Bubble talk

N e w s    F l a s h !
Houses less affordable! (Duh.)
Does history repeat? Only if human nature does.

Bubble talk continues. The latest contribution is from Scotia economist Derek Holt in a paper entitled, “Is there a Canadian Housing Bubble?” Like most highly trained economists, he doesn’t answer the question, but he does have a lot of cool charts (the one above is amended, as I’ll explain in a moment).

Mr. Holt’s a guy I know well from my time on Bay Street. He’s always been a real estate bull, and changing banks (he was formerly with RBC) hasn’t changed him much. But his report does contain a nugget of info I’ve been digging for (and only a banker would have access to) – the number of people taking long amortizations, which usually corresponds with low down payments.

Says he, 47% of new mortgages taken out in the last three years have had ams of more than 25 years, and 60% of those have been 35 or 40-year jobs. Hmmm.

Why does this matter?

Because it gives some bones to the flesh we see flailing around the market these days – young buyers who have been the principal combatants in bidding wars driving prices higher and helping make housing unaffordable for everybody. If half the new loans are for greater than 25 years, and the bulk of those are 35 or 40, then it’s a fair assumption these folks went that route to achieve lower monthly payments.

As we all know, the longer the am, the more a mortgage debt swells. Those who opt for 35 or 40-year repayments get rid of virtually no principle in their early years, with all their monthlies going towards interest. That’s why they are so loved by the banks and are financial muggings for homeowners. Add in the CMHC insurance money, and it’s a recipe for zero equity gains for several years – unless the market keeps rising.

In other words, no rational homeowner would opt for a 35-year loan. Only those who were buying at the end of their leash, looking for a way to swing the deal. As we know, the key question in real estate today is not, “How much does it cost?” but rather, “How much does it cost a month?”

So I’m thinking, this preponderance of long-am, irrational, cash-strapped new homebuyers is not the best news an economist could hear. It sure would not be welcome if the conclusion were that, yes, we do have an asset bubble – because bubbles always burst. And when they do, people bleed. Especially those who bought in last, paid too much and have no equity behind which to hide.

This info comes to us, by the way, at the same time we hear that one in four Americans with a mortgage and a house is in negative equity – owing more in debt than the property is worth. Interestingly, it seems most of them were not subprime borrowers, just folks who got caught in the real estate trap when house valuations took a dump.

Such a good thing we’re Canadians. No twitchy mortgages here.

Got two interesting emails today (actually I got buried in them). Here ya go.

This is from a professional real estate guy in Winnipeg:

I am not sure what you are espousing with your doom and gloom predictions for Real Estate in Canada….Real Estate is cyclical, largely dependant on interest rate movements, new supply coming on to the market and inflation.  It goes up, it goes down. However, in most part, interest rates rise as an economic response, usually a lagging economic response to inflation. Inflation has a large component dealing with real estate prices so it appears we may have a period of time of rising real estate prices until interest rates rise appreciably.

Will real estate go down at some point…YES….could it continue up another 10-20 percent YES….I don’t know….and after getting two calls today about your interview on the Globe website and then viewing it, I am amazed that someone who goes by another name than God can be so sure.

This is from a professional mortgage broker in Toronto:

I check into your blog sporadically.  Daily reading has been bad for my business as a mortgage broker as I found myself spending a lot of time advising my clients not to do things.

It seems well established that a lot of decisions to buy a family home are based on emotion.  The lenders play on this emotion.   It seems everyone writing to you is about to succumb to the female “nester” in the relationship and plunge into homeownership.  It’s timely to report the human side of the consequences….not my clients but friends of my kids.

House purchase summer of 08 – 100% financing 40 year amortization.  Husband a carpenter, wife at home with the new baby.  November of 2008, husband laid off, wife goes back to work for minimum wage. Still not enough family income to pay the mortgage and buy groceries.

Value of house has dropped 10% – Payout of mortgage was higher than the purchase price the day they completed. by virtue of 100% financing and the CMHC fee.  Real Estate commission 7% on the first $100,000, 3.5% on the balance.  Shortfall would be $49,000.

Couples’ families want to help.  Daughter and baby move home with her parents.  Son moves home to his parents.  Duplex is rented out to cover the mortgage payment. This doesn’t work.  Husband moves in with wife and her parents.  This doesn’t work.  Couple rent cheap apartment. This doesn’t work.  Mother and child leave after 8 year relationship.

There hasn’t been a lot of time spent on discussing the human side of this recession or investing in a real estate bubble but it is important to note the consequences are not just a loss of money or investment.

The chart at the top of this post came from Derek Holt’s report (the economist). I have modified it to include the bubble real estate market of 1989, and the one we are in now. I’ve also indicated how long it took for prices to recover from the last one – 13 years.

I hope Mr. Holt’s bank tells the kids.

Condo maniacs lash out!


Wednesday condo madness in the Big Smoke: Hundreds of people lined up starting at 5: 30 am in downtown Toronto today to be the first to rush in and snatch a condo in the unbuilt X2 project. That would be news in itself, and another sign that the final stages of Bubble Times are upon us. But more interesting are allegations the promotion-minded developer actually started one of the lineups, and when the legitimate condo maniacs discovered it, chaos ensued, complete with chants and protest signs.

Are we there yet?


Garth's latest podcast is here.


#1 Wreckonomics on 11.24.09 at 8:58 pm

I find myself increasingly frustrated with the way that the CMHC has worked against it’s stated mandate of ‘making housing more affordable’. I suppose it’s a small comfort that the conservatives removed the option for zero down 40 year terms, but we’ve still got an unsustainable situation that will hurt families in the long run. I know he’s not solely responsible, but I still find this extremely cathartic: http://smackstephenharper.com/

When will the madness end?

#2 Nestor on 11.24.09 at 9:01 pm

Sadly, the longer this bubble in real estate continues, the worse will be the outcome. This is 100% the result of criminal activities by the Bank of Canada, and Bank lending practices. Why are those @sses keeping rates at near zero?? they should have raised them already. Several points … and normalized rates. Completely criminal. It’s a joke.

#3 Not Garth on 11.24.09 at 9:02 pm

Vancouver slowing – fast. The pace of slowing is accelerating.


#4 Emma on 11.24.09 at 9:03 pm

Ya know, God Turner has a pretty good ring to it!

Bless you. — Garth

#5 Not Garth on 11.24.09 at 9:05 pm

GARTH = is the bubble about to burst? I smell it, smells like decaying flesh.

#6 kitchener1 on 11.24.09 at 9:34 pm

The funny thing is that with the exception of the last few days on MSM, I have not heard one peep about RE being in a bubble.

The average person on the street does not understand economics or interest rates or market behaviour.

I mentioned it last week that I feel a top is in, at least for the GTA anyway.

I will put in an excerpt below of an email conversation I have been having with one of my friends that is a RE investor in the GTA, he has been in the RE business for 25 years, buying/selling/investing in homes, duplexes etc… here is what he wrote:

“people are just getting stupid in this market. I have seen a few houses on MLS that are priced low to entice bidding wars and then one week later they adjust price upward because they did not get any offers. Dumb agents and home owners holding back offers on piece of shit properties etc…

These idiots and their greed are going to kill this market, a lot of people, like me and thousands of others are just going to stop looking and put off buying for another 6 months-12months-18 months. The prices out there even in your area of Kitchener are borderline for positive cash flow.

What we saw last fall was just a sneak peak at what is too come. I have lived through this before and seen it first hand. Its coming and soon.

I will just wait a few months, inventories will rise and sales volume will drop, next year is going to be interesting. ”

This guy has made a lot of money timing various markets and I take his advice seriously, he told me last year that if the market tanks, the govt will drop interest rates and a market rally will happen in RE. He almost called it too the month.

#7 Onemorething on 11.24.09 at 9:36 pm

23% of all US mortgages under water!!! That’s just less than 30 Million households. Over 5 Million of these are down 20% or more!

Okay so add the following:

Housing starts are declining
Unemployment has not yet peaked
Inventory is high
Shadow inventory is waiting in the wings
No driver for jobs or a solid sustained recovery

There is a small uptick in RE purchases but only related to new home buying plan similar to Cash for Clunkers!

Maybe we get a couple more months of this!

Then the US takes the final blow, from 30% already national avg. to 40-45%!

And it stays there as Garth and his modified chart suggests for a decade or so!

My thought has always been the same that Unemployment is a leading indicator this time around and until you can find a bottom to it (and the numbers are realistic to what the avg family feels on main street) then there can be no bottom to how far RE can drop.

and Onemorething, A decade of trying to figure out where new jobs are to be created (as the one’s lost are gone for good) will make the US (and CAN for that matter) a very questionable place to not only live but survive.

#8 Michael on 11.24.09 at 9:39 pm

re: #2, why keeping rates at near zero?

Interest rates are going to be low for quite some time – a must read:

Deflation: Making Sure “It” Doesn’t Happen Here
Remarks by Governor Ben S. Bernanke

#9 Einsam Solo on 11.24.09 at 9:41 pm

“I am amazed that someone who goes by another name than God can be so sure”

And if Garth walked on water, the Winnipeg real estate guy would say it is because he can’t swim.

