One day not so long ago, in a fabled city on the wet coast, 900 newbies packed a seminar room to learn why they should buy a house. Quite the sight. That it happened in Vancouver is testimony to the power of human delusion. And marketing.

The industry group behind the spectacle, the Greater Vancouver Home Builders, had a fabulously impartial lineup of speakers. There was the local analyst from CHMC, the guys who bring you 5/35. A vice-president from subprime insurer Genworth Financial. A mortgage hawker from the TD Bank. And the prez of the local real estate board. Now, how could you get a more balanced view of the market?

And while I’m all for investor education, it’s hard to imagine any advice for prospective new, young Vancouver buyers more constructive than this: “Run!” After all, the average detached house in Van now costs $741,632. In West Van it’s $1.4 million. And a 2-bedroom condo can easily set you back $600,000. This means anyone buying that ‘starter’ home (an 800-square foot box in the sky) will need about $42,000 in cash for a downpayment and closing costs and the stomach for a $570,000 mortgage.

And what does that cost? Man, just $1,900 a month with a super-cheap VRM of 2.25% and a 35-year amortization. Oh happy, day – and an income of merely $72,000.

But what happens in five years if, as central banker Mark Carney suggests, rates return to ‘more normal’ levels? After all, the average five-year mortgage rate over the past two decades is 8.2%.

Well, this happens: Monthly payments become $4,074 (even with a 35-year am), and you’d better be earning $146,000.

Hmmm. I wonder if they brought that up at the seminar?

Actually what’s happening now across the country as the real estate industry preys on the inexperienced and hormonal should have everyone’s attention. We all know mortgage rates are at the lowest point, and will rise. We know this will crash affordability. And we know as a result the real estate market will slow – perhaps dramatically – and valuations will fall. We know Ontario and BC are bringing in the HST next summer. We know it will make houses, commissions, legals, moving costs and lots else more expensive. We know that will crimp incomes and hurt housing. And this is just the start. Add in a post-Olympic flop, deficit-induced tax increases and rising energy bills, and any experience real estate junkie can see the result.

Which, I guess, is why they’re feasting on the kids.

CHMC sure is. They’ve got a new report showing 57% of all real estate action is coming from first-time buyers – about double from a year ago. And they’re ready, with heaps of bank-saving insurance.

CREA sure is. They’ve got a new ad campaign aimed at young couples. Says their spokesguy: “The focus of our messaging is around the value a realtor brings to the table and so in that context it offers value to first-time home buyers. Realtors know things you don’t stemming from their experience.” I’ll bet.

The banks are sure after the kids. Like BMO, which has podcasts for first-timers, and even a box full of ‘tools’ for $24.95 (rebated if you take a mortgage of, oh, $400,000).

And it’s all apparently working. TD Canada Trust’s latest survey found Canadians “aged 18 to 34” are more confident about buying a first home than their parents were. A full 51% claim they are “financially ready” to take the plunge.

Well, maybe they are – into 2.25% mortgages and a rising market in which equity gains blunt the pain of mortgage debt. But we all know this is an aberration. We know where this is going. The banks know. CMHC and CREA know. The Greater Vancouver Home Builders Association knows.

If the market declines by even 10%, all those new buyers with their 5% down and equityless monthly payments will be wiped out. They would have been far better off renting, since negative equity is a real possibility, especially in frothy places like Vancouver. The responsible thing would be to sell them homes they can afford to carry at mortgage rates which will exist at the time of renewal. If no such homes are out there, they should wait. It’ll come.

But where’s the fun in that?

Bring on the virgins.


#1 squidly77 on 10.25.09 at 10:30 pm

CMHC are the biggest bubble pushers of all
worse that freddie and fannie
CMHC is on track to insure close to 200 billion dollars worth of mortgages this year to subsidize the speculators with taxpayer money

i wonder what happens when they are forced to pull back by $100 billion or more check out the numbers here….its astounding

#2 Dean-oh on 10.25.09 at 10:38 pm

Detroit City cannot get $500 dollars for a house on the majority of the 9000 houses recently up for auction. Houses given up by the owners handed over to the city. Incredible. The same houses here in the Okanagan would be selling over $200 000.00 at least.

#3 Just Janice on 10.25.09 at 10:52 pm

This is perhaps the true testament to the failure of the education system to illustrate basic principles of mathematics, oh and history…

But hey, they’re just kids, they’ll get over it….and if they don’t their boomer parents will be more than happy to welcome them back into their basement suites once again.

#4 Terry on 10.25.09 at 10:54 pm

Hi Garth

Something that has really, really, really been bothering me … Is there a chance Canada could be forced to join other bankrupt nations where they are forced to accept IMF funding, where nations are required to sell assets for pennies on the dollar.

It fits Harper’s ideology, he has been quick to dump assets before.

Noam Chomsky wrote an interesting article that led me to this question … “What about Canada?”

#5 greyhound on 10.25.09 at 11:00 pm

It’s often said that all real estate is local. “Location, location, location…”
If there are RE bubbles in Vancouver and Toronto, does that mean there are RE bubbles in Manitoba and New Brunswick?

#6 casanova on 10.25.09 at 11:14 pm

i know that it would seem reasoanble to think that morgage rates will go up to their historical average but I am not sure I agree.
We live in different times, US and Caanda are going the japanese way, all economic indicators seem to point to that and our policy responses are identical to the japanese.
Low interest rates are here to stay for a very long time if japan is any indicator.
Japanese have printed way mor money than us and are indebted heavily, however the japanese 10 year bond is still yielding close to 1%.
I think that buying now may not be as foolish as it seems to the reasonable man (if you have a job of course.)
I also expect yields below 3% on the 10year bond for the next 5 to 10 years.
Housing is an asset and using goverment cheap money to buy it might be a good strategy in those times when currencies are being debased worldwide. Cash is worth less and less with every day passing by.

#7 Meggie on 10.25.09 at 11:15 pm

I simply don’t understand it. If CMHC and the bankers all know where this is going as you say (and I don’t doubt it), then WHY are they doing it? If they know it will be the ruin of themselves, why instigate their own demise?

#8 InvestorsFriend on 10.25.09 at 11:19 pm

By what twisted logic can people afford to pay 32% of Gross Income on a mortgage???

I guess all the other expenses rise and contract like that too??

So probably if a family of four making $100,000 spends 10% on groceries then, magically, a family making $50,000 can get by on half that. Is this how it works?

A $1900 payment for mortage (even if it includes property tax and heat as the 32% formula requires) is already unaffordable at $72,000.

No need to wait for rates to rise, this family is already a foreclosure waiting to happen.

#9 Onemorething on 10.25.09 at 11:22 pm

Last night I was out at the rink with my son. For those of you who know me, I live in KL (Kuala Lumpur) after an almost decade dose of Hong Kong.

One Managing Director (Chairman & CEO for you NA folk) of a major Oil & Gas Company asked me my views on the Canadian RE market.

After my “Executive Summary”, it was obvious that he hadnt even thought of the viable scenarios that will play out in the land of Glorious & Free! Especially in RE!

He has properties in both West VAN and Whistler which he is now considering taking profits on but our discussion put the nail in the coffin!

My advice also came with the realization that I myself will not look to Canada for RE even after it tanks!

I also believe, and I have seen this for years in Asian destinations especially with British and Euro boomers, that Asia gave them everything they needed and more at a fraction of the cost. Freedom 50/55 was possible.

With boomers now not able to retire but also not able to hold their salaries or even re-enter the workforce, looking for affordable healthcare etc, they will have no choice but to look for a new home.

They will not be able to afford to pay for their Gen X and Yer children’s bills especially defaulted properties (In which they enabled they children to buy) which are coming potentially on top of their own as you either traded up in the last 3-5 years or leveraged your percieved never deflating asset into new ones!

For now, Canada is in a holding pattern for me to even visit right now as the CAD is just too high.

I guess it’s Bali for Christmas this year, and Thailand for NYs. All of which are 2 hours by air and guess what, $200 CAD return.

Tough Love is the only type of love producing returns it seems!

#10 T.O. Bubble Boy on 10.25.09 at 11:28 pm

If first-time buyers are 57% of the market, shouldn’t the average price be coming down?

I say this because, in theory, only people trading up from an existing home should be able to buy the $1M McMansions.

But – no, the average price in September was up 10% over 2008.

This all makes less and less sense to me… where are all of these 1st time buyers with 10% more money than last year?

Could you imagine if CMHC dissapeared, and you needed 25% down to buy a house again? All of the twenty-somethings buying $400,000 condos would need $100,000 in the bank!

My take is that the Conservatives are just going to milk the housing bubble until the next election (and they can claim that this housing insanity somehow represents “leadership” and “economic growth” and “stability”).

Carney really can’t do anything to stop the housing bubble either, since BOC rates have to stay at near-0% to probably beyond June 2010 — there are no sectors of the economy that have recovered enough to justify raising rates, and the CDN $ is way beyond the 80 cent sweet spot.

Truly, the only arm of the government that can bring a stop to the bubble is the CMHC. And, since they are controlled by the same Conservative hacks, there’s no way that they would get rid of the 5%/35-yr limits, or put caps on the total $ amount a person can get insured.

