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SRO in T.O. on Sunday as Garth spoke.
He's in Winnipeg tomorrow. Reserve a seat here.

Are houses over-valued? How do you know?

Valuation has always been half scientific, half subjective. Whether it’s an ounce of gold at $1,000 US, or a share in RIM at $75 after Friday’s plunge – how do you know if something is fairly priced? Obviously millions of people got it wrong when they lost billions on dot.coms. The stocks were popular, wildly in demand, shooting higher – yet collapsed when investors saw they were fads, not businesses.

Or look at Nortel. Or GM. Or condos in New Smyrna Beach. Or a barrel of oil. Or a shack in North Van. At what point does an asset pose real intrinsic value, and where does it constitute a waiting disaster?

Since houses are primarily consumer products bought overwhelmingly by families for their own use, a worthy measure is tracking how much average income it takes, per city, to purchase the average house. This measure is a valid one since it factors in the intensely local nature of real estate markets, and also allows for geographical and regional differences in income.

In fact, it’s a measure which is used internationally, and forms the basis of a landmark report issued by Demographia last year contrasting housing in Canada, the US, Britain, Ireland, New Zealand and Australia. Simply, divide the average house costs in an area by the average household income to arrive at a factor.

According to Demographia, here are the benchmarks:

  • Affordable – 3 times income, or less
  • Moderately unaffordable – 3.1 to 4
  • Seriously unaffordable – 4.1 to 5
  • Severely unaffordable – 5.1 and over

So, how are we doing? How about in cities like Halifax (family income $75,500), Toronto ($71,000), Winnipeg ($66,400) or Vancouver ($68,700)?

Well, Halifax wins the affordability challenge with a rating of 3.2. Winnipeg is next at 3.44 – moderately unaffordable. Toronto staggers in at 5.47, which is now severely unaffordable, and Vancouver is off the fricking chart at 7.8 for the average of all residential properties and 10.6 for single-family homes.

Canada as a whole? The average income for “economic families of 2 persons or more”, according to StatsCan, is $70,300. The average house price, according to CREA, is $324,779. The multiple: 4.62, or seriously unaffordable.
And, troops, I will remind you this is with the lowest mortgage rates in the history of ever, and with national unemployment increasing in a trend not expected to crest until next year.

Conclusion: Without a giant leap in family income, this is an unsustainable situation. With an increase in mortgage rates, it is unsustainable. Without a full-blown recovery and inflationary increases in wages and salaries, it is unsustainable. With any increase in income or sales taxes, it is unsustainable.

Any further price increases, then, will simply hasten the inevitable.

All booms end badly.

113 comments ↓

#1 Confused in Victoria on 09.27.09 at 8:51 pm

Does anyone know the average 2 person family salary and average single family home in Victoria. I would love to know where Victoria stands.

I was told again today that property can only go up.

#2 Grace on 09.27.09 at 9:05 pm

It is in the interest of those who rent money to keep the majority of people borrowing. You can’t spend more than you make forever and not pay the price and when the bottom falls out it is the LENDERS who will be protected, not the BORROWERS. My economics professors liked to say “He who rides on the back of a tiger cannot dismount.”

#3 Crazy Eddy on 09.27.09 at 9:08 pm

Peter Lynch said it best: “when your cab driver is giving you stock tips, its time to get out of the market”…

…and there’s certainly a lot of Real Estate experts and flip this house gurus in Edmonton these days!!

#4 Jon B on 09.27.09 at 9:20 pm

The value of a property is the amount someone is willing to pay for it. Nothing less. Nothing more. No science here.

#5 dd on 09.27.09 at 9:28 pm

Eduardo,

Now this should answer the question. Like I said … Calgary is overpriced. See the attachment in average or median income.

#6 Coho on 09.27.09 at 9:34 pm

I’m wondering what perecentage of homeowners today are looking at having to make mortgage payments well into their seventies. Things as they stand now for first time buyers facing 35 and 40 year mortgages, it is a given. Then there are many, I assume, that purchased 10 or 20 years ago, which have taken out HELOCS that will be difficult to pay off when the bubble bursts and interest rates become higher…not to mention possible under employment or even unemployment.

Either way many people won’t be able to retire and will have to work until they get sick or die. Perhaps that is in the cards for the boomers and their children and maybe it is by design by ‘the ones’ because demographics says that the generations following the boomers cannot sustain retirement funding.

Add the bail/out stimulus packages which have borrowed from the future to prop up the present bubble and banksters and we have everyone on substistence and servitude until death.

And then there are the wild cards: terrorist attacks and martial law. ..pandemic diseases…fires and floods increasing in severity, world war. Indeed it will end badly, but how bad? At some point the living may envy the dead. And yet again the long dead boomer generation will be envied and at the same time cursed by those they left behind because of the several decades of prosperity and hope they DID have.

#7 lightning_kash3 on 09.27.09 at 9:43 pm

When will you visit Calgary? Looking forward to see you.

#8 Jim on 09.27.09 at 9:58 pm

Unfortunately booms can last for years if not decades.

This reminds me of traders who went bust shorting Nortel. Sure, Nortel was (crazily) overpriced and due for a fall, but booms can last a long, long, time.

#9 DrC on 09.27.09 at 9:59 pm

One criticism of the Demographia work is the simplistic valuation model. For example it does not deal with rental yields, taxation schedules etc. Having said that it’s a red herring argument, in that we are quibbling only about how massively overpriced houses are compared to their intrinsic value. Double? Triple?

Another interesting comparison I heard about a while ago was to price houses in ounces of gold rather than dollars – I read some time ago that the Australia median house price had stayed stable over a long period of time – i.e. it only rose in nominal rather than real terms.

Charles Hugh-Smith must be reading my mind because as I googled just now he posted a similar analysis for US house prices just this week.

http://www.doomdaily.com/2009/when-housing-is-priced-in-gold/

Chart here http://www.oftwominds.com/blogsept09/harun-gold-housing2.html

Wow. House prices have been falling in gold terms in the US since 2001?

Mr T, blog-dogs, anyone got similar figures for Canada?

#10 TheFirstRick on 09.27.09 at 10:02 pm

Vancouvers severe unaffordability factor fails to consider undeclared income, aka the ‘grow op.’ The GVRD’s “invisable tenant” is the greatest factor in rationally explaining BC’s seriously disproportionate real estate prices.

#11 eddy on 09.27.09 at 10:03 pm

I agree. but i hate the word ‘affordable’. It’s a well worn socialist mantra, used to take money form people who work and give it to people who don’t. Toronto Community Housing Corporation provides ‘affordable’ housing. So people with nothing have choices, subsidized rent, or nothing down mortgages. But the real rip off is the amortization schedule, the product of a very sick mind

#12 Onemorething on 09.27.09 at 10:03 pm

yes sir, and just pointing out the obvious, that income will decrease by say 5% this year due to unemployment, salary haircuts, shift to part time employment.

Expect Canada U6 Unemployment to be similar to the US number which will reach 20% by mid next year and U3 around 11-12%.

Welcome to the end of Phase 1 in the GREAT GLOBAL RESET, Phase 2 will blow your mind and have you think its 1932 all over again but we are likely to look like the earlier 70’s just before Oil got nuts!

Paint a mental picture, one car, one 1800sqft ranch style bungalow, weekends at the camp ground and family picnics.

But wait, my debt load is so large I can only wish for that visual!

Garth’s Bunker is sounding pretty good eh kiddies!

Tough Love Only from Onemorething!

#13 s33knges8 on 09.27.09 at 10:10 pm

Your post gets one wondering what the housing trends have been for all places with a median multiple of 7 or higher. SF and LA are definitely down per the Shiller Index. I suspect these multiples were calculated before the huge dip in those same two cities?

Anything on Honolulu and Oz, Garth?

What makes us (in Vancouver) think that we should be much below these other cities? Between us and the Ozzies, we appear to be screwed. Put up the interest rates!

#14 Onemorething on 09.27.09 at 10:12 pm

I believe in 5 years income in Canada will be reduced by over 15%.

As house prices drop, so will family income and therefore a double threat to finding a bottom and affordable housing.

The whole baseline will move down!

It could take years before salaries bottom and then can the final dip in RE BE AFFORDABLE!

All you can hope for it the Canadian $ goes back to 0.65cents!

#15 nonplused on 09.27.09 at 10:14 pm

Those affordability ratios have embedded in them assumptions about interest rates over the life of the mortgage. Right now, interest rates are abnormally low, actually lower than they could go without government intervention, so house seem temporarily affordable. However, that is all likely to change if and when interest rates normalize. 0.25% for the Fed funds rate is unsustainable. It does not make sense to lend money, not even a sovereign state, money at that rate. It is below the rate of inflation and carries no risk premium whatsoever. Even sovereigns have some risk of default above 0.25%.