#10 Calgary_rip_off on 11.24.09 at 9:50 pm


what’s with these people that split up if they cant afford their house? How shallow!! Seems most people dont really love other people deep down and its all about material crap. What a waste. Things are only tools for betterment and advancement, not ends in themselves. The materialistic person becomes a tool.

Some person was saying that $20K is a small downpayment on a house in reply to a post. He/she was highly judgemental and was a pompous @ss, said it would be for a truck F-150, I guess that’s what they think when you are uppity and only buy houses in the $1 million dollar range. $20,000 on a $300K house is a small down payment, larger would be better, but alas it is hard to get a big payment when the principal and rents are so high. High interest rates help everyone, ultimately. They drive the prices down, which drives down property taxes, and therefore more people can buy more house, for less money.

The right wing people are the problem. People who have the most have the most freedom and therefore have the most responsibility. If a right winger says he/she isnt responsible to share, to what right to they have to be given what they have? That is a violation of God. Bottom line is that a person ultimately doesnt “earn” anything. It is a decision on someone else’s part to accept what is produced. So conservatives count on being able to retain everything produced, call the shots, then give up nothing. This is why the current status of the government in Alberta is a laughing stock. Ed Stelmach and Harper are the biggest idiots I’ve ever seen. Stelmach screwed the oil companies and Harper’s financial policies have helped to continue this bubble. And Harper is off in India. Time to bring Layton or the Liberal guy and screw this PC party up. People are suffering-bad EI benefits, no rent controls, screwy health care people in charge, the list goes on. The conservative party is SO embarassing!!!

Last time I checked you can be far left wing and run your own businesses. You just have to have ethics. I pay a ton of taxes and I earn around $100K a year. That’s great if it helps someone!! Anybody who talks down to me saying this is juvenile and innocent to want to help others through their contributions is evil and is the weakest link. I would suggest that they go spend a day in a homeless person’s shoes and realize that life is precious.

Nestor #2 : Normal rates at this point wont fix things. Bring on the 12-20% interest rates so house prices drop by 50%. That would fix things. And no, the poor wouldnt suffer. They have the least to lose.

Im glad you are getting more popular in Calgary Garth. You need to be. The more people in Calgary know of Garth Turner, the better. Knowledge of You may shake off the sad delusion looming over this prairie town.

#11 Onemorething on 11.24.09 at 9:53 pm

Housing bottom estimated early 2011 via JPM estimate, they wont call it right! Whole host of new problems will occur no matter how much money the Govn will spend.

Just wait until there is a foreclosure on your typical Canadian Street! Watch the knock on effect!

#12 downbytheriver on 11.24.09 at 9:59 pm

@#1 Wreckonomics
I find myself increasingly frustrated with the way that the CMHC has worked against it’s stated mandate of ‘making housing more affordable’.

There certainly is an irony there, isn’t there?

Honestly, my politics are fairly left-of-center but while I firmly believe housing of some sort should be affordable to everyone, I interpret that as rental housing, not home ownership, and maybe picking some place to live that’s affordable as well.

Where I live you can find a pretty nice house with a waterfront view for under well under 200K


#13 Ottawa Fisher on 11.24.09 at 10:06 pm

My Dad was a carpenter and man we were poor. WHEN housing slides so will building . . . right? And then all those builders, and contractors, and RE peoples will
be looking for other work. And they may have to sell their homes and relocate to make it all work. This will all happen very fast “I think” because nobody is preparing or expecting a correction. In Ottawa they are building new homes by the hundreds and it seems always starting new projects in different parts of town. This building is never questioned on the grounds of urban sprawl or opulence. The expense of survival in 2009 has outpaced inflation and wages and will rear its ugly head soon. We are talking $11 smokes, $50 24s, and $1.00/L gas. This will not work out well at all.

Rumors here of people buying a contractors license for $75 at city hall and renovating their own home, then selling it. Many loop holes that are making some people a stupid amount of money.

#14 Dan in Victoria on 11.24.09 at 10:17 pm

Nice too see the Realtor God Hybris drop by too pay homage to us plebes.

#15 Downsized and Delighted on 11.24.09 at 10:18 pm

I hate to kick a guy while he’s down, but a carpenter had Zero to put down on a house after the biggest housing boom in this century? If he couldn’t save a down payment in the best of times, how did he imagine he could make the payments when building has obviously slowed? Oh, I forgot, it’s his wife’s fault for wanting a house!

#16 Ronaldo on 11.24.09 at 10:41 pm

Does this help to explain why housing in the U.S. is not going to recover anytime soon and maybe an indication of what will/is taking place in our own country.


#17 Michael on 11.24.09 at 11:10 pm

Looking at the graph above ….. the year 2008 (March/April) we experienced the following:

gold at $1,035;
oil at $147;
fertilizers (potash) and food price increase;
housing bubble,
increasing interest rates;
inverted yield curve (recession);
stagflation ahead.

Six months later:
gold $737;
oil $70;
deflationary crisis.

Flash ahead, we now have:
gold $1,160;
oil $76;
high unemployment;
low interest rates;
currency devaluation;
housing bubble;
positive inflationary pressure.

Go figure, nothing is predetermined.

#18 Chaostrology on 11.24.09 at 11:27 pm

Let’s just review the mortgage broker’s letter.

-long amortization.
-huge leveraged mortgage.
-new baby.
-happy parents.
-happy wife.
LIVIN’ THE DREAM….all in on a pair of deuces.

The worst case scenario….
-husband loses good paying job.
-wife works for Walmart for $8 an hour.
-marriage goes right in the [email protected]#$er.
-husband becomes the world’s biggest loser.
-baby now in a single mom family.
-husband is personna non-grata.
-in-laws no longer talking to him.
-divorce emminent.
-bankruptcy going to happen for sure.
-mum and dad wonder where they went wrong.
-house, going, going, gone.
-credit rating (what credit rating) gone with the wind.
-young man’s confidence shot to hell.
LIVIN’ THE NIGHTMARE……the river was full of jokers. It’s all fun and games until somebody gets poked in the eye with a sharp stick. What a waste of human potential.

#19 Coho on 11.24.09 at 11:33 pm

As I’ve written before, when bank economists are allowed to begin mentioning a housing bubble, then we know the fix is in for the bubble to burst. Maybe the bubble pop forthis here country has been scheduled for next summer by “the ones”.

Calgary rip_off,

You are right about shallow people that love material things more than their spouse. It is a very common thing and I’d wager the most common reason people decide to divorce is for financial reasons. Young couples poised to lose their newly bought over leveraged houses may also lose their marriage as well.

#20 Gord In Vancouver on 11.24.09 at 11:47 pm

Says he, 47% of new mortgages taken out in the last three years have had ams of more than 25 years, and 60% of those have been 35 or 40-year jobs. Hmmm.

That’s the smoking gun that real estate bears needed.

As a real estate bear, I don’t know if I should crack open a bottle of champagne or feel sad for a majority of recent buyers.

#21 nonplused on 11.24.09 at 11:59 pm

Actually, I think the truth was that GE Capital and others started it when they were allowed into the Canadian real estate insurance business. But CMHC followed suit to stay competitive. Now they have to keep the bubble pumped up or the consequences are insolvency all across the board.

And that is why they will continue to pump. Damn the dollar, prudence or common sense. The horse has already left the barn now, so there are only 2 ways to go, up, or drastically down. You can’t blame a minority government in a democracy for choosing up, as a correction now would sweep them from power.

Gold keeps setting new all time highs but isn’t attracting much attention. The speculation I’ve read that seems to make the most sense is that it is not a bunch of average Joes running to Scotia Bank downtown to load up on coins for the first time in their lives. Instead it seems to be nervous central banks, which isn’t a good thing necessarily because they always buy at the top and sell at the bottom. At least western central banks buy at the top and sell at the bottom. But the interest is coming from 2nd and 3rd world countries that are worried the US dollar may go the way so many of their own paper currencies have gone over the years; to intrinsic value.

#22 Rob in Nvan on 11.25.09 at 12:01 am

This may be a good time to consider (Merrill Lynch “legendary” stock market analyst) Bob Farrell’s “ten rules for investing” (and then patiently observe how they all apply to today’s real estate market):

1. Markets tend to return to the mean over time.
When financial assets go too far in one direction, they come back. Euphoria and pessimism both cloud people’s heads.

2. Excesses in one direction will lead to an opposite excess in the other direction. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.

3. There are no new eras — excesses are never permanent. Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it — Human Nature — never is different.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction — eventually.

5. The public buys the most at the top and the least at the bottom. That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing.

6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold. Gains make us exuberant, enhance well-being and promote optimism. Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk.

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names. Hence, why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop. Watch for when momentum channels into a small number of stocks (or an increasingly exclusive component of real estate buyers, such as first timers?).

8. Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend.

9. When all the experts and forecasts agree — something else is going to happen. As Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

10. Bull markets are more fun than bear markets.

#23 My_view on 11.25.09 at 12:03 am

These get’em while you can rates will be around for a lot longer folks. Bonds have been falling hard.


#24 Kate on 11.25.09 at 12:04 am

Toronto mortgage guy has a point… It is so sad to see families and friendships broken because of money.

