T.O. trauma

stinks1

PostCity

What goes up must come down

By Philip Stavrou

There’s no denying it — Toronto’s resale housing market is hot right now.

Existing home sales jumped 28 per cent in September, compared to the same month last year, according to a report this week from the Toronto Real Estate Board.

In addition, the average resale price in the GTA was $406,877, a jump of 10 per cent compared to September 2008.

But, as the old saying goes, what goes up must come down.

At least that’s what real estate commentator and former MP Garth Turner has been trying to tell people.

PostCity.com spoke to Turner about the recent TREB report. Here’s what he had to say:

PostCity.com: Are these sales figures sustainable?

Garth: Of course not. Toronto, Vancouver (especially) and a few other major markets are in the midst of an unsustainable real estate bubble bred by a number of factors, chief among them cheap money and investor stupidity. Our household and mortgage debt levels are racing higher, with no real gains in income. Interest rates will be heading higher, and unemployment is still growing. There is no logical reason for average house prices to grow by double-digit increases during a recession. Except buyer delusion and herd instinct.

PostCity.com: If you think the market will turn, how far do you think average prices will go?

Garth: I’m on record as saying average prices nationally will correct by 15 per cent, and by at least 20 per cent in Toronto. This will lower the average price by about $80,000, and make recent ‘winners’ of bidding wars into significant losers.

Let’s all remember we are in a country with $56 billion in debt (federal only) this year, which will goose the bond market and raise mortgage costs — perhaps dramatically. Also assured are higher taxes (on incomes) as well as the HST next year. Add it all up and you have less disposable income, more expensive debt, less credit and inevitably lower real estate values. After cresting about now, you should expect a slow melt lasting several years.

PostCity.com: In TREB’s rental market report, leased transactions were up 32 per cent between May and August, compared to the same time last year. Do you make any conclusions/connections between that and the resale market figures?

Garth: As prices rise, even despite record low rates, affordability erodes. It now takes 5.4 times the average income to buy the average home, which is judged by international standards as “seriously unaffordable.” No wonder there are more rental transactions, when you see doe-eyed newbie buyers in multiple-bid excess over crappy houses in fringe neighbourhoods. This will not end well.

And in the ‘can’t happen here’ department…

baltimore

One third of all Baltimore homes
sell for less than owners paid.

88 comments ↓

#1 vantown on 10.11.09 at 6:04 pm

I’m on record as saying average prices nationally will correct by 15 per cent, and by at least 20 per cent in Toronto.

When?
By how much do you predict prices will correct in Vancouver?

Can’t count that high. — Garth

#2 Marina on 10.11.09 at 6:15 pm

<>

Gafth, for the last couple of month RE prices in Toronto went up by 10-15% so if they go down as you predict by 20% so it is nothing. There will be no bubble crash and the avarage person will still not be able to buy average house. And ther is no point to wait and buy later.

#3 eddy on 10.11.09 at 6:17 pm

this 15% correction happened in TO last May. since then they have gone back up.

#4 Min on 10.11.09 at 6:39 pm

“Can’t count that high. — Garth”

What I can’t figure out/understand is how everyone can continue paying their bills and mortgages? Even now. Our economy, in BC, must be bouyed up by the expectations of the Olympics and ???? Surely this must be an ‘artificial’ economy.

#5 Onemorething on 10.11.09 at 7:27 pm

15% in TO from the lows earlier this year, which is about 30%+ down from the highs in 2007. I predict Vancouver will tumble more upwards of 40% as you have to account for the Olympic hangover. All other markets between Ontario to BC look at 15% Montreal, 20% Ottawa, then upwards as you travel bubble inflated cities moving west.

C’mon people get ready!

Affordable housing may be on the horizon but only a few will be able to buy given the strict lending practices and let’s face it in the position of having positive equity high enough (30% down) to take advantage of it.

This will spawn a “No Need To Buy Yet” scenario as it will take years to put a bottom under the housing market. A complete reversal of what is going on now.

You cant force banks to make potentially bad loans in the western hemisphere, maybe in China.

Either way it’s this type of thinking that got us into this mess. There will be many losers and a handful of winners as always.

#6 john maynard keynes on 10.11.09 at 8:02 pm

the market can stay irrational longer than you can stay solvent

#7 robert on 10.11.09 at 8:04 pm

#2 Marina

Garth when I see comments like this it makes me think you are waaaaaay too optimistic.

#8 [email protected] on 10.11.09 at 8:05 pm

I’m on record as saying average prices nationally will correct by 15 per cent, and by at least 20 per cent in Toronto.

The First Home In Mississauga With 600 Amp Service

http://www.realtor.ca/propertyDetails.aspx?propertyId=8369091

20% will save me $2,160,000 on this one – I think I’m ready to buy.

#9 eddy on 10.11.09 at 8:05 pm

Cheap money is the main culprit. And, TO’s supply of listings is way down- largely due to Mayor Miller’s home buying tax. He felt that it was his job, as Mayor, to drastically curtail the trading of Real Estate. He’s kind of like Bell- You know, take your best, good paying, reliable, Loyal customers- throttle their bandwidth and badger the CRTC to bill them per gig for over-usage, and then say “where did all our customers go?”

#10 jimmy on 10.11.09 at 9:23 pm

I like you Garth. Not afraid to say it as it is. I respect that.

Here is another great mind on the same wave length.

http://news.bbc.co.uk/2/hi/business/8298182.stm

Those who dis you are delusional consumers or self interested RE agents.

Keep on Keeping on Brother.

#11 greyhound on 10.11.09 at 10:10 pm

Interesting article about Baltimore.

B is increasingly a “suburb” of Washington DC (an hour commute), where the feds are.

As the economy continues to tank and there are more and more bailouts, the US center of economic gravity is shifting from New York to Washington. New York city real estate is dropping like a stone; Washington area is holding its own for now.

Will Vancouver and Toronto tank while Ottawa holds its own?

#12 Watched Bubble Never Pops on 10.11.09 at 10:35 pm

Nobody knows when booms and busts will happen so stop asking. Do we really need to tell people in the twenty-bloody-first-century that the future isn’t predictable? If you really want to know the future, dissect a 13-year-old black rat and read its entrails.

