Soft landing

soft landing1

As I was working on my new book this week I ran a few numbers. The inspiration came from this blog. Actually a few bloggers have been included in the text. But I will not reveal who. Paparazzi being what they are these days.

The argument put forward by several is that, yeah, houses are probably overvalued and, yep, the market will correct. But they do not foresee any large dump of America-style epic proportions – such as the 50% drop in Miami condos or the 70% plunge in two-storey suburbans in Phoenix or southern California.

Instead, they like to contemplate a 10% or 15% decline to ‘more normal’ levels, which they  believe will then remain in place for a number of years. The rationale behind this soft landing is a conviction interest rates will stay frozen at current levels from here to the horizon. This is a comforting scenario to many homeowners for obvious reasons. Then they don’t look like financial idiots for buying in 2008 or 2009.

But I disagree. That gentle-decline scenario is not going to happen.

Nonetheless, if we did have a 15% decline and prices went into a long-term holding pattern, what might a recent buyer expect? As mentioned here the other day, a majority of new purchasers have been  getting in with 5/35 mortgages. This means any kind of correction would be hard to stomach, since the only rational reason for a 35-year am and a weensy down is the certainty of a bull housing market to cover up your mistake.

So, let’s imagine you are one of the legions of people who have bought a first home in an idyllic wonderland like Mississauga, for $528,000 with 5% down.

Chart 1

Now let’s suppose the housing market declines in late 2010 when the Bank of Canada starts raising interest rates, Dubai sinks into the sea under its own debt weight, unemployment continues to rise, Obama is handed his shorts in the US mid-terms, the HST clicks in and the reality dawns on folks the economy is entering into a few years of stagnant, side-sliding ennui. In that case, a 15% drop in market prices might well occur. Suddenly our homeowner realizes he owes more in mortgage debt than he owns in house.

So, is selling an option? Let’s look:

Chart 2

In other words, for this guy to unload the house, he’d have to show up on closing day with a cheque for $82,440. And, of course, he’d have lost almost $120,000 on the deal itself – not to mention a couple of years of mortgage payments and all that stuff he bought for the new home. That would be a loss on invested capital in excess of 300%.

Now I hear some blog dogs yelping, ‘So what G? Why wouldn’t he just keep the house and wait for better days?’

Absolutely. That’s an option. But not a long-term one if the scenario of multiple years of slow growth unfolds. For all that time, while house prices remain below bubble levels, this guy is feeding a mortgage worth more than his home. Every month it is a drain on wealth, cash flow and manhood (hey, it’s a guy thing). I’m betting than a significant number of recent first-timers will freak at that, and bail. Personal bankruptcy rates will rise as a result. And house prices will decline further.

But, as I said, I don’t expect that to happen.

Instead, markets that rise exponentially tend to decline in the same fashion. The longer current conditions last, the higher prices go, the more elbows raised in anger at condo offerings, the more denial, the more bidding wars and the more time emergency interest rates are in effect, the more reactive will be the consequences.

Unless, of course, it’s different this time. But it hasn’t been yet.

147 comments ↓

#1 theshaj on 11.26.09 at 8:32 pm

Garth

In your calculation you left out the mandatory CMHC insurance premium that the buyer will have to take out with his 5% down purchase.
A friend recently purchased in Leslieville (blech) for 550k with 30k down. He think’s he got an amazing deal on a poorly renovated 120 yr old semi with no parking. When he went to complete the deal he found out that he had to pay 30k to the CMHC. (neutralizing his equity) Not sure if his premium was higher because he’s a partner in a business as opposed to an employee with a guaranteed paycheque.

#2 Piccaso on 11.26.09 at 8:37 pm

I’m still waiting for this to all unfold sometime before I enter an old folks home. Tick… Tick… Tick…

Damn, you must be old. — Garth

#3 Boombust on 11.26.09 at 8:44 pm

I think the Newspeak Dictionary would call it a “doubleplusungood” situation.

Or, in current parlance, “The bigger they are, they harder they fall”.

#4 Northeast Canuck on 11.26.09 at 8:55 pm

I have some close friends who are involved with the development industry here in Vancouver. The word on the street is that although the banks are perfectly happy to lend crazy amounts of money to people buying houses, they are not lending to developers. The source of financing has totally dried up. The result is that the bigger-name developers who have cash stashed away are self-financing projects but at a way, way lower level than before. And the smaller ones who don’t have the cash, can’t build.

The result of this is that housing starts in the lower mainland will be way down next year (the CMHC figures are allegedly being revised downwards to reflect this). Many developers, perhaps predictably, are absolutely convinced that my mid to late next year, there will be an unprecidented crisis here – but not the crisis that is predicted on this website – a shortage of housing because there are very few new properties coming onto the market. They think that this will drive house prices up a further 15-20% by the end of next year.

I personally think they are wrong, (and of course they have a vested interest in pumping the market) and I am skeptical that new builds will influence a market so strongly, particularly in an environment of rising interest rates, poor economy etc. But I am interested to see what other peoples’ thoughts are on this?

What are the odds they are right?

#5 achilles on 11.26.09 at 9:01 pm

off topic

2009 Canadian defense/military budget approx 20 billion
2010 winter olympic security budget 1 billion for a few weeks

#6 ruraldude on 11.26.09 at 9:15 pm

Apparently it’s supposed to be harder to declare bankruptcy in Can. vs US. Any of you bloggers know the scoop here, or is it abandon ship at the slightest bit of leakage with no consequences. Just curious.

#7 Ernie on 11.26.09 at 9:22 pm

Can’t wait for the day you(Garth) say “I told you so” Being 46 and renting a three bedroom 25 year old duplex with a main floor and basement and fenced yard in Kelowna for $850/month I need priced to drop 50%+ to make sense the way I see it.