#25 nonplused on 11.25.09 at 12:20 am

FDIC $8.2 billion in the red:


This idea to have banks “prepay” premiums for 3 years to raise $45 billion seems silly to me. Doesn’t that mean the backs that are on the edge already are going to have to come up with even more money early? So then when they fail, it just flows right back again to the depositors.

But FDIC is just one more institution in a long list (Feddie, Franie, FHA, AIG, etc.) that have proven that you can’t insure anything without adequate capital backing. 2% of the portfolio isn’t going to do it. Can you imagine an insurance company claiming to have enough capital to fund 2% of it’s foreseeable claims? They have to plan for 100% over the course of the actuary tables. Of course they don’t need it all now, they depend on compound earnings from their investments to get there. But that hasn’t been going so well lately with the stock markets flat to down over the last 10 years and bonds at near zero. Oh ya, your insurance isn’t going to pay out unless you beat the crowd either dude.

The problem is wide spread with pension funds as well. Most US pensions are now deeply undercapitalized, including public pension funds like CALPERS, and unless prospects for yield increase soon this is a disaster in the making. I smell more bailouts.

This whole financial system is a house of cards, dependant on growth rates that seem to be unrealistic. And that can mean only one thing: money printing. I suggest Garth’s 10% rule for gold might be a little low. (The governments involved are not going to allow continued widespread defaults. They will print money until all the obligations are paid at least nominally. If the dollar declines another 90% to get it done, oh well. As they say in Washington; “We’ll never run out of zeros.” The real problem, of course, is that government spending will continue to be an unsustainably large share of the economy so the trend will never be reversed. The government has no resources save what they take form someone else and the printing press. Any money they spend has to be taken from someone or printed, so the larger the government as a share of GDP, the worse the inflation/tax rate.)

All of this has direct implications for CMHC, CDIC, and the Canadian banking system down the road. Our system isn’t that much different.

#26 Cristian on 11.25.09 at 12:37 am

Just a quick “linguistic” note. I see vehiculated here often the term “principle” when referring to capital. I believe the correct term is “principal”, principle has a totally different meaning.
Merriam-Webster: principal = a capital sum earning interest, due as a debt, or used as a fund
principle = a: a comprehensive and fundamental law, doctrine, or assumptionb (1): a rule or code of conduct
Merriam-Webster adds: Although nearly every handbook and many dictionaries warn against confusing principle and principal, many people still do. Principle is only a noun; principal is both adjective and noun. If you are unsure which noun you want, read the definitions in this dictionary.

#27 OnlyTheBankersLaugh on 11.25.09 at 12:46 am

2002 Article on Deflation: Making Sure “It” Doesn’t Happen Here – Remarks by Governor Ben S. Bernanke

If the printing presses aren’t able to run due to debt load, we will be stuck at these low rate for some time but I somehow see the USA printing despite international concerns on their megadebt and not too many

#28 Toronto Anecdote – “There hasn’t been a lot of time spent on discussing the human side of investing in a real estate bubble” « Vancouver Real Estate Anecdote Archive on 11.25.09 at 12:47 am

[…] of issues that are relevant to our market that they merit mention here. This anecdote from Garth Turner’s greaterfool.ca article 24 Nov 2009 crosses that threshold, so I post it here, with it’s out-of-province source (Toronto) clearly […]

#29 OnlyTheBankersLaugh on 11.25.09 at 12:47 am

Please remove…. sorry about that!

#30 Taxpayer like you on 11.25.09 at 12:50 am

[email protected]

From til debt do us part, direct paste

“Money is the number one cause of failed marriages”

From your [email protected]

“Some person was saying that $20K is a small
downpayment on a house in reply to a post.”

That’s still only 10% on a modest 200K house. Welcome to CMHC. Sorry, yes it’s small.

And this one I have to reply to:

“People who have the most have the most freedom”

The thing I look forward to is freedom. Freedom from
debt, freedom from work in old age, freedom from worry
(or at least stress), freedom to do at least some of the
things I want to before I leave this world. I live well
within my means, and have worked hard and smart for
30 years (including school). As a result, hopefully my kids
will have some freedom to choose their paths as well.

Now I see you played the G-word (and it wasnt Garth) so I can’t take it any further.

#31 InvestorsFriend on 11.25.09 at 12:51 am

As Garth says on a 35 year amortization, there is almost no progess on the principle in the first few years (like the first 10!).

Not only that but in the old days of a mortgage at say 2 times family income, it was possible to save say 10% of income in a year and whack 5% off the principle in a year. Do that for ten years and the mortage was pretty much beaten down even with a 25 year amort… It ended up quite feasible to pay it off inside of 15 years…

Now, with people paying 4 times the family income…
1. They are streched too thin to ever save the 10% to whack down on the mortgage..

2. Even if they do save the 10% of wages it only amounts to 2.5% off the principle when they paid 4 times income for the house…

So the cruel joke is that these jumbo mortages that people are taking on are almost immune from getting paid off early.

Welcome to 25 to 35 years of indentured debt slavery…

Oh, and that’s only if interest rates don’t rise a lot or one of you loses your job in which case it’s pretty well welcome to bankruptcy and goodbye McMansion…Hello tiny apartment…

CMHC should learn the laws of unintended consequences.

#32 omg on 11.25.09 at 12:52 am

Interesting chart – especially the post 1989 drop – in all bubbles it seems that prices drop, there is a slight recovery as people move in thinking the worst is over, then prices drop again and stay off for a long period of time. It may take a new generation of buyer to enter the market to trigger a recovery.

The 1930 stock market crash had an immediate recover followed by another decline and decade of stagnation. Same with the NASDAQ meltdown of 2000, same with the US housing bubble f 2007. The Canadian housing bubble meltdown will likely be the start of a decade of weak housing markets as things retrench. The message is – when the bubble burst do not rush in – you will have years to bargain hunt.

#33 vreaa on 11.25.09 at 1:00 am

Thanks for the article, Garth.
The mortgage broker’s story that you cited is so relevant to the Vancouver market that we’ve posted it as an ‘out-of-province anecdote’ at VREAA –
There likely is already a fair amount of that kind of family reshuffling going on to make ends meet in Vancouver, and when the tide goes out here, we’ll be seeing a lot more.

#34 Sluggo on 11.25.09 at 1:15 am

Just over 10 years ago CMHC had $33 million of MBS on their books, now ‘The Equity of Canada’ has grown to over $700 billion while the debt slaves continue to think it has everything to do with the misnomer of real estate investment. For the most part the herd is clueless to the real issue which is the cash flow requirements surrounding the securitization of all that debt. It’s a classic Ponzi scheme and the most tragic part is when the music stops 100% of any loss becomes Canada’s social burden.

#35 Typhoon on 11.25.09 at 1:20 am

Hey. That guy is talking about me in relation to the female emotional nester forcing the logical husband to buy. So far I’ve just ticked her off by not buying and stalling. I’m wondering what comes next and whether I van deal with it or not.

#36 Grantmi on 11.25.09 at 1:48 am

Well… at least they found our gold!!!!


#37 A kid from oversea on 11.25.09 at 1:53 am

It’s going to be a long time until the next vulture time

#38 Nostradamus Le Mad Vlad on 11.25.09 at 2:02 am

Without doubt, history always repeats.

Decades / times don’t matter. Human nature is consistently inconsistent, so no matter how bad things look, there will always be a greater fool somewhere, willing to pay over the odds to have a deteriorating asset.

“So I’m thinking, . . .” — Thinking usurps spontaneity. Much better to live an active, spontaneous life. Thinking clouds the imagination, so don’t think!
In some obscure way, these links are all connected. At some point in the not-too distant future, keep yer eyes ‘n ears peeled! Possible Spring False Flag (October is over, and I guess that the October Surprise is a combination of H1N1 – rapidly deteriorating economies – increasing unemployment, etc.).

Quite easy to spot a trend here. Main thing is that Obama does NOT run the US anymore, just another puppet for the elite, that’s all. First — 15 sec. Clip / Second — 34,000 + troops being deployed. Obama / Third — May be a harbinger of the Spring Surprise. First para.
No one here voted for this, did they?
Chalk one up for The Little Person!
How Not To Use email

Keeping with the immediate prior: “Anyone Without a Sense of Humour is at the Mercy of the Rest of Us!”

#39 Starving Artist on 11.25.09 at 5:23 am

The MSM is pumping this “return to normal” for all it’s worth. I can’t even watch the nightly news anymore, it’s so far out of touch with reality, and their encouraging people to go out these holidays and load up on credit card debt makes me sick.

There is some serious pain coming for a lot of people; I’ll be glad to see things reset, but very sad for the pain it’s going to inflict on people that meant well and were taken advantage of by a gamed system.

Perhaps our (fake) capitalism could only survive 20 years longer than (fake) communism. Our ponzi scheme was only slightly better than theirs. “May you live in interesting times” indeed.

#40 ATP on 11.25.09 at 6:06 am

The root of the problem is LUST … an obsession to possess at all cost.
Next up is PRIDE … establishing ones self-worth through ownership.

Just ask any ex- of a trophy spouse …

#41 David Bakody on 11.25.09 at 6:55 am

I hope Mr. Holt’s bank tells the kids.

It would appear Mr. Holt is home with Scrooge to continue their nasty deeds and as far as those three (3) ghosts are concerned they will be busy dealing with others who have a little pride and honesty left.