As an aside, do you know what I like doing for fun? I like reading financial blogs in the winter and spring of 2009 where all doomsayers were geefully predicting a real estate crash of biblical proportions only to sit dumbfounded at their keyboards as the market turned sharply higher.

Stocks are dangerous! Take your 2009 TFSA contribution and buy GICs to shelter interest income! Nice. The S&P/TSX index is up almost 28% YTD and the U.S. NASDAQ is up almost 35% YTD and that doesn’t include dividends.

Be prepared! Inflationis coming! Nice. Inflation is negative virtually everywhere in the free world.

VRM rates will rise! Sure. The BoC govenor and deputy govenor have denied it and kept rates low and say they will continue to keep rates low.

Mortgage rates will normalize and kill everybody! Another winner. Government of Canada bonds are pathetically low and they’re selling like crazy regardless.

Job losses will continue! Sure. Oh they rose in the spring, but it was due to the increased number of self-employed. Oh they rose in Sept, but it was due to hiring in the public sector. Excuses, excuses. Give it up.

Australia’s rate increase is a sign of things to come! Nice. BoC doesn’t care and tells people that comparing Australia to Canada is ridiculous. Nevertheless, the BoC doesn’t care what Australia does.

California had to rase rates to get investors to buy their bonds! This is trouble! Yeah right. Did I mention that Canada Savings Bonds have pathetic yields and are still selling like hot cakes?

I’m glad I use these blogs for entertainment. If I had to make investment decisions based on what I read, I’d be broke!

For all the posters who want to believe that the real estate crash can be predicted by pasting together bits and pieces of seemingly related, but totally irrelevant pieces of financial information – give it up. If it was that easy, the book would be called, The Billionaire Next Door.

Maybe if it were that easy you wouldn’t have to charge people $30 to come and hear you talk about why they should listen to you instead of someone who’s actually trained in economics and personal finance. Say hi to Earl for me. — Garth

#13 Watched Bubble Never Pops on 10.11.09 at 10:36 pm

#6 john maynard keynes

one of the most intelligent posts I have read!

#14 Blobby on 10.11.09 at 11:16 pm

@#4 : There’s a reason vancouver is called the “no fun” city.

People here are so mortgaged up to the eyeballs, that they cant afford to go out and enjoy themselves.. They stay in every night looking at their expensive walls.

#15 Dave on 10.11.09 at 11:27 pm

I’m sorry, but Garth is being very generous to Toronto’s real estate market. We have much further down to go than 20%.

My market accuracy is scary. If you’re on the edge of your seat to buy, then go buy a property in the morning. Things are irrational but normalcy shall return – and it will be greater than a 20% correction.

#16 Clobbered on 10.12.09 at 12:17 am

#2 is right on the money (intentional or not)… I don’t know why so many here can’t come to grips with the fact that if prices go down an “ooohhh whopping” 10%-15% that means absolutely nothing — especially when they recover in 3 months like they did in Toronto.

I’ve seen this meaningless prediction trotted out a gazillion times here. All the cranks come out to cheer Garth on, but the reason I see many people on this blog as outcast perma-bears is because they forecast doom and gloom on the order of “wouldn’t scare a single person out of their home”%.

Like honestly, houses may drop 10%, Garth will say he was right, and move on to new predictions… and the rest of us were better off watching sitcoms and ignoring the hub bub.

You need real fear to gut home prices. And that just ain’t happenin’ right now. Wake up.

#17 lightning_kash3 on 10.12.09 at 1:07 am

how much do you predict prices will correct in Calgary?

#18 TakingResponsibility on 10.12.09 at 1:33 am

Adding to this:

“And in the ‘can’t happen here’ department…”

Ten thousand applicants in 3 days for ninety jobs (paying $13 per hour, plus benefits including dental coverage, eye care, etc.) at a GE plant in Kentucky. Ten thousand!

http://www.courier-journal.com/article/20091008/NEWS01/910080326/1008/news01

Yikes.

#19 Jonas on 10.12.09 at 2:10 am

15%? After all this… a book, a blog, countless posts… for 15%? With the gains seen in the last 8 years of at least 100% a correction of 15% would mean that only the people that bought in the last 18 months are only slightly foolish. If they can make it through the next few years they will be fine. Anyone that bought more than 2 years ago is still laughing, 5 years ago hysterically. If I told my cousin in Saskatoon that his house was going to correct 15%, I know exactly what he would say… “who gives a shit?, I’m up 40% in 2 years, in 10 I will be up another 40%”. 15% is hardly the catastrauphic falling sky that has been touted for so damn long.

#20 steven rowlandson on 10.12.09 at 2:48 am

Hello Garth
What goes up must come down
By Philip Stavrou
In principle the above line by Philip Stavrou is correct.
In practice what is politically correct and goes up must not be allowed to come down in order to protect special interests.
The illusion of free markets can be maintained as long as the reality is denied via a managed market.
Therefore real estate goes up and tends to stay up to protect special interests (banks and realtors).

Steven

#21 Amy on 10.12.09 at 2:55 am

When?
By how much do you predict prices will correct in Vancouver?

Can’t count that high. — Garth

I still say that Vancouver has a strong hold in maintaining our prices in comparison to the rest of Canada due to all the grow ops. 1 in 3 homes here have a grow op. That is where a good majority of peple are getting these huge down payments from and will continue to in order to subsidize their income/mortgage. I agree that there will be a correction here in Vancouver – when I don’t know. But I just can’t see Vancouver correcting as much as the rest of Canada when every other home here has a rental suite helping the mortgage or a grow op contributing to a down payment. Not to mention people having the not here mentality (as we are a global destination city), not enough land and foreign money flooding the market.

Can you comment specifically on how you feel the grow op community in Vancouver will affect this price correction? And if you feel this correction will be similiar with 1 and 2 bedroom condos in the 200-500K price range as opposed to detached single family homes 500K and up.

Thanks..

#22 Onemorething on 10.12.09 at 4:27 am

You know, along with Garth, MISH and Steve Keen which I read regularly, there is one adviser that has never let me down when it comes to the direction of the US market, Mr. Gary Shilling.

Known for being a regular on CNBC, the WSJ and Bloomberg, he has been limited in his appearances maybe due to his perma bear attitude matches with simple reads of the economy.