If only the average voter could connect these dots!!! I’m just waiting for this to somehow get blamed on some unrelated scapegoat idea…

Maybe: Canadians are so happy in their newly renovated homes (re-built with the stupid tax credit I still hear commercials for every day) that they just don’t feel like moving anymore!!!

I can already see Flaherty saying that “no one could have seen the housing crash coming”, and “those $150B in risky mortgages I bought with taxpayer money are still great investments”.

#11 Onemorething on 10.25.09 at 11:29 pm

Recently released video on Brooksley Born on PBS FRONTLINE. This is absolutely worth a watch as it lays out the past especially on Derivatives, Greenspan legacy, no changes in Regulation Today and why we are screwed for years to come!


#12 confused in to on 10.25.09 at 11:43 pm

This email is focused to Mr Carney


I read this blog a lot, but I am not a follower!

I see that you may sneak a peak every now and then, …I guess to see what the contrarians are thinking.

I am from north central ontaio recently moved to T.O.
I have been a good Canadian, paying ALL my taxes, saving my money to be a legitimate home buyer here in T.O.
Now, historically should be a good time… Recession,… I’v saved my money for a REAL down payment, but somethings a miss. I can’t bid on an honest, value added price! Due to the 5/35 kids. They will bid the sky!
This would be impossible in normal conditions, as every central banker before you would not have permitted these conditions! Have you the new key to Canada’s success?
You may be right when you say Garth has a personal vendetta, but in my logic and nearly everyone over 30 yrs logic, the man speaks the truth. It’s merely time that will tell and you will still be around then. So… face the music and do what’s right and give the honest hard working Canadians a break! Including the 1st timers! They will get thier chance, when they have saved for something truely achievable!
Mark,…please, let the natural turn of events take its course. It will happen sooner or later.
Better sooner!!!!

#13 Gord In Vancouver on 10.25.09 at 11:44 pm

Which, I guess, is why they’re feasting on the kids.

American real estate marketers feasted on blacks and Hispanics.

Record low interest rates?
Record sales volumes?
Bubble friendly mortgage options?
Feasting on the gullible?
Media support of realtors/developers?

This script is looking awfully familiar to the one played out south of the 49th parallel a few years ago.

#14 45north on 10.25.09 at 11:44 pm

Which, I guess, is why they’re feasting on the kids.
They are. I tell my children to be very cautious they tell me their co-workers are not.

We know where this is going. The banks know. CMHC and CREA know. The Greater Vancouver Home Builders Association knows.
They do. The pensions of CMHC should be based on their book.

#15 Nostradamus Le Mad Vlad on 10.26.09 at 12:27 am

“. . . they’re feasting on the kids.” — Scraping the bottom of the barrel, huh?

After the kiddywinks are cleaned out and in debt beyond their hairlines, with close to zip in the way of mfg., hi-tech and lotsa other (used to be) good paying jobs, do they all mosey on down to a mall and re-train as cashiers / sales assistants / store clerks, etc. or do they high-tail it off to greener pastures?
Nosty, further to your #135 and my #164, although on a different continent this could also be in conjunction with other things, and will probably not endear them to the US. — South America

One of Madoff’s friends was found yesterday. — Remember Madoff? “Perhaps the most pertinent question: If Picower withdrew $5.1 billion in “profit” from Madoff, where did all the money go?”

Charles High Smith has a fairly good insight, but makes it clear that you get what you pay for. Hence, his meanderings are free. —

#16 Christopher on 10.26.09 at 12:31 am

monthly mortgage payments are really just a fee to keep homes off the market to create a supply and demand crises nobody is really buying anything it is just a circulation of fees…. so how is it working for you? it really is just a place to sleep that takes all your cash! The best way to sell a half million is to someone who has no money. Take all they make for the rest of their lives.

#17 Elle on 10.26.09 at 12:31 am

A year ago I felt like getting into the fray too…….but now, this crazyness feels like the ‘running of the bulls’ and I’m way off to the side….just watching, while the spooked & mislead run by, urged on in the race to buy now….or you’ll never get in !! Watchout for those horns! Somebody always gets it in the end!

” the coordinator for the Credit Counselling Society said the agency is hearing from an increasing number of people who have felt pressured to jump into the
realestate market.. and are ending up with credit problems – “they want it now, get it now philosophy”


#18 ralph on 10.26.09 at 1:44 am

“People should talk about what is a pretty profound restructuring that is coming in the global economy,” Carney said.

“Make no mistake: What will be required of our businesses, of policy-makers and Canadians will be quite historic. This has been a great recession — it was short, but it is bringing a big restructuring and will require major adjustment in this country.”

That’s right Carney. The big restructuring and major adjustments you speak of are higher taxes, higher interest rates and still high unemployment rates. Future generations inheriting massive debt loads.

Do us all a favor and do something useful like helping out at a food-bank.

#19 Munch on 10.26.09 at 4:20 am


We know what’s happening and what’s coming, but we just watch in slow motion as the system self-destructs.

We are now eating our young!

Whoa, we’re in for a heap of trouble!

#20 Mark on 10.26.09 at 5:11 am

squidly77, forget pullbacks, ponzi schemes, of which CMHC is an example, need to maintain exponentially growing size in order to remain ‘successful’.

The minute they hit a ceiling, because, oh say, they run out of people who are willing to ruin their lives to buy houses, wham, it collapses.

#21 David Bakody on 10.26.09 at 6:44 am

#7 Meggie on 10.25.09 at 11:15 pm

Silly Meggie …. of course they know, it’s all insured and who pays the insurance claims …..100% of working class people! It’s just that simple.

A fool and his money are soon parted …. it’s the same in the back alley playing marbles, in the cations, the race track and now over-priced sweat equity real estate. Years ago sweat meant physical labour …. to-day it could be consider mental heartbreaks and worry big time en route . There are millions of broken hearts south of the border to prove it, multi millions! and more en route. But here in Canada’s wonderland no such thing will happen, or will it?

#22 Samantha on 10.26.09 at 7:00 am

#5 greyhound

Definitely gaseous activity here in Manitoba, although prices here are lower than other regions, so there is still some semblance of true affordability (not affordability based on low interest rates).

I have watched increases in my town (double to triple increases in prices from 2006-7).

Winnipeg, which lagged behind other areas in pricing historically, is also experiencing prices increases. My brother laughed heartily when he saw the assessment for his house. It’s in a nice area and has quadrupled plus in ‘value’. He could care less as the house is going to his children after he retires so they have a fighting chance to survive what is coming.

Morden for example, has new houses for less than $200K. Fast and furious new home build with a big swath of cookie cutter houses that are all garage, no house complete with the typically exotic street names. I guess that is supposed to take your mind off the high property taxes. Note the chunk of ‘Street Improvement Tax’ added to the regular property tax (which is not listed).

The cheapest home listed is 64,900 for 500 sq. ft. of ‘do-it-yourself’ value. The small starter home next on the list is $89,900 and from there it’s over 100K for starter homes. Utter madness considering what these homes would have sold for before the gas attack.

It’s a nice town, but like everywhere else, it begs the question: Is this house actually worth the price they are asking today, considering the historical value of homes in this area? Rapid run up in prices = bubble pricing regardless of where the house is.

If one knows the area, it is hard to rationalize value for dollar spent or the bubble pricing. It amazes me that people will spend ridiculous amounts of money in any region for a 50-60 year old 800 sq ft bungalow that they could have built new for considerable less money.

Sooner or later, this housing bubble gas attack is going to pass and when it does, the stench will waft under the noses of every Canadian, and linger for a very long time.

#23 Mike (Authentic) on 10.26.09 at 7:18 am

This is just crazy.

If anyone can’t see a borrowing bubble is inflating at a growing daily rate than they must be in a cave.

All we have done is made things much worse since the stock market correction this year and have not only taken on more debt but also not learned a single lesson from the USA RE crash.


#24 Grantmi on 10.26.09 at 7:27 am

This is the part that stands out to me in the TD survey!

However, over a third of younger Canadians 18-34 (36%) said they could not have afforded their first home without help (What does this mean?? Help paying the mortgage alone with the down payment too??) from family (compared to 16% of those 55+), and 27% said that they received money as a gift or borrowed from family/friends to put towards the purchase of their first home (compared to only 10% of those 55+).

Where are THE PARENTS getting this money from! GUESS WHERE! Probably 2nd loans ON THEIR HOMES… since the vast majority of boomers retirement money is tied up in their principal residence!

So what we have here is a DOUBLE whammy! Both will be under pressure when the market corrects.

As Garth says.. “This will not end well!”

#25 Onemorething on 10.26.09 at 7:43 am

A report in The New York Times shows that China is winning market share in the US at the expense of other exporters.

China has overtaken Canada as the biggest supplier to the US in the past year, its imports rising from 15 to 19 per cent while Canada’s have dropped from just under 17 per cent to 14.5 per cent.

Dont worry, Captian Carnage to the rescue!

The Bank of Canada’s latest economic review said the strength of the Canadian dollar was acting as a drag on recovery and its governor, Mark Carney, declared last week that “intervention is always an option”.

#26 Makeorbreak on 10.26.09 at 7:45 am

#27 pbrasseur on 10.26.09 at 7:45 am

Ok so we all agree this is unsustainable. The question is then: how will it end?