Reports from the Wall Street Journal stated (CNN) indeed 1 in 4 mortgages are in negative equity and the report went on to say even for those who purchased a home five (5) ! years ago. Hello young Canadians …..

There hasn’t been a lot of time spent on discussing the human side of this recession or investing in a real estate bubble but it is important to note the consequences are not just a loss of money or investment.

Ditto to above para.

#42 David Bakody on 11.25.09 at 6:59 am

By the way what is all this talk about “War Tax” in Harper’s front office (Washington) are we not in Afghanistan also with plans to extend/change the mission well past 2011?

#43 MIKEF on 11.25.09 at 7:29 am

Got a letter from the Royal Bank.

Effective January the interest rate on my line of credit (which I never use)
is going up 1%.

The letter said that it wasn’t me,just that the cost of
borrowing has risen and unfortunately they have to pass it on to me.

I’ll copy the letter for all you rate watchers tonight.

#44 Into The Sunset on 11.25.09 at 8:01 am

1 in 4 in the US cannot sustain their mortgage. What does that really mean……..25% of homeowners with mortages are going to be foreclosed on and folks out on the street?

How many homes does 1 in 4 unable to meet their paymentsl?
The figures are one thing…. Can you give me a perspective of what this is going to do further to the US and world economy?

I have a little difficulty visualizing what the total fall-out is going to be.

Thanks, Garth

#45 Gerry on 11.25.09 at 8:09 am

Looks like the bubble is alive and well here in Oakville. Last week, three houses were put up for sale within 1 block of me. Tons of cars for open houses on the weekend. Three sold signs on Monday.

#46 jimmy on 11.25.09 at 8:52 am

Gotta feel bad for the guy that gets sucked into RE by his nesting wife, then loses his job, the house, a whole wack-load of cash, and then his wife for all his efforts.

I’m a guy working as a Registered Nurse and all I hear about from my coworkers is ‘nest nest nest’! One of the gals I work beside (and her man) bought an Edmonton Condo in 2007 for 285G, minimum down/35 yr AM. Now the one across the hall from them is posted for 190G, and I still say it’s over priced.

Boys gotta start getting smarter girls!! Or stop listening to them on matters over a 1/4 million (if that’s an option these days!)!!

I rent for 30% less than I could own (even after throwing my well diversified savings as a down payment). As you can imagine the girls think I’m crazy not to buy, even when they’re sitting on 100g negative equity.

#47 pbrasseur on 11.25.09 at 8:53 am

Ten reasons why this market is near its peak and will be going down, basically it has to do with demand and affordability which have both certainly peaked:

1) Home prices are at all time high, at the point where affordability has become a problem despite low rates.

2) Mortgage rates can only go one direction: up.

3) The CMHC can hardly become more permissive.

4) The economic situation will affect the potential number of buyers and prevents gross incomes from rising.

5) Governments finances will lead to more taxes which will (at best) prevent incomes from rising.

6) Governments finances make expensive new measure to significantly prop up RE unlikely.

7) Ownership rates have been rising for years and must be approaching some kind of limit (this diminishes the inflow of new buyers).

8) Energy prices in general: up.

9) Demography, rapid aging will diminish appetite for new houses and lead many to sell.

10) Human psychology and herd mentality, once this market start sinking there is no telling where it stops.

#48 Kash is King on 11.25.09 at 9:28 am

Starving (#39): ” I can’t even watch the nightly news anymore, it’s so far out of touch with reality, and their encouraging people to go out these holidays and load up on credit card debt makes me sick. ”

That’s the ticket, turn it off. In fact turn the TV off all together, stop watching the Illuminati’s mind-control drivel. Cancel that cable subscription and choke Them off at the wallet. Stop going to Their movies.

Save a tree, stop buying Their newspapers.

Stop drinking Their fluoridated water.

Discover your own news on the internet, make your own entertainment, decalcify your pineal gland with pure water and re-discover your sense of Self.

#49 Art on 11.25.09 at 9:34 am

# 39 Starving Artist.

I am not sure how much you know about communism, but I can tell you first hand, it is by far, the worse possible scenario.

Although full of problems and inequalities, capitalism has proven able to evolve over centuries. Communism, on the other hand, only lasted a about 70 years, and it did enough damage, believe me.

#50 Evangeline on 11.25.09 at 9:35 am

Excellent article Garth!

((I hope Mr. Holt’s bank tells the kids.))

I hope Mr. Holt’s bank also tells investors not to buy any government guaranteed, safe, mortgage backed securities.

#51 Evangeline on 11.25.09 at 9:43 am

#47 pbrasseur

((6) Governments finances make expensive new measure to significantly prop up RE unlikely.))

Don’t they have to prop up RE to keep the banks solvent? if RE tanks the whole house of cards falls down …

the banks have billions worth of mortgage backed securities on their books … if the latter lose their value due to falling real estate values the securities have to be written down ….

#52 Joe Realtor on 11.25.09 at 10:16 am

God, you must be wrong! Haven’t you heard? Happy days are here again!

After all, there are Real Estate Agents lined up on Jarvis and Bloor chomping at the bit to buy condos. Some have been camping out for 10 days.

I just came back from Vegas, where unemployment in Clark County is 20%, the housing market decimated, even timeshares ridiculously low – and they’re still selling new shoeboxes at City Center starting at 350,000 US and up to 6 mil.

What could possibly go wrong?? ;-)

#53 Calgary_rip_off on 11.25.09 at 10:38 am

#46 Jimmy:

As an RN working in a previously mostly dominated female profession, you get to see what some women think. I work in a similar profession, but Im a tech, not a nurse, although I do “nursing duties”.

Why bother to be in a relationship if its just financial? The relationship comes first, then the other stuff later. I met my wife when I was working for $5.25 and hour and we had a 400 sq. foot apartment.

Best not to bother with people who hang out with you for finances.

Wait for the nesting. You can nest in a rented house. The coming interest rates will make buying more traditional, you have to save for several years to get the big downpayment. Yes $20K is a small downpayment, but that’s what is achieveable with high rent rates and high housing costs. It will take a couple years to save more. Im in no rush at $100K/year guaranteed and housing crashing. Just sit and wait. He who waits wins.

#54 PeckedToDeathByDucks on 11.25.09 at 10:51 am

The guy in charge, in response to a premise about a possible “housing bubble”.

BERNANKE: “Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit”
July 2005

#55 Bobby on 11.25.09 at 10:54 am

Why do they call them real estate professionals? They are just commissioned salesmen who have taken a 6 week course.

Remember, if you don’t buy, they don’t get paid. So, do you ever think that they will acknowledge a bubble.

On a serious note, anyone who advocates someone buy a house with a minimal deposit over 35-40 years is not offering professional advice!

#56 Jeff Smith on 11.25.09 at 11:03 am


Because prices will only go up and if you don’t buy now you will be left out. Lol

#57 CM on 11.25.09 at 11:06 am

Geography of Decline – Map of US unemployment rates from January 2007 to the present

Here’s an animated map.

Meanwhile, the Messiah to the south is going to announce how many more soldiers he’s going to send to Afghanistan. At $1M per solider (conservative estimate) that makes $34B on death and destruction, while people don’t have jobs or enough to eat.

¡Si, se puede!

After that, it’s time to pick up the Peace Prize. There are no words adequate.

But at least the U.S. has some idea of what this is all costing. Canada still can’t get any numbers from the Conservative government over the total waste of lives and resources in this “mission”, or even what this “mission” is.

#58 Carioca Canuck on 11.25.09 at 11:08 am

My wife has been taken with a morbid fascination towards our floundering RE market as of late……..since I talked her out of buying 5 years ago, and we’ve saved all this money, she has no interest in buying and has been watching the market in the last 18 months, since last year’s systemic failure of our economy, and subsequent taxpayer funded gubmint life support that has kept it from totally collapsing up to this point. IMHO it is falling apart slowly rather than swiftly, and we are probably headed the way of Japan, that is, a couple of decades of artificial low rates, economic recession, high taxes, zombie RE and continual asset price deflation. Now, if the world gives up on Obama and the US dollar craters any more, and their bonds follow we, could have higher rates real fast which would just accelerate our demise.

She has the following observations…….we were talking about this tonight and how fortunate we were to be renters.

There are lots of one bedroom and two bedroom GROUND FLOOR condos for sale real cheap right now. Ground floor units are mainly held by investors as rentals, since owners don’t want to live in them, and they prefer being higher up. Places that are now easily <$200K and once were $300K+ a mere 24 months ago.

There are lots of condos for sale everywhere if the condo fees are above $350 a month…….that sit, and sit, and sit, on the market. Lots of condos with fees over $500 a month are down in price big time and now in the $250K range from the $400's where they once were. Seems like folks have finally clued in to the fact that condo fees are for life and they never go down…..or go away. Luxury suites excepted of course.

If your condo doesn't have free underground parking, in-suite laundry, and a balcony, it is now probably <$200K or getting close to it.

Downtown west end high rise condo units are for the most part around $225K-$325K except for the higher end luxury buildings. These regular places were all $395-450K+ about 24 months ago……

All the new condo builders who were "soldout" were all bald faced lairs, frauds,pimps and cheats……..and all you gotta do is read the newspaper ads or condo magazine ads or drive buy someplaces to figure that out.