Here’s his latest and greatest…enjoy!

http://www.youtube.com/watch?v=byGv6LKJA_g&feature=fvsr

#23 David Bakody on 10.12.09 at 6:07 am

#1 vantown on 10.11.09 at 6:04 pm

Hi Van, think ….. just think to yourself just how much you think one of those homes that looked like it should be demolished let alone lived in that Garth has posted here is worth? Now give your head a shake and ask yourself just how much you would be pay for it to live in? That Sir/Madame is the true value, will it return to that …. I am willing to bet yes sooner or later.

#24 Patiently Waiting on 10.12.09 at 6:25 am

“Can’t count that high. — Garth”

HA HA so true. The fundamentals suggest a 50% correction in Vancouver, but people look at you like you’re mad if you say it. Even bears throw around figures like 20% just so people don’t dismiss them.

But here is the real problem for Vancouver: we are running out of First Time Buyers. Other than a few hardcore blog bears, I hardly know of any potential buyers who haven’t bought yet. This year brought out the last of them. And people aren’t moving to this expensive place during a recession (in fact, people are leaving).

I’d hate to be a Vancouver landlord as the choice of tenants must be scary right now.

Unless immigration picks up, we could see a totally dead market where prices could even fall further than 50%. Think 60% or 70%.

#25 Darryl on 10.12.09 at 7:47 am

#8 Near milton

That listing is not a house but a castle . The photo does not show the whole picture . It is not to far from where I live so I drive by to show out of town friends. It is on a very private road that most people do not know exists. All the homes are huge and on 5 acre plus lots. This place makes some European Castles look like public housing. If you have the money it’s probably not a bad price. :(

#26 Samantha on 10.12.09 at 8:10 am

Some musings on the real estate madness:

‘Buy now, pay later’ has evolved into ‘buy now, pay longer’.

Home buying has become an Olympic event based on endurance (bidding wars) and breaking old records (prices).

When the interest rates correct and revert back to historic norms, there will be those who lose their overpriced shelter and those who will go to extremes to keep it. Either way, both groups will suffer.

But, they will not suffer alone. People in Detroit and other cities discovered that when vacant houses attracted a new neighbor: crime.

Entire neighborhoods will suffer along with them for the period of time it takes to repopulate the vacant homes, and that will depend upon how quickly the cost of shelter becomes realistic and affordable.

Shelter cost, be it for rent or purchase, has to dovetail with income and interest rates. A job helps, and unemployment hasn’t finished sinking her teeth into the herd. Lower wages and higher taxation are waiting their turn.

In time to come, those who bought into this madness will stare at their reflection in the stainless steel refrigerator and wonder what they were thinking.

They will wander around their home, decked out in it’s indebted and popular, cheaply constructed boom furnishings and ask themselves: how did this happen?

How did it all go so wrong?

The ghosts of buyers past, dance across the granite and whisper the answer: “It was never ‘right’ in the first place. You believed that things had changed and thought a starter home meant move in ready with all these shiney, silly features.”

“Marketing and other peoples opinions fuelled the fear that drove you to pay too much for a house beyond your means. You couldn’t really afford any of this and deep down inside you knew it.

“There were options. You could have moved somewhere else with a lower cost of living where a job paying lesser income would have bought you an affordable house.”

“You could have waited and saved like we did. We began with the potential of our modest starter homes and created something comfortable over time. We lived within our means and saved to build the life we wanted.”

The ghosts whirl across the polished floors, their last words echoing in the soon to be vacant house: “Nothing has changed.”

#27 Claudius Emeperor on 10.12.09 at 8:12 am

minimum:
40-50 % down for Toronto.
60 % for Vancuver.

#28 David Bakody on 10.12.09 at 8:14 am

#23 Patiently Waiting on 10.12.09 at 6:25 am

Remember this Garth Turner posting back in September

What a million buys…
This 1926 home features hardwood floors, a large renovated kitchen, a bright two-bedroom basement suite, a white picket fence and a tree swing.

Sure, the yard is small, the view out the back is of a giant condo complex, the bedrooms are tiny – the master is only slightly more than 100 square feet – and it is just half a block off one of the city’s busiest thoroughfares. But those shortcomings were quickly forgiven by the dozens of prospective buyers who streamed through the first open house saying, “Honey, I love it” while trying to imagine life without closets.

Even 70% of this dump is overpriced, what would Donald Trump pay for this or even have to say to the fool who bought it?

So is there a correction coming or not? Strange thing is I was chatting in Tim’s this morning a one person said to me of course RE prices will rise they did before. Sure I thought but then thought of Baltimore, Detroit Windsor and a host of other towns and cities too numerous to mention and said nothing.

#29 JET on 10.12.09 at 8:36 am

“at least 20%” for Toronto – the key words are “at least”

The oxymoron of all time is this: “multiple offers in a recession”.

Thanks Onemorething, for posting that video.

#30 DaleFromCalgary on 10.12.09 at 8:48 am

#16 asks: how much do you predict prices will correct in Calgary?

They already have come down about $20,000 since last summer. My 1950s bungalow in the inner city was assessed for property tax last year at $510,000 and this year at $493,000, which I think is fair. (I bought it for $80,000 in 1982 after the last oil boom collapsed.) A brand-new 2-story infill (granite countertops and everything) across the street from me was completed August 2008, listed at $949,000, and finally sold last month for $700,000. Its twin beside it is still unsold.

#31 North Van Dude on 10.12.09 at 9:24 am

Amy

Bill C-15 may affect the grow up situation. It is currently held up in the senate. It contains legislation to impose mandatory minimums on growing weed. More than 6 plants and you do 1 year inside.

Currently growers get slaps on the wrist. If the bill passes the Senate (and I sincerely hope it does not) and becomes law, many “casual” growers will leave the business and push growing back into the exclusive fold of organized crime.

This will hit many of the 150,000 people in BC who rely on weed for their income.

#32 Bill on 10.12.09 at 9:39 am

I own a small 4plex in the Annex and over the course of the past 15 years have had the good fortune of virtually never having had any unit empty due to desirability of the neighborhood insofar as renting is concerned. Each of my units is 2 bedrooms, so either students/young professionals have been tenants.

I’ve paid off a decent chunk of the mortgage on the property and also pulled out rental income from the property so all in all have been very pleased with the investment.

Now here is my question. Given that I agree with you real estate prices in Toronto are headed south (as you said, minimum 20% haircut), should I be looking at selling the property now?