#8 Dean on 11.26.09 at 9:23 pm

I agree 100% – meteoric rises seem to always be followed by a correction that unfolds even more rapidly, and generally overshoots in the other direction. You don’t have to be an economic theory expert to look back and see them over and over.

My favorite thing to see are the people who sit on that bubble and argue that the fundamentals have changed this time around. Are those guys ever right? This time around, after watching the United States and a lot of the rest of the world plunge downward, I have a hard time thinking that things are somehow different.

#9 Ernie on 11.26.09 at 9:23 pm

One more thing, will the new book be out by the time you come through Kelowna in March?

I never go to Joey’s uncovered. — Garth

#10 West Coast on 11.26.09 at 9:24 pm

WARNING: OFF TOPIC

BC Olympic news – NO BAD NEWS ALLOWED:

“U.S. journalist grilled at Canada border crossing
Officials demanded to know what she would say publicly about 2010 Olympics”

http://www.cbc.ca/canada/british-columbia/story/2009/11/26/bc-amy-goodman-border-incident.html#socialcomments

#11 double mike on 11.26.09 at 9:27 pm

I saw it myself in California in 2002, if I remember right. The guy told me that his house finally had reached the price level he bought it for in 1989. And I’m not talking Mississauga. Beautiful Los Gatos, among magnolias and 9 months per year of 18-22 degrees under clear sky. Paradise on Earth. The real McCoy, not Vancouver wannabe :)

#12 PropertyGuy on 11.26.09 at 9:32 pm

Garth,

Don’t also forget the dreaded HST on top of the Commission – $2917.20.

Of course – the owner has options – sell privately – no commission and GST – a scenario that will become increasingly popular as homeowners look to retain any equity they think they might have left. It’s already hapenning here in the Guelph area.

But even in this scenario, there would still be a chunk OWED at closing.

#13 Concessionman on 11.26.09 at 9:39 pm

” Every month it is a drain on wealth, cash flow and manhood (hey, it’s a guy thing). I’m betting that a significant number of recent first-timers will freak at that, and bail”

And herein lies the problem; the problem of perspective and poor planning. The perspective of a house being an investment before a home, the poor planning of getting in and carrying it for as cheaply as possible.

Historically, the majority of people who bought homes wanted a place to call their own, a place to plant roots and make a family, with room for a dog and the kids to play in they yard, to have that Canamerican dream of the white picket fence and 2.3 rug rats (and of course a garage for that old Dodge musclecar :). A home that they will pay off in 20 years, see a nice value appreciation, and maybe eventually sell to upgrade or retire in warmer clime’s in style.

Now everyone is a land speculator, expecting to buy a house cheaply, sell it in a few years, make a bucket of cash, and do it again with a bigger house. Now its all about appreciation, so they can run to the bank, this years appraisal in hand, to crank up that line of credit so they can buy that Hummer to keep up with the Jones.

Sure, works great in a booming market, but there’s going to be a big reality check soon, one that all these new home buyers are going to have to deal with. Of the two house I’ve owned (the starter, and now, the finisher) I’ve never said “oh, my house is worth a lot less than last year, better sell it..”, never looked, never cared, it was my house. And I didn’t exactly buy either of them at historically ideal times, 1990 and 2001.

Sure, if you are looking for a change and the markets right for you to sell with a nice profit, go for it! But don’t count on, expect, assume or especially bank on it, particularly if it’s your first home. Buy one you can afford within your existing means, put down the largest down payment you can afford, an amortization of no more that 25 years (weekly payments), plan on at least a 10 year stay. This way you’ll be able to ride out any market turbulence, build up a lot of equity, and be well positioned for anything the market throws at you.

#14 hp on 11.26.09 at 9:40 pm

Our old nemesis, the CMHC, might step in to reduce payments or even reduce principal. “Extend and pretend” loans are now common modifications in the US for underwater mortgages. This could drag the process out for a while.

#15 Downsized and Delighted on 11.26.09 at 9:46 pm

Not to be “negative”, but what if his house goes up in value 15% before the decline? Maybe he’ll be ok. (like if he bought last winter when the market dipped)

#16 T.O. Bubble Boy on 11.26.09 at 9:53 pm

In addition to CMHC Fees (as noted by theshaj in #1), a few more costs that don’t show up here:

1) Moving costs: could be just some gas $ and packing tape, or could be thousands of dollars.

2) Decorating/Furnishing the house: paint, furniture, and all of the other goodies that people buy as they move into a new place. Again, could be thousands of dollars.

3) Land Transfer Tax (worse if in Toronto core vs. Mississauga or other areas). Again, thousands of dollars.

4) Moving/cancelling phone, internet, cable, and other address-specific services (many of these fees will be waived by the provider, but not all). Probably hundreds of dollars.

5) Housewarming party!

This 15% drop really does snowball fast!

#17 Dan in Victoria on 11.26.09 at 9:56 pm

Yeah right on, on that Garth, but lets not forget the other idiots out there that have been using their houses as an ATM. I’ve seen more than a few of them buy, ATV’s, boats, cars, vacations etc. They figured that they would live in the house 4 or 5 years sell at a profit and have all their toys for “free”. Smug twerps. As far as some of these nimrods hanging on to their houses when it goes sideways, panic is also a strong emotion. Some of them will be in as big a rush to sell as they were to buy.
Ever watch those national geographic shows when they are filming the flocks of birds that all turn at the same time, in the same direction ? Yep, thats what will happen, mark my words.

#18 Herb on 11.26.09 at 9:58 pm

You’re a cheerful bastard, Garth, but them’s the facts alright.