It will end badly for sure, but how and how badly? Will there be a great crash or will it be a soft landing?

First I don’t think CMHC can go bankrupt, it can’t since it’s government backed and would be bailed out immediately. And even that in my opinion is unlikely to occur since loans in Canada are recourse loans and walking away is not an appealing option, unless of course values crash by a very large amount.

So if the CMHC (therefore the banks) continues to operate it will come down to interest rates. The market will slow as interest rates rises and affordability drops. As the market slows prices will decline and many recent buyers will fall into negative equity. Of course the construction industry and many surrounding services and industries will take a hit, thing may slow to a crawl.

Will it be a hard or soft landing? That really depends of how fast interest rates rise. Either way there will not be a spectacular crash here like we saw in the US, which is not to say we are better of, we’re not.

Because one thing is for certain: the amount of debt accumulated during the great Canadian real-estate bubble will be a burden for years to come, both for individuals and for the economy. Not not mention the false security given by the artificial value of their inflated asset (their house) which encourages people not to save for retirement.

Conclusion: We will pay a hefty price for all this, spread over many years.

#28 CA on 10.26.09 at 8:00 am

I would move to cali if I that much money to blow. They going get free health care too. Win win.

#29 BDG YYC WTF ??? on 10.26.09 at 8:15 am

#6 cassanova …

Another example of Darwin Award winning logic. Perhaps the best of all efforts for months.

You assess our situation as a dead ringer for Japan’s lost decade … and then draw on the fact that Japan was stuck in a low interest rate environment for a decace … and use this to blow off the prospect of interest rates rising ???? O.K. … hell … let’s give you that one. Japan it is then … interest rates stay low for years… Buy, Buy, Buy !!!!

Hey Garth … now don’t be pissing on this guy’s electricity by talking about how the RE market in Japan performed while Japan effectively offered to pay folks to buy real estate.

Now … how the hell does somebody miss the bit about real estate flushing 80% plus of its value in Japan over that period in spite of sustained low interest rates????

#30 frank pasquale on 10.26.09 at 8:16 am

BMO says variable rate mortgages will save you money in the long run.

#31 Torquemada on 10.26.09 at 8:20 am

Carney really can’t do anything to stop the housing bubble either, since BOC rates have to stay at near-0% to probably beyond June 2010 —

Carney can’t but if CMHC stopped insuring 35 year amorts with 5% down, then the bubble would pop pretty quick, regardless of how long interest rates stayed low.

#32 jess on 10.26.09 at 8:26 am

If you liked reading about Brooksley Born have a look here. And if you agree with MR. Gramm I believe he is chairman of a new news called ProPublica.
So where is this chairman Rep. Leach,the infamous deregulator who once sat on the House Banking Committee? AIG swaps–(insurance policies )/ CDO’s

#33 jess on 10.26.09 at 8:28 am

Capmark Financial Group
strip malls, office buildings, and hotels oh my!

#34 mooncake on 10.26.09 at 8:35 am

A little comedy

#35 Heather on 10.26.09 at 8:41 am

Here is the catch, if a rebound sustains itself, then interest rates will rise. Noone is going to want to get these meagre 3% returns.

If the economy crumbles, deflation will set in and incomes will fall.

We are approaching the maximum debt ceiling for mortgages at 3-4%, 35 years.

According to the model on the americacanada blog, debt should explode right before capitulation. I think we are seeing that right now:

“When home prices rise”:

#36 Tony on 10.26.09 at 8:47 am

Great post Garth!! Is there some financial instrument in which I can bet on the devaluing or crashing of the Canadian real estate market??

#37 Boombust on 10.26.09 at 8:47 am

Why would it take higher rates to pop this thing?

It will very likely collapse under its own weight like every other bubble in history.

#38 dd on 10.26.09 at 8:47 am

IT called the price for no snow. The Sunshine Tax.

#39 blame it on the formula on 10.26.09 at 8:51 am

Here is how they calculate how much you can borrow.
your earning + expense + interest rate + amortization
as of right now 3/4 are changeable.
A prudent lender would put in a 5 years fixed mortgage rate + 25 years
It makes a big difference

#40 moneyman on 10.26.09 at 9:02 am

To Terry:

You wonder if the Canada could go bankrupt and need the IMF and the subsequently sale of Canadian assets as related by Noam Chomsky in the referred to interview (thanks for the link; glad I found about this man; intend to read more by him).

In 1994, IMF sort of bailed out Canada. May be ex prime minister Paul Martin might have something on this somewhere (books, media………). I have no time to dig further but would also like to know more about the “1994 IMF intervention – Canada”.

#41 robert on 10.26.09 at 9:12 am

Incomes are in no way rising sufficiently (or at all) in these bubblicious markets to justify the prices and loans (apart from the exotic and toxic variety currently on offer). Being one of the tin hat minority who remain unconvinced that higher rates take it all down I can just as easily see a fall in average income and/or a rise in taxes achieving the same painful result.

The end of the Olympics in BC will certainly represent the high water of real economy borrowing and spending (albeit of the boondoggle variety in the opinion of this humble observer). A hangover commensurate with the size of the party will most assuredly follow. One has to look no further than China (or Greece), through the lens of the most rudimentary balance sheet accounting principles, to visualize the outcome.

#42 AM on 10.26.09 at 9:13 am

To add another layer to the coming debt crisis, how many have used their home equity to invest in the current stock market bubble? The way I see it, the only thing propping up the econony and the TSX is cheap credit.

The national news last night reported that our economy is being propped up by consumer spending…with borrowed money. The media is finally reporting this and Carney is warning us not to get too crazy with borrowing. Well if Carney is warning us, it already means it’s too late.

#43 pezzazz on 10.26.09 at 9:19 am

Watching this mortgage pushing is like watching cigarette companies sell to children.

#44 Denis on 10.26.09 at 9:24 am

Here’s a new market opening up for “virgins” … Should be fun!

From: @rotmanschool
Sent: Oct 26, 2009 9:45a
“It is ridiculously easy to blow your face off with derivatives.” Rotman Prof. Alan White –

Now available for all individual Do It Yourselfers! Oh I can see the Late Night Infomercials and Line-ups now for guys like Investools or the former NFL Coach teaching people to Trade their way to financial freedom!

#45 Grantmi on 10.26.09 at 9:40 am


“He didn’t know what he was buying!!” It took him 4 years time to come up with that line! lol

Back-Door Taxes Hit Americans With Public Financing in the Dark

By Peter Robison, Pat Wechsler and Martin Z. Braun

Oct. 26 (Bloomberg) — Salvatore Calvanese, the treasurer of Springfield, Massachusetts, for four years, had a ready defense for why he risked $14 million of taxpayer money on collateralized-debt obligations laden with subprime mortgages in 2007.

He didn’t know what he was buying, he says, and trusted the financial professionals who sold them and told him they were safe.

#46 Downsized and Delighted on 10.26.09 at 9:41 am

Reading the Globe and Mail today, I see the U.S. Case Shiller index is being released tomorrow. They expect an improvement – the house prices are going down at a slower rate.

The most interesting thing to me is that this index is weighted against home renovations – something that doesn’t happen in Canada. We need that information reflected in our price indexes. (If you flip a house after spending $100,000 on renos, the house price has only increased less $100,000. The more money spent on renos, the more out of whack the house price increases become.)

It’s nice to see I’m not the only one concerned about statistics falsely based on renovations.

#47 Vicguy on 10.26.09 at 9:48 am

Ignatieff would take Liberals to worse election showing than Dion: poll

Forgive my off-topic political comment, but the story above provides delicious irony…

Mr. Ignatieff’s handling of Mr. Turner’s recent attempt to run for the Liberals in Dufferin-Caledon is a good indicator of why he and his party are in so much trouble. Mr. Turner had a good shot at defeating the quiet, unthinking political robot presently filling this seat. But Mr. Turner tends to say publicly what he personally thinks about things — the worst possible trait a leader wants in a backbencher or even a cabinet minister.

Mr. Harper demands silence and docile, mindless blind obedience from his troops — Mr. Ignatieff apparently feels the same way.

Indeed, he seems to have approved the next Liberal candidate for the Okanagan Valley – a snow boarder infamous for having been stripped of his gold medal after marijuana was found in his blood.

Back in 2000, I’d never have believed how much I’d miss Mr. Chretien. As Joni used to sing, ‘Sometimes you don’t know what you’ve got ‘till it’s gone…’

#48 $fromA$ia "Garths Nugget Boy" on 10.26.09 at 10:07 am

I have a great idea, does anybody here have a toy factory. The idea is to make Carney puppets with Flaherty as the operator. The puppets can say , “nobody and I mean nobody, saw this comming!” Another one could be, “theres no place like home!”

Heres another Flahery could be telling his Carney puppet to take his 0/35 year pill and shut up.

#49 Watched Bubble Never Pops on 10.26.09 at 10:11 am

#11 Onemorething

Last week called, they want their news back.

#50 Watched Bubble Never Pops on 10.26.09 at 10:13 am

#24 Grantmi

I like how you actually believe your made up stories. Like the saying goes, “If you believe it, it’s not a lie!” LOL

#51 Watched Bubble Never Pops on 10.26.09 at 10:16 am

#27 pbrasseur

I like how you write like you actually know what will happen; you sound like my fortune teller.