I will be retiring and relocating and will likely be divesting of the property within 3-5 years, so now it’s just a question of timing.

Do you see rental properties like this (with strong income) also seeing significant correction in pricing down the road?

Do I reap the benefits of the income for another few years, then sell, or forgo the income and sell sooner so as to get a potentially higher sale price in this “frothy market”?

I know you don’t have all the #s on this, but directionally would be great to get your input on the issue of rental properties such as this one.

Thank you.

#33 BDG YYC on 10.12.09 at 9:49 am

#2 Marina … #15 Clobbered …

Wow … truely Darwin Award calibre thinking !!!!

#34 alberta ed on 10.12.09 at 10:03 am

What do you figure the odds are of any of the CanWest rags printing Garth’s comments above?

#35 Danforth on 10.12.09 at 10:35 am

slightly off topic – but related to Garth’s (and others’) predictions…

USD/CAD almost at par:
http://finance.yahoo.com/q/bc?s=USDCAD=X&t=1y&l=on&z=m&q=l&c=

As of this post, 11:16am on Canadian Thanksgiving, $1.03 Canadian to buy one greenback.

Happy cross-border bargain hunting!

#36 FTHB (forget that house buying) on 10.12.09 at 10:41 am

Economic activity:

I was once told to observe the number of transport trucks on the highway as a sign of the strength of the economy. Drove Ottawa to Toronto on a Thursday evening and the highway was simply packed with trucks.

Seems anecdotal evidence doesn’t jive with the doom and gloom presented in the media….

#37 jess on 10.12.09 at 10:53 am

art is a form of currency? Share it’s collection?…shouldn’t there be an auction?

“An investigation by the Guardian has established RBS has 300 pieces in storage and only one is currently on long-term loan, to the Ulster Bank in Dublin, despite claims that it regularly lends work to galleries and museums. Supported by the Department of Culture, Media and Sport, public and corporate art charities have put pressure on RBS to share its collection after it was saved from collapse with a £20bn bailout from the Treasury, leaving it 70% owned by the taxpayer.

RBS has told the Guardian it broadly agrees with its critics that it now has a public duty to share its collection and is in discussions with museums and arts experts, including the National Galleries of Scotland, which runs five galleries in Edinburgh, about possible loans and exhibitions.”

http://www.guardian.co.uk/business/2009/oct/11/rbs-hidden-art-collection

Cash machines were monitored every hour during banking crisis Special report: Extent of FSA fears and reason for taxpayers’ bank bailout revealed
http://www.guardian.co.uk/business/2009/oct/11/banking-crisis-one-year-on
==============

Since the investors own the loans. The Fed’s role is not about protecting investors. It is up to the Securities and Exchange Commission’s job. Last I read there are over 500 investigations going on.

#38 Nathan in Edmonton on 10.12.09 at 10:59 am

#16 Clobbered — “You need real fear to gut home prices. And that just ain’t happenin’ right now.”
….The fear will come and soon. Any sane person should fear new debt right now.

#21 Amy — “1 in 3 homes here have a grow op.”
…only in a few areas of the city, I think most people still make money the legal way and a large number of them are overextended.

#39 Sam on 10.12.09 at 11:00 am

Predicting price reduction are just predictions. Just look at our neighbours the US they have been calling for the bottom since prices started to drop and prices are still dropping. Reason no jobs no money no credit and no more belief that prices always go up.

Get this buyer with money in the US will buy when the prices are truly affordable at (3) three to maximum (4) four time income.

Same in most European countries nothing is moving.

We have been selling homes to buyers with no incomes, no jobs and no money, pure greed and speculation. It is going to get ugly for homeowners slowly at first and than the same avalanche as the US.

When our dollars reaches par with the US Dollar you will see more layoffs, you will see more and more properties on the market and sellers will have to take less. Not to mention current oversupply of homes being held off the market by greedy owners and speculators and new homes speculators who bought in the last 18 to 48 months.

Cheap money is what has fuelled real estate prices and cheap money equals disaster no matter which way you look at it. Interest rates are going north way north.

Add it all up:

– Oversupply
– Speculators
– Uneducated consumer
– Greedy Sellers
– No Jobs, and no propsect of meaningful employment
– Higher interest rates
– High dollar
– Higher taxes
– Higher cost of living
– Less and less disposable income
– Immigration problems
– Transient population
– Demographics

All of the above are a recipe for a big adjustment in prices.

Just look at cities and towns in southwestern Ontario.

#40 vantown on 10.12.09 at 11:55 am

Patiently Waiting:

But here is the real problem for Vancouver: we are running out of First Time Buyers. Other than a few hardcore blog bears, I hardly know of any potential buyers who haven’t bought yet. This year brought out the last of them. And people aren’t moving to this expensive place during a recession (in fact, people are leaving).

All anecdotal. Data, please.

#41 Bogdan on 10.12.09 at 12:00 pm

Happy Thanksgiving Day! In less than 15 years, here in GTA we are going to have (300-400K now) houses for free, I’m telling you…

#42 miketheengineer on 10.12.09 at 12:00 pm

Garth:

You state:

we are in a country with $56 billion in debt (federal only)…… Also assured are higher taxes (on incomes) as well as the HST next year.

Yet, there are no reductions in the Government sector. No talk to control government expenditures. No talk to get rid of excess fat. Or at least look for some excess fat.

If this were a private company the CEO would not longer be there.

What are you thoughts Garth? How can “fat” government spending help the RE market?

Mike

#43 OttawaMike on 10.12.09 at 12:00 pm

The UK Telegraph has an interesting writeup on gold/ fiat currency discussion that often comes up here:
http://www.telegraph.co.uk/finance/currency/6299550/Gold-at-1500-Dont-hold-your-breath.html#comments

The author thinks the US$ has overshot it’s low and is due to rally. Lately I have been thinking the same.
Opinions? Go long US$ now or wait for the inevitable stock market correction to occur?