#19 Jonathan on 11.26.09 at 10:01 pm

The market needs high home prices to force capitulation.

We were all wrong in assuming that prices had reached a peak. With a fascist socialized finance system in Canada, we underestimated the flow of fresh credit.

But asset prices, cheap credit or not, will not rise forever. Thing is noone wants to pay a fortune for something that’s not going to provide big returns, so buyers pull back. That pull back forces home prices down.

It’s that sudden gut wrenching downward jerk from unsustainable and inflated prices that forces the first defaults. Those defaults forms the catalyst for the correction, send more and more into default as prices drop.

One last point is that lender recourse in Canada will not make the fall hurt less. Florida also has lender recourse and their real estate market has been one of the hardest hit.

#20 rory on 11.26.09 at 10:04 pm

Cool little slideshow on those that think the rich do not pay their fair share of taxes…for the left wing crowd (this last little tidbit added to raise the blood pressure of some)….Hellooooo CRO!

http://www.slideshare.net/slides2407/drunkenomics-the-story-of-bar-stool-economics

Note: I not talking about legal loopholes that should not be legal or the ability to apply deductions.

#21 Contrarian on 11.26.09 at 10:10 pm

I think your prediction will be right only if there is a catastrophic increase in job losses, which is getting increasingly likely.

If people can hang on to their jobs, they would suffer equity loss but will not sell since it would hide the loss they are taking ( only in their eyes).

But what do I care……..I’m a happy renter………

#22 Snowman on 11.26.09 at 10:11 pm

Then they don’t look like financial idiots for buying in 2008 or 2009.

Didn’t you buy at least one property in 2008 or 2009?

they like to contemplate a 10% or 15% decline
……………………………………………
But I disagree. That gentle-decline scenario is not going to happen.

Only few days ago you said this:

He told the Globe’s Rob Carrick that home prices would fall 15% nationally, 20% in Toronto, and 40% in Vancouver.

How will the real estate boom end

So, which one is it now? You say one thing today then disagree few days later?

(a) I bought a POS. Money will never be lost, especially on cash deals. (b) The estimates are for the opening act. Check back here in two years for a guaranteed amount, Mr. Realtor. — Garth

#23 BDG YYC on 11.26.09 at 10:16 pm

So … what’s the next cluster-mania sheeple craze about to sweep the nation ? Better devote a chapter in your new book to this Garth. :-)

The shrinks are going to make a fortune.

http://www.youtube.com/watch?v=v96XJRCcTeU

#24 Boombust on 11.26.09 at 10:17 pm

“Not to be “negative”, but what if his house goes up in value 15% before the decline?”

The Newspeak Dictionary would refer to that as “Duckspeak”.

#25 homeless on 11.26.09 at 10:29 pm

Okay, now lets compare the guy who bought last year same time when this blog was still talking about further real estate correction(deflation + dooms day) with the one who would be buying next year when presumably RE goes down by 15% with rising interest rates.
Recent CREA number shows RE already up 20% or so as compared to same time last year. By next year it may even go up further. So a guy buying next year would still be paying more even after 15% drop and plus get the mortgage at higher interest rate.
Who wins? Guy buying in the midst of last year doom talk or guy waiting for RE going up like crazy.

#26 MortgageScuba on 11.26.09 at 10:50 pm

IRD (Interest Rate Differential) penalties can also be charged in addition to the 3 months of interest – it makes the 7.2k look like pocket change.

#27 Snowman on 11.26.09 at 10:54 pm

Check back here in two years for a guaranteed amount, Mr. Realtor. — Garth

No realtor here, plus I see the %10-%15 drop a real possibility, in fact many do.
As for checking back in two years, well I’m checking back one year after your Oct. 2008 predictions and I kinda fail to see it happening, au contraire …

I too dislike the “buy now or … forever … whatever”, you know the rest. I consider the following piece to be much better:

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.

Hmmm indeed, why not just say that %28.2 of those mortgages have been 35-40? Interesting way to make a smaller % look bigger than it actually is, huh?

#28 omg on 11.26.09 at 11:03 pm

We do not like people to lose their house in Canada even if they made a stupid decision when buying.

re:14
I am sure the various levels of governments will be under extreme pressure to step in the “help those hardest hit by the national housing crisis”. It may even work if the number involved are small.

Then those people who actually pay taxes end up paying for other people stupid decisions.

#29 omg on 11.26.09 at 11:06 pm

re #4
About developers not getting financing.

Is that because the financing to developers would not be fully CMHC insured – so therefore it is just too risky for the banks?

#30 Yogi on 11.26.09 at 11:12 pm

I have a question for you Garth.

I am wondering what would happen if the credit market continues to expand and then the bubble pops. In the US it was Lehman Bros. that went insolvent, and that caused the rest to pop too. In Canada, with the CHMC, aren’t we all on the hook. Is it possible that this could bankrupt Canada – I mean a trillion $ in losses added to our national debt would pull the country under no?

#31 ralph on 11.26.09 at 11:17 pm

Here is something to ponder.

“10235 Kent Towne Ln Sugar Land, TX 77498 $49,900
3 Bed, 2 Bath | 1,296 Sq Ft on 0.18 Acres (7,992 Sq Ft)”

A comparable house in Van or TO would probably list for close to a million.

What is wrong with this picture?

#32 RabbitOutofAHat on 11.26.09 at 11:23 pm

So let me get this straight.

You expect me to cut a cheque for the imaginery $82,440 which I didn’t have available to me for a downpayment in the first place, in the hope that the market will sustain long-term price reductions and/or stagnation which I would be insulated from?

Wouldn’t you be better off selling time shares in a Dubai island right about now?