Looks like karma is at bat, it is the bottom of the ninth inning, delfation is on third base, foreclosures are on second, and higher rates are on first and there are 2 out……

Play ball !!!!

#59 The Gonz on 11.25.09 at 11:29 am


I read your blog almost every day. I have an MBA, further, I work in investment banking. I do agree that houses in Toronto are over-valued.

I do not want to be the guy who bought Nortel at 200x earnings, but I feel at the end of my rope. I have been renting for a long time, waiting for common sense to prevail. But I am not sure I can put up with landlords for much longer.

I just want to buy a house for my family. In your view, what is the worst case scenario – what is the longest that we may have to wait still before the correction begins?

I am looking for a $400-$500 house in Toronto and would put 20% down, 25 year am.

Thank you so much for answering!

#60 CM on 11.25.09 at 11:30 am

More cheerful news. The U.S. Federal Deposit Insurance Corporation (FDIC) is broke.

#61 Ottawa mom on 11.25.09 at 11:30 am

We are in our 40s, have a larger than average family with very young kids, and we are looking to switch up to a larger house. But we have been sitting on our hands waiting for some indicator that the meteoric house price rise has peaked. We are aghast at our 25-35 year old friends: they are all getting these long-term mortgages. If these mortgages become the norm, will the bubble burst? Or is it a balloon and will it only deflate slightly? I mean, look at the ‘recovery’ – the so-called ‘recovery’ from the graph. It’s a plateau, really. The baseline is way higher than it was before.

If we are basing the projected recovery after the bubble on the previous bubble and recovery, then the recovery from the 2009 bubble will only leave us at at best 75% of the top of the bubble.

So long as the 25-35 year old set are buying and taking these long mortgages because they see owning as renting, then fortysomethings like my family, who are making the touchy decision to change houses *nowish* (because one bathroom is not, after all, enough), will pay, and things won’t get better. We are dancing back and forth about when we should move. I think the bubble won’t burst down to where we think it will, my husband subscribes to the “it’s madness and it can’t last” philosophy. You are dead-on with your assessment that this is an emotional decision.

Home sellers are taking their houses off the market rather than accept bids lower than the real estate agents think they should list for. And when the bubble does burst, and these kids in expensive homes with low payments have negative equity, they won’t care. They SHOULD care, but they WON’T. Why? Dad and Mom are dying and they’re making their money the old fashioned way (in a will), they can’t see into the future, and most of all, they think of mortgages as rent. These are the same folks who will lease a comfortable car rather than buying the cheaper economy version. By their way of thinking, they can raise their family in comfort (and man, are their homes luxurious compared to ours), and then sell when their kids have left the nest. Their houses are not connected to their savings. In short, the young house buyers are not looking for a place to own, they are looking for a place to live for a while.

#62 Patti on 11.25.09 at 11:30 am

@ #10 – calgary rip off

“High interest rates help everyone, ultimately. They drive the prices down, which drives down property taxes, and therefore more people can buy more house, for less money”

I’m all for lower property taxes, but your logic escapes me. How does higher interest rates lower property taxes?

#63 nota bene on 11.25.09 at 11:33 am

Anybody happen to have a link to the full Scotiabank report? Doesn’t look like it’s available yet.

#64 Downsized and Delighted on 11.25.09 at 11:38 am

There is nothing wrong with buying a house while the interest rates are at their lowest in our lifetimes! If you want to analyse the problem, at least analyse it correctly.

The reason this couple lost their home is not so much that they bought it with no downpayment but rather their inability to save for a downpayment even with parents who want to help them and a job market that has been great up until now.

Not everyone can afford a house. Others might have moved in with the parents to save for a downpayment and then bought the house. These are the young people with initiative – the kind who aren’t the first to get laid off in an economic downturn. Life is difficult for the slackers.

If you find yourself in this position – don’t buy a house!

#65 TheComingDepression on 11.25.09 at 11:41 am

Just in THE BANKRUPTCY OF THE US IN NOW CERTAIN http://thecomingdepression.blogspot.com/2009/11/bankruptcy-of-united-states-is-now.html

#66 Dan on 11.25.09 at 11:46 am

“But more interesting are allegations the promotion-minded developer actually started one of the lineups,”

People/sheep are so stupid. I would bet ALL developers started creating lines. I would , people are stupid and lack the ability to think without the help of the MSM to tell them what to think. The fact that sheep/people fall for it show just how stupid people have become.

#67 latinlife on 11.25.09 at 11:49 am

Gold rising

Oil dropping.

Time to reverse your trade Garth.


are you an average down, dollar cost average kind-of-guy?

#68 CalgaryRocks on 11.25.09 at 11:49 am

I just came back from Vegas, where unemployment in Clark County is 20%, the housing market decimated, even timeshares ridiculously low – and they’re still selling new shoeboxes at City Center starting at 350,000 US and up to 6 mil.

What could possibly go wrong??

Just another manifestation of the new US leisure class. Nothing wrong with it unless their leisure is paid for by the taxpayer. Oh wait…

#69 Jeff in Pickering on 11.25.09 at 11:56 am

#49 Art –
I was going to go on a rant about the difference between communism(Marxist) and fascism, and how the world has never seen the former except in Marx’s writings. We’ve only seen the latter in practice, and plenty of it.
But, let’s leave it at the following.

Fascism: a governmental system led by a dictator having complete power, forcibly suppressing opposition and criticism, regimenting all industry, commerce, etc., and emphasizing an aggressive nationalism and often racism.

Wait a minute, that sounds like the current federal and provincial governments, doesn’t it?
In addition, how scary is it that the same thing is coming from two parties who claim to be on opposite ends of the spectrum? Double yikes!

#70 rory on 11.25.09 at 12:09 pm

ROFL …some would say Garth is annoying so to be in the same company means what I am saying is closer to the truth then you think or want to believe.

All the stuff I have posted and commented on is becoming more visible and more of an issue every day and to my best of recollection not wrong (as of yet)…the truth sucks.

Plus, 3 main points you glossed over that says your spreading bad karma and portraying ignorance:

You embrace the poor but want 15% interest rates. Who will be sacrificed the most – rich or poor?
You think home prices coming down will lower your property taxes – only if the local G is downsized or wages cut otherwise delude on, dude…but this is against your political beliefs.
You think $20K is a big DP on a home and you earn $100K per year – thank G** for CHMC (ht to TLU).

TLU … high 5 …your responses are a touch more eloquent, while I am more fire and brimstone …ooops did I just invoke the big G (not GT or Gov’t) thing too, again….damnit.

#71 Ronaldo on 11.25.09 at 12:10 pm

Hey Garth, any chance you could find out what they pay these people for standing in line at these Condo Projects? Could use a little pocket change myself. This retirement is not what its cracked up to be. lol

Guess after they are done there its off to the soup kitchen, right? Guess we’ll be seeing a lot more of these lineups just before the “Big Bang”. Housing unaffordability is all over the news now. Twon’t be much longer.

Mike#43 – I too got the same notice from the RBC re their rates increasing by 1% January 5th. My response to them in that regard is the closing of my investment account and paying off my line of credit which I seldom use. They ain’t getting another penny out of me. I will be taking my business elsewhere. My friend got the same notice and she too is doing the same thing. She doesn’t feel that she should be subsidizing “Sub Prime” mortgages.

I see that the RBC shares are up 115.9% from their low on March 23rd and about 12% higher than before the “Big Crash” last fall. Check out the link below regarding the CEO’s voluntary pay cut of 30% for 08. His salary remained at 1.4m but his bonus cut to a measly 2.4 million from 4 million in 07 and 5 million in 06. (must be tough) He was going to invest 2.4 million in RBC shares however. Hope he got in before Feb. 23rd as those shares are up over 115%. Good move on his part.

Their fical year ends Oct. 31st so it will be interesting to see how much his bonus will be for such a great performance. Not that he had anything to do with it tho, in my opinion.

Strange that when my wife went down to RBC in first week of March to open a TFSA and when she asked to have it put into a fund that invested heavily in bank and energy shares, she was told that was risky and she would have to sign a form releasing them of liability. They were so friggin’gun shy of the markets even when they were down 50% and everything was “On Sale”. They suggested she put it into a GIC. She cancelled the apoointment and went to another branch. Same thing. She then went to the TD and they reluctantly put her into a similar fund that I had recommened to her. Fund is up 40%. Go figure. Same situation with my friend at the same point in time. In fact, the FP at her bank didn’t even realize that the TFSA could be invested in anything other than GIC’s or interest bearing investments. He had to show her the newspaper article. Can you believe it? And they knew months ahead that these TFSA’s were being implemented. Same people that lost investors 10’s of thousands of dollars in their investment accounts with any accountability whatsoever and now they have the gall to ask us/them for another 1% on their lines of credit. Unbelieveable. Am I angry, no, I’m peed off. Anyone else run into this type of situation.


#72 rory on 11.25.09 at 12:25 pm

Great comment over at Mish’s site today …this applies more to the USA but I am going to make the assumption that some/most also applies here…as in what happens in the US eventually washes over to our side of the border.