#44 TS on 10.12.09 at 12:12 pm

The impact of high government deficits with higher interest rates beginning in 2011…. 2.5% central bank rate up from 0.25% today.

http://finance.sympatico.ca/Home/ContentPosting?newsitemid=bank-rate-increase-prediction&feedname=CBC-BUSINESS-V3&show=False&number=0&showbyline=False&subtitle=&detect=&abc=abc&date=False

#45 Live Within Your Means on 10.12.09 at 12:14 pm

#18 TakingResponsibility on 10.12.09 at 1:33 am
Adding to this:

“And in the ‘can’t happen here’ department…”

Ten thousand applicants in 3 days for ninety jobs (paying $13 per hour, plus benefits including dental coverage, eye care, etc.) at a GE plant in Kentucky. Ten thousand!

http://www.courier-journal.com/article/20091008/NEWS01/910080326/1008/news01

Yikes.

Like I said the other day, my SIL, a chemist, who used to work for pharmas for $70K, took a 2 month contract working as an Admin. Asst. (i.e. a Secretary) for $14/hr tho there’s no shame in that. But, as my husband and I were saying, they must be getting desperate.

#46 TS on 10.12.09 at 12:21 pm

#43 OttawaMike on 10.12.09 at 12:00 pm

The US dollar set to rally? You have got to be kidding!!! The US dollar is going to “hell in handbasket” as other countries are coming to realization that the US Federal Government now has debt that is impossible for it to ever repay! That is precisely why there has been significant talk on world financial markets about replacing the US dollar as the world currency reserve. If anything the US dollar can be expected to continue its downward movement well into 2012.

http://www.moneyandmarkets.com/three-government-reports-point-to-fiscal-doomsday-4-35722

#47 Live Within Your Means on 10.12.09 at 12:27 pm

#25 Darryl on 10.12.09 at 7:47 am
#8 Near milton

That listing is not a house but a castle . The photo does not show the whole picture . It is not to far from where I live so I drive by to show out of town friends. It is on a very private road that most people do not know exists. All the homes are huge and on 5 acre plus lots. This place makes some European Castles look like public housing. If you have the money it’s probably not a bad price.
………..

Which European Castles have you visited?. We visited the castles of the Loire Valley this summer & other ones in previous years. Public housing my eye.

#48 Chaostrology on 10.12.09 at 12:28 pm

3 minutes without air
3 days without water
3 weeks without food

The oceans are running out of tuna.

Invested in tuna on friday at Wally World, paid $1.47, last week paid $.97, don’t miss the boat on this, they’re not making tuna anymore. Tuna will be the new gold. Tuna as money. Cans of tuna will be mounted on gold rings as a status symbol.

You too can corner the market in your town. It’s not to late!

Best of all, if you can’t sell it, you can eat it!

Too bad you can’t eat your house.

#49 artisuseless on 10.12.09 at 1:11 pm

@21 Amy on 10.12.09 at 2:55 am
I still say that Vancouver has a strong hold in maintaining our prices in comparison to the rest of Canada due to all the grow ops. 1 in 3 homes here have a grow op.

Amy, it’s nowhere near that number. I doubt 1 in 3 people smoke pot regularly, even in Vancouver.

If it was that many, nobody would be buying pot since they’d be smoking there own & therefore there would be no money in it.

Vancouver/BC fell the hardest of all of Canada in the early 80s. If it happened once, it can happen again.

#50 artisuseless on 10.12.09 at 1:18 pm

I meant ‘their’ own… gah!

Numbers I’ve seen for the previous BC bust in the early 80s were around 40% within two years…

#51 Gregor Samsa on 10.12.09 at 1:55 pm

Happy Thanksgiving all.

We live in interesting times indeed. Any way you shake it, average Canadians are getting poorer. There are more unemployed Canadians, there are more underemployed Canadians, taxes are going up (including hidden taxes like EI premiums), non-government wages have been stagnant for quite some time, bonuses only exist on wall-street (and government). If there is price deflation on everyday goods, I don’t see it.

And yet amidst all this, housing is “booming.” It doesn’t add up until you factor in the following:
– Despite what is going on, the average Canadian does not yet “feel” poorer. If they pay attention to the news at all (most don’t) they just hear empty cheerleading that the recession is over and all is well.
– The average Canadian seems to have no problem with embracing debt. House prices are going up $100K? So what? What is a $100K more when the entire half a million is bank money anyways. Our government is going into massive deficit, and they are being “punished” with their highest poll numbers in history.
– Which leads me into the following: the average Canadian does not understand finance. They lack the capacity to grasp the long term implications of present day actions. They want a house, and they want it now.
– That should not be surprising because sadly, our nation is getting dumber. Fewer men are going to university. Our media appeals to the lowest common denominator. Education is almost looked down upon.

Logically, it’s hard not to say that “this won’t end well.” The problem is that logic isn’t playing any part of this game. Because our population is distracted and dumbed down, we are ALL at the mercy of politicians, bankers, and world elites (comforting, isn’t it). They are running hog wild, doing as they please. But to what end? That is the real question.

In light of this, my advice is be thankful for what you have and live within your means. Owning a home is nice, but it is not the be-all end-all that it is made out to be. It is really just a pile of lumber and brick that will barely outlast you (and for many, not even that).

#52 Virgil on 10.12.09 at 1:58 pm

CMHC will keep buying mortgages until March 2010. Banks try to keep their own liquidity and just act more as mortgage brokers as money is funneled from CMHC.

BoC will (possibly) keep the prime rate at 0.25% until July 2010.

CMHC is running a large scale ponzi scheme. At this time they don’t really know what to do….so keeping the “free for all” going on will just buy them some time….

#53 Elle on 10.12.09 at 2:09 pm

# 48 chaostrology

Never thought I’d be talking about Tuna on this blog…….but chao might be right about investing in Tuna!

Actually at a local London Drugs in Surrey where a few mths ago tuna was .69 – .98 cents/tin, now this week….$2.98 for same thing! Most tinned goods were up……the cheaper tins of Trophic fruit, historically .98 now $2.98!! …………which brings me to the ‘catch 22’ of renting….no stocking up….because you’ll have to move all that stuff when you buy again! no garden, no root cellar, no chickens, no wood pile, no bunker …… darn I like stocking up!

#54 Kelly McMae on 10.12.09 at 2:15 pm

#12-#13 Chuong seems eerily reminiscent of a character in Taleb’s book, Fooled by Randomness. Make sure you’re wearing protective gear on the fall down.

#55 Kelly McMae on 10.12.09 at 2:48 pm

#40 Vantown. It’s all anecdotal, whether you’re collecting “stats” or having actual conversations with people. The methods of one’s approach to collecting information does neither validate nor repudiate one’s claims based on said information.