But for now, party on dudes! And ignore those falling sales numbers! It’s fall after all.

About a year ago I flew into Seattle in the day time and commented on this site about all the subdivisions I could see from the air that had roads but not a single house under construction. Well, there is one outside Cochrane now, and they are starting to pop up around Calgary. Across the street from where I live there is an executive subdivision where people supposedly camped out overnight to get lots 1 year ago. So far about 30% of the homes are under construction, nothing started recently (no new foundations) and the sign still says “lots available”.

Rural Alberta is almost entirely for sale, but the asking price is still 60 times what the land will yield in annual crop revenue. Should be somewhere between 10 and 20 times, with 15 probably being sustainable in a low interest environment.

#16 artisuseless on 09.27.09 at 10:31 pm

@Eddy – Henry Ford was far from socialist but understood that he wouldn’t have much of a market for cars if even the people making them couldn’t afford to buy one.

Affordability is actually a capitalistic concept – and one of several determinants of price. Unfortunately, several decades of Chicago School Economics predominating has led to people forgetting about the ‘demand’ side of ‘supply and demand’.

#17 Franklin on 09.27.09 at 10:51 pm

Hi Garth

Read your blog with some regularity even though I’m nowhere close to Canada (Southern Cal), and I’m not a homeowner.

So why do I check in from time to time…. becasue I think you’re a voice of sensibility and reason, you write well, and as I’ve discovered recently…. you’re running for office.

Just what the U.S. needs I think, a sane neighbor politico to keep us in touch with reality.

#18 Just Janice on 09.27.09 at 10:54 pm

Jon B – you confuse price with value. Price is the amount somebody is willing to pay…value is something else and speaks to what something is worth. The value of a house is in being shelter and as shelter what would one be willing to pay for it?

Bubbles exist when people begin to place prices on assets that do not accurately reflect their value.

#19 Roger in Victoria on 09.27.09 at 11:04 pm

Confused in Victoria,

If you click my name you will get a pdf file with all the household income stats for Victoria.

#20 off-gridder on 09.27.09 at 11:17 pm

It floors me the number of times people commenting on here have said Garth doesn’t back his talk and hasn’t provided good enough reasons for a widespread collapse. And that people still question it and get angry when Garth repeats himself. How many times does it take. I’m not yet 24 years old, and I’m watching many of my friends purchasing houses in urban areas of Western Canada (Red Deer, Sylvan Lake, Innisfail, Vancouver, Kelowna). And I think if I don’t pay rent and my monthly budget sits at $2063.61 roughly and I can’t believe how fast money runs out. How are all others going to afford that kind of budget coupled with a mortgage, property taxes, and utilities. Especially after interest rates rise. From experience I can tell you that people my age think I am weird for budgeting and living frugal. Small town BC where I live understands better than old home Central AB. No one knows where their money is going and the debt will and us creeping up on them. Ever watched ’till debt do us part’? 10 years from now when I’ve saved up and paid up a piece of land by living in my 30 foot travel trailer, and then I start building my small off grid cozy cabin… we’ll see where all my none budgeting, money spending peers are. For those friends who haven’t been laid off in AB already I hope you spend your patch money wisely (or not at all). And I am hearing time and time again that their parents are the ones convincing/pressuring them to buy ‘NOW OR NEVER.’ Wake up people.

#21 Steve on 09.27.09 at 11:18 pm

What about all the immigrants who are selected to come to Canada because they are in part, excellent financial shape?

They may go a long way towards pushing up prices, no?

No. That point has been dealt with here previously. — Garth

#22 T.O. Bubble Boy on 09.27.09 at 11:35 pm

Question for the economic academics: what factors have led Japan to keep their Central Bank Rate between 0% and 0.5% for a decade?

And, is there any chance of those same factors all applying here?

– Various Bubbles, including housing: check
– Decline in key industries: check
– Government bail outs: check
– People “over-saving” and not spending: check

Now, I’m well aware that the economies are quite different (we have oil and minerals, we didn’t have the same extreme bubble peaks), but are they different enough that we won’t see sub-1% Bank of Canada rates for a decade?

If Canada did happen to stay in this kind of economic purgatory for a while, and mortgage rates aren’t the trigger to pop the Canadian RE bubble, what is the next most likely cause going to be? Boomers cashing out of their homes? Prices bubbling up so high that even a 2% mortgage and 35-yr amortization doesn’t make them affordable?

#23 specuskeptic on 09.27.09 at 11:49 pm

Probably the strongest argument there is. The only piece I’d add – and it’s along the same lines and leads to the same conclusion – is that prices are waaaay disproportionate to rents. A 508K 2.5 br condo in a Vancouver suburb rents for 1575 and that’s on the high end for the area. At that rate it should be worth anywhere from roughly 200k – 240 (assuming the accuracy of the 12-150X rent argument). The bulls will argue new paradigm but I’m not sure where in that new paradigm people take on generational debt. That’s an old paradigm and it’s called serfdom.

#24 Fool me once... on 09.27.09 at 11:53 pm

“History doesn’t repeat itself, it rhymes!”

…..Samuel Clemens

#25 average joe on 09.28.09 at 12:38 am

All I know is that I am trying to pay off my mortgage as quickly as I can. No dinners out, (except for the anniversary), no movies and no mall trolling. It’s board games with the kids on Saturday nights. When the rates go up, I want to have been proactive. I hope it isn’t a huge jump in the rates next summer.

#26 InvestX on 09.28.09 at 12:54 am

It be interesting to see a chart which dis[layed the average household income to home price ratio over the last several decades.

#27 joycer on 09.28.09 at 1:10 am

A small excerpt from the demographia report:
“Among the major markets, Vancouver is the least affordable, with a Median
Multiple of 8.3, followed by Sydney (8.3), San Francisco (8.0), San Jose (7.2), Adelaide (7.1),
Melbourne (7.1) New York (7.0) and London (6.9).”

We’re number 1, we’re number 1, we’re number 1!!!
In your face San Francisco, New York and London.
We’re number 1, we’re number 1, we’re number 1!!!

#28 taxpayer like you on 09.28.09 at 1:25 am

For those asking the demographia site has reports going back a few years.

Garth – this is old news and was linked on this blog months ago.

I havent reviewed lately, but I believe the data is only for the anglophone world – rather limited.

The author(s) provide a theory as to the reason for the
boom-bust cycle and why it is exagerated in certain markets. Sounds good, but lacks metrics.

#29 Peter on 09.28.09 at 2:29 am

We’ve got to much brainwashed by the media, booksmart newlyweds ( I mean TRUCKLOADS) who are just thinking of JOBS, CARS & HOUSE all across Canada..No one wants to hear the GREAT CARS & HOMES party ending soon !!! Look at the Mattxmy Nightmare in Milton and many captured on the news interview were YOUNG COUPLES or NEW IMMIGRANTS and JUST WANT a HOME BUYERS !! When the media heads ask how much they need to pay to cover their a$$, the answer is $ 7,888 and they all proclaimed they DONT HAVE ANY RAINY DAY MONEY to PAY those fees…So, are they really prepared to buy a home ? I would say NO !! Its only those 5 %, 35 or No payment until 2010 gimmicks brought them to there to load up the town…!!!

#30 Mike (Authentic) on 09.28.09 at 3:17 am

I find a good indicator is when people all rush to buy into “something” that “something” is a bubble.

When everyone and their dog tells you to buy that one “something” that “something” is a bubble.

When you are at a party, a meeting or work and 50% of conversations start or end with you should get into/buy that “something” then it is a bubble.

When people tell you that you should buy a 2nd “something” because the first “something” when up so much in value, it’s a bubble.

#31 David Bakody on 09.28.09 at 7:26 am

1 Confused in Victoria on 09.27.09 at 8:51 pm

First told by who? name em ….. Garth has put his name to his words …. no name no claim!

#4 Jon B on 09.27.09 at 9:20 pm

Correct Sir, “BUT” when governments step in with false promises and do not provide sound accountability and undermine those who speak the truth wrt to RE it becomes a false market ….. and that is not simple it is a dam shame …. and Sir we all pay for it!

#8 Jim on 09.27.09 at 9:58 pm

Sure Jim …… check the past graft (s) Garth has posted them they go up and down like yo yo and there are reasons for them, mostly inside deals controlled by those who stand to profit most. “And fools” so which are you?

Now my wise thoughts (ha ha, what the heck do I know)

the 40-20-20-20 plan is well underway and no where is in the interests or planing of big business to give more profit back via wage increases nor do they wish/plan to give benefits …. the selected few will who are healthy and bright will do just fine and others will be left on their hands and knees to be used as required. So what will happen ……”Real Estate Correction Down” Interest Rates up, taxes up and far more people working past age 65, and a new bag full on neocon boogie men to scare people into money making security government inspired systems …. who ever knew that simple house alarm could lead to taking your shoes off at a airport or throwing your bottled water away only to have to buy another smaller on (twice the price) a few steps away.