#52 Watched Bubble Never Pops on 10.26.09 at 10:17 am

#29 BDG YYC WTF ???

“Now … how the hell does somebody miss the bit about real estate flushing 80% plus of its value in Japan over that period in spite of sustained low interest rates????”

It’s called deflation. You should read up on it.

#53 The Vulture on 10.26.09 at 10:21 am

Train Keep A’ Rollin’
(Muddy Waters)

Garth, another awesome post!

Your laying the cards down big time for newbies.

Betcha they will never hear your words of wisdom anywhere else.

Keep going….we love your work…you should be Prime Minister of Canada if you so wish. You are a true leader in times of chicanery and deception.

Newbies, EDUCATED yourselfs. Your are being suckered big time. Real estate is a rough and tumble business!!
It has nothing to do with granite counter tops, salt water pool, hardware floors, stainless steel appliances. It is a place of ….wait for it……..wait………keep waiting……..

#54 Bill-Muskoka (NAM) on 10.26.09 at 10:21 am

No problemo! We simply cannot afford such assininity so the average price in Vancouver is a non-reality to us. Even if we had the money to pay cash, we would not buy there because the cost to value ratio is delusional.

Most people are firmly grounded in reality, but apparently there are enough who are delusional, or just simply too stupid to comprehend, what a home is for…LIVING IN!

Perhaps we need a new term ‘Debt Junkie’? The beauty of nature is that the stress they live in will kill them off from Cardio Vascular Disease. Such a deal, eh?

Natural Selection does work!

#55 Watched Bubble Never Pops on 10.26.09 at 10:22 am

#31 Torquemada

“Carney can’t but if CMHC stopped insuring 35 year amorts with 5% down, then the bubble would pop pretty quick, regardless of how long interest rates stayed low.”

What would the benefit be to the CMHC to do that? Nothing.

And just an FYI:
During the U.S. mortgage crisis, 40% of american home purchases were being made for ‘investment purposes’. In Canada? 5%.

In addition, only 1/3 of mortgage activity is new mortgages.

#56 Watched Bubble Never Pops on 10.26.09 at 10:24 am

#36 Tony

“Is there some financial instrument in which I can bet on the devaluing or crashing of the Canadian real estate market??”

You would go broke, just like the rest of the RE doomsayers over the last decade, but if you seriously want to lose money, then short a Canadian REIT or RE ETF. LOL!

#57 Basil Fawlty on 10.26.09 at 10:25 am

We can see what the subprime real estate debacle led to in the US, with massive drops in value and an all in unemployment rate of about 20%, and rising . In addition, the US has unprecedented levels of debt and bailouts totalling over $23T to the banks that created the financial crisis. All financed by the same taxpayers who are being foreclosed out of their homes, while the bankers receive massive taxpayer funded bonuses after destroying the US financial system.
Is this the same plan for the financial take down of Canada, or is it simply that Harper wants a majority?

#58 Watched Bubble Never Pops on 10.26.09 at 10:25 am

#37 Boombust

“Why would it take higher rates to pop this thing?”

It wouldn’t. The mortgage rates in the U.S. are still dirt low.

Nobody knows what causes crashes regardless of how many people on this blog claim that they ‘predicted it’.

If people really could predict these things, they would put real money on the line and short the crap out of RE denominated assets.

#59 Watched Bubble Never Pops on 10.26.09 at 10:28 am

#43 pezzazz

“Watching this mortgage pushing is like watching cigarette companies sell to children.”

30% of cigarettes smoked by teens in Ontario are contraband. This compares with 45% in Quebec.

#60 Lost in the Okanagan on 10.26.09 at 10:32 am

One positive of all this is that we are going to have a whole bunch of motivated people who need to work to support their lifestyles.

#61 Downbytheriver on 10.26.09 at 10:36 am

Anyone see that Tyee article about how the Canadian government is now the world’s largest ‘subprime lender’? It was linked as widely as FT Alphaville and even.

The best quote was:

Reading the newspapers these days, you have to wonder whether Canada was on another planet when the global credit crisis hit.

I cannot believe that people can watch what went on in Florida and California, and what is now going on in Manhatten and still say with a straight face all the silly arguments from realtors that inflated the bubble to begin with. Like that ‘they’re running out of land’ in the country with the smallest population density in the world.

#62 Oakville Owner on 10.26.09 at 10:43 am


Do you or any of the blog dogs have any estimates as to how far the RE market can tank when this bubble bursts. I have been looking at selling over the last four months but even my realestate agent has advised to wait. I found this odd since she had big commission $$$ to profit from. I had my wife convinced back in Sept 09 but now have baby #2 on the way in Mar 2010, combined with the agents view were not so sure. Here are some stats to help with the advice. Also does anyone know of any realestate investor sites where I could possibly list my home for sale to an “investor” (greater fool) with me and my family remaining as renters for the next year or two until this bubble pops?I watched the late 80’s/early 90’s bubble pop just around the time my parents seperated and would love to avoid this financial blunder for my own family.

1-Paid $585 000 in Aug 2008
2-Neighbour sold same house for $740 000 in Sept 2009
3-4yrs left to go on prime -.50%, open mortgage (1.75%).
4-Mortgage amount left is $350 000.
5-With low mort rate have paid off over $20 000 in a yr.
6-Just won RFR with MPAC and property has been reassesed from $705 000 back down to purcase price of $585 000.
7-Over 30% down payment in 2008.


#63 CM on 10.26.09 at 11:28 am

Murray Dobbin at the Tyee doesn’t see much joy in the housing market either, and shares the view that the CMHC is the sub-prime lender of choice in Canada.

Why Canada’s Housing Bubble Will Burst

Not only will the younger ones bear the burden of climate chaos and huge deficits – and eternal wars – but they will be locked into backbreaking mortgages.

Friends of mine I mentioned several months back have returned from their travels. One of their kids and her husband lived in their house for the months they were away. Then, with the money they saved and taking advantage of the temporarily low interest rates, they bought a house.

My heart sank.

#64 jess on 10.26.09 at 11:37 am

if you think detroit is hollowed out check out this

#65 taylor192 on 10.26.09 at 11:38 am


I completely agree with you that we’re headed the way of Japan, low rates and printing money. Look at Japan for what happens, real estate has been on the decline for 2 decades.

If that happened here, most people would be better off renting for the next decade since any principal paid down on the mortgage will be wiped out by deflation.

Especially here in Vancouver where I’m already saving 30% renting vs owning.

#66 Grantmi on 10.26.09 at 11:59 am


Ouch Bubble Boy.. hit a nerve did I!?!?!?

It’s not my story! I’m simple asking.. where are these kids getting the down payment AND other monies to actually carry the mortgage.

If you know different.. bring it on!!!

#67 Jiminy Cricket on 10.26.09 at 12:00 pm

Setting aside the risks of short-side investments for the moment, is there any way to short the Vancouver real-estate market? Garth? Anyone?

#68 Live Within Your Means on 10.26.09 at 12:01 pm

#7 Meggie on 10.25.09 at 11:15 pm
I simply don’t understand it. If CMHC and the bankers all know where this is going as you say (and I don’t doubt it), then WHY are they doing it? If they know it will be the ruin of themselves, why instigate their own demise?

Wasn’t it Harper who hired Carney? Personally, I think this recession was a blessing for Stevie as he & Carney could create the biggest debt/deficits in Cdn history. Why, because its always been Stevie’s desire to eliminate social programs in Canada while increasing military expenditures. Just do a google search on Harper’s ideology (his time as President of te NCC) and his previous advisor, Tom Flanagan. Harper has been against a strong federal govt. and this is his way of achieving. Any future govt. will have to drastically cut programs for the poor and middle class. Raising taxes to get us out of this sh&t is unacceptable to the majority of the ‘ignorant’ so no leader will go there. Just look what is happening in the US re the health care debate. Those who would most benefit are being scared and lied to by big business – insurance & pharma, promoted by the likes of Rumbaugh and Beck. And, we, unfortunately, have the likes of those scum bags here in Canada – most of the MSM who no longer do investigatve journalism. They’re more interested in ‘gotcha’ journalism as they’re scared they won’t be invited to the PM’s ‘propoganda’ ‘Economic Action Plan’ events. It’s really said that we Cdns paid $100K for his last event in NB when he could have done it in the HoC. Your tax payer $$$ working for you!

#69 David Bakody on 10.26.09 at 12:04 pm

Then add this ….. What was it Mr. Turner said the changes will come and y’all will never know what hit you or words to that effect. Canada is gonzo! good bye …. no use closing the doors it’s too late.

#70 Live Within Your Means on 10.26.09 at 12:06 pm

#4 Terry on 10.25.09 at 10:54 pm

Thanks Terry for posting that link. I’m a fan of most of Chomsky’s writings.

#71 BDG YYC WTF ??? on 10.26.09 at 12:10 pm

#29 … Watched Bubble …

Really ??? Woaaa !!! … how enlightening.

Keep working on that hairball … it’ll come up eventually if you keep horking on it :-)

#72 kc on 10.26.09 at 12:19 pm

69 David Bakody <<< interesting read thanks

#73 miketheengineer on 10.26.09 at 12:21 pm

Garth et al:

Some thoughts for today.