Quantitative research (QR) and “stats” collecting carries as much subjectivity and inference as any other method, only QR matches more closely with a dominant empiricist notion of epistemology.

#56 betamax on 10.12.09 at 3:10 pm

#51 Gregor Samsa – good post. My wife is an immigrant and can’t believe how complacent Canadians are about accepting new taxes, fees, etc. as if money has no meaning for them.

Other countries would have riots if they were stuck with the bills we are, but we just suck it in and pay up without a whimper. WTF is up with that?

#57 taylor192 on 10.12.09 at 3:16 pm

#24 is correct. I’m currently renting in Vancouver and there is a huge different between Oct 08 vs Oct 09. I moved here in Oct 08 and it was a fight to find a rental. Showings had 10+ people at them. Only a year later so much has changed. We’d be the only people at showings, and after looking at 30+ rentals we were left with a solid 10 to choose from. Of those, 2 had reduced their rent between when we looked and when we followed up, and many places offered incentives.

Remember, this is BEFORE the Olympics, when rentals should be limited as the economy of every Olympic city has boomed prior to the games. What do you think it’ll be like AFTER when tourists go home, construction projects are complete, and we’re still not out of the recession?

#40 pick up a Georgia Strait and count the number of real estate ads, and remember, during the bubble these would be sold out on the first day.

#58 S. on 10.12.09 at 3:18 pm

I hear all kinds of scary statistics with regard to the number of grow ops in Vancouver area. One in four, one in three houses… occurs to me that with this magnitude of supply cannabis should be – ounce for ounce – cheaper than tobacco. Well, is it?

#59 jess on 10.12.09 at 3:41 pm

Ultra vires is a Latin phrase that literally means “beyond the powers
http://en.wikipedia.org/wiki/United_States_v._Lopez
http://en.wikipedia.org/wiki/Commerce_Clause

============
The lower mortgage rates have been driven by falling “swap” rates, which govern fixed-rate mortgages, and lower Libor rates, which guide floating rates.

Libor, the rate at which banks lend to each other, has been falling steadily in recent months and is now at a record low, just above base rate.

Swap rates have been pushed lower by the recent Bank of England decision to extend quantitative easing from a planned £125bn of asset purchases to £175bn.

By buying huge quantities of government bonds, or gilts, the Bank has pushed down the effective yield on them, in turn weighing on swap rates in money markets.

=========
Swap rates are the borrowing rates between financial institutions, usually with credit ratings of A/AA equivalent. Swap rates are calculated using the fixed rate leg of interest rate swaps. Swap rates form the basis of the swap curve (also known as the par curve or LIBOR curve). In most emerging markets with underdeveloped government bond markets, the swap curve is more complete than the treasury yield curve, and is thus used as the benchmark curve.
http://en.wikipedia.org/wiki/Interest_rate_swap

#60 robert on 10.12.09 at 4:11 pm

#36 FTHB

Check next Thursday. I wouldn’t be surprised if a lot of truckers were trying to get off the road before the Thanksgiving Weekend.

#61 robert on 10.12.09 at 4:44 pm

#46 TS

These “other countries” you speak of. They are all in a better position to pay their debts?

Nothing go does down (or up) forever. Particularly in a straight line. Perhaps Mike in Ottawa is just exercising a little contrarian thinking. The same kind that rewarded a few gutsy equity buyers back in March. Time will tell but reports of the death of the Dollar may be greatly exaggerated (credit to Mr. Clemens).

PS
I would not be relying too much on Martin Weiss for financial advice after reading him over the past few years. He was calling for Dollar strength not all that long ago and was urging his clients to load the boat in SRS when it was $100 (it is now under $10). Be careful. His latest about face just might be a contrarian investor’s dream signal.

#62 robert on 10.12.09 at 4:52 pm

#48 Chaostrology

I hope you were buying the solid white packed in water as I’m not sure the other stuff is actually tuna.

#63 random guy on 10.12.09 at 4:53 pm

housing goes up, housing goes down. historically, it goes up.

last october 28th, garth predicted a 15% correction for the gta. that was 10% ago to the plus side.

be informed. make your own decision that best suits your needs. read bears, read bulls, decide your own fate

#64 Cory on 10.12.09 at 5:04 pm

This is all common sense. Money is cheap, people are stupid and keep going in deeper and deeper debt, politicians who keep allowing the bubble to get bigger are just as shortsighted, and the bubble will eventually pop. It’s only a matter of time. It’s all so simple it really doesn’t take an education to figure it all out, just common sense, but that’s the one thing that is completely lacking in all of this.

#65 Phil on 10.12.09 at 5:14 pm

Garth and fellow readers,
What do you believe the chances are that the BOC raises rates on Oct 20?
a) less than 50%
b) less than 25%
c) less than 5%

#66 kansai_92 on 10.12.09 at 5:53 pm

Response to #36 (FTHB) regarding truck activity being a better indicator of the economy.

Did you see last month’s article about an entire idle ghost fleet of cargo ships anchored near Singapore?

http://tinyurl.com/many-ships

Have you checked up on rail activity lately? Way down!

#67 vantown on 10.12.09 at 6:21 pm

#40 Vantown. It’s all anecdotal, whether you’re collecting “stats” or having actual conversations with people. The methods of one’s approach to collecting information does neither validate nor repudiate one’s claims based on said information.

Quantitative research (QR) and “stats” collecting carries as much subjectivity and inference as any other method, only QR matches more closely with a dominant empiricist notion of epistemology.

Thanks for my chuckle of the day.

I think you know that there’s a difference between “two places haven’t sold on my street!” and an actual downturn. Hell, if everything’s subjective, I’ll buy a place today.

#68 Nostradamus Le Mad Vlad on 10.12.09 at 6:22 pm

Happy Thanksgiving everyone!

#26 Samantha — “buy now, pay longer”. — Hi Samantha.

Good one; that’s what 35 year mtgs. were created for, and may follow Europe’s lead in having one family stay in one home forever, which eliminates the herd instinct of moving every five years or so.

O/T, remember when Hiroshima was flattened in WW2? In those days, Detroit was an economic powerhouse. Well, check out current pix of Hiroshima and Detroit — same places, but see the changes — Detroit crumbling, Hiroshima glamorous.