#32 Samantha on 09.28.09 at 7:47 am

Here are a couple of articles (with excerpts and links). The housing market is bound to be further impacted by these situations, one concerning older workers and the other concerning younger workers.

Both articles concern the situation in the USA, however, we could also face a similar scenario here. Our trade with them will also be affected if their labor market continues to stagnate. This will further impact our economic conditions unless we attempt the complicated and arduous process of shifting the bulk of our trade to other Countries.

Regarding the first article, in the US, unemployed older workers who cannot find work have taken early retirement as a matter of necessity and survival.

This early retirement of last recourse will reduce the monthly pension of many unwilling early retirees. The fallout in years to come will place greater demands upon State and Country.

An excerpt with link to full article at the end:

“Social Security strained by early retirements”

“What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security.

“A lot of people who in better times would have continued working are opting to retire,” said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. “If they were younger, we would call them unemployed.”

Job losses are forcing more retirements even though an increasing number of older people want to keep working. Many can’t afford to retire, especially after the financial collapse demolished their nest eggs.”

http://apnews.myway.com/article/20090927/D9AVHRDG0.html

The second article concerns the unemployment rate for American youth aged 16 to 24.

Given the post-World War II high unemployment, if their demographic were as high as the Boomer generation, the situation could be much worse.

A particular concern as I considered this next article, is that in this age group, there are youth working to save for college and young workers just beginning to work who have graduated or not attended college.

They will lose those precious early years of experience and income building. What they face today will set their generation back fiscally for years to come. More very sad writing on the wall:

“The Dead End Kids”

“The unemployment rate for young Americans has exploded to 52.2 percent — a post-World War II high, according to the Labor Dept. — meaning millions of Americans are staring at the likelihood that their lifetime earning potential will be diminished and, combined with the predicted slow economic recovery, their transition into productive members of society could be put on hold for an extended period of time.

And worse, without a clear economic recovery plan aimed at creating entry-level jobs, the odds of many of these young adults — aged 16 to 24, excluding students — getting a job and moving out of their parents’ houses are long. Young workers have been among the hardest hit during the current recession — in which a total of 9.5 million jobs have been lost.”

(further along in same article….)

“There is no assistance provided for the development of job growth through small businesses, which create 70 percent of the jobs in the country,” Angrisani said in an interview last week. “All those [unemployed young people] should be getting hired by small businesses.”

http://www.nypost.com/p/news/business/the_dead_end_kids_AnwaWNOGqsXMuIlGONNX1K

#33 Dan on 09.28.09 at 7:55 am

#22 T.O Bubbleboy
PLEASE will everyone stop comparing the current situation to Japan. They managed to keep interest rates at 0-0.5% for 2 decades because they had an immensely productive economy, a frugal people, and could export to the rest of the world which was not in recession. Japan never needed foreigners to buy its bonds, and could offer any interest rate it wanted.

Most western countries are in the opposite position. Large external deficits look like being the way of the future. The people are spendthrifts in enormous debt. We have to borrow from other people to pay for our standard of living, and there is a hell of a lot of competition for that investment. Just the US treasury should max out the world’s credit card, by their own assumptions they will need to issue $9 trillion over 10 years (optimistic) to keep the ponzi scheme going.

Once you start borrowing from overseas, you need to offer real interest rates or real collateral, and often both. Print the difference? Rates go up even faster, the currency gets pounded, and debt gets harder to pay.

Yes, it might be possible for a short while to keep interest rates at 0.2%, but in the long term? Unlikely. Maybe shift the decimal point a couple of places to the right.

#34 Devil's Advocate on 09.28.09 at 7:59 am

#9 “House prices have been falling in gold terms in the US since 2001.”

What does that say of fiat currencies?

#12 “Paint a mental picture, one car, one 1800sqft ranch style bungalow, weekends at the camp ground and family picnics.”

I love that picture!

#22 “what factors have led Japan to keep their Central Bank Rate between 0% and 0.5% for a decade?”

Japan’s demographics are ahead of ours. Japan’s economic fundamentals were impacted by that demographic change before ours. The rest of the world (North America and Europe) has been on a demographic spending spree long after Japan’s ended. Japan industry, having recently gone through their own troubled times, financed themselves through their own resources (once bitten twice as shy) in order to address the western worlds demand for their products. Thus there was little demand for corporate finance and interest rates remained low as well as the general global markets lack of demand for capital during the good demographic demand spawned by more established Boomers with resources and the lack of the same demanded by government whose revenues were plentiful from full employment. Today we find ourselves in a more global ill-fated matter with Boomer wealth depleted, government revenues falling and demand for borrowed money swelling. The bond markets, from where it all originates, are global and will push rates up here and in Japan. The bond markets are HUGE… something like 10 times the size of the stock markets. Not as sexy… yet… but a HUGE player, THE HUGE player in international finance.

Economics is the back-story to all history and demographics are the back-story to economics.

#35 Phil from mtl on 09.28.09 at 8:13 am

Post 1
“Does anyone know the average 2 person family salary and average single family home in Victoria. I would love to know where Victoria stands.”

In november 2008 family income was 56,300 Median home price was 418,600 $ form a multiplier of 7.4

you can find the info at : http://www.demographia.com/dhi.pdf

#36 Devil's Advocate on 09.28.09 at 8:26 am

Money is debt.

A fiat note is really nothing more than a promissory note that you are owed for your labour. That note you can take to another and pay for their labour. IE you work the line at Ford at the end of the day you are owed $500.00 for your labour. You then head down to the grocery store and buy groceries which are the results of another’s labour. The problem is when governments print more and more money yours is worth less and less as it has to compete with those newly minted dollars.

Keeping interest rates artificially low has essentially the same effect as printing more fiat notes. There is more money available to compete with that already in the system. House prices are bid upward to the point there is not enough money in circulation to facilitate the record prices. That is until the government prints more money and then they go up again. Nothing, and I mean NOTHING, affects housing prices as quickly and dramatically as a change in interest rates. It’s an overnight thing – up or down.

Housing is a consumable. We need a roof over our head, especially in Canada, just as we need food in our belly. The only difference between the two is that food is perishable where housing generally is not. If apples were to suddenly appear to be rising in value exponentially and were not subject to rotting in the warehouse investors might start speculating in them just as housing or the stock market. To some degree, somewhere, I am sure there are such apple speculations taking place.

My point is inflation is about to run out of control. The things you “need” are going to cost a lot more and the things you “want” less and less as people have limited resources and are forced to direct what resources they have away from that which they “want” toward the that which they “need”. Simple supply and demand.

Will housing values drop through the floor? Yes but not nearly so much as many believe or hope for in-as-much as there will always be a demand for shelter. What will happen is people will come to realize it for what it really is… a consumable, not so much a trinket with which to impress your friends as you learn that some of them might be envious enough of the mere fact that you too don’t live in a cardboard box such as they.

#37 Sunshine Coast, Qld, AU #1 on 09.28.09 at 8:30 am

Gov. Stevens from the Reserve Bank of Australia’s had the following to say at today’s Senate hearing that maybe gives some hope for rates rises in the near future.

Sen. Helen Coonan: “Isn’t there a risk that this big budget stimulus will become destabilising if it’s not recalibrated as the emergency has passed and won’t that show up for example in asset bubbles?”

Glenn Stevens: “I would say myself that actually it’s the possibility of very low interest rates for a long period is the bigger contributor to likely asset imbalances. That’s actually an argument I think for making sure that the return towards normal on monetary policy is not delayed.”

Sen. Steve Fielding: “Is there anything the Government can do to reduce the likely effect of putting pressure on interest rates going upwards; anything they can do to avoid that?”

Stevens: “I’d wonder whether actually we really want to avoid interest rates going back towards, roughly towards normal over that time because I’m not sure it’s a good outcome to have them persistently low for a, for a, for a long period.”

#38 Grantmi on 09.28.09 at 8:38 am

#21 Steve on 09.27.09 at 11:18 pm What about all the immigrants who are selected to come to Canada because they are in part, excellent financial shape?

They may go a long way towards pushing up prices, no?

No. That point has been dealt with here previously. — Garth

These aren’t HONG KONG residents coming to Canada any more Steve. Unless all these new Canadians rich, rich from THESE countries (below) which I doubt.

I agree with Garth… immigration is NOT driving this Boom. (soon to be BUST)

http://www12.statcan.ca/census-recensement/2006/as-sa/97-557/table/t1-eng.cfm

#39 Bill-Muskoka (NAM) on 09.28.09 at 8:59 am

Reading some of the comments remind me that the people of this world are incapable of dealing with reality, or for that matter realty.

