400k principle…
Think again. Add in a couple of kids, food, and car paymnent and that doesn’t leave much left over. I found payment at 1/2 that size comfortable with cash left over for savings and no credit card debt.

#70 dd on 09.27.09 at 4:51 pm

#48 Another Albertan

…it’ll be over 5 years before downtown Calgary recovers….

We can only hope. It took a decade or more in the 1981 correction. Five years would be a walk in the park.

#71 Bill on 09.27.09 at 4:54 pm

#38 dd

“Do us all a favour. Google the great money managers – Warren Buffet, Eric Sprott, Jim Rogers and see what there take is on it.”

==============================

For those who have a few minutes to do some reading…some interesting insights from Sprott:

http://www.sprott.com/Docs/MarketsataGlance/July_2009.pdf

http://www.sprott.com/Docs/MarketsataGlance/August_2009.pdf

http://www.sprott.com/Docs/MarketsataGlance/09_09_MAAG.pdf

#72 JoeK on 09.27.09 at 5:12 pm

#66 Dan:

If your BIL (brother in law) plans to max out his debt & go bankrupt, I hope that U have a contingency plan for when he & his family show up on your doorstep expecting a roof over their heads.

It’s “all about me” society at work.

#73 longtimelurker on 09.27.09 at 5:30 pm

Jingle Mail in the US is really a myth . . . and the reality is worse, and it will happen in Canada, too.

Instead of Jingle Mail, defaulters in the US stay in the houses and condos without paying anything. Banks are so backlogged with foreclosures that they cannot process them.

In fact, the banks do not want to process them quicky because doing so would flood the market with REO sales and blast a price crater, and then the banks would need to write down the value of all the foreclosed houses from the face value of the original loans to the real world value today of dimes on the dollar. So the banks actually cooperate in allowing the exact opposite of Jingle Mail.

Let’s call it Silent Squatting.

If real estate busts in Canada, this Silent Squatting will happen. Banks won’t be able to process the re-possessions and they won’t want to.

#74 Peter on 09.27.09 at 5:32 pm

Mark Carney on TV show “Mansbridge one on one” says:
Interest rates will be low for a long time untill 2014>>>

The prime can triple and still be ‘low’ by historic norms. Beware of banker-speak. — Garth

#75 kitchener1 on 09.27.09 at 6:02 pm

RE: #28 jess on 09.27.09 at 9:17 am
A real estate agent was handing out ads in front of my Kitchener LCBO. She told me that in her thirty years of being in the business this is the worst she has seen it!

Here is my front line view of Kitchener Ontario.

Last year when the market dropped there was a lot of desperation, price drops, still no sales, for sale signs all over the place. Then activity picked up and all was good the past few months.

What I noticed in the last 3 weeks to present is a lot more movement on price and a lot of new listings, a lot of sellers ads mention “quick closing” “bring an offer” etc.. and a lot of new listings coming online. I think that UI is going to run out very soon for a lot of people and they are getting desperate out here. Second Career cancelling their program will not help.

I have the same view of GTA, lots on inventory coming online these past 3-4 weeks. But its not moving, sure, there are a few select cases of bidding wars, but that is the case in maybe 10% of total sales (if even that).

Time will tell, but I predict that we are starting to see the very beginining of inventory building and outstrippin demand here in GTA and suburbs just as we saw it happen last year.

My posistion is that before the year is over, more likely within 45-60 days we will see the SP break 1027 and the DOW correct, this wave down will be greater then the dip last fall. Once that happens, we will see even more rampant desperation then last year. From my anayalsis of the market, I am taking the contrain view. This will turn the recession into a W and wil kill cosumer confiedence.

#76 kansai_92 on 09.27.09 at 6:16 pm

RE: Post #14

Sorry Garth, I should have been more clear.
I was specifically referring to investment properties, not primary residence.

Do Americans get to rollover their capital gains (regardless of primary residence or investment property)?

Thanks.

#77 Vicious_Calgary on 09.27.09 at 6:21 pm

Garth,

one of your lovely readers, I think it was Double DD, made the asinine comment that if Calgary houses were to reduce to what they should be $110K, then incomes would have to decline.

So what? Most of the crap that Calgarians consider valuable is a bunch of granite countertop and chandilier orgies.

Here is an alternative view on Calgary: http://www.calgarysucks.com/

Calgary is superficial, prairie, and ill designed. The mayor has even decided to spend $22 million on a stupid bridge. While people are homeless. WTF?