You bet marketing works. And CMHC makes dreams come true. So it was 11 years ago. Put my 5% down, and jumped in. Not knowing what would happen, no kids, no wife (she came shortly after putting the deposit down with the builder), and off to the races I went, and so did many others.

Where did the term, “realestate doesn’t go down”come from? This started about 12 years ago after the last recession. Housing has kept going up. Why? The great gift of CHMC insurance.

Thinking about it now, I should have rented and saved up a bunch of bucks before jumping in, but I didn’t have Grandpa Garth to warn me about the dangers of negative equity, 1930 style depression in Canada, and what to do about job loss.

I was young and very foolish, without practial guidelines, from older wiser, Garth type mentors. When you think about, the BANK, is partly responsible, as well as the purchaser. The bank for not warning about the dangers of the situation, and the buyer for not seeking out a “Garth Type” older father for guidance.

Right now I really feel like a “greater moron” than a fool. Bring on the depression Garth, lets get this bad boy over with, so we can start again.

#74 Downsized and Delighted on 10.26.09 at 12:24 pm

Oakville Owner: I believe that you make your money when you buy your house. You clearly have already done this so congratulations. You have a nice home for your family. When it no longer suits your needs, you won’t have any problem selling to a first time buyer, and even if the market tanks, you will be in a great position to move up at a lower differential.

Your point about protecting yourself from future losses (citing your parent’s breakup) is well taken IF you see that in your future? But, with the second child coming soon, let’s hope that’s not the case.

My financial advisor has always told me that there is as much risk in getting out of the market as there is getting in (because when you get in you are in control if you’re smart – like you obviously are).

Hang on to that real estate agent. She obviously has your interests in mind.

#75 jess on 10.26.09 at 12:36 pm

The death of Jeffry Picower, who is accused of making more than $7 billion (U.S.) from the fraudulent schemes of his long-time friend Bernard Madoff, will make it more difficult for suing investors to recoup their money, attorneys said

#76 vreaa on 10.26.09 at 12:48 pm

From the article on BMO ‘research’ on variable rate versus fixed mortgages:

“The bank put out a report Friday showing that, over the past 30 years, variable-rate mortgages have been more cost-effective about 82 per cent of the time.”

Yes, and over the NEXT 30 years, they will be………….?
Rearview mirror stuff, no?

#77 Investx on 10.26.09 at 12:52 pm

“If the market declines by even 10%, all those new buyers with their 5% down and equityless monthly payments will be wiped out. ”

Garth, what do you mean by wiped out? What’s the issue if they choose to remain in the home? Kinda like stocks, no? You lose money only if you sell after a drop. But if you’re invested for a longer term, you can weather the bear markets.

#78 Keith in Calgary on 10.26.09 at 12:59 pm

The market does not need to decline even 1% for them to be wiped out.

They are utterly destroyed the moment they take the keys……

The standard RE commission of 7/3% wipes out the 5% equity cushion should they have to sell and they chose to use a realtor, the commonplace (out here anyways) 3-10% discount from the asking list price also kicks them in the can twice as hard.

This is why they don’t teach basic “consumer economics” in school…..our economy would collapse if we turned out intelligent graduates.

#79 Popeye on 10.26.09 at 1:06 pm

#62 Oakville Owner on 10.26.09 at 10:43 am
Sell now to take advantage of a greater fool with low interest rates in hand.

(“a bird (greater fool) in hand is worth more than two in the bush”)

#80 Kelly McMae on 10.26.09 at 1:07 pm

Though a host of words pop to one’s mind describing people’s behaviour regarding real estate, the term “idiots” seems to speak most loudly.

Especially considering the 20-34 crowd no longer espouse to a lifelong commitment of boredom and mediocracy locked into a protestant work ethic that their parents trumpeted. These kids want to move, to be mobile. Daft punk gipsy caravans sporting lululemon and yapping on a cell phone.

Good luck slaves, and enjoy your chains. At least booze is cheap and weed teeters on legal. Maybe the best financial play coming will be shares in Molson’s or Seagram’s.

#81 MrC on 10.26.09 at 1:10 pm

If you read the G&M online around noon today, the two main stories were “Companies see economy picking up” and “Energy, mining deals seen accelerating”. Down the page you see “Atlantic consumers: spend, spend, spend “.

Sure housing may be in a bubble, but there are some positive signs out there too. I’d recommend not buying a house right now, but I’d also recommend its not that bad out there that you should be stock piling food, moving out to the wilderness or locking yourself in your bunker.

#82 Watched Bubble Never Pops on 10.26.09 at 1:15 pm

#63 CM

“Murray Dobbin at the Tyee doesn’t see much joy in the housing market either, and shares the view that the CMHC is the sub-prime lender of choice in Canada.”

Predictions are like a certain body part (I can’t remember which…); everybody has one.

#83 Watched Bubble Never Pops on 10.26.09 at 1:19 pm

#71 BDG YYC WTF ???

“Keep working on that hairball … it’ll come up eventually if you keep horking on it.”

Keep working on your predictions… it’ll come true in your mind if you believe hard enough. :)

#84 Popeye on 10.26.09 at 1:26 pm

#65 taylor192 on 10.26.09 at 11:38 am
Renting in Vancouver is a no-brainer. The buy:rent ratio is way out of whack.

Renting vs. buying in other cities is not so clear-cut.

Take Ottawa for example:

At least $1500 to 1600/mo to rent anything decent (3 bedroom townhouse or 1960’s bungalow).

$1400/mo for mortgage/taxes to buy the same (or better!) house.

#85 T.O. Bubble Boy on 10.26.09 at 1:32 pm

@ #55 Watched Bubble Never Pops:

If 2/3 of mortgages are re-financing, then these aren’t driving the housing market anyway… it’s the newbies getting into the market that are taking the riskiest 5%/35-yr maximum principle mortgages that everyone on this blog is concerned about.

Also – to the point on 40% of sales in 2006 being for investment properties: that was definitely one of the biggest factors in finally bringing an end to the US bubble… but, by no means will Canada’s bubble be popped in the exact same way. Some factors are much worse in Canada than they were in the US right before the bubble burst:

* Average home price: Canada is beyond where the US was (with similar household income levels, but no mortgage interest deductions, and no 30-year fixed rates)

* Unemployment: US Unemployment only started rising after the bubble popped. Canadian unemployment continues to rise even as housing prices grow.

* Economic Cycles: Canada’s cycles trail the US by ~2 years.

* Higher Consumer Debt: we’ve recently passed the US in average debt/household.

#86 jess on 10.26.09 at 1:51 pm

is this model dead? The strategy of buying an asset and gearing it up to generate returns

Incentive –
Fees were based on the size of assets under management. The higher the price, the bigger the assets under management, the more lucrative the fees.

So go out on a binge buy up roads, bridges, parks ,airports, bid up the prices load em up with debt because the shareholders in the funds pick up the tab…

#87 nonplused on 10.26.09 at 2:29 pm

Good post again today Garth. No doubt about it, mathematics is going to catch up with us one way or another and the result will not be pretty.

Interesting post here that explains the root of the US crises nicely.

Also points out that the solution to the crises so far has been to “pretend it doesn’t exist long enough for it to go away”. I assume they will throw out accounting standards altogether sometime next year.

Carnival Carny was out manipulating perception again today:

Don’t buy it. His message is meant to relieve popular anger over the way our finances are being run, not to actually impose any new regulations or anything like that. “You” are the audience for this message, not the banks. Otherwise he would have sent them a memo.

Also note that this was the headline this morning, but now that the popular anger has overwhelmed the comments section it’s fallen to the bottom of the business page.

There will be no increased regulation of the banks, no stop to the government bailouts, and no checks on compensation (embezzlement) by executives.

#1 squidly77

If the numbers at that link are to be believed (and I can’t see why they wouldn’t), then there can be no doubt any longer. CMHC is 100% responsible for all of the pricing action we’ve seen in Canada and they must be stopped before they bankrupt an entire generation.

The good news is with all these youngsters rushing into ownership the pressure on rents is down. Well, it’s good for renters, not so much for commercial real estate trusts or the banks that loan to them.


#7 Meggie

I can answer that! Millions in bonus money, paid directly to them. Let the taxpayers and shareholders sort out the disaster themselves while you sun on your own private Caribbean island.

#10 T.O. Bubble Boy

Foreclosures are up in Canada too. I don’t know how those crazy folks over at the CREB do it, but in the US a foreclosure is a “sale” when the property transfers to the bank, and again when the bank sells it. Maybe that’s part of it? I really don’t know though.

#26 Makeorbreak

The cap rate to rent in Calgary is about 3% right now too, same as in Chicago. There is absolutely no support from the rental market for what the owner market is doing.

#58 Watched Bubble Never Pops

“Nobody knows what causes crashes regardless of how many people on this blog claim that they ‘predicted it’.” – WBNP
“There is no way to prevent the collapse of a boom cause by the expansion of credit, either voluntarily by an end to the extension of further credit, or involuntarily via the abandonment of the currency system involved”. (approx, by memory) – Ludwig von Mises
The answer is, as soon as CMHC cannot continue to exponentially increase their book of business, real estate is done stick a fork in it. What could cause that? I don’t know. Like I said before, they are going to 0% down 40 year ams next, and when that string won’t pull anymore they will go to 10% cash back interest only if they have to. There are no rules anymore, we blew by that stop sign a long time ago.