The entire mantra of the ‘economists’ (not Garth who is trying like mad to educate people, but some just are deaf and dumb) is one of ‘maintain the illusion of the status quo’ (their’s of course) regardless of the facts right before their eyes. Did I mention blind as well?

We have available truly insightful books like joh Ralston Saul’s ‘The Collapse of Globalism and The Reinvention of The World’, or Jared Diamond’s Best Seller ‘Collapse: How Societies Choose to Fail or Succeed.’

Both bring the reality right to the reader and the focus is where it needs to be on the personal traits and characteristics of human beings and how they think, react, and interact.

The key lesson is, as Pogo said so simply, ‘We has found the enemy and they is us!’

Garth is providing leadership that allows choice. The rest are attempting to manage to illusion to make it seem like it is inevitable. It is not! History clearly teaches this, but people no longer believe history can teach anything.

Yesterday I watched a news segment that portrayed a competition between a bunch of teens and Old Guys. The contest was who could send a text message the fastest? The teens were equipped with the latest hi-tech Blackberries, etc, and the Old Guys had their telegraph keys. The Old Guys won every time with 19th century technology. The teens were totally shocked. It is not the first time this victory has happened either.

There might be a lesson there, eh? For those unwilling to face reality just blame it on the New Math you were taught in school. Not your fault or responsibility.

#40 dave99 on 09.28.09 at 9:02 am

The Ethics of declaring Bankruptcy

There have been some recent posts about the ethics (or lack thereof) in declaring bankruptcy.

Some say that since the banks/cc companies/etc are happy to stick it to you, then if you can’t pay it is fair game to declare bankruptcy and stick it to them.

Others scorn that as a lack of character, and has a immoral and weak act of someone leeching off society.

Some thoughts on the matter…

The gov’t charges us EI premiums, and if we have misfortune and lose our job (despite our best efforts) then we get that benefit.

Insurance companies price into their products various assumptions about mortality (death) and morbidity (injury/sickness), and if we experience that misfortune then we get the benefit.

Similarly Banks/CC companies/all lenders, price in default rates into their products.

When people get laid off, there are usually other employees doing the same job who didn’t get laid off. Doesn’t the laid off employee bear some responsibilty in being the one who got cut?

When someone dies, or suffers an injury, usually they bear some responsibilty and could have avoided or forestalled the injury if they had lived a healthier lifestyle/smoked less/exercised more etc.

Following the same logic, if a person gets into severe financial difficulty and declares bankruptcy then they certainly bear a great deal of responsibility for that. Just as the fat person does if they have health problems and files an insurance claim, or the person who gets laid off and claims when their co-worker doesn’t.

We live in a consumer society where businesses are very skilled at getting us to consume their products. Food is now a product, and many people are addicted to the various nefarious additives which cause us to overconsume.

Similarly, all loans and debt are products. These are designed and marketed to us by skilled businesses. They want us to gorge ourselves on their products, and they have little concern for what is our best interests.

No-one wants to be laid off. No-one wants to be obese and unhealthy. And no-one wants to declare bankruptcy.

When people declare bankruptcy, that sticks it to all the rest of us. But the same thing happens when someone is a burden on our social healthcare system, etc/etc/etc.

Ultimately, my position on this is that we all have a responsibility to contribute to our society, and not leech off of it. But there is a reason we have “safety nets” like EI, Insurance, Healthcare, Prison rehab programs, halfway houses and Bankruptcy.

Sometimes, a person needs a helping hand or a fresh start. I don’t think that is pathetic or weak. Just a part of what makes us a community.

my 2 cents.

#41 Downsized and Delighted on 09.28.09 at 9:27 am

How can you tell if houses are overvalued? Well maybe if 90 percent of your blog don’t own one! You are preaching to the choir Garth.

I have no evidence that is valid. Do you? — Garth

#42 Downsized and Delighted on 09.28.09 at 9:35 am

Affordability index of 3 or less is good Garth? Congratulations – you can live in Windsor Ontario or Flint Michigan! Maybe you should call that the “desirability” index.

The words of an arrogant metropolis dweller. — Garth

#43 Alex on 09.28.09 at 9:46 am

To: #40 dave99
Great. From now on I won’t miss your post.

#44 Gord In Vancouver on 09.28.09 at 10:10 am

#42 Downsized and Delighted

Affordability index of 3 or less is good Garth? Congratulations – you can live in Windsor Ontario or Flint Michigan! Maybe you should call that the “desirability” index.
___________________________________

Looks like Garth touched a raw nerve on the west coast.

#45 David on 09.28.09 at 10:23 am

Median Family Income is heading down. For a long time.

Not just because of sustained job losses and lower wages for those who keep their jobs, but also because of a massive wave of less productive, retiring old people that are steadily making the transition towards earning less.

Canada 2007 is the equivalent of Japan 1989.

Well, no, actually the Japanese were massive NET CREDITORS before they entered their bubble popping demographic disaster. They had money in the bank…and only now owe as much debt per GDP as your better African countries.

Canada owes a ton of money now. And so do Canadians.

Looking at Family income is misleading.

Look at DEBT ABJUSTED FAMILY INCOME.

Better yet, any GOOD analysis should be on After-tax debt adjusted family income.

You only have your paycheck to spend AFTER you give the government theirs, and make your other payments.

The gap between what people made, and what they actually have to spend, is a lot bigger now than its ever been.

#46 Downsized and Delighted on 09.28.09 at 10:25 am

Why don’t you take a poll Garth of your readers? Find out how many own their own home or condo, own investment real estate, or are “waiting” to buy?

I’ve been called many things, but never an “arrogant metropolis dweller”. It’s more of a compliment to someone like myself who lives so far below one’s means as to be embarassing.

No attempt to embarrass. That was the clear intonation of your remarks. — Garth

#47 David on 09.28.09 at 10:28 am

Alberta

Garth – Don’t be too hard on Alberta.

Someone has to pay the bills in this country.

We can’t all live off equalization payments.

How big was that deficit again? Soon we’ll all be living off Saskatchewan. — Garth

#48 Larry on 09.28.09 at 10:30 am

I know Canada is different especially Calgary but over in that small country Ireland, where once the celtic tiger purred, house prices have dropped 25% since their peak in 2007.
http://www.independent.ie/breaking-news/national-news/latest-figures-show-house-prices-continue-to-fall-1898547.html
Of course house prices always go up.

#49 Jonathan on 09.28.09 at 10:32 am

Garth,

You failed to also mention that incomes are being inflated by credit. People then use their inflated incomes to borrow even more, carrying this 30 year cycle even further.

Consumer credit is now shrinking in the USA. Median incomes fell 3.8% in 2008 and may fall as much as 5% in 2009. That’s what will happen here when credit begins to contract.

Right now credit is expanding at its fastest rate ever. That’s what happens right before a credit bubble blows.

#50 Justin on 09.28.09 at 10:38 am

Gentle reader it appears that the real truth is beginning to set in.

The once admirable standard of living in North America is about to take a deep plunge. The process was indeed mischevious. The credit window was throttled fully open (Thank You Mr. Greenspan) creating an illusion of wealth while the industrial base was gutted and sent to cheaper labour markets. Few noticed as disposable incomes decreased as measured against inflation and now we are facing actual wage decreases. Where then will the economic recovery take root? Green jobs? Not likely. Spain has been in this endeavour for some time and found that the greening process results in a net decrease in labour.

The only lever left for America appears to be protectionism which will only come as masses of unemployed take to the streets demanding employment.

#51 David Bakody on 09.28.09 at 10:46 am

Interest rates and taxes ….. Garth has mentioned these many times as he has with multi millions who will soon become part the Senior Boomer Boom if older people work they will become less healthy ( by the way people who past 65 loss many company health benefits) so just how good is our health care which of course effects everything including shelter food clothing.

Source: WHO World Health Report – (list is 190 but I just went to Canada & the USA)

1 France
2 Italy
3 San Marino
4 Andorra
5 Malta
6 Singapore
7 Spain
8 Oman
9 Austria
10 Japan
11 Norway
12 Portugal
13 Monaco
14 Greece
15 Iceland
16 Luxembourg
17 Netherlands
18 United Kingdom
19 Ireland
20 Switzerland
21 Belgium
22 Colombia
23 Sweden
24 Cyprus
25 Germany
26 Saudi Arabia
27 United Arab Emirates
28 Israel
29 Morocco
30 Canada
31 Finland
32 Australia
33 Chile
34 Denmark
35 Dominica
36 Costa Rica
37 United States of America

FACT! Harper & Co (RAC) took us from PLUS $18 Billion in the black to over $56 Billion in RED!!! spending over $74 Billion in approx 3 years. With no money put aside for the future …… So darn y’all who can not see the writing on the wall . THINK who are fools here who believed 1. Accountability ….. 2. Transparency …. and 3. We could all buy a brand new mini van with a 2% cut in the GST ….. please stand up! Hello MSM are you reading this or waiting for a Senate Seat? ( for what is worth Harper gave away 27, the most by any sitting PM and in less than one year!!!!!!!