“Faber: The way communism collapsed, capitalism will collapse.

Mish: I disagree on a technicality. Capitalism will not collapse, because we are not practicing capitalism. Instead, we are practicing a perverse blend of corporate fascism, socialism, corruption, and padding of the pockets for and by those running the country. Yes, that will collapse.”

#73 mattbg on 11.25.09 at 12:29 pm

Today’s Toronto Star article on that X2 condo project suggests that the first guy to line up had been there since November 15th??


#74 BigAl (Original) on 11.25.09 at 12:33 pm

Sign of Trouble? …or just a seasonal norm?

Colleague of mine just signed a purchase agreement for a house in far east on the Danforth, East York/Scarb. area of Toronto.

His story is that he found the house on the market two weeks ago listed at 350K. This past weekend he is told there will be a set date/time for a bidding war, and the owner has lowered the asking price ONLY for the bidding war to have bids start at $299K.

My colleague is the only one who showed up, and closed the deal for $304K.

He and his wife will live in the 2-bedroom upstairs, and it has a 2-bedroom basement apartment rented at $750/month, house is 50 to 60 years old, large yard.

Was the price initially artificially inflated just for the listing by the owner or realtor? (and, if so, is this a normal practice?). Or is this a sign of things to come? Or just normal in that the winter is generally a buyer’s market?

#75 AJ on 11.25.09 at 12:35 pm

Garth- you are a great example of how one person can give of their time and help so many others. You rock.

#76 The truth on 11.25.09 at 12:37 pm

Housing prices are now tied to global wealth…not yearly incomes. There is a lot of money out there. Prices will continue to go up as u have been seeing for the last 10 years. Wake Up Sheeple! Give your head a shake. How many people do you know have lots of wealth and little to ‘normal’ annual incomes. This is how the majority of Asia lives.

#77 Toronto C9 Renter on 11.25.09 at 12:40 pm

#47 pbrasseur on 11.25.09 at 8:53 am ..

Good post. Agree with your reasoning.

I particularly like item 10 -potential impact of herd mentality in a downturn.

I have a simple philosophy: “the herd is always right” (not wise, but right) Today the herd loves real estate, so prices rise.

The coming drop will be triggered when the herd stops loving real estate. The herd will be right again, and prices will fall.

#78 The truth on 11.25.09 at 12:44 pm

The difference bewteen Canada and the USA is that we have way more immigration both legal, temporary, and illegal than the USA. Those not agreeing with this need to give their head a shake. Also, this immigration is bringing a lot of wealth, unlike the USA where its mostly poor Mexicans crossing the border without anything.

Immigration will drive housing prices! Check out a graph of immigration numbers and housing prices. Check 1987 when Mulroney increased it and see what happened. Also, in 2004, it was around 220,000 total. Now it is around 250,000 PLUS 250,000 DISGUISED AS TEMPORARY WORKERS/STUDENTS who will never go back. TOTAL = 500,000 This is simple Math!!! Where are these people going to llive??????

#79 Grey on 11.25.09 at 12:53 pm

Funny, I walked by that lineup this morning on my way to a doctors appointment. I looked up at the signs for the condo and instantly thought “Is this crap still happening?”

Granted, that location is very good. IF you’re rich. For an average family living on Bloor Street would be crazy expensive and completely useless unless you want to overlook a track field for U of T and be surrounded by tons of frat houses. I guess if you can afford to shop at Chanel and Holt’s that place is for you.

As for the email from the broker about the family, let me just say, I’ve lost track of how many of my friends bought in the past several years with 0% down. That’s right. Not a penny. All interest based mortgages. Not a myth. We’re just told over and over that the only way to get in, is to take a 5/35 and go, go, go!

#80 BigAl (Original) on 11.25.09 at 12:58 pm

Maybe someone can explain this…I read an analogy about a banker coming to an island and setting up shop, but through creation of money, lending, and interest, ends up owning everybody’s businesses, land, and labour.


Basically the central banks create all the money. Then they want it all paid back, PLUS extra in interest.

How can they get more back than they created?

If central banks issue a quadrillion dollars, how can they get a quadrillion and one dollars back if they’re the only ones who create money?

#81 pbrasseur on 11.25.09 at 12:58 pm

Evangeline #50

“Don’t they have to prop up RE to keep the banks solvent? if RE tanks the whole house of cards falls down …”

Propping up and bailing out are not the same thing. But that’s still a good question. What happens to Canadian bank? Of course they would lose a lot of business if RE slows but in the end they are not behind the mortgage securities, the government of Canada is.

But even governments can’t escape the laws of the market forever, no matter if they want to or not at some point their finance won’t allow it.

#82 Josh on 11.25.09 at 12:59 pm


They say Patience is a virtue and every once and a while, I feel my patience is turning into patience. As December comes around, and all we hear is the price of houses is rising, it makes purchasing a house less realistic for me.

I truly believe that you know what your talking about but at the same time, and who knows when, but the supposable crash happening in 3 years for example is a long time to wait.

I feel that your predictions could have been made by any common sense person on this website as we do go through economic cycles but approximately how soon do you predict the correction. That seems to be the big question that I dont know you could answer. Or is your take on it only when interest rates go up.

Is it possible that it could be sooner?

#83 Kash is King on 11.25.09 at 1:02 pm

#36 Grantmi:

Interesting read:


#84 F on 11.25.09 at 1:06 pm


Glad to see you posted this. It was exactly what I was getting at the other day. We are a monthly payment society.

However again, I think you have to really start accepting the fact that the CMHC, Banks and the Governmenent are all connected with no input from you, me or anyone else.

So let me ask you a simple question:

Ams went from 25, to 40, then back to 35 like a yo yo.

How “out of this world” would the concept of going back to 40; or even going to 50?

Again, this is the core. There really is no “end number” or any relative argument that can stop this.

When the market runs out of gas we will go to 40, then 45 then 50.

Then, unemployment will improve, wages will rise again, and so on.

#85 Herb on 11.25.09 at 1:24 pm

Art @ #49,

easy on the ‘isms.

What would you call socialism for the rich and capitalism for the poor? And how does it differ from capitalism for the nomenklatura and communism for everyone else?

#86 Hiteclowtec on 11.25.09 at 1:26 pm

Mass illusion and delusion !
Just maybe this real estate madness has something to do with this CBC story. (it was deleted form the Toronto Star.) It probably upset the CRA and their La La Land Agents !

mental illness costs Canada 33bln


#87 Calgary_rip_off on 11.25.09 at 1:57 pm

#69 Rory.

Save your breath, go get some exercise. Your coronaries arent in such great shape. See you in the hospital.

#88 Soylent Green is People on 11.25.09 at 2:06 pm

Okay, enough! I’ve been talking about a housing bust since March 2003 when I got out of the housing market.

I remember the talk in downtown elevators in 1999 of condos being overbuilt.

I have a reputation of spouting housing doom ‘nonsense’ and no one listens to me.

I could have bought in March 2003 and made money by now.

I am mad at myself. I played it too safe I think.

Nonetheless, I’m still not buying anytime soon.

In the meantime, can we move on to a new topic now?

What more can we say about the impending housing bust that hasn’t already been said.

What I want to know is:

What is the next big ponzi scheme going to be? I’d like to get in on the ground floor of that.

What what what? What’s it going to be next that the herd will overbuy???? I’m DYING to know. Stocks? But we’ve already done that a few times.




#89 dd on 11.25.09 at 2:25 pm

#10 Calgary_rip_off

…The right wing people are the problem…

What? Rip_off, left or right it doesn’t really matter. There are so few crumbs left that the only difference is rich and poor.

#90 AxeHead on 11.25.09 at 2:33 pm

Mr Soylent,

Why get away from the topic when it’s only just begun? Wait until after Christmas for the 1st shock wave of retail spending, then watch for Feb when housing renovations stop…we’re only at the other side of the peak which I think is going to be a faster ride down than most think. Retail is the canary bird of the economy – just go into the malls and look around if you need to see the evidence or our economy multiplied by unemployment multiplied by a housing bubble. I’m no genious but I can see what’s on the near horizon.

#91 Canned Goods and Buckshot on 11.25.09 at 2:34 pm

#60 Ottawa Mom

Well said.

This is a generation that doesn’t know 18% mortagage rates, has never seen an oil embargo, has been raised in an era of cheap oil in a market glut, and has no connection to The Great Depression or the austerity of war. We’re all paying for their wants and uber-consumerism.

#92 Kent on 11.25.09 at 2:48 pm

Hey, I’m frankly getting tired waiting for the bubble to burst. Been waiting nearly five years, and keep being told by the soothsayers that its just around the corner.

But hey, we’re renting a nice place on the lake, we have a great landlord who this week put in a new furnace, and got some cash in the bank. Guess I’m not really in too much pain.

#93 Soju on 11.25.09 at 3:36 pm

#83 “F”


Imagine how prices will be when 35 years is the norm. Prices will rise higher which will force even higher amortizations.

#94 jess on 11.25.09 at 3:45 pm

standstill or land slide?

Dubai World, delayed debt payments

“As a first step, Dubai World intends to ask all providers of financing to Dubai World and Nakheel to ‘standstill’ and extend maturities until at least May 30.”