#88 Nostradamus jr. on 10.26.09 at 2:39 pm

#9 Onemorething

“””One Managing Director (Chairman & CEO for you NA folk) of a major Oil & Gas Company asked me my views on the Canadian RE market.

He has properties in both West VAN and Whistler which he is now considering taking profits on but our discussion put the nail in the coffin!

I guess it’s Bali for Christmas this year, and Thailand for NYs. All of which are 2 hours by air and guess what, $200 CAD return.””


Until you yourself own property in West Van/Whistler, your opinion holds no merit to your friend.

…And I dare say, your friend who owns West Van/Whistler property isn’t worried about a $200 cost for a flight too any two start resort you vacation at.

Garth…West Van is not a first time buyer’s market….It is a “For the Wealthiest Only, Last Time Buyer’s Market”…that is…all cash needed to get into Canada’s most elite, private gated community, accessable only by two bridges and one highway from the North.

…Keep trying though…

Nostradamus jr.

#89 taylor192 on 10.26.09 at 2:41 pm


Note: I use Vancouver as my example cause I live there, so YMMV in other cities.

Regarding the term “wiped out” you must consider people, not numbers: Most new condo buyers aren’t invested for the long term.

Many new condo buyers will sell within 5 years. Why? These 25-35yos will eventually start families and condos are just too small, especially the 600 sqft 2bdrms in Vancouver.

If within those 5 years prices stay flat (not drop like many here predict) on a 35yr term at 4%, only 7% of the equity is paid down ontop of the 5% original downpayment. Then subtract 4-6% commission, legal fees (x2, sell then buy) and moving costs and these people will have at best broken even.

Now they have been over-paying (rent is 30% cheaper than owning in Vancouver), not saving, potentially lost their entire previous downpayment, … so how do they afford to move up into a bigger place and start a family?

#90 Live Within Your Means on 10.26.09 at 2:51 pm

The house next to ours sold conditionally. Flippers bought it for slightly under $100K than they put it on the market (quick sale) It’s been almost 18 mos. I saw 2 people last week spend over half a day with, assuming, an inspector. I now see the flippers redoing a large, separate garage roof. Neighbour popped in this am & we discussed why they didn’t do it at the same time as they redid the house roof. They resided the house & front of garage (what shows from the street) but not the sides. Been in the house, done cheaply IMHO. And I’m mainly talking about the cheapest looking hardwood floors & bathroom fixtures, etc., Sure, I’d love granite countertops, stainless steel, etc. but we didn’t buy them as we don’t like debt. I wonder how much they’ll actually make on the house, considering their money has been tied up for 18 mos. BTW, they really screwed up the lawns, flower beds, shrubs, etc. I know one of the flippers fairly well. His idea is if its green, fine with him. I helped his wife out years ago with gardening. Due to health problems, I can no longer maintain my gardens. My gardens, several yrs ago, were included in our local YMCA tour gardens. I used to grow 1K plants under lights in the basement – heritage tom plants, etc. Now its 2 old 85/beemer cycles :-))

#91 Oakville Owner on 10.26.09 at 3:05 pm

#74- Downsized and delighted.

Thanks for your thoughts. I guess seeing the $100 000 plus increase in equity in less then a year is what really got me thinking about cashing out. My relationship is strong with my wife and I did not mean to imply that what happened to my folks is what I see for my future. It just so happened that when my folks did split, the family home got caught in the RE bubble. We on the other hand are a happy family of three, soon to be four (just had the ultrasoud today). As far as moving up, this is by far the biggest home we will ever own (3050sf). We did our first and last move up last year from our townhouse to our current place. Guess I may just have to listen to my wife and sit back and enjoy the moves we have made. It is just sooooo hard to do when I read from this site everyday and see all the valid points ppl have. This site has been more addictive then crack!!

#92 Jeff Smith on 10.26.09 at 3:17 pm

>#9 Onemorething on 10.25.09 at 11:22 pm
>Last night I was out at the rink with my son. For those
>of you who know me, I live in KL (Kuala Lumpur) after >an almost decade dose of Hong Kong.

Hi Onemorething. I am curious, what language do people use on daily basis to live in a place like Kuala Lumpur? If you only know English is it possible to survive there? Or do you have to become fluent in Malay? Come to think of it, KL would make a nice retirement destination if the economy continues the way it does right now in Canada. I fear by the time I retire here I can’t afford basic necessities with the monthly pension income. Gotta think of a backup plan somehow.

#93 Oakville Owner on 10.26.09 at 3:22 pm

#79- Popeye
Another valid option, but when I’m only paying 1.75% myself it is not so simple. Almost 3/4 of my payment every two weeks are hitting the principal (paid off over $20 000 last yr alone). My parents and grandparents could not of even dreamed of doing this when they were my age (and yes I know they would not have dreamed of owing $350 000 either). Perhaps times have changed. Grandpa was lucky to earn $5000 to $10 000 a year(when he first started out) and Grandma stayed home with the kids so no second income. Today my wife and I both work and bring in just under $200 000 gross. AH not complaining, feel very blessed, just wish I knew if others who are not as $$ literate can and will bring the rest of us down with them.

#94 miketheengineer on 10.26.09 at 3:30 pm


USA is under “state of emergency”. Obama signed the bill.

Alex Jones radio show just said that if you go to the USA and you get pulled over for any reason, by the police, they can hold you without charges.

Question will they do it?

Do you want to travel there now? I was planning a trip to visit relatives at xmas, I am now not going till the emergency is over. Screw going to the states.

#95 Nostradamus Le Mad Vlad on 10.26.09 at 3:32 pm

#9 Onemorething — “. . . Bali for Christmas this year, and Thailand for NYs. All of which are 2 hours by air and guess what, $200 CAD return. Tough Love is the only type of love producing returns it seems!”

You do have a couple more things than most Cdns., a healthy dose of common sense and reality!
#17 Elle — “. . . this crazyness feels like the ‘running of the bulls’ and I’m way off to the side . . .” — and —
#19 Munch — “. . . what’s coming, but we just watch in slow motion as the system self-destructs.”

Neat descriptions! Guess the bulls may slow down toward the end of next year, then the system slowly self-destructs toward 2012, by which time there will be wars a’plenty.

So much for civilization!
#27 pbrasseur — “. . . We will pay a hefty price for all this, spread over many years.”

Another great reason to sell, then rent. Put the proceeds into bank preferreds, ag., health and utilities and live with a reasonable income.
Predictions (sunny with cloudy skies or cloudy with sunny skies, and showers in between). — S&P / Oil

In conjunction with Marketing, climate change is happening somewhat faster than previously thought. On Oct. 22nd, a weather station in Berchtesgaden National Park, Bavaria has recorded the coldest temperature ever in Germany during the month of October.

Thermostat dipped to -24.3C or -11.7F, with clear skies, calm winds and fresh snow, the perfect combination for the record chill. The city of Augsburg, Germany has been 9.3 degrees colder than average during the past week.

Is there a trend here or am I off my rocker?

#96 BAD on 10.26.09 at 3:32 pm

Carney on banks:

Carney said large financial institutions benefited disproportionately from government intervention. He said the response has profoundly shifted risk from the private to the public sector.

Canadian central bank rebukes banks

No kidding.

#97 Patiently Waiting on 10.26.09 at 3:37 pm

“Especially here in Vancouver where I’m already saving 30% renting vs owning.”

Are you talking about rent vs. mortgage payments, or rent vs. all housing costs?

When you factor all costs, I’m saving 50%. Others are doing even better.

#98 Gary on 10.26.09 at 3:42 pm

Mixed signals from MSM??

‘Homemade savings’ the new RRSP:

“‘I would call what Canadians are doing passive savings or homemade savings,’ says Mr. Tal, adding one of the reasons the savings rate in Canada has not been rising is people are pouring more money into their home than into investments.

The problem with that strategy is that a house may not be all that liquid and it’s hard to take pieces out to fund your retirement.

‘House prices will not go up forever,’ says Mr. Tal, adding the latest turnaround in the housing market seems to indicate otherwise.”

Comments anyone?

#99 Vancouver_Bear on 10.26.09 at 3:43 pm

To: Watched Bubble Never Pops

Dear get rich quick scam master, please stop your moaning. Canadian RE was always following US RE…. just study the basics

7. Summary and Conclusions
Housing cycles in the U.S. and Canada are quite similar overall, but Canadian housing
market cycles are more volatile than those in the U.S. Most notably, Canadian housing
market contractions are somewhat shorter and sharper than those in U.S. cities. An average
expansion lasts from five to six years in both countries and is characterized by an average
increase in real prices of about 32%, although the median expansion is larger in Canadian
cities (26% versus 18% growth) in our sample. In both countries, real house prices decline by
10% to 11% during an average contraction. This price decline however, occurs more rapidly
in Canada since the average contraction lasts only 3.5 years in Canadian cities compared to
4.4 years in the U.S. cities.

#100 mr.swizzle on 10.26.09 at 4:09 pm

From first hand experience I can tell you that something is seriously flawed with the current real estate fundamentals, especially in Toronto.