#33 Terry on 11.26.09 at 11:43 pm

Rory (20)

Do you really believe this spin?

Consider the share paid by Goldman Sacks, AIG, J.P.Morgan, etc and the share paid by the US taxpayer.

#34 HouseBuster on 11.26.09 at 11:46 pm

Looks like concerns are arising about a double dip recession. There’s talk now that if the HST is defeated then it will be dropped for good and not implemented in BC or Ontario. Yeah, it’s politics.

#35 dd on 11.26.09 at 11:47 pm

Reading the other day about the amount of short bonds being floated by government. If there are more short bonds used to pay for long term debt expect voliality in interest rates (going up and up).

#36 905er & Spouse on 11.26.09 at 11:53 pm

Was listening to Brad Lamb yesterday on CBC. He and Matt Galloway were talking about the condo market in TO.
Brad was saying that sales were poor for about a year but it is starting to pick up.
Matt asked him about all the building going on. Brad responds that all that was sold 2 – 3 years ago and all the building will stop in about 4 months. He seemed to think that was going to be a good thing.

All I could think was OMG!!!! How many people are going to be out of work then!!!

Things may get worse very soon.

#37 Taxpayer like you on 11.26.09 at 11:58 pm

[email protected] If I’d bought in ’90 and ’01 I’d be up about $30k not including interest.

[email protected] I was pursuing debtor through small claims
when I got a note from a receiver offering a “consumer
proposal”. Basically the debtor offers to pay a portion of the amount owed and wipes slate clean, and doesnt go bankrupt. Problem is the amount offered is very small.
He basically offers to make the equivalent of a truck
payment for four years in returning for wiping out this
debt. My feeling is he better pay the equivalent of
a mortgage for 7-10 years.Filled out form saying I was
against the proposal and sent to receiver. Will have
meeting of creditors in a couple of weeks. Not sure what the next step after that is, but I hope enough creditors reject it so I’m not stuck with the offer. I’ll try to remember to fill you in.

#38 Into The Sunset on 11.27.09 at 12:04 am

The contrarian lemming arrived at the edge of the cliff and he immediately started to print and post signs ” Danger Cliff Ahead – STOP!!

Tune in , in a few weeks, and I’ll tell you… “THE REST OF THE STORY”

#39 Bob Leftcoaster on 11.27.09 at 12:09 am

If said homeowner keeps the house the mortgage principle will still exceed $465,000 in 2014. Lenders will only lend 95% of the house value, so entering the second mortgage term, the principle will be in the range of $426,000 but only if homeowner first comes up with a lump sum payment of almost $40,000!

Then it gets uglier when you calculate the new payments on the upcoming 6% (or higher) interest. Unbelievable!

#40 Einsam Solo on 11.27.09 at 12:48 am

#14 hp

I think you’ve got it right. A taxpayer funded bailout program seems a likely conclusion.

#41 Alberta Boy on 11.27.09 at 12:55 am

Garth, why are you the only one speaking about the economy in this way? Every other piece of literature I read states how good things are getting – I just saw a piece on Global National that prices in Vancouver and Toronto are on the way up, people are panic buying again, lining up to get one of those new condos! A real-estate agent friend of mine is telling me ‘now’s a good time to buy!’ and ‘Housing can’t be too expensive because we had our best June/July ever’. Bah. I just don’t know.

I was priced RIGHT out of the market here in Edmonton a few years ago and have been looking for a time to get in now that things (seem) to be settling. We got a little arrogant in rich Alberta (politician recently stated that we’ve been eating nonstop at the buffet line for the past 10 years with no sense of control), so I’m not sure now’s the time to enter. I’d also be doing a 5/35 year mortgage, which now seems foolish from your calculations.

Anybody have any advice? I know I’m looking for a crystal ball that doesn’t exist…

#42 Taxpayer like you on 11.27.09 at 1:03 am

[email protected] – found this:

http://money.ca.msn.com/banking/bankrate/article.aspx?cp-documentid=22719942

#43 Nostradamus Le Mad Vlad on 11.27.09 at 1:11 am

“. . . Obama is handed his shorts in the US mid-terms, . . . Unless, of course, it’s different this time. . .”

The hypocritical junksters in the m$m are more than adept at fooling the public, as most of them are so blind they are unable to fathom reality from lies.

As yet, none of the m$m have come out with a clear report on Dimona, but they were all hollering “Sadaam has WMD” (at one point, he did and it was Ronnie Reagan that made sure he did, so as to get rid of the Ayatollah. Sadaam didn’t, the weapons went back to the US but now it’s Iran’s turn to be in the firing line), so obviously the m$m isn’t trustworthy under ANY circumstances.

This is the one main reason why the ‘net has been enormously successful in garnering ad revenues, as well as ex-m$m readers. People don’t like liars, and generally advertisers take a wide berth as well.

Reports, such as the links that follow, may / may not end up materializing but, conspiracy theories or not, none will ever be in newsprint. So — this one from Nov. 25/09. There are so many things happening that bloggers and sheeple never hear about, nor will this story ever see the light of day.

Don’t forget the Spring Surprise. Also the couple that walked into the WH unannounced and uninvited (maybe a publicity stunt?). Believe It Or Not! — NWO

Both dated Nov. 24/09, and saved for later if necessary. Slightly weird / strange outlook. — Food 4 Thought / Massive Deflation

Kinda goes with the above. The link I posted a while back speculated that if and when the dollar takes flight, (the opposite) stock markets crash.

Although yesterday was only one day, see the headline. — Greenback Goes Gonzo / Yen Headz Nutz / Red Thursday Remember, the higher one is (stock markets / greenback), the harder one falls.
——
Good pix. Not global warming! — Frozen Waves
——
Speaking of the feds again.