And the EI benefits are in the crapper.

Politics, rip off housing, plastic people. The whole town city has gone to hell in a handbasket.

Turn that Grizzly loose on the city please.

#78 debtfree on 09.27.09 at 6:22 pm

Your prediction on the subject of gov. services are coming true in B.C. the so called liberal gov. out here are becoming like a bad movie . Staring ” gordo the SLASHER cambell ” . Going after women and children first . I have a prediction of my own ” He and his gang of thieves will be in the next 4 years be the most hated politicos in B.C. history ” He is also to given cograts for he’s attack on the poor . We now have the lowest minimum wage in canada . Three cheers for gordo or should that be three fears from gordo . On a side note do any of you know who began the olympic flame b.s. hint it began in 1936 .

#79 Downsized and Delighted on 09.27.09 at 6:31 pm

#65 Vantown – I agree with you again, just like the first time.

The second comment I made was to Garth about predicting interest rates – not to you.

Which reminds me Garth – didn’t you previously predict the interest rate at 11 percent in five years, not the 8% you mention here? So what do we infer from this? That you’re not sure? Or that you overstated your original projection?

I’ve said 8% is the 20-year norm for residential mortgages, and it will be with us again in due course. — Garth

#80 Tony on 09.27.09 at 6:44 pm

#75 kitchener1
You’ve got that right, once the earnings reports start coming out in October in America maybe the government will stop buying stocks like a complete fool and let the market test the March 6th lows or let the DOW test the 5,000 level.

#81 outsider on 09.27.09 at 7:40 pm

@77

Bridge Homeless

At least they will have somewhere to setup their cardboard city.

#82 Onemorething on 09.27.09 at 7:45 pm

Want to get out of Dodge? Malaysia My Second Home, google it! Over 50? only have to invest $42K USD in RE, under 50? $70K. No income tax, can work 20 hours a week if you so desire.

Penang is the popular place for expats!

Talking to my FIL (Father-In-Law), west Van condo owner big pension from government and retired to take the plunge.

Most Brits and Europeans as NA’s have no concept of Asia on a good day.

The Western world is a mess, will continue that way for decades while the east takes the lead. If you not in it, your simple OUT OF IT!

#83 Joshua on 09.27.09 at 7:51 pm

First off, Calgary ain’t as superficial as people make it sound on this blog. Not to say that some of it isnt true, but relax…Vancouver and Toronton are a lot worse.

As for the correction that Garth is predicting may seem true but how soon. If its june-july of 2010, well thats a pretty long wait when some have a family and need to get into a house soon.

Garth, do you see the housing market droping at all in November-December, considering it is winter? I have a fat amount of coin to put down with a good interest rate but I dont know how long I need to wait as buying a house is something I want. I know, you say rent for now but what if thats not an option.

Whats your take on the economy in the last three months of 2009. The more I watch the news and read the news papers, the more lies I can see…or maybe thats what Im trying to see.

#84 RM in Oakville on 09.27.09 at 8:59 pm

#67 Dan on 09.27.09 at 4:21 pm

This might well be the most moronic post I’ve ever seen on this blog.

#85 dd on 09.27.09 at 9:02 pm

#77 Vicious_Calgary

“Calgary is superficial”

What? U got no friends? I guess with your attitude you wouldn’t.

#86 Chincy on 09.27.09 at 9:51 pm

GT,

I am a total bear on the whole real estate market, but had a interesting coffee today with a friend from Spain…she was saying that 60 and 70 year mortgages are the norm…yes i know that is simply renting, but could mortgage rules be bent here in Canada to keep prices hi while helping affordable per se? comments?

#87 artisuseless on 09.27.09 at 10:22 pm

@53 FTHB (forget that house buying) on 09.27.09 at 1:34 pm “Some of these posters sound like they were alive when JFK was shot.”

Uh, FTHB – it’s not exactly ancient history – we’re not talking Crimean War vets here. And I’m still under 40 but old enough to remember not just chocolate bars at 35 cents but also interest rates well into double-digits. My first Canada Savings Bond at 18 (only a 1 year – oh, if I’d known that rates would be so much lower in the future!) the rate was 10.5%.

See, you were probably still in grade school during the whole tech bubble and in diapers when the Japanese economy blew up and have probably only just recently started paying for electronic gadgets on your own so you probably don’t understand that prices actually *can* go down as well as up.