For about three days last week I flirted with jumping into the RE market, somewhat against my better judgement. I have been reading Garth’s blog for about a year and a half, and have developed a rather bearish view of the current CMHC subsidized housing situation. But what did have to lose? worst case scenario is that I would become a more informed buyer at some point down the road.

This brief fling with real estate temptation, was sparked by a nice sized older condo in the High Park area of Toronto. This unrenovated condo was around 1100 square feet listed at $299,000 (fees were around 650,000 a month, that covered heat, laundry and parking). I contacted the listing agent only to find out that it had sold in a multiple offer situation for $349,000; but she promised more would be coming up in the future. About 5 months earlier, I visited the open house for a similar unit that had sit on the market for an extended period of time (listed at $320,000 and selling for $275,000), and it seemed to offer a decent value for its price. I had been pre-approved for $300,000 the maximum amount I felt I could safely handle without becoming a house poor twenty-something living on a diet of ramen and broken dreams.

For some inexplicably reason I signed a 6-month buyer’s representation contract with the realtor who listed the condo. After doing some preliminary research, I quickly discovered that $300,000 buys you very little in Toronto, where you pay for the privilege of having a urine soaked homeless man use your porch as his personal clubhouse. My original $300,000 price tag was very conservative, so I decided that, for the sake of finding something of any sort of actual value, I would bump my budget up to $350,000, seeming to think that I could find something reasonable for that price, even if it didn’t have granite countertops or any cute little “nooks”.

My first night out, my realtor takes me to about 8 houses, all were in the 300-400 thousand range. One was a completely renovated 1200 sq foot bungalow in a really questionable neighbourhood that was listed for $296,000 and expected to go in a bidding war. This place still had drywall dust on the ground and the materials used to renovate it were so cheap that everything shook when you walked. I felt like the house might just crumble if I sneezed. Wanting to avoid an unnecessary bidding war for a truly mediocre product, I moved on to the next house. This one was a $400,000 semi on a very busy street in the western edge of the city. The house was a decent size but basically falling apart. The next place was $400,000 flophouse on the same street. Each room had been rented to a unique lowlife, all with mattresses on the floor (in close proximity to their bongs). As I toured the house, the almost unbearable odour of cat urine, made it increasingly difficult to complete my tour without the puking.

The final house I saw was a small semi in a decent middle class portugese/Italian neighborhood in the north west end of the city. There were no appliances, the basement was unfinished, and the kitchen was the size of kindergarten bathroom stall, but it was a nice 1200 sq foot 3-bdrm “condo alternative” in a safe neighbourhood listed at what seemed to be a fair price ($350,000), especially given the current irrational market. Although I liked it, I was reluctant to put in an offer because it was too early in my search to feel comfortable with commiting to buy anything, plus I felt that it was a pretty likely candidate for a bidding war. My agent told me that it would be a big mistake to not put in an offer just because it was early in my search; what if I never found anything else like it? I would regret my decision, she claimed. This was Wednesday, offers were being held off until the following Monday. This is a common ploy to incite a bidding war, so I asked for her opinion; do you think this house would go over the listing price? She said she didn’t know, because she hadn’t researched past sale prices yet, but what is there to lose, put in an offer, just to know what the process feels like. This is when I started to get a little suspicious, why would I want to put in an offer just to know what it feels like to lose something that was purposely underpriced to encourage irrational first time buyer to overpay. I told her I was going to think it over, and get back to her the next day, she told me that I seemed like a very nervous first time buyer. Keep in mind, this was my first day out, and she was accusing me of being overly nervous; I think a better term is sensible!

After thinking it over, I still toyed with the idea of putting in a bid for the asking price, but decided to read the inspection report first. The building needs all new wiring ($10,000-15,000) a new roof ($3000-5000), and about $10,000 in other repairs. At this point I was starting to get a little concerned about the risks associated with buying a house which requires so much immediate work. The next day I go take another look at it with my dad, there were at least two other groups taking a look, both with home inspectors (this means that they are doing their own inspection prior to making a bid, because you cant win a bidding war if it is conditional on inspection). My agent arrived late, when I asked her about the repairs listed in the inspection, she informed me that she hadn’t read it yet. Then she showed me the recent sold prices for the neighbourhood. Semis were going for $420,000-$880,000, in fact, the house across the street was listed for $359,000 and had sold for $430,000. It was essentially the exact same size and design, and located just across the street. At this point I got pretty angry, why didn’t she tell me this before we went to see the house, so at least I wouldn’t have wasted my time with the possibility of making an offer. She told me to just fill out a blank offer form, and on Monday we could just fill it in with whatever felt right. I asked her what she felt it would sell for, and she told me I asked too many questions. Long story short, I felt I couldn’t justify this insanity and just threw in my naive first time buyer towel. When people are acting so irrational, there is no way any of this nonsense could make logical sense. Before I drove away my agent told me that I could easily afford $400,000, and it was worth it because the neighbourhood held its value. I wasn’t about to reward her laziness with anymore effort on my part, and told her I would get back to her on Monday. I just found out this place sold for $440,000! And whoever buys it is going to have to put in at least another $40,000 in work, for a very mediocre small semi, in what traditionally has been a rather unspectacular working class neighbourhood.

On Saturday I went out to some open houses and everything was expecting multiple offers, even the out of date bungalows on questionable streets where promiscuous paid companions tend to roam. First time buyers are drunk with cheap money and they want their housing fix at any cost. It’s actually quite disgusting. I don’t care if houses continue to appreciate and I am missing out on the pride of ownership. Anyway I look at it I can only benefit from saving a larger down payment and waiting things out. When has impulsive and irrational behavior ever made any longterm business sense? And the way I look at it, the only way someone would actually would buy a house in the current bubble market is if they acting both impulsive and irrational. It is one thing to read about this real estate insanity, but it is another thing to actually experience it. This cannot end well!

#101 Downsized and Delighted on 10.26.09 at 4:11 pm

#77 Investx: Since Garth didn’t answer I will. You are exactly right. The main thing is not to be overleveraged so that you must sell if the market declines.

If you make a decent downpayment you can sit out market slumps. I spent the last 30 years moving UP in market slumps, NOT selling off.

Garth has done exactly the same thing and he is still doing it. He may be diversifying a little more, but he is still buying real estate.

#102 All the variables on 10.26.09 at 5:06 pm

– In 2003, CMHC began insuring VRMBS (Variable Rate Mortgage Backed Secuirties)
– You can see types (pools) of CMHC MBSs here: Any pool starting in “98” represents a variable rate MBS insured by CMHC.

% of CMHC mortgage backed security issues that were VRMBS (by dollar figure, as a percentage of total MBS issued by CMHC for the year):

– 2003: 4.8%
– 2004: 14.4%
– 2005: 23.7%
– 2006: 18.7%
– 2007: 15.4%
– 2008: 40.2%

That’s a lot of people with crossed fingers counting on rates not to rise or their salaries to go up.

Almost all of these people put < 20% down, and probably most only put down 5% (or 0%!).

If interest rates rise, these people are screwed; but Canadian taxpayers will be gang-banged if we need to back a significant chunk of that debt.

#103 Alister on 10.26.09 at 5:48 pm

Before buying anything you should go to a local auction to see what happens. As long as there are two nuts with egos, the price keeps going up and up and up, while everyone else in the room sits there and wonders in amazement at why they don’t see the value. Then all of a sudden, the nuts run out of money, and you can pick up whats left for a song.

It’s then that you realize, the nuts were exactly that. They didn’t know value any better than you.

Has anyone noticed that 10 year and 30 year US gov bonds are just starting a break out to the upside in the last few days? We always follow the leader/

#104 Auditor General on 10.26.09 at 6:12 pm

#62 Are you serious?

Are you one of those people who calls into radio shows and says “i’ve got a big lump growing out of the side of my neck, should i be concerned?” You are going to an internet blog for to ask if you should sell your house?

Unless it hasn’t already been made clear to you, Garth can’t tell you when real-estate will drop in value and by how much. Thats because he doesn’t know. And the ‘blog dogs’ know even less. Garth makes a living by selling books. Could you imagine a book whose theme is ‘Canadians are becoming too comfortable with debt and have too much of their net worth in their homes which will result in them having to adjust their spending/saving habits over the next decade’. Wow thats a sexy topic. Wouldn’t sell alot of books or gernerate alot of web traffic would it? Needs more drama and he knows this. He also knows that his foaming at the mouth blog dogs are great for web traffic. i get the feeling that somedays he wants to tell them to jump off a bridge when they insist that paper money has no value but he knows the purpose they serve. Alot of the more shall we say ‘eccentric’ characters that post here have a form of OCD when it comes to linking to internet blogs that share a similar theme. i.e that everything will only ever get worse, everything is a huge conspiracy, and there is no hope for mankind. They provide with their links to Garths blog alot of internet traffic and hopefully book sales and media attention etc…

So its a symbiotic relationship. He fires up a new blog post each day full of fire and drama. His disciples get fired up and re-post the usual stuff like its groundhog day etc..etc…

You will not be able to sell your house to an investor because the multiple offers are from people who actually want to live in the house. And thats the crux of the issue. For a bubble to pop you need speculators to be forced to sell all at the same time. Thats not going to happen. Instead the pain of paying too much will play itself out over many, many years. And Garth knows this….but that doesn’t sell. The dude is just trying to make a living. Nothing wrong with that. But don’t read into all his energy and passion that the market will crash next month or next year. I bet you he doesn’t think so. Unlike the clowns who comment here Garth actually cares if his predictions turn out to be wrong. So you will never catch him saying that real-estate will crash. And thats because he doesn’t think it will.