#52 Makeorbreak on 09.28.09 at 10:46 am

http://www.msnbc.msn.com/id/33020534/ns/business-reinventing_america

#53 ClaudiusEmperor on 09.28.09 at 10:49 am

I would advise all prudent savers to convert their savings into euro. I definitely WILL NOT subsidise the lunatic North American financiers (FED and BOC) and politicians (federal and provincial governments).

Look at what is happening now:
– provincial land transfer tax
– city land transfer tax (Toronto).
– H(armonized)ST
– accumulating dept in the range of 90- 100 billions per year (federal and provincial)
– provincial PST on new homes
– 35-40 years (?) mortgages.

and we have not started paying yet for:
– the new dept
– retirement of the baby boomers (they don’t have savings).
– the future mess around CHMC (Canada Housing and Mortgage Corporation) when the people start defaulting on their mortgage payments.

I don’t get it how it could be legal for the banks not to be responsible for any subprime mortgages in Canada, instead the taxpayers are on the hook as they are behind CHMC.

Privatize the profit, socialize the risk.
We are encouraging bad behaviour and punishing the responsible people, how long do we think this could last?

#54 rory on 09.28.09 at 10:56 am

#32 Sam …your ref to the “The Dead End Kids” said:

“And worse, without a clear economic recovery plan ”

There we go again assuming 2 things – that the G can fix something and consumer spending will increase so that jobs are created …we cannot create anything when their is no demand …not at the wages/benefits, etc we have had in the past …so unless a fundamental change happens (downsizing in all things) this will get worse before it gets better …think 2.5B Chinese & Indians that can to it just as well as you for a fraction of the cost…so forget the G …they can do nothing except not to make it worse.

Until, the people (not the G), decide to grow our economy (in a profoundly more basic way) it will not. And right now we are all just in hunker mode hoping the world passes us by and we can to back to the way it was…I do not see that happening, plan accordingly …of course IMO.

P.S. – Efficiency and cheap energy in everything is what is killing jobs. Too many people, too many machines.

# Munch

See you guys set a record …one guy married all 4 of his new wives in the same day in the same ceremony …kinda busy wedding night …lol.

#55 Daystar on 09.28.09 at 11:01 am

#1 Confused in Victoria on 09.27.09 at 8:51 pm

http://www.cbc.ca/news/canadavotes/riding/304/index.html

You can find out what the average income is in your riding if you like. Check the link out above and go through the riding profile and you’ll find average incomes that are more geographically specific there. Your welcome!

#56 OttawaMike on 09.28.09 at 11:33 am

Strategic Foreclosure, good thing Canadians cannot do this:
http://www.latimes.com/classified/realestate/news/la-fi-harney20-2009sep20,0,2560658.story
It’s been covered here & on Mishs’ site. the above link details it more.

#57 Chaostrology on 09.28.09 at 11:42 am

Perhaps it’s time for a National Housing Policy.

The NHP would serve to take some of the heat out of the real estate market.

The NHP would give low earners a place to live with money left over to help out the new consumer economy.

Don’t worry high earners, the homes need not be anything special or expensive. The homes could be relegated to some unoccupied expanse of wilderness anywhere in this huge country. You would be free of having to live with poor people.

The community would be comprised of like challenged poor people who would love to be free of rental slavery. With a shift away from having to commit to spending the largest part of an income on housing, that energy could be focused on education, health, children, family, the environment, etc.

If we could take the heat out of housing, a lot of things and services would become more reasonable in cost and price.

If you want to have servants, you have to look after them.

Would it be any worse than what we’ve got going on now?

#58 mattbg on 09.28.09 at 11:44 am

I had a letter from a realtor yesterday, referencing a recent bidding war for a house in Georgetown, Ontario that sent the price to $15K over asking. In GEORGETOWN??

#59 Samantha on 09.28.09 at 11:51 am

#54 Hi Rory

I agree the G can’t do it all. It is going to take all of us to clean up this swamp. We are all facing a big learning curve.

We can survive this time, as others did before us in the Great Depression and WWII, if we use our skills, talents, creativity, and resourcefulness.

We can find opportunities and innovate in these difficult times and we can discover better ways to rebuild our economy.

We can extend cooperation, encouragement and compassion to others, and help each other navigate and survive the burdens that are too great for us to carry alone.

And with courage, hope and faith, we can not only get through this era, but also learn from it and build a better legacy for those who will follow us.

(Re Munch – I saw that bit of news too, and wondered if Munch got married? Munch, should we send congratulations to you?)

#60 Herb on 09.28.09 at 12:01 pm

David Bakody at #51,

let me give you an instance of why Austria is at #9 on that list. In early 2001 I had a minor cardiac event in Salzburg, a provincial capital with a population of about 120,000. Help arrived within minutes of my wife’s call. It was not an ambulance with two paramedics to take me away to hospital, but a squad of seven led by an emergency physician thundering up two flights of stairs carrying half a ton of equipment in aluminum cases. I was examined, analyzed and treated in my own bed, then given the option to come along for further observation, or stay in bed, observe myself, and call again should I have further problems.

That struck me as the gold standard for emergency care, and in a country with a smaller population than Ontario to boot.

#61 jess on 09.28.09 at 12:27 pm

How many owners are selling at a loss to buy something better at a discount?

#62 ryan on 09.28.09 at 12:30 pm

I still believe that the most relevant measures of the price value equation in real estate is the use of a P/E ratio which takes into consideration income tax regulations for rental income (fact based), interest rates as a measure of opportunity cost (fact based), and expectation of capital appreciation (debatable point).

From Wikipedia:

“The price-to-earnings ratio or P/E ratio is the common metric used to assess the relative valuation of equities. To compute the P/E ratio for the case of a rented house, divide the price of the house by its potential earnings or net income, which is the market annual rent of the house minus expenses, which include maintenance and property taxes. This formula is:

The house price-to-earnings ratio provides a direct comparison to P/E ratios used to analyze other uses of the money tied up in a home. Compare this ratio to the simpler but less accurate price-rent ratio below.
The price-rent ratio is the average cost of ownership divided by the received rent income (if buying to let) or the estimated rent that would be paid if renting (if buying to reside):

The latter is often measured using the “owner’s equivalent rent” numbers published by the Bureau of Labor Statistics. It can be viewed as the real estate equivalent of stocks’ price-earnings ratio; in other terms it measures how much the buyer is paying for each dollar of received rent income (or dollar saved from rent spending). Rents, just like corporate and personal incomes, are generally tied very closely to supply and demand fundamentals; one rarely sees an unsustainable “rent bubble” (or “income bubble” for that matter). Therefore a rapid increase of home prices combined with a flat renting market can signal the onset of a bubble. The U.S. price-rent ratio was 18% higher than its long-run average as of October 2004.[16]
The gross rental yield, a measure used in the United Kingdom, is the total yearly gross rent divided by the house price and expressed as a percentage:

This is the reciprocal of the house price-rent ratio. The net rental yield deducts the landlord’s expenses (and sometimes estimated rental voids) from the gross rent before doing the above calculation; this is the reciprocal of the house P/E ratio.
Because rents are received throughout the year rather than at its end, both the gross and net rental yields calculated by the above are somewhat less than the true rental yields obtained when taking into account the monthly nature of the rental payments. ”

The easiest way to use this metric is to avoid any conversation of down payments. Assume the owner is buying the house outright and renting it out and look at their rate of retrun.

#63 rory on 09.28.09 at 12:30 pm

#57 Chaostrology

It has already been done …it is called Indian reservations and that has worked out well …the G need to get of everyone’s business (yes, some regulation is needed) and the citizens need to start getting it …apparently we in Canada seem to be resistance to it …like an infection that cannot be cured …jeez.

#59 Sam

good addition …well said.

#64 Daystar on 09.28.09 at 12:36 pm

Hey, Garth!

Been gone from internet access for 10 days or so, but I did get a chance to watch some CPAC and what I found interesting is what Harper had to say in NY (presumably on Wall St.). What he said (I could be paraphrasing, but I’m trying to be accurate as possible) is essentially this.

“Unlike the U.S., our Canadian government over the last few years has not created a housing bubble. We are also currently not engaged in buying mortgage backed securities.”