#44 Chaostrology on 11.27.09 at 1:19 am

When you’ve just swallowed a big crap sammich…

And now you head, tummy and wallet are on fire…

How do you spell relief?

G-R-O-W-O-P

Growop is your best friend after you’ve gone out and over-indulged at the credit party.

For a good nights sleep, take growop at the first signs of distress!

Growop, a friend in times of need!

#45 kc on 11.27.09 at 1:41 am

Following the Dubia story….

If you were truely surprised that what you are watching today is taking place in the markets and the falling Dubia story… you haven’t been paying attention.

here is the link I was talking about in yesterdays post, funny it is close to 9 months to the day…

Things that are falling apart at record pace will only end badly… (as garth loves to say) here is what it takes sometimes… people on this blob ask… when will the sky fall… i want to ???? when is the best time…. here is a good time account… 9 months for all the cards to become wind blown is a good timeline….

cheers

http://www.greaterfool.ca/2009/02/22/house-lust-2/

18 kc on 02.22.09 at 11:13 pm looks like the party is also over in DUBAI…. (if someone posted this previous my appoligies for this was last week’s printing. Published: February 18 2009

“Dubai’s globalised economy has been hit hard by the credit crunch.”

“Job losses are mounting across the economy as the property bubble bursts, triggering concerns about the government’s $80bn debt pile.”

Bourse loan eases Dubai default fears

http://www.ft.com/cms/s/0/b851c2a8-fd5d-11dd-a103-000077b07658.html

#46 Jim on 11.27.09 at 1:56 am

Nortel execs incompetence and greed sinks to new lows

Greedy Nortel Execs make out like bandits by paying themselves bonuses while denying others severance
http://nortelinsider.wordpress.com/2009/03/20/nortel-management-follows-the-path-of-aig-in-rewarding-incompetence-but-wait-it-gets-worse/

#47 Bogdan on 11.27.09 at 2:08 am

Instead, they like to contemplate a 10% or 15% decline to ‘more normal’ levels, which they believe will then remain in place for a number of years. The rationale behind this soft landing is a conviction interest rates will stay frozen at current levels from here to the horizon.

I tend to agree with the fact that the decline is going to be looooong, slooooow and deeeeep, just like a french kiss.

Now, here are the reasons why I think this:
1. It’s not easy to declare bankruptcy in Canada, I did a research on this matter and if you send all your goods to your parents and declare the foreclosure first and after that the bankruptcy, you can get away with the shortfall amount… but even in this way you would start from almost nothing, but the goods you could hide and the RRSP contribution prior to the last year (if it wasn’t used for the down payment ;)). BTW, no more credits/loans/mortgages for 7 years.

2. CMHC will go bankrupt when the housing market declines by 5-7%, but the government is there, so the banks will get their newly printed money. CMHC will change the rules and will probably not accept down payments under 20%, but on the other hand the credits will eventually take off, as the banks will have tons of cash and inflation is going to kick in. The BOC is not going to increase the interest rate high enough, because it’s going to kill the “recovery/economy”.

Under the pressure, the government will probably loose the bankruptcy policy, but too late. They will try to rent the houses too, just like in US, but this can’t work either. I think that in the end (6 to 10 years) the average home price in Canada will decline by 60% in real value, and by 40% in nominal value.

#48 Jeff Smith on 11.27.09 at 2:26 am

I heard it’s not harder to go bankrupt here. In fact you can do it right now. However, from what I hear, you are still on the hook for the mortgage debt that you have. So if you have to unload a house that’s in negative equity, well you still have to pay up even if you go bankrupt.

>#6 ruraldude on 11.26.09 at 9:15 pm
>Apparently it’s supposed to be harder to declare
>bankruptcy in Can. vs US. Any of you bloggers know
>the scoop here, or is it abandon ship at the slightest
>bit of leakage with no consequences. Just curious.

#49 ManfredSteyn on 11.27.09 at 2:37 am

Vancouver unlikely to experience post-Olympic blahs:

http://www.dcnonl.com/article/id36479

This speech left me speechless.

#50 The truth on 11.27.09 at 3:06 am

Renters wait for a correction…why? so they can buy the very same house they’re renting?? Why take on a mortgage when you can pay the rent and it costs u less to live in the same house?? Doesn’t feel the same eh? THAT IS WHY HOUSE PRICES ARE HIGH…people want to own, not rent…otherwise you wouldn’t have people wasting their time trying to post about a wishful correction. prices got nothing to do with rents and income. I learned long ago that real estate prices are not based on rational fundamentals and will remain as such.

#51 Guan-Di on 11.27.09 at 6:32 am

There is at least one other factor that will see people not able to stick it out in even this rosiest of possible RE declines: once interest rates jump, that huge mortgage will cost a hell of a lot more. Increased financial stress will mean those couples that don’t take the loss and sell will be stuck in a money pit that will not just errode their finances but their relationship and they’ll just have to unload their former love-nest in the divorce proceedings… then the vultures can just swoop in and feast on the bloated carcass of human misery that sweeps across this land after we all hear the pop.

#52 David @ SC Qld on 11.27.09 at 7:12 am

@ #4 Interesting rumours behind the banks not lending to developers, not just in CA but all of the place.
What I’m hearing is that they are refusing to fund new starts because that would impact the value of the growing number of foreclosures they have on their books.