@#67 Dan – agreed – the people who seem to be happiest to live beyond their means are often the first to whine about how banks are ‘screwing’ them. That’s not to say that banks don’t exploit debtors but for me, that’s a reason to avoid debt as much as possible.
Just hope your BIL realizes that intentionally maxing up credit cards and LOCs while planning bankruptcy is considered fraud.

#88 Daystar on 09.27.09 at 11:00 pm

#83 Joshua on 09.27.09 at 7:51 pm

I don’t see valuations coming down until interest rates rise, at some point most likely in the summer of 2010.

#89 Dave on 09.28.09 at 12:38 am

Just because it’s a ‘high’ number doesn’t mean it’s over-priced. Just like a stock, google at $450 may be cheaper than a penny stock; it’s all relative to the actual underlying value
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yeah, but there’s P/E ratios to valuate a stock, and housing affordability measures to gauge the valuation of a real estate property.

1950’s or not, the prices of homes in Toronto are far above people’s affordability. Whenever price, whether in a stock, property, commodity, betrays the asset’s normal price, there’s a correction which overshoots and then returns to normalcy.

#90 Eduardo on 09.28.09 at 1:33 pm

Man do I love Alberta.

#91 Jeff on 09.28.09 at 2:12 pm

‘First off, Calgary ain’t as superficial as people make it sound on this blog’

Yes…. yes it is.

#92 nonplused on 09.28.09 at 3:09 pm

Back to the bunkers everyone!

http://www.leap2020.eu/GEAB-N-37-is-available!-Global-systemic-crisis-In-pursuit-of-the-impossible-recovery_a3797.html

Also, bad news for the Alberta oil & gas industry:

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/shale-plays-put-alberta-gas-sector-up-in-air/article1303226/

I was just a young lad when the last real estate bubble burst in Alberta, (and that one wasn’t nearly as silly as this one), but I remember it went quickly. It went from business as usual to a complete disaster inside a year.

People had bumper stickers that said “Dear God, please give us another oil boom. I promise not to piss it all away this time.” Well guess what?

So, if Alberta gas in uncompetitive with US shale gas, and gas is the majority of Alberta energy production, what is the future for the Energy industry? With Calgary vacancy rates currently skyrocketing, how about construction? And if Albertans truly do get a better deal out of mailing in the keys…..

#93 Gord In Vancouver on 09.28.09 at 10:02 pm

#52 Jiminy Cricket

How would they “bend the rules,” Gord? A special interest rate reduction for Boomers?
________________________________________

Anything is possible but something will be done to protect the interests of retiring baby boomers. If the new policy isn’t directed at baby boomers (e.g. bail out those who can’t handle higher rates) it’ll definitely benefit them.

#94 HouseBuster on 09.29.09 at 3:40 am

#77 Calgary is superficial,
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Ever been to the center of the universe (Toronto) ? You might change your idea of what is superficial. :)

#95 Take Back Your Home on 09.30.09 at 7:04 am

Hi Garth,

Dallas & Kerrie Kelso here from Australia. It appears we have pretty similar conditions in our market. We have seen properties sold (that we Mortgage Insured, to protect the “lender” of course), for $350,000+ under the debt, leaving the old home owner with massive debt on properties they no longer own!

Some of us have got wise to the banks and the way fractional reserve banking actually works. The banks and supreme courts do not like the allegations of fraud and usury brought up in the courts, not do they like being asked for the original signed in ink notes.

The are many web sites popping up exposing similar issues of fraud and theft over hear. Some of them are:

http://www.theclassifiedfiles.com/
http://www.takebackyourhome.com.au/ (being redeveloped)
http://www.rightsandwrong.com.au/
http://www.truthmovementaustralia.com.au/

There has been many groups meeting regularly discussing these issues and ways to fight back.

To us, the web site and video call Money is Debt sums it up pretty well as does Chris Martensons – http://www.chrismartenson.com/crashcourse

The whole system has been designed against us. Especially since the Gold Standard was removed.

We applaud you and your followers for the information being published and shared. To be prepared is a good thing, and we look forward to reading your books (which we just ordered).

Sincerely,
Dallas & Kerrie Kelso
Sydney, Australia

#96 Insulted Businessman on 12.01.09 at 1:07 pm

Insulted!