#105 FP on 10.26.09 at 6:23 pm

#9 onemorething:
Life in Malaysia or SE Asia is not as idyllic or as one-dimensional as you generally like to paint it out to be. I know as I used to be Malaysian (first-gen immigrant to Canada in 1998 and had to give up my Malaysian citizenship when I obtained my Canadian citizenship).

For one thing, the average Malaysian cannot really afford to buy an average home either because real estate prices are too high, driven up mainly by…..guess what…..”rich” Brit, Euro, Aussie and NZ expats who come in droves to buy local RE with their higher currency.

Secondly, Malaysia is a Muslim country, with a ruling Muslim political party, which has held power since it achieved independence in 1957. Malaysian politics are notoriously unstable, just look at the headline news in the Star and NST and imagine all the news they’re NOT reporting. There is always talk that a more fundamentalist group could come into power and initiate sweeping Syariah laws throughout Malaysia. Think what that would do to the economy.

Thirdly, I have two words for you: Bumiputera status. And if you haven’t clued in to what that means by now, you should be talking to more locals than senior execs at oil & gas companies, especially if they’re Petronas execs.

I’m not saying there aren’t great things about Malaysia. I still have family back there and I appreciate my roots and where I came from. But I also know that there are great things in Canada too (the real estate bubble not being one of them). It’s not fair to present just one view and have everyone think that Asia is one big Utopia. Just my two cents, for what it’s worth….

#106 North Van Dude on 10.26.09 at 6:28 pm

#7 – poster # 68 summed it up correctly. what Harper and Carney are doing is prepping Canada for a stroll down the hall the shock therapy ward- all at the behest of their masters, the banks.

When the “recovery” fails to materialize and people can no longer afford these homes, CMHC (taxpayer) will be on the hook for the mortgages. The assets and interest payments will pass into the hands of the banks who wrote the mortgage, the liability will pass into public hands.

This will cause such a massive public debt explosion in Canada, the service of which will require the slashing of programs and the fire sale of public assets. The IMF will get involved and recommend “shock therapy” for Canada.

Goodbye medicare, Canada post, social services, welfare, public utilities, public employees, organized labour, control of natural resources and public education.

Hello private healthcare, and the contracting out of all government functions to private industry to be run for profit.

Any protest or civil disobedience would be met with swift and severe violence from the police and military.

Oh, and massive increase in military spending, just for kicks.

I used to believe that Canadians would never let this happen in their country, but now I am not so sure. I am ashamed to admit that should this come to pass, I suspect many of my fellow Canadians would scarcely even notice, let alone care.

For examples of the results, see Chile

Conservatives should not govern for the same reason vegetarians should not be in charge of BBQ restaurants.

#107 Just a Girl on 10.26.09 at 6:31 pm

#89 Taylor 192 wrote: “Many new condo buyers will sell within 5 years. Why? These 25-35yos will eventually start families and condos are just too small, especially the 600 sqft 2bdrms in Vancouver.”

Exactly. I rent a fairly modern condo, in a newer building with about 55 units. The population of my building seems to be 25-30 years old. Double income, no kids, usually a small lap dog, and a really expensive car. The front door is a revolving door. Couples move in, couples move out.

Last summer I viewed a few new high-rise condos. In these new units, they build the living rooms bigger for entertaining (“show”), but sacrifice on bedroom space. They’re made for double beds at best (not queen, and certainly not king) and there is absolutely no room for a dresser or night stands. That’s what the little closet is for. Not exactly a love nest for newlyweds, when you have to push the bed against the wall, so you have a path to the bathroom.

Did I mention there was no interior garbage chute? Nothing like taking your garbage down 33 flights in the elevator. Brilliant design. (On the bright side, maybe it will make people think about how much garbage they create.)

Anyway, why buy a “starter condo?” Rent for cheaper for 5 years, then go straight into a starter home with space for your growing family. The “condo owner stage” is unnecessary for couples who plan to have children and move within a few years, but I think marketed as a glamourous lifestyle for young professionals with healthy egos. However, you can have the same condo lifestyle without the financial entanglements … just rent.

About folks with 3000 SF homes … honestly, I’m curious to know what your winter utility bills are like. I saw a home show on TV for one family in Texas that pays $1,000/month just for air conditioning. When you have high energy needs, whether in a hot or cold climate, there is a price tag for that, too.

#108 FP on 10.26.09 at 6:35 pm

#9 onemorething:
Oh, and one more thing, if you’re going to Bali and Bangkok, I hope you’re fully aware of child prostitution, drug trafficking, extreme air and water pollution, not to mention the high rate of Hepatitis B infections are also rampant side effects of a tourism industry that seeks to exploit rather than help its most vulnerable poor.

#109 Bobby on 10.26.09 at 7:06 pm

#100 Mr Swizzle,

You are probably the smartest individual I have read about in a long time. Only a clown would get into a bidding war and only an idiot, your realtor, would advocate such a move.

Remember your agent doesn’t get paid if you don’t buy. They don’t care what mess you are left with as it is buyer beware.

I have bought many properties and I recall a similar incident looking at a ski condo here in BC. The agent, a real turkey, stated I didn’t seem interested as I asked a lot of questions, My response was his ” I don’t knows” wasn’t really cutting it. Told me he couldn’t wait for me to do my due diligence as there were 350 people lined up to buy. Ya right, so I walked.

And still today, 5 years later there are still some brand new units for sale. I’m still getting emails about price reductions.

Want some good advice: don’t ask your agent for sound advice. Remember all they took was a 2 month correspondence course.

Enough said!

#110 taxpayer like you on 10.26.09 at 7:58 pm

104 young lady:

I have 3200 sq ft electric heat with heat pump, electric hot water, family of four. Propane f/p for backup, but havent filled tank in two years.

$133/mo under equal payment plan with BC hydro

#111 taxpayer like you on 10.26.09 at 8:06 pm

Sorry 104 AG – should be just a girl 107 when re-freshed

#112 Gord In Vancouver on 10.26.09 at 9:29 pm

#103 Alister

Before buying anything you should go to a local auction to see what happens. As long as there are two nuts with egos, the price keeps going up and up and up, while everyone else in the room sits there and wonders in amazement at why they don’t see the value. Then all of a sudden, the nuts run out of money, and you can pick up whats left for a song.

It’s then that you realize, the nuts were exactly that. They didn’t know value any better than you.

Nice analogy !!!!!

#113 HouseBuster on 10.26.09 at 11:58 pm

Oakville Owner:

Well you know your house is going to go back to $585, that’s a given, but with 200K income between the two of you I don’t think you have much to worry about. Just watch mortgage rates because they will go up eventually.

I don’t understand how you’re only paying off 20K a year. It should be double that amount.

#114 nobody on 10.27.09 at 1:09 pm


You can try these sites:
Real Estate Investor Networks – Canada focused

You can also check out various for sale by owner sites in various provinces.

Happy Hunting

#115 David Bakody on 10.27.09 at 3:08 pm

#47 Vicguy on 10.26.09 at 9:48 am

For all intent and purpose the National Post is to Canada what Fox is news is to the US ……

Who cares? Canadians dug their own grave when they gave Mr. Harper an opening having decided they could just not stand prosperity! (yearly balanced budgets, billions in the banks and a emergency trust fund worth a few billion to boot) and yes mortgage controls. So ladies and gentlemen if you want to find the reason why go look in a mirror.

It’s too late …. it’s over and soon the salt will be driven into the fields of all opposition parties … The Republican North Wing (Ottawa) is en route arriving in neighbourhood near you. AND the sad part is many will never know what hit them and will continue to blame the Liberals from their hands and knees waiting for their meager penance from a self appointed President.

#116 Homeproud on 10.29.09 at 4:33 pm

Garth, in response to your vitriol regarding a recent first-time home buyer seminar, didn’t you help to promote such seminars when you were business editor at the Toronto Sun? I recall you were even a speaker at one or two, telling the property virgins they should run out and buy their first home as quickly as they can. I also recall you bought a boatload of real estate during that time. I suppose you would still speak at the seminars if the money were there, like it is when you shill for private investment companies across Canada. You are still feasting, Garth, but at a different trough.

That was 22 years ago. Houses were affordable, no 5% down, no 35-year ams, no teaser rates. That makes this the stupidest comment of the day. Congrats. You just won a rowhouse in Detroit. — Garth

#117 Richard Brunt on 11.11.09 at 12:09 pm

When comparing our prices to the US people overlook the fact that mortgage interest payments are tax deductible in the US. That means they have to earn $1000 tp pay $1000 in mortgage interest. A Canadian in a 40% tax bracket has to earn $1600 to pay $1000 in mortgage interest. This means a typical $1 million 1930s crappy house in Kitsalano (Vancouver) would cost far, far more that the lovely $1 million house in San Diego – when you factor interest on the mortgage.