#53 Maurice on 11.27.09 at 7:13 am

Amigos:
To show just how much the Canadian Federal Government has juiced the real estate market one only has to witness what I did in Owen Sound on November 24th. Farm Credit Corporation is the rural land financing equivalent to CMHC. It makes money available for the purchase of land and new building construction to farmers, at below market interest rate levels. A subsidy for investing in farms in reality. There is a FCC office in Owen Sound. The Old Order Minonite Community is expanding in Grey County. That Community based in Wellington County has always been self-funding within its own Parish from their own community. With the big escalation in real estate caused by easy low interest money they can no longer self fund. The date stated earlier saw a delegation of Old Order Minonites leaving the FCC office in Owen Sound. Absolutely unheard of in past times. Even customs are being broken to get in on the can’t lose opportunity to buy real estate. How sad.

#54 Tim TodlleHeimer on 11.27.09 at 7:37 am

No Canadian Job Confidence

http://ca.finance.yahoo.com/personal-finance/article/cpmoney/consumers-less-confident-about-jobs-personal-finance-survey-20091126

#55 MrC on 11.27.09 at 7:47 am

It will be interesting to see how the news that debt repayment being suspended half way around the world will impact us. I would hate to have just invested in some property over there in the last couple of weeks.

#56 Confused and... on 11.27.09 at 7:59 am

To #34 (Bogdan): Do you or anyone agree with #35 (Jeff Smith) that even if you are bankrupt you still have to pay for the money you owe (the difference) ?
If that is the case then filing for bankruptcy when you owe tons of money is not exactly a best idea, isn’t it?

Thanks

#57 Piccaso on 11.27.09 at 8:01 am

Hey Garth, did you dump your bank stocks and buy any FAZ yet? The world markets are taking it on the chin over Dubai woes.
FAZ – FINANCIAL BEAR 3X SHARES ETF

#58 AM on 11.27.09 at 8:02 am

#8 “My favorite thing to see are the people who sit on that bubble and argue that the fundamentals have changed this time around. Are those guys ever right? ”

They are right for as long as the bubble stays inflated, which has been for a few years now, whereas the bear only has to be right once, and it’s all over.

#59 Onemorething on 11.27.09 at 8:05 am

all, the G is just trying to be nice at 15% drop on the national avg.

It will be 30% drop national avg in CAN and 45% in US when done!

When the crowd heads for the exit, it will be a mess.

I exclude Montreal – East and call it 15%.

Big bubble territory…you know who you are…45-55%.

#60 David Bakody on 11.27.09 at 8:44 am

Another plan could be, forget 35/ams go for 50 ams as is the case in Europe and move the kids/family into these Mcmansions. Look on the bright side it will be just like the “Waltons” but in the big cities.

Good morning John Boy.

#61 Herb on 11.27.09 at 8:53 am

Rory @ #20,

enjoyed your slide show, especially slide 6, which states that biz type pays $67, exec $33, and worker $0 of the bar bill, just like they split taxes.

Sorry, Rory, it didn’t raise my blood pressure, just my amazement that some people would actually accept such a statement as gospel fact and try to spin a macro-political case from such non-existent thread, such as left vs. right, capitalism vs. socialism, liberal vs. conservative, Democrat vs. Republican, etc.

You can always tell a wingnut; you just can’t tell him much.

#62 pbrasseur on 11.27.09 at 8:55 am

I don’t think Canada will see an American style debacle financially. There will be no bank failures, no domino falling of financial institutions. Not that Canadian institutions are better than US ones but mainly because here the risks have mostly socialized by the Canadian government through the CMHC. If the number of defaults rises the state will have to bailout the CMHC (in fact the government would probably intervene much before that), and there is no question the Canadian government with its top notch credit rating is capable of borrowing whatever it needs to do that. Of course that would be a drag on the future but that’s another story.

Also more of the losses will be assumed by individuals, don’t forget that as opposed to the US in Canada most loans are recourse loans, people can’t just walk away and will tend to cling to their “investment” more than they did in the US. That too will tend to diminish the number of foreclosures.

That being said there is a bubble, it will burst, prices will drop and thousands of Canadians will end up in negative equity just like Americans did.

#63 Gord In Vancouver on 11.27.09 at 9:25 am

Garth – thanks for another well written post.

If those who embrace minimal down payments and don’t fear price corrections don’t get it now, they never will.

#64 Medic on 11.27.09 at 9:45 am

Can anybody see a future situation where home “ownership” is essentially non-existent due to the introduction of 50-60-70 year mortgages with very low monthly payments? Would this be one way to keep the bubble alive indefinitely? Everybody would be basically renting with the bank as landlord. I mean, as long as the authorities allow it, is it such a stretch, seeing that we’ve gone from the 20-25 year amortization to the 35 year amortization in only a decade? Sure, the government has disallowed 40-year mortgages for now, but wouldn’t they be tempted to loosen, rather than tighten, these limits eventually?

A mildly comfortable “homeowner”

#65 The VULTURE on 11.27.09 at 9:54 am

B.Y.O.B

Real estate bust opens doors for parties at vacant houses.
By Larry Copeland, USA TODAY
SANDY SPRINGS, Ga. —

Some of the most elegant addresses in all of Atlanta are found in this wealthy enclave. Sprawling mansions that occupy 2- to 10-acre lots are home to some of the city’s most prominent residents.

They were shocked last month when a massive Halloween party exploded in their midst. More than 1,000 people jammed the streets around the brick-and-rock mansion, paying $20 apiece for admission and riding shuttle buses from the parking lot of a nearby Publix grocery, police say.

We have a lot more vacant property. In August 2008, there were 11 vacant properties in my district. In August 2009, there were 34 vacant properties.

At least the Sandy Springs party was legal. One result of the nation’s real estate bust is that police around the nation this year are dealing with people taking over foreclosed houses and throwing illegal parties.