Yep. He said it. And when he said it, after knowing what I know, that Canada is in a Real estate bubble and is buying mortage backed securities he bald faced lied to NY bankers. (By the way Garth, it would make an excellent negative ad attack on the Cons, this clip of his speech lying to americans, and offering the truth in comparison, it would jar Canadians into acknowledging that Harper is borrowing massive amounts of money through bond markets to prop up a possible RE bubble implosion)

Here’s why he lied:

Flarehty RE bubble hedge… 125 billion buy in mortgage backed securities extended

http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20090924/feds_mortgage_090924/20090924?hub=QPeriod

Readers, this is the most detailed site (below) concerning our Canadian real estate bubble and the impacts a cratered bubble on CMHC would bring that I’ve found yet. Please, readers, take the time to look through it. All of it.

http://americacanada.blogspot.com/

THe link below explains the bubble in Real estate that record low interest rates are creating, as well as the reason why retail, new housing starts and construction has taken a pop in GDP numbers:

http://www.nationalpost.com/related/topics/story.html?id=1932483

Naturally, we are in a bubble brought on by loose CMHC mortgage regs instilled by the Conservatives since they’ve been in office in early 2006. In 2008, when the bond markets world wide began to unravel and investors thought “this is it”, Flarehty went to the bond markets in anticipation of a Real estate bubble meltdown in Canada.

Canada sells 50 billion worth of bonds to put into CMHC
http://www.cbc.ca/money/story/2008/11/12/flahertyloans.html

25 billion worth of bonds sold for CMHC:

http://www.cbc.ca/canada/story/2008/10/10/flaherty-banks.html

The Real estate bubble began to correct until the Bank of Canada came in with record low interest rates.

A most excellent link describing Harpers plan for credit expansion. So Republican:

http://www.cbc.ca/consumer/story/2009/01/27/budget2009-credit-access.html

Then and now: Another excellent link:

http://www.cbc.ca/consumer/story/2009/01/27/budget2009-credit-access.html

Couple the above link with this one: Evidence of cheap interest rates driving a real estate bubble and wealth effect creating a pop in retail:

http://www.nationalpost.com/related/topics/story.html?id=1932483

Readers… this will end badly. Anyone who takes the time to read through these links will understand that the taxpayer is going to get severely hosed and all it will take is a rise in interest rates to do it. And the longer these rates stay cheap, the worse it gets. The bigger the bubble grows and the more strained the system becomes, potentially to a point of no return. And why?

Bad government policies, readers. There truly is no better explanation. This Conservative federal government seriously doesn’t know whats its doing fiscally (never mind morally, they are truly out to lunch concerning human rights issues) and is more concerned with holding power for today that the future of Canadians tomarrow. Just go through the links, especially this one and keeping reading from this site and you’ll thoroughly understand why:

http://americacanada.blogspot.com/

#65 mansoor on 09.28.09 at 12:41 pm

I understand all the points Mr. Turner makes and on many issues I agree with him. However their is one factor that is overlooked that is of “CULTURES” in the City or Toronto. In various cultures a house is occupied by many working people bringing in a wage… South Asian Culture are renting out the basements and residing on the top level… in other cultures you a have a family and an Uncle residing and running the the house through sharing of expenses… thus everything is working out….. This form of life style is important to factor in… Im not sure how the western culture sees this.. but I know people of Asian or other backgrounds are buying homes and living fine…. but these issues are not being factored into the housing bubble… these folks have no intention of selling…at present. Thus could care less and expanding family and living happy. YOu may have a crowded house but.. thats how they are use to.

#66 dave from Oakville on 09.28.09 at 12:56 pm

#29 Peter

Funny I dropped by on Sat looking for one of those mattamy homes in Milton as they phoned to inform me they were releasing some more lots on Sat morning. Well there was a line up for opening on Sat since Thursday morning and apparently police were called to break up a fight that broke out as someone got their name removed from the list since they left for too long of a time. All this even though Mattamy just increased the prices by $5K from the week before. I was told they had some being released Sunday but at $10K more. I choose not to be added to the Sunday list.

Sound like bubble to me and these line ups have been happening regularly once these lots are released and the majority of people there seemed to be immigrants.

#67 Daystar on 09.28.09 at 1:00 pm

Like Garth says… unsustainable:

http://www.theglobeandmail.com/report-on-business/housing-sales-prices-surge-in-august/article1289360/

http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html

#68 rory on 09.28.09 at 1:03 pm

#60 Herb

Herb, I get real tired of apple to nuts comparison based on an observation.

Canada’s land mass is 100 times Austria’s.
Canada’s GDP (PPP) and population is both 4 times that of Austria’s.

So if we took all the doctors, nurse, fire fighters, paramedics in Canada and squished them into a BC (Austria has mountains too) then we to could have 7 people show up too…come on …our health care system has troubles as I do imagine Austria’s does as well.

Some facts:
Austria 9.98 deaths per 100K, 79.5 life span, median age 42.2.

Canada 7.74 deaths per 100K, 81.23 life span, median age 40.4

So having 7 people show up is meaningless…the stats say otherwise …all that it has done is to make you feel better about your chances …so having 4 people standing around with their hands in their pockets …sounds like union and G jobs to me …rofl.

Our firefighters respond to many medical emergencies as well as paramedics …just no doctors…but see above as to is it worth the cost.

https://www.cia.gov/library/publications/the-world-factbook/geos/au.html
Canada

#69 dd on 09.28.09 at 1:25 pm

#8 Jim

“Unfortunately booms can last for years if not decades”.

Sure it can. But who wants to hold the hot potato? Better to sell early (if that is your gig) and leave some profit on the table.

#70 double mike on 09.28.09 at 1:32 pm

1. Japan, Japan… With their 1-2% and sometimes negative interest rates kept for 20 years they still have average RE price about 40% below the peak.

2. When will the heck ppl understand that high RE prices are very, very bad for the economy? You can’t compete internationally if your worker has to throw huge amount of disposable income just for shelter. Therefore you can’t sustain viable export-oriented economy with disproportionately high RE prices.

#71 Eduardo on 09.28.09 at 1:54 pm

David in 45 – “Look at DEBT ABJUSTED FAMILY INCOME.”

Good point. It would be like a TEV/EBITDA ratio. That would make a lot more sense.

It seems like whenever Garth is talking about Alberta he is just begging to be right. Even when he says “how big was that deficit again” he ignores the fact we will STILL likely be paying into equalization payments.

#72 AL B on 09.28.09 at 1:55 pm

If Canada as a whole has a multiple of 4.62 (seriously unaffordable), then how unaffordable are we compared to the other G8 nations?

#73 TakingResponsibility on 09.28.09 at 2:13 pm

#66 – Dave from Oakville on 09.28.09 at 12:56 pm

“…the majority of people there seemed to be immigrants.”

All this talk about Immigrants…

I’m curious.

How can I tell if someone is an immigrant?

#74 Future Expatriate on 09.28.09 at 2:16 pm

GROW OPS/BC UNDERGROUND ECONOMY TO COMPLETELY COLLAPSE WHEN CALIFORNIA LEGALIZES POT TO SURVIVE.

Word to the wise… 50-60% drop in BC real estate prices likely as US market for pot EVAPORATES OVERNIGHT.

#75 steven rowlandson on 09.28.09 at 2:24 pm

Hello Garth.
After reading the above essay I noticed the term family income. A dangerous and diabolical term that leads to financial folly and the very disaster you warn of.
I opened up the book “Anyone can make a million ”
by Morton Shulman 1968 and went to his legendary advice on real estate on page 202 second paragraph he states that only the mans income should be counted.
Three times the mans income should be the maximum paid for a house with a 25% down payment and the balance financed over 25 years. As you can see the man did have some good ideas and advice.
The current situation is a result of that advice not being followed. All this income pooling that goes on is cheating and there are consequences for cheating.
Canadians will find out the hard way.

Steven

Sexist. — Garth

#76 North Van Dude on 09.28.09 at 2:46 pm

#51
That Ireland shows up higher than Canada on this list causes me to question the validity of this list (or at least question what they are measuring). I lived in Ireland for 3 years and had young children while living there (one born there), so we made many trips to hospitals.

I can tell you first hand that Ireland’s healthcare is so beneath the level of Canada’s that it boggled the mind.

#77 North Van Dude on 09.28.09 at 2:47 pm

#75 dude, you need to clue in to the fact that the majority of the workforce is now comprised of women.

#78 David Bakody on 09.28.09 at 2:52 pm

#60 Herb on 09.28.09 at 12:01 pm

Right on Herb …. health care priorities for the people.

Herb I was in Nice France for my daughters wedding in July 2009. I had a severe leg cramp, my daughter was visiting my wife and I and I said it’s O/K …. she said “NO Dad” she picked up phone and within 20 minutes there was a Dr. sitting on my bed and we had a good chat he prescribed medicine and wrote an emergency # to call and told me I would get full care should I need it. My new son-in-law told me each and every EHS vehicle carries a fully qualified Dr.