Credit-default swaps linked to Abu Dhabi rose 34.5 basis points to 134.5, according to CMA prices at 4 p.m. in London. The cost of the contracts increased throughout the Middle East, with Saudi Arabia climbing 11.5 to 86.5 basis points and Qatar rising 5.5 basis points to 99, according to CMA.

The swap contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point is 0.01 percentage point and is equivalent to $1,000 a year on a contract protecting $10 million of debt.

#95 mattbg on 11.25.09 at 3:52 pm

If only Michael Jackson was alive to see this.

#96 kitchener1 on 11.25.09 at 4:01 pm

Love the condo story with long line ups in downtown Toronto.

See, people are not talking about RE being in a bubble, the herd still thinks prices will go up forever.

The things I am seeing remind me of the 99/00 stock market and the dot com crash. We were all watching stunned as dot coms IPO’s where selling on insane P/E ratios.

I feel the same way now.

The number one thing to watch is the price of oil and retail sales numbers in the next 6 months.

If gas goes to 1.25-1.50 a litre, we are finished and so is retail. That seems to be the point were consumers really tighten up and stop making needless trips, and start saving.

#97 omg on 11.25.09 at 4:09 pm

In the US he housing bubble was ticking time bomb – nothing in the economy had to change for subprime mortgages to be reset to higher interest rates and force defaults.

Canada’s housing bubble is a different story. If the economy continues as is with low interest rates and moderate unemployment the world of high Canadian housing pricies will go on.

For the Canadian bubble to implode there will need to be a major change in either interest rates or unemployment thereby reducing the ability of the recent buyers to make their mortgage payments.

But for all those hoping for the bubble to explode be careful what you wish for. If interest rates spike to 10 or 12 percent you may be able to finally buy a house but the economic fallout of the collapse of the housing sector in Canada may leave you without a job.

Extremes do not make for a good argument. The prime rate of 2.25% need only increase to 4.5% to have a major impact on housing. — Garth

#98 F on 11.25.09 at 4:16 pm

To add to the Ammortization extension theory.

Who is to say that people will change there attitude towards “paying off the house” to simply ensuring a stable monthly payment over rent, and not having the feeling of throwing your money out the window.

I mean if you pay $1,400 a month for 40 years are you somehow going to vaporize?

Aloso, how many of these people taking the 40 year amortization, then using the extra money for the lower payment and buying RRSP’s, then taking the return and putting it against the mortgage.

Again, I am probably one of the most outspoken person on this topic around people I know, but this really does not seem to be materializing the way I thought.

After all, rewind October of last year. How many people would have gotten it right in a forecast as to where we are now.

Mine was:

More For sale signs. WAY MORE (wrong)
Decrease value in house (wrong)
Visable forclosures in Canada (wrong)
Higher rates (wrong)
Tighter lending practice (wrong)
Banks stopping credit lines (wrong)
Increased rates on credit lines (wrong)

Seriously, what exactly has transpired in 12 months that clearly shows trouble?

(no speculation, graphs or assumptions hard data)

Can anyone tell me if there are at least notibly more houses for sale right now in their specific neighbourhood?

Or maybe specifically knows someone who LOST their house?

#99 robert on 11.25.09 at 4:37 pm


You refer to the young buyers in bidding wars making housing too expensive for the rest of us. What might be the average age of these buyers? What do you suppose makes them so fearless? Inherited wealth (or the prospect of same)? Or is ignorance truly bliss?

I lost my parents prematurely over 20 years ago – most of my peer group are losing theirs now. However I don’t hear many stories of 50 somethings going hog wild with an inheritance (if they are lucky enough to have one after last year).

Who needs an inheritance when you can buy a house with basically nothing down, a 2% mortgage with a 35-year am? — Garth

#100 nonplused on 11.25.09 at 4:50 pm

OMG, if you haven’t battened down the hatches yet you better:


Marc Faber has been spot on so far.

#22 Rob – good post.

Garth on #96 – Why would rates rise to even 4.5%? I contend rates are never going up again, at least not for 2 years or more. Instead the dollar will be allowed to depreciate. No one in government right now gives a hoot about the threat of inflation. It’s the banking system they mean to save at any expense, through any means, legal or not. If the government has to start buying the houses themselves and bulldozing them to keep prices high they will. (Already suggested by congressmen in the US.) Don’t underestimate these sociopaths.

Rates will rise. Get used to it. The reasons have been well articulated here. — Garth

#101 nonplused on 11.25.09 at 4:59 pm

Uh oh even more bad news today. Well, it’s an old quote but I hadn’t seen it before:

“The ultimate cause, therefore, of the phenomenon of wave after wave of economic ups and downs is ideological in character. The cycles will not disappear so long as people believe that the rate of interest may be reduced, not through the accumulation of capital, but by banking policy.”

“The cyclical fluctuations of business are not an occurrence originating in the sphere of the unhampered market, but a product of government interference with business conditions designed to lower the rate of interest below the height at which the free market would have fixed it.”

“There is simply no other choice than this: either to abstain from interference in the free play of the market, or to delegate the entire management of production and distribution to the government. Either capitalism or socialism: there exists no middle way.”

Ludwig von Mises

I’m betting we won’t get capitalism coming out of this.

#102 ottawa_tradesguy on 11.25.09 at 5:03 pm

Oh the irony. Everyone sits here and complains about the inaccuracy data and then quotes the more inaccurate data (CREA data vs. Teranet). The most recent CREA data shows average home prices up a whopping 20 percent. Bubble time.

Oh wait, the more accurate teranet data shows home prices down 1.8 percent. Bubbletime?

The RE market is vastly skewed by upper end purchases right now which are dramatically throwing off the ‘average home price’. Sure, people are making stupid decisions and RE is overpriced but is it really as bad as it’s made out to be? I don’t think so.

Given how teranet compares the previous selling price of a home to it’s more recent sales price it is far more accurate. CREA is simply averaging total dollars by # of homes sold. The problem is that this skews the curve upward dramatically. There are few properties on the market with a value of 0, a lot around the average and a few ridiculously priced ones. As wealthier individuals feel more comfortable signing onto a huge mortgage the upper end of the re market has bounced back dramatically vastly skewing CREAs #’s.

Anyway, I don’t dispute that there is a bubble, I just don’t think it had formed in the way that many seem to think.

Teranet is a very suspect index. — Garth

#103 Calgary_Rip_Off on 11.25.09 at 5:04 pm

#96 omg “But for all those hoping for the bubble to explode be careful what you wish for. If interest rates spike to 10 or 12 percent you may be able to finally buy a house but the economic fallout of the collapse of the housing sector in Canada may leave you without a job.”

Your point is what? Security having a job? Wrong. You could end up dead the next day. No security. Anywhere. Bad things happen to good people. I’d rather watch as the housing implodes and take my chances on losing my job. Im not getting ahead paying off someone else’s mortgage that has less education than me and pays less for their mortgage than I do for my rent.

12%? Id rather see 17% interest for mortgage rates. Make people earn houses again. Rather than have people who have no business owning screw it up for everyone else.

#88 dd: Last time I checked, Harper and PC’s are right wing. Stelmach as a PC has done a fine job in Alberta. What an embarassment. Few crumbs left? Doesnt look that way here in Calgary. Still looks like many people are loaded with cash. I havent seen less traffic on the roads. If anything, more traffic. And house prices are still RIDICULOUS. Buy now or be priced out forever!!! Nah. I think I’ll sit back and watch the drama play out.

#104 Popeye on 11.25.09 at 5:13 pm

I know of 6 couples (ages ~30), stable jobs, combined incomes over $100,000 who all bought homes within the past year.

Guess what? Each couple bought a HOME in the $300,000 range (a price to income multiple of 3), and averaged between 5 to 10% downpayment.

So they will all be able to weather interest rate increases.

When rates go up I foresee pain coming down on Speculators, but not on reasonable folk with stable jobs and modest mortgage debt. I don’t think people are as dumb as some people on this website suggest.

With downpayments that low they could be in negative equity with even the most mild of market corrections. Sad commentary that people in their thirties making six figures can only muster $15,000 to $30,000 cash. — Garth

#105 Oakville Owner on 11.25.09 at 5:34 pm

Looking at the above graph, I am glad we first got into the market in 2003 in our starter home. Our plan was to fix it up and sell in approx 5 years or when the market corrected a bit. The plan was that our final family home would come down in value and our first home would hold its value due to the upgrades we had made over the 5 years. I feel it took some “nuts” to buy last summer/fall of 2008 but it has paid off nice to date. Current home up over $100 000 since Fall of 2008. Sure this will go down over perhapse the next “13” years but I plan on staying put and raising my family here for 20 years, so if history repeats its self the value will still be way up in the end and in the mean time we can enjoy paying off the larger mortgage at these great rates ( prime -.50% fully open). Garth even you bought in the fall of 2008, no? Oh and the bigger mortgage included a 35% down payment thanks to the increased value of house #1. The chart trend is up,up,up it just depends on your time line and how long you plan in being in the game. Next plan is to buy a two bedroom condo in great location,location at the next low point in the chart. Rent it out to cover expenses over the next 15 years or so and then when retirement time comes sell the “Mcmansion” and move into the paid for condo.