•In San Diego County, young people have taken over foreclosed houses for late-night rave parties, says Detective Jeff Lauhon of the San Diego County Sheriff’s Office. Lauhon says the culprits were well-organized in some instances: A young couple would get a realtor to give them a tour of a foreclosed house — usually in a rural area on a large property. The woman would distract the realtor while the man surreptitiously left a window open or door ajar. They would then return and invite others for parties that lasted until the wee hours.

“One main consideration they had was plenty of parking,” Lauhon says. “The people hosting called themselves a party crew. It turned into a business venture. They were charging admission, to cover the cost of alcohol and to make a good profit. It’s just another example of being an entrepreneur. They just chose to do it in a way that’s not lawful.”

About a half-dozen people were arrested on charges including grand theft, burglary and vandalism, he says.

•In Tempe, Ariz., after several instances of party crews holding illegal bashes in foreclosed houses, patrol officers carry a list of foreclosed homes in their patrol areas. “We encourage officers to proactively get out to those areas and conduct security checks on each patrol,” says Sgt. Steve Carbajal of the Tempe Police Department. “In this unique time as far as the economy, as far as the housing market, it really calls for unique strategies.”

•In Fort Myers, Fla., another community awash in foreclosures, police busted an illegal party at a foreclosed house earlier this year and arrested several youths. “The host was the former resident, in their late teens or a juvenile,” says Fort Myers police Sgt. Larry King. “They ended up busting the place up.”

Big empty homes

Battaglia, who has lived in the Sandy Springs neighborhood for 23 years, says the house that hosted the Halloween party has been on the market for about two years. “It’s just one of those big houses that isn’t selling, I’m sure because of the economy,” she says.

#66 Nostradamus jr. on 11.27.09 at 10:08 am

“””The Toronto RE market stormed back in the spring after 12 months of pain. It seems a bit excessive, but it’s the home of the only solvent banking system globally, massive secure oil supplies, and the sole stable, non-punitive tax regime for individuals and corporations outside of tax-havens.

Actually the corporate tax rates are continuing a long downward trend and governments are looking for taxes and regulations to cut and efficiencies to be gained. TD is stealing retail share, as are BMO and RBC in their regional markets.

A major driver of the housing market has been the number of finance execs hired by Canadian firms who are relocating to Toronto. You can live in a proper house 15 minutes from the office for 2-3M.

Condos are bubbly, and the last big line up happened Dec 07 for a project backed by Kazakhs that has collapsed before ground broke. The best part about the Toronto market is the massive restrictions developers face – no financing until 70%+ of the units are sold. Many units are purchased by investors for rental purposes (rental development is primarily undertaken by small investors to get around tenant protection laws with most institutional investors having left the residential market).

Condo investors are stupid, but the developers orchestrate scenes a bit and its mostly flight to quality investors buying assets for rental income instead of 0% T bills. 3.5% 5 year mortgages don’t hurt either.”””

http://www.businessinsider.com/bubble-watch-brokers-camp-out-for-a-week-for-new-condo-development-2009-11

#67 JeffinPickering on 11.27.09 at 10:09 am

#63 – medic.

No, it is probably not such a far flung idea that things could head in that direction.

The issue is, it would deman/result in the cessation of flipping. A home would have to become a place where you intend to live for a long time. Why? Because on lifetime (40, 50) mortgages you pay diddly sh*t to principal. It essentially becomes one tiny step shy of interest-only mortgages. Thus, there are no capital gains to be realized.

It is one possible way to prevent offloading of the current debacle to the taxpayer when everyone goes into negative equity and can’t make payments the second interest rates rise.

The end result is as you point out – cessation of any kind of ownership or equity.

#68 Barbara on 11.27.09 at 10:16 am

I have a few questions about the HST.

Is it applied to new homes only or to all home purchases? Also, is it only for homes of a certain price?

Thanks

It will apply to the sale of new homes (not resales) above a certain dollar amount (roughly $500,000 between BC and Ontario). But it will apply to all real estate commissions, legal fees, moving costs, appraisals, home inspections, repairs, maintenance, renovations and utilities – new or resale. — Garth

#69 CalgaryRocks on 11.27.09 at 10:23 am

Rory @ #20,

enjoyed your slide show, especially slide 6, which states that biz type pays $67, exec $33, and worker $0 of the bar bill, just like they split taxes.

40% of Quebecers do not pay income tax as reported last year.

No wonder that the people that don’t need to contribute anything vote in the leftwing scumbags.

Dumbest-ass comment of the day. Congrats. — Garth

#70 jube jube on 11.27.09 at 10:33 am

@ MortgageScuba

Lenders charge the greater of the IRD or 3 mos interest, not both. The IRD is huge now as people are refi’ing mortgages at 6%, to 3.99%.

#71 pjwlk on 11.27.09 at 10:37 am

Almost every boom/bust related book or article I’ve read in over the last two years supports Garth’s position of a steeper slide in prices, which will most likely take several years before arriving at the bottom, and then a lengthy recovery process that is said will last as long as it took to get to the peak to begin with.

All of the other theories that abound here on this blog are contrary to the mounds of historical data showing that it has never at any time been “different this time”. The patterns are always the same.

In addition to that, historical data also shows that in a bubble situation, there is always an event of some sort that is harsh enough to trigger the herd to go in the opposite direction. That event would be something like substantial increases in interest rates or a contraction of available credit. Massive increases in energy costs or natural disasters are others things that can cause a turning of the tide as well. Until that happens the status quo will continue and the bubble will continue to expand, even if only slightly.

In my opinion all of the other non-sense about immigrants saving the day, the Olympics and the (in)availability of new housing is all bullshit and almost totally irrelevant to when things are going to take a turn for the worse. Understanding human nature is the key to knowing what is going to happen next in any given part of the economic cycle.

The trigger event will come, nobody knows when but it’s just a matter of time. History has proven that over and over again…

#72 palebird on 11.27.09 at 11:10 am

#41 Alberta Boy you are reading the wrong “literature”, not trying to be an a## but take a few minutes or hours and put together a list of “literature” to keep tabs on..and make sure very little is from the Canadian or American mainstream mass media..then just make comparisons and watch what happens..won’t take long to figure out who is completely full of sh## and who may have an idea of what they are talking about..but if that is too much work then carry on..

#73 David in Calgary on 11.27.09 at 11:11 am

I think that people really need to take a look at what damage real estate causes in our society and re evaulate. I’m all about a “property owning democracy”…but not under the structure that exists as it is today.
1. Having lived in Vancouver in the early 90s and in Calgary since 1996 I’m sick to death of hearing people talk about nothing but real estate. Through no doing of their own, their equity increases and creates this dillusion that they are some kind of financial genius! It creates this false sense of entitlement…and entitlement equals excess.
2. As much as I love living in Calgary and enjoy the city, it’s not a better place since the too much/too fast growth in the last 5 years. Calgary, used to be a nice, friendly, affordable place to live and now it’s become dominated by these pretentious douchebags trying too hard to be something they’re not.
3. Talk all you want about oil prices…but when the cost of living became too high in Calgary, economic activity tailed off because people couldn’t afford to live here.
4. I just shake my head when I hear co workers (whose houses doubled in value in less than 7 years) complain about homeless people out on Stephen Ave with the ol “get a job”. I wish they could see the correlation between their equity gains and someone’s rent tripling within a few months.
5. That guy from Saskatoon and our realitor friend Nikki….personify EVERYTHING that is wrong with Alberta in the last 10 years. The speculation performed by people like that has caused the prices to get jacked up on everybody and I’m sick of it.
6. When people stop thinking of real estate as a quick, license to print money our society will be a better place. We need to have our cities stay affordable for all levels in the hierarchical social structure we live in.
7. One thing that I’ve witnessed first hand in Calgary…an economic boom is nothing more than a displacement of people. And it’s a self serving bad joke for those who walk away with bags of money at the expense of the rest of society.
8. And, for those eastern people who mock the real estate prices out west…..then stop moving out here and overpaying. : )

#74 CalgaryRocks on 11.27.09 at 11:14 am

Dumbest-ass comment of the day. Congrats. — Garth

It’s still early. Give your left wing fans a chance.

But yes, when 40% of your population doesn’t pay income taxes and has therefore no skin in the game that is pretty dumb.

Link? — Garth

#75 Cara on 11.27.09 at 11:16 am

“It’s different this time” is the battle cry of every realtor I know.

I, in a moment of foolhardy courage, posted a link on a realtor friends’ profile page to the article I believe was in the Globe and Mail that a blog reader posted yesterday regarding that very assertion, “It’s Different This Time” and the article nicely annihilated that bit of ridiculosity.

She was blathering on with the latest CMHC stats posting a status of “the market is expecting an uptick, and rates will be rising soon, so you better get in NOW while you still can!!”

I wonder if they even read their own schtick – on one hand we have the meant-to-be-reassuring, “Oh, don’t worry, rates will stay low for the rest of your life, you can TOTALLY afford that humungous mortgage” vs. the sales-are-slow-I-need-to-drum-up-business, “HURRY BUY NOW BEFORE YOU’RE PRICED OUT FOREVER, RATES ARE RISING!!”

At any rate, I couldn’t be a realtor. It requires pure self-interest – encouraging people to buy when even a modicum of research would show that anyone with half a brain would not be buying in current market conditions. Trusting someone, who stands to make outrageous amounts of money for filing some paperwork on your behalf, for advice regarding market conditions and the biggest purchase of your life is just a STUPID, stupid thing to do.

As of this morning, I have been removed as her ‘Facebook’ friend. Guess the truth is scary ,and dissenting opinions are not allowed.

On one hand I feel I may have been inappropriate by posting that on her page… on the other, if you are forced to lie daily in order to drum up your paycheque, perhaps it’s time to look for a new line of work.

People are people, and economics are extant because of people. Things will NEVER be “different this time” unless there are no humans left.

Thanks for the blog, Garth. I like to read the truth, and I like to spread the truth, even when it makes me unpopular.

PS: I have another realtor friend on FB… but we’re closer so I just tell her everything this blog says in private. She’s starting to see the light. Also, presently she is swamped with listings… but no buyers coming out to play. I’m in northern Alberta, and the rate of foreclosures hitting the market these days is sharply rising.

#76 Nathan in Edmonton on 11.27.09 at 11:25 am

I believe our real estate correction will be a lot faster than people think. What took the US three years will probably take us less than a year when people realize our fake economy can’t be fixed.

#77 pbrasseur on 11.27.09 at 11:30 am

“But yes, when 40% of your population doesn’t pay income taxes and has therefore no skin in the game that is pretty dumb.”

That’s acually true, but is not uncommon either, other provinces are pretty close to that.

#78 GuyIn20 on 11.27.09 at 11:31 am

This has been an excellent opportunity for me…Upgrading my townhouse with a detached. The basement helps to pay the mortgage :-) The difference was not much when there are people willing to pay 17% more than the listed price, EH!

#79 CalgaryRocks on 11.27.09 at 11:45 am

But yes, when 40% of your population doesn’t pay income taxes and has therefore no skin in the game that is pretty dumb.

Link? — Garth

http://lapresseaffaires.cyberpresse.ca/opinions/chroniques/200901/09/01-692370-impots-qui-paie-la-facture-au-quebec.php

I see no reference in that story to