How times change!
——
“T.O. trauma — This Stinks” — During our two-week trip there, we never went further south than Eglinton & Yonge, so it wasn’t traumatized by us, neither did it stink.

We’re too old for T.O. now; city is way too busy, big and fast-paced. Great place for a holiday, ‘tho.
——
The “October Surprise” lurches forth again! (first para. past the pix). — http://smallsizeurl.com/523/

Goes against that link I posted a while back, but nowhere is a possible default by the US govt. mentioned. They are light years into a fiscal hole, so much so none of their debts and deficits can ever be paid back, so what do they have to lose?

The end result may lead here — good article on the fiscal power shift from the US to other places. — http://smallsizeurl.com/shift/
——
5:31 clip of Ronnie Reagan telling Soviet jokes (very good). — http://www.youtube.com/watch?v=mN3z3eSVG7A
——
Some bloggers here (such as myself) follow soccer. These are two quotes from coaches (both passed away) on how they viewed the game.

Brian Clough (Derby County and Nottingham Forest), a talented but rather eccentric man: “I wouldn’t say I was the best manager in the business. But I was in the top one.”

Next (overall winner) is Bill Shankly, who made Liverpool proud: “Some people think football is a matter of life or death. I don’t like that attitude. I can assure them it is much more serious than that.”

#69 Onemorething on 10.12.09 at 6:46 pm

#65 Kansai, these have been there for over 8 months, fleet is growing. I’ve seen it first hand. I have a factory in China. Production is down 40%, my numbers say shipping is down the same. I have laid off 1000 factory workers, one third of my crew.

In southern China alone, 100,000 factories have closed which is though to have put say the population of Canada out of work.

A 40′ container shipped to the US for consumer goods (Walmart’s calc as I know the buyers) used to be based on $5000 USD per container landed. It is now around $1800 USD.

I used to send 3 guys to pick of an empty 40′ container just over a years ago as they were getting stolen from my driver before it reached the factory. Now it’s the other extreme, containers likely over 500,000 just sitting in depots waiting.

Factory workers from Northern China who worked in Southern China factories starting 24 months ago were given a subsidy to return home to their farms to grow food (equal to the factory gig).

The Chinese know exactly what is going on. They will spend money on their people and not bailing out banks, they will drive their domestic economy, banks will be forced to lend overnight.

Simply they just need to turn around and consume their own manufactured goods over the next 10 years and they will grab top spot in the world and never look back.

It will all come down to protectionism and who is sustainable, if you dont have a model which is 50/50 domestic/import-export you will be toast.

Take a good look at the Western World, it will not end well!

My advice, if you are not in Asia, you are out of it!

#70 Vancouver Old-timer on 10.12.09 at 7:00 pm

Re vancouver price drops

In the early ’80s our tax assessment was $335,000 one year, the next year it was $134,000. The taxes didn’t change much, the mill rate changes to keep the city revenue constant.

#71 glw on 10.12.09 at 7:08 pm

#12 Watched Bubble Never Pops

Garth Quote:
Maybe if it were that easy you wouldn’t have to charge people $30 to come and hear you talk about why they should listen to you instead of someone who’s actually trained in economics and personal finance. Say hi to Earl for me. — Garth

Yup – Also -this guy passes himself off as “Rickson9” on Cdn. Money Forum.

http://canadianmoneyforum.com/

#72 Dawn in Calgary on 10.12.09 at 7:11 pm

Re: Tuna — Shoppers has a special on — 0.49/tin. Limit 4 each time, but I have stocked up.

Happy Thanksgiving everyone. From the cold record-breaking (-16) city of Calgary.

#73 X on 10.12.09 at 7:31 pm

RE #12 – not really sure what the point of your rant is…’that the real estate crash can be predicted by pasting together bits and pieces of seemingly related, but totally irrelevant pieces of financial information’.

Isn’t that how we all make our investing decisions?

As we don’t own these companies aren’t we really just pasting together bits and pieces of financial information.

You can’t deny that at least a correction is coming. When… who knows? But RE prices are out of whack (technical term) with earnings.

#74 nonplused on 10.12.09 at 8:11 pm

#53 Elle

I rent and I stock up. It’s only a problem if you have to move. You usually have to move food yourself. But tuna? Yuck. And besides, tuna stocks are under pressure (as are salmon). Stocking that just adds to fishing pressure. Lots of extra cows around right now.

Back to the housing market:

“Even a tree does not grow to the sky” – old saying

“Things that cannot go on forever, usually don’t” – Bill Bonner

“Markets are ethier trending up with increasing momentum, or trending down with increasing momentum”. – J Sinclair

(PS to understand that last quote you have to look at derivative 2, acceleration. A market can have negative acceleration even while velocity is still positive for a while. If you look at the charts, even Canadian markets that have set new highs just barely cleared highs that are almost 2 years old. Velocity is almost zero leaving only volatility in play. If houses do not start to accelerate to the upside, we have to assume they are continuing to accelerate to the downside. It could be the spring rally was just a regular thing like we get every year. We’ll know within a few months if the trend has really turned up.)

#75 vantown on 10.12.09 at 8:29 pm

David Bakody:

Just think to yourself just how much you think one of those homes that looked like it should be demolished let alone lived in that Garth has posted here is worth? Now give your head a shake and ask yourself just how much you would be pay for it to live in? That Sir/Madame is the true value, will it return to that …. I am willing to bet yes sooner or later.

(Yawn) I heard the same thing five years ago. What new do you have to say? And how much would you be willing to bet?

The question, it turns out, is not how much I would be willing to pay. I’ll be waiting forever if it comes to that. The question is what the market will bear. And it’s looking, more and more, like people in Vancouver are simply willing, for whatever reasons, to pay far more for a home than people in most other places.

#76 Watched Bubble Never Pops on 10.12.09 at 8:50 pm

#72

You are correct. I cannot deny that a correction is coming. However, I cannot deny that the boom will continue either.

#77 Bottoms_Up on 10.12.09 at 9:00 pm

Re: Government spending
—————————
There’s an ‘Expenditure Restraint Act’ which reduces public servant raises, reduces travel and eliminates bonuses for top officials: http://www2.parl.gc.ca/HousePublications/Publication.aspx?DocId=3656090&Langu&File=443

RE: Tuna
——————————————————-
Any tuna under $1 to $2 is the ‘throw away’ type. It must say ‘albacore’ on the can to be the ‘top of the line’, best tasting tuna.