We sure could do a whole lot better with the money we are putting out ….. and ya know Herb it would not be too hard.

#79 dboy on 09.28.09 at 2:53 pm

Got to say I’m sick of waiting for the sky to fall in. Is there a point when the market stops being a bubble and it is just what it is?

I hope this supposed bubble hurrys up and pops, don’t think I can hold off the wife much longer.

#80 Nostradamus jr. on 09.28.09 at 3:06 pm

Face the truth Garth, “Vancouver Proper” is genuinely different.

….and Vancouver is still like 5 or 6 levels cheaper than certain spots in California.

North & West Vancouver have it all….drinking water, lectricty, climate, safety and lifestyle.

Nostradamus jr.

#81 your_missing_the_point_AND_the_peak on 09.28.09 at 3:13 pm

#40 Dave99… some of the best writing on this blog in a long time. Bang on! Our human population may be so grossly oversized that it precludes aspects of ‘community’, but communities are the hallmark of humanity in my book. And you have dealt a lesson on both in that post.

#75 – Garth says: “Sexist”.

To Garth, I say: “Reactionary”.

An old rule of thumb can still be useful in a modern context; you don’t have to beat your wife with a thumb-sized stick every time you use it.

#82 ValueHunter on 09.28.09 at 3:45 pm

Family is sitting on Trillion of dollars.

http://ctv2.theglobeandmail.com/servlet/story/RTGAM.20090928.wscotia0928/business/Business/businessBN/ctv-business?ctvBeta=yes

House price will go higher?

#83 Herb on 09.28.09 at 3:48 pm

Rory #60,

I kind of get tired of apples to nuts comparisons too.

If you really want to have a go at comparing population densities, compare that proportion of the Canadian population huddled within 100 miles of the US border. After that, ours gets a little scarce and would tend to distort the picture.

And don’t forget to tell the WHO that they are talking trough their hats, or hasn’t that talking point about the incompetence of the UN reached you yet?

#84 Bill-Muskoka (NAM) on 09.28.09 at 4:17 pm

#74 Future Expatriate

LOL Are you implying that B.C.’s economy is going to Pot?

#85 Bill-Muskoka (NAM) on 09.28.09 at 4:19 pm

#75 steven rowlandson

Actually Garth, if it is a married couple that is not bad advice due to proegnancy. Thankfully, we now have pregnancy and family leave available, but certainly not all people get it. Likewise, sometimes the wife has the greater income that qualifies them as a couple.

#86 Chaostrology on 09.28.09 at 4:55 pm

Rory,

We live a housing dictatorship, run by corporate fascists, powered by human gerbils.

I will give you 2 examples of Govt intervention in real estate and I guarantee you it does not involve Indian reservations.

1. Land given to prairie settlers before WW1.
2. The Veterans Land Act, enacted after WW2 for returning veterans.

For these purposes let’s call it a land grant. This represented the opportunity for Canadian families to establish themselves and build communities by sweat equity and it worked.

Some might call us, without reservation, the new Indians.

When you do the same old stuff, you get the same old results.

#87 auditor general on 09.28.09 at 5:12 pm

Have no fear doomers only 2 days to go. Don’t forget Vlads link to the article by the renowned Dr. Van de Meer. The collapse of the Federal reserve system begins on Sep 30! tick tock….

#88 dd on 09.28.09 at 5:28 pm

Nostradamus jr.

…North & West Vancouver have it all….drinking water, lectricty, climate, safety and lifestyle….

U forgot to mention that it is one of the most expensives places to live on earth.

#89 moneyman on 09.28.09 at 5:31 pm

To ALB comment no. 72.

You wonder what is the mortgage to income ratio in the other G-8 countries. In other words, you are asking, “are Canadians paying more for houses than they pay in the other wealthy countries?”

I think that is not the question. What matters is whether 90% of Canadians are as protected against income inequality as others elsewhere are.

The answer is NO. Income security is a lot better in some of these countries than in Canada.
Workers in these countries share more of the wealth they produce through mandatory employment and retirement benefits than we do over here.

Take the time to peruse:

http://fairpensionsforall.blogspot.com/

and you will understand that 90% of private sector workers toil for much less in Canada.

#90 moneyman on 09.28.09 at 5:46 pm

To Bill Muskoka no. 85:

You think that because of pregnancy, cost of housing should be sustainable on one income.

I think that there is more to it than pregnancy. I think that there is more to life than to being part of the loop of production, consumption and inflation, then recession, stimulus and we go again……..

All horses want enough hay, a pleasant barn and the same respect granted to the other horses in the ranch. But to be a human being is to question, analyze, reason; how much time is there for that in the double income based lifestyle scenario?

Been there, done that…….Not enough.

A good book, “the affluent society” John Kenneth Galbraith, at the library.

#91 rory on 09.28.09 at 6:20 pm

Herb …your point is exactly validating what I was trying to tell you…we are a large spread out country …we have to put resources in far flung areas that cannot be grouped. But the stats I quoted show that 7 guys showing up versus 2 has no bearing on the overall health of a country…your individual life maybe.

As to the UN …agree 100% …personally, I think the UN will be the death of all of us….overpaid bunnies zooming around the world social engineering everything not tied down…and apparently not to successful but they have acquired a ‘too big to complain’ status as in if one is anti UN you must be anti world, etc.

#92 stupid people on 09.28.09 at 6:24 pm

Yes including my friends. Let me get this straight we keep hearing from the news low interest rate supposed to make housing more AFFORDABLE. Believe it or not people are bidding each other again. Be it phantom or affordability people buy no matter what. What bunch of lemmings. By the time said and done the final sold price is way more than interest % you saved in 5 years. People need to take a step back and look at the big picture. Even if I take the 8 % HST still cheaper to buy then than now!!!
A friend of mine bought a house for 540k, listing price 450k. Satisfied ego priceless. 90k? chump change.

#93 Iain on 09.28.09 at 6:50 pm

Things to come in Canada? http://www.youtube.com/watch?v=QzvuS22HnSY&feature=related

#94 Peter on 09.28.09 at 6:50 pm

Done !!!!!

http://www.calgaryherald.com/business/Natural+slump+means+Alberta+must/2042789/story.html

#95 DaBull on 09.28.09 at 7:06 pm

#74 Future Expatriate

BC still has the best pot in the world and always will.

#96 Steven on 09.28.09 at 8:23 pm

I think that the USD will collapse…and the USA will monetize some of their debt. That means massive QE, printing money, etc. Rates will rise for the BONDS, which will raise FIXED MORTGAGES. But… guess what, the variable rates will be very low, because Ben Bernanke will keep them there. Canada will follow…the Bank of Canada rate will remain LOW for the next year or maybe even 2 years.

“Other things being equal, a persistently strong Canadian dollar would reduce real growth and delay the return of inflation to target.”

Carney reiterated that the central bank will keep its benchmark lending rate at a record 0.25 percent until June 2010 unless the inflation outlook changes materially. He also repeated the central bank retains “considerable flexibility” to conduct monetary policy, even with the policy rate as low as it can be.

Basically our Loonie is flying too high, and if they raise rates in Ottawa our Loon will be on the moon. So again, if you are looking for rates to go up to 10% and have homes go into foreclosure… that’s NOT likely to happen.

To combat inflation they would have to raise rates fast….but it will be too late after the world has binged on the money printed. The rates will go up HARD, but actual goods and services will go up HARDER….people will demand more pay, and get it. With the devalued money they will pay off debts faster with cheaper “dollars”. Look at the Asian currency crisis. Rates rose in some countries to 32% or 65% in the case of the Philippines!!! Did this prevent the massive devaluation (and hence inflation) of the currency? NO.

#97 Vladman Across The Water on 09.28.09 at 8:32 pm

#87 auditor general on 09.28.09 at 5:12 pm — “. . . Don’t forget Vlads link to the article by the renowned Dr. Van de Meer. The collapse of the Federal reserve system begins on Sep 30! tick tock….”

G’day y’all from the summit of Mount Toronto, Ont., and it’s bloody weird here.

To auditor general’s post: There was a link on rense.com last Wed. / Thurs., which the author stated that the October and / or Spring Surprise would NOT be a fiscal one, as the ‘elite’ were swimming in money and wanted to continue increasing their wealth.

The door is open as to what may / may not happen, but notice the rhetoric the US, France, the UK and Israel are hollering about Iran having an underground nuke site (ask when the IAEA wll be allowed to inspect Dimona; probably not for some time).