#106 Terry on 11.25.09 at 5:49 pm

Incredible!!!! I remember back in 1988 and 1989 when people would line up in Toronto to get their chance to buy Condos at peak prices. Then when the crash started I remember reading about how people would be walking away fron their deposits to get out of the deal as the prices dropped dramatically before they closed the deal. Here we are 20 years later, next generation of buyers, are we repeating history again? WASH…..RINSE…….REPEAT!

#107 jess on 11.25.09 at 6:48 pm

Banksters Codes of Conduct

“banks are careful not to call it a ‘loan’ it is called a ‘courtesy’ therefore, unregulated.” http://www.pbs.org/wgbh/pages/frontline/creditcards/view/

#108 TheComingDepression on 11.25.09 at 6:48 pm

I find it incredible that these sheeple honestly believe that Real Estate will go up forever. Its called herding. The dot com bubble exploded, real estate in the US and around the world, OIL, Nortel, Uranium in 2007, sports cards and comic books of the 80’s and 90’s, tulip mania…none of it has come back.

#109 robe on 11.25.09 at 6:54 pm

#22 Rob in Nvan

Rule #8 is my favourite right now. Step 3 is going to surprise a whole lot of people.

#7 Onemorething

Nice to know I’m not the only one who believes unemployment is a leading indicator.

#110 john m on 11.25.09 at 7:07 pm

There is no limit to lack of intelligence and the gullibility of “sheeple” sadly we are all going to pay for it!

#111 Piccaso on 11.25.09 at 7:13 pm

To add to the Ammortization extension theory….
Your right, were all growing older waiting for this supposed collapse. Could have made 100G’s while waiting by joining the game.

#112 jess on 11.25.09 at 7:14 pm

credit crunch ?

The Chinese lenders aren’t the only ones in Asia looking to raise capital. Japan’s banks, for instance, could be raising tens of billions of dollars to meet stricter capital rules. Mitsubishi UFJ Financial Group (8306.T), Japan’s top bank, said last week it would raise $11 billion to meet coming regulations.

In the latest wake-up call to lenders, China’s top banking regulator Liu Mingkang warned in an article published on Tuesday that banks need to protect themselves from credit risk caused by changes in the country’s industrial structure.

Analysts said small- and medium-sized lenders could be the first to feel the pinch, lacking the resources of larger lenders.

#113 Bottoms_Up on 11.25.09 at 7:28 pm

Teranet is a very suspect index. — Garth
I disagree. Same store sales in assessing a stock is a good indicator of increased activity at that location. The Teranet compares sales of the exact same house, thus gives a measure of the direction of price for resale homes. I think this is useful.

#114 Piccaso on 11.25.09 at 7:38 pm

I guess people playing the 5/35 game is like playing the markets on margin. Mind you buying and selling real estate isn’t as quick as hitting the enter key in your Action Direct account.

#115 Nostradamus Le Mad Vlad on 11.25.09 at 7:41 pm

#64 TheComingDepression — One sentence in your link: “Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt.”

‘Spose that would go with the links I posted last night, about a possible false flag. Times and seasons are irrelevant anyway, just like the UN.

The Titanic (US) is sinking fast now, and what better way to bow out in a blaze of glory, with all guns blazing than to leave TROTW (sheeples thruout the world) scrambling all over the place to find help (which they’re not going to get).

Further, #89 AxeHead — ”I’m no genious but I can see what’s on the near horizon.” . . . is an excellent post as well. Good link. Another thing rising — Bankruptcies
The first one is one of the main reasons for the second. The elite’s depopulation plan is working nicely, as most are being squeezed out of their jobs / homes, etc.

Af’stan is known as the “graveyard of empires“, so why is the US military increasing their numbers, when they are guaranteed to lose? Hint: Depopulation.

Further, why are Cdn. troops still there when Canada is fast running out of money?
“Swine Flu Blues” — Cartoon from — DesertPeace

Note the global warming theory made headlines (right or wrong) as soon as the Swine Flu started winding down its’ cycle. Sure, peoples’ circulatory systems have been wiped out, black (useless) lungs have been found (caused by the vaccines or flu?).

No doubt there will be a lot more “shock and awe” of unexpected surprises in the immediate future (Christmas and New Year’s excepted).

#116 Joe Realtor on 11.25.09 at 7:44 pm

#75 Big Al

Could be a number of things. Sometimes the “bidding war” tactic backfires and like you’ve seen – you only get one offer (or none)

Perhaps the house was overpriced to start with, they realized it afterward and then thought “oh, lets just price it low at 299,900 and see what a bidding war brings us”. I’m of the opinion that pricing low for a bidding war is just the lazy way out instead of pricing accurately/fairly.

The blog dogs will get a kick out of this….
I know someone that is selling their house in Toronto. Mortgaged to the hilt as a result of rolling debt into the mortgage. They won’t even “break even” because they have had to price under that.

So you’re thinking “smart move on their part… selling at the top of a bubble”. Surely they’d sell and rent. Right?

Turns out they plan on purchasing down Windsor way – because “housing is cheap there”. I don’t which is the bigger clincher – them buying down that way at the top of a bubble – or the fact that both of them work in Toronto ….. and somehow plan on commuting.

#117 omg on 11.25.09 at 7:51 pm

Maybe someone can help me on this regarding mortgage defaults.

I think in Canada you cannot “walk” from a mortgage – that is, as long as you have other assets the lender can go after you for their loss on the mortgage.

But in several large US states with a lot of the default you can walk from your mortgage without the lender being able to go after your other assets?

(Yes I know this all is moot with most young home purchasers in Canada who own no other assets.)

Check this out. — Garth

#118 Emma on 11.25.09 at 8:06 pm

#62 nota bene

Here’s the full scotiabank report


Also of interest, the report states that, “18% of Canadians withdrew equity from their homes over the past year. The average amount was $41k and the total was $46 billion.” And most importantly to me, 52% of borrowers used at least a portion to consolidate debt.

I must add that I take some issue with these numbers:
18% of Canadians would equate to 6 million people
46B/41k equates to 1.12 million withdrawals

Should it have stated ‘families’ or ‘homeowners’ rather than Canadians?

#119 grumpy on 11.25.09 at 8:38 pm

Master bubble maker Alan Greenspan said

“You can’t see a bubble when you’re in one”

OMG. I’m blind…..I’mmmmm blind.

#120 $fromA$ia () on 11.25.09 at 9:55 pm

So the Russians want to promote and buy up Canadian Dollars. Do they realise our housing market is about to tank just like the U.S.?

Fiat money and stimulous. What next, verbal IOU backed currencies?

I bet Austrailian and Newzealand currencies are a better bet.

#121 Taxpayer like you on 11.25.09 at 10:13 pm

Big [email protected]

Cute story, but not an accurate description of the system.
Firstly, the “banker” is not a banker. He is a loan shark. He does not take deposits. Secondly, the inhabitants do not need a “loan” or “money”, they need currency – a medium of exchange. Thirdly, nobody seems to charge the “banker” for anything. They should have sold their
goods and services to him in exchange for the currency.

The social credit systen explained at the end is more in line with todays banking system. Just ask yourself if the inhabitant who devised and ran the system would do it for free. Of course he would want to be paid for his/her
services. Presto – a banker! Pretty soon he/she starts
charging lots for services and increases the interest rate
spread. Voila – RBC! All without the original deposit ever
belonging to the bank.

So the other inhabitants lynch the banker and claim all the deposits etc for themselves. Now its a credit union!

#122 jmcanuck on 11.26.09 at 1:40 am

The day after I buy a house the housing market will collapse. I seem to have that effect on markets. It’s my gift. It’s my curse.

#123 Kent on 11.26.09 at 9:33 am

Hey, jmcanuck, I have the same luck. Tell you what, you let me know when you buy and I’ll buy after that. That way, at least one of us will “win”. ;-)

#124 Q on 11.26.09 at 10:50 am

‘Great fool’ is becoming an understatement to what’s been going on. Mass stupidity is a better description.

#125 TheComingDepression on 11.26.09 at 5:04 pm

Case Schiller report states REAL ESTATE will go down another 45%!!!!!!!!!!!! You will buy 5 houses in the US to CANADA’s 1 soon! LOL

#126 Tony on 11.26.09 at 8:00 pm

Re: I have modified it to include the bubble real estate market of 1989 Duh!!?? I’ve been hearing and reading the same thing for a decade why?? The last crash in real estate in southern Ontario was in the 3rd week of September of the year 1987. I’ll say or state this again for Garth and all the other people who have had everything wrong for over a decade. The last crash in Ontario real estate was the third week of September of the year nineteen eighty-seven.

Actually it was 1989. — Garth

#127 TJ on 11.27.09 at 2:38 am

This ‘Turkey’ from America and an astute analyst;

Today I wonder if a half trillion dollars will be enough to get the country through the waves of bank failures coming from the residential and commercial real estate meltdown. Make no mistake, we are nowhere near a bottom. In my August post called “Real Estate at A Bottom…NOT!” I said this,“A Deutsche Bank report claims that 25 million homeowners will probably owe more than their mortgage is worth by 2011. That will be nearly half of all homeowners in the U.S. The bank estimates 26 percent of homes are currently underwater.”