RE: Anecdotal evidence
——————————————————–
I know 3 couples that have bought houses in the past month (one in Ottawa and two in Oakville). All couples have family income $120,000 to $140,000, all couples bought houses (one town, one semi, one single)between $300,000 to $340,000, and all couples put down 5 to 10%. All couples also opted for 35 yr, closed, variable rate.

#78 Watched Bubble Never Pops on 10.12.09 at 9:14 pm

#70 glw

Yup – Also -this guy passes himself off as “Rickson9″ on Cdn. Money Forum.

http://canadianmoneyforum.com/

Thanks! I appreciate the plug. I need all the help I can get because I don’t have an economics degree nor am I trained in personal finance.

We noticed. — Garth

#79 Jonathan on 10.12.09 at 9:28 pm

We are approaching a “debt ceiling” per se, which means the collapse in real estate will be more dramatic than what you might suspect.

Outstanding Canadian residential mortgage debt will surpass the United States on a per capita basis within the next year.

Canadians operate at 75% the productivity level of the US, and they pay more in tax (those two factors are probably related). Sure we have commodities, but that makes up only 4.5% of our economy and is still collapsing. Commodities do not make up for the lack of productivity.

Millions of Canadians have purchased with 0-5% down and 35-40 year ams. Even if these people bought 5 years ago, they will still be under water with a fifteen percent drop.

I suspect in real terms, real estate will fall by upwards of 40% in Canada. We should also be forecasting deflation – which will result in a much greater nominal correction.

Furthermore, TO did not drop 15% earlier this year. I was following real estate prices. This was overblown since it was only the low end inventory that was moving – dragging the price down. Furthermore, prices are not up 15% since then. They are up around early 2008 levels. The high end of the market is soaring thanks to cheap debt.

And that’s just it, it’s not incomes, not future economic growth that is driving real estate prices. It’s just cheap debt. And when you approach a debt ceiling, you realize your economy can longer afford to grow credit any further. And it starts to contract. The assets that relied on that credit, which is namely real estate, will collapse.

#80 JoeCalgary on 10.12.09 at 10:46 pm

#68 Two questions: how do those thousands of newly-unemployed factory workers afford to buy their own country’s products? And, how do the inferior quality products make it past the Chinese would-be buyers’ natural skepticism?

#81 Gord In Vancouver on 10.12.09 at 10:58 pm

#63 Cory

Your post pretty well summarizes everything.

#82 Mike (Authentic) on 10.13.09 at 2:58 am

#64 Phil “What do you believe the chances are that the BOC raises rates on Oct 20?”
a) less than 25%.

The BoC might be under considerable pressure from the world economy to raise rates after Australia did and investors might be investing in Canada before the 20th to “get in low”.

The BoC needs to raise rates soon, might as well start it off with something small (like .25%) now rather than .50% or .75% in a few months.

Mike

#83 taylor192 on 10.13.09 at 11:09 am

#74 vantown

Yawn, your arguments are so 5 years ago.

– Condo release don’t have lineups anymore (check the Georgia Strait for the number of condo ads)
– Builders are offering incentives to buy (would you like a Civic with your new condo?)
– Vacancy rates are up. Units are being pulled off the market (huge drop in active listings not driven by huge gain in sales)
– New construction is way down (5K units this year compared to 15K units this time last year)

Vancouver owners may have been and still are willing to pay more for a house, yet they are being a bit more cautious lately. Historically real estate falls off a cliff here, its happened 4 times in the last 20 years, the last time being 1995 and stayed flat till 2002. Yet that’s more than 5 years ago…

#84 jwk (nee jwkimba) on 10.13.09 at 1:47 pm

This is deja vu all over again for me. I left california (long beach/los angeles area) in late summer 2005 and moved to Toronto. In 2004 the housing prices there were insane- you could buy, close, hold for one month, sell for 10-15% more. Easy. It was just preposterous.

Sure, a 400sf bachelor with no parking (and no rental, and no street parking) was worth 300k. No, wait, 350k! The bachelor was in a building across from mine, it went from 85k in 2002 to 359k in 2005. Two of the owners NEVER OPENED THE DOOR. They just closed, waited, and sold.

It can’t go on forever. It will collapse. Buy now, flip fast, if you can. Make tons of money! Everyone was doing it in California – things are different there.

Just don’t mis time it. If you do, you are stuck with a very, very expensive bachelor that rents for, oh, $650 a month. Good luck with that…

And just like now, people who didn’t buy in 2003 were bemoaning the fact that they missed out on great deals ( A bachelor for only 250k!) and lamenting the fact that they had waited. Poor souls. Well, now guess what?

Here it is, same building, same really nice lobby, slightly different price…135k. That’s about right:

http://www.realtor.com/realestateandhomes-detail/455-E-Ocean-Blvd-Unit-510_Long-Beach_CA_90802_1109207701

#85 Soju on 10.13.09 at 4:57 pm

Get used to the high prices, especially in Vancouver. Now that 35 year mortages are available, people can now afford to spend more. Instead of 25 years, people now have 40% more time to pay-off their place. Imagine what will happen when more and more people choose a 35 year amortization and it becomes the norm.

#86 Soju on 10.13.09 at 6:11 pm

By the way, Vancouver sales have increased over 100% in the last 2 months compared to last year. Pretty good results considering the end is soon.

#87 pjwlk on 10.14.09 at 7:51 am

#12 Watched Bubble Never Pops on 10.11.09 at 10:35 pm

“Do we really need to tell people in the twenty-bloody-first-century that the future isn’t predictable?”.

The future certainly is predictable, it’s only to what degree and it’s perceived usefullness that’s in question. i.e. I predict these 4 things for your future…

1) This month you will spend money.
2) Tomorrow you will be older.
3) The next time you use a car it will burn gas.
4) In the next 4 hours you will need to empty your bladder.
===========
The writing is on the wall for a lot of things in our lives. You can choose to either embrace or ignore them, but they will still happen.

#88 Future Expatriate on 10.14.09 at 7:13 pm

#84 and #85: Welcome, new Troll.

And just IMAGINE what’s going to happen when California legalizes pot NEXT YEAR and over a million BC grow-op houses go bust and dump on the market at firesale prices.

Yeah, I’d say the end is REAL soon.