Everyone here knows that Russia and China have said that an attack would essentially be the beginning of WW3, then a short while later this would be fairly easy to bring in.

http://www.americanfreepress.net/html/bilderbergers_want_194.html

. . . and a couple of others for your reading pleasure . . .

http://www.rense.com/general87/season.htm

http://housingstorm.com/2009/09/whats-the-real-reason-that-banks-arent-foreclosing/

#98 Barb the proof reader on 09.28.09 at 8:43 pm

#51 David Bakody FACT! Harper & Co Reform Alliance Conservative took us from PLUS $18 Billion in the black to over $56 Billion in RED!!! spending over $74 Billion in 3 years

David,

Don’t forget to add the GST cash trick that he also blew. That’s gotta be another 30 billion by now. So wouldn’t you say Harper has easily blown over a hundred billion dollars in three years and nothing to show for it.

#99 Boombust on 09.28.09 at 9:46 pm

I wonder if Stephen Harper is parting his hair on the wrong side like Joe Clark did?

Hairdressers? Anyone?

#100 Bogdan on 09.28.09 at 10:15 pm

#41 & #46 – Downsized and Delighted:
“> How can you tell if houses are overvalued? Well maybe if 90 percent of your blog don’t own one! You are preaching to the choir Garth…

> Why don’t you take a poll Garth of your readers? Find out how many own their own home or condo, own investment real estate, or are “waiting” to buy?”

Take a close look to the picture posted on the top of the page. What do you see there? I see that ~90% from Garth’s audience is not at the age of first time buyers.

Take a look on what people are asking Garth about. Most of the questions are “should I downsize now or later” or “should I get in debt now or later”?

I would be more than happy to find out that “90 percent of” the blog’s readers didn’t dodge the 25-35 years bullet that was meant for them by the BOC/government, but I’m afraid is not the case and even if the auditorium is good, the audience is not the perfect one (as you wished for!?). Probably the young Garth would not listen to the advices of the elderly one… what do you expect from the first time home buyers?

On the other hand (getting serious) I understand your intention, and the translation of what you said would be: “Only the poor people’s choir is listening to your overvalued advices, as they don’t mean much”. Well, my friend, in today’s times, poor people afford to buy houses, which a big part of this blog is all about. Peace!

#101 piccaso on 09.28.09 at 10:42 pm

dboy…
“Got to say I’m sick of waiting for the sky to fall in. Is there a point when the market stops being a bubble and it is just what it is?

I hope this supposed bubble hurrys up and pops, don’t think I can hold off the wife much longer.”

….well said, I too am waiting and waiting and waiting

#102 Dave on 09.29.09 at 12:21 am

#29 Peter

Funny I dropped by on Sat looking for one of those mattamy homes in Milton as they phoned to inform me they were releasing some more lots on Sat morning. Well there was a line up for opening on Sat since Thursday morning and apparently police were called to break up a fight that broke out as someone got their name removed from the list since they left for too long of a time. All this even though Mattamy just increased the prices by $5K from the week before. I was told they had some being released Sunday but at $10K more. I choose not to be added to the Sunday list.

Sound like bubble to me and these line ups have been happening regularly once these lots are released and the majority of people there seemed to be immigrants.
—————————————

you sound like a salesman

#103 PETER on 09.29.09 at 1:03 am

Strategic Foreclosures has been doing in Canada everyday, its foreclosures news are closely kept and privileges to those realtors, agents, banksters and as consumers, we cant be the ones like US where we can check out some joe blow next street behind us walks away from his home…That is why price of those foreclosed homes did not encountered those US prices because they are holding off properties and units, playing short squeeze on the price to gauge up (mass illusions of housing frenzy produced by the banks and the media), greater government responsibility in those NHA or Canada Housing Trust mortgage bonds guaranteed by the credit of the government, cheap mortgage loans (DIRT CHEAP rates), irresponsible banksters putting the deal thru but putting a guarantee from CMHC and sells off that mortgage to government and let our govt takes care of the mess..SO, thats why you would have line ups, crazy offers, bidding wars, buyers and investors proclaims canada’s housing market is selling like hot cakes forever = price will never goes down theory !!…

#104 Vancouver_bear on 09.29.09 at 2:01 am

#80 Nostradamus jr. on 09.28.09 at 3:06 pm

Please stop lying outright, water quality may drop like it did 2 years ago. I would not drink that water even if it was boiled…it looked like urine:

http://www.cbc.ca/canada/british-columbia/story/2006/11/22/bc-water.html

Safety…very safe place with shootings and elite pedophiles:

http://www.cbc.ca/canada/british-columbia/story/2009/07/23/bc-north-vancouver-shooting.html

http://www.cbc.ca/canada/british-columbia/story/2009/08/27/bc-rbc-stockbroker-jack-crone-child-pornography.html

And of course grow ops….got pot?

http://www.ctvbc.ctv.ca/servlet/an/local/CTVNews/20090812/bc_grow_op_mt_seymour_090812/20090812/?hub=BritishColumbiaHome

I would not want to live in such a place……in addition to all the above it has less sunny days then any other city of GVRD. Very depressing.

#105 Future Expatriate on 09.29.09 at 2:10 am

#95 – Not saying it doesn’t. Saying it won’t matter. US demand will drop overnight as quicker closer legal farms, suppliers, and distributors come online.

Not to mention how quickly Big Tobacco will move in and industrialize it.

The BC pot economy doesn’t have a chance. No matter how superior it is.

In fact, I wouldn’t be surprised if many big BC growers would immediately emigrate and move operations.

So much for the grow-op effect on housing.

#106 Skye on 09.29.09 at 2:36 am

“Word to the wise… 50-60% drop in BC real estate prices likely as US market for pot EVAPORATES OVERNIGHT.”

Yes, that would be a disaster for BC. The drug trade here is estimated at 14% of the economy, more than forestry.

Ironically, the high Canadian dollar will also hurt the drug trade. Export economy, indeed.

#107 jshum on 09.29.09 at 5:32 am

dang it, I got my dates messed up and missed you in winnipeg. I thought you were here tuesday

Tonight. — Garth

#108 Herb on 09.29.09 at 6:54 am

Rory @ #91,

you not only have the mindset of a “Conservative” blog roach, but also the IQ.

I was kicking you in the head in my #83, and you didn’t even notice. Don’t know if “the UN will be the death of all of us”, but “Conservatives” look like the death of worthwhile civilization as we knew it.

#109 Bill-Muskoka (NAM) on 09.29.09 at 8:03 am

#90 moneyman

I was merely pointing out a factual reality. In my lifetime there was a time when one income could support a family. People get married for many reasons including love, sex, money, companionship, and having children. That is a reality. It has been grossly diminished by inflationary economic policies which have not produced any actual growth or wealth, but merely increased the costs.

As to pregnancy ask women how they feel about one of their most driving goals as a human being. The answer, while certainly not unaminous, may shock you.

Likewise, things change as we age and as one reaches chronological maturity the pregnancy aspect disappears. Unless, of course, the need was never satisfied. That has been a key component of human history and civilization.

#110 rory on 09.29.09 at 11:12 am

#108 Herb

I deduced as much but thought hey offer the olive branch …as to C vs. L …I fundamentally believe in smaller G …the L do not therefore I have to side with the C when their is no visible difference between the two at present…simple …just like me…as to my IQ …you have to be a lefty as their responses to things they disagree with are to attack the person, not debate the issue…cheers Herbie …may we continue to disagree….btw …your still wrong …rofl.

#111 wondering on 09.29.09 at 11:24 am

#75, #85, et al.

As North Van Dude pointed out, women now make up the majority of the Canadian work force – not to mention also being the majority of the Canadian population.

Some of us also even earn more than our partners. In my case, 3x more. If we based things off only the “man’s income”, we’d never buy a home, even if homes in Victoria were affordable @ 3X annual wages.

Is it really so hard for people to make similar points, but without the sexist language? Why not “based off the income of the highest earner”?

(& @#81 – Thank FSM that the rule of thumb for me is to beat men with a 2×4, but only when absolutely necessary… what, can’t you take a joke?)

#112 Bill-Muskoka (NAM) on 09.29.09 at 2:11 pm

#108 Herb

Isn’t it typical of people such as #110 rory to say you have to be a lefty as their responses to things they disagree with are to attack the person, not debate the issue…cheers Herbie completing ignoring he has reduced the exchange to a Harper like rhetoric? If anyone attacks the person the Harperites are the Supreme Experts at that low life approach. What is that defining term for such tactics? Of yes, HYPOCRITES! Soon to be revised in the world’s dictionaries to Harpercrites!

#113 Rob on 09.30.09 at 2:52 pm

monetary inflation will trump weak demand and prices will rise. Paper currency has no backing except for the word of corrupt central bankers. They will use the stealth tax of inflation to pay off their deficits. And this will be reflected in higher prices in tangable assets like gold, silver, oil, copper. Housing will drop because of higher unemployment and falling demand as well as lending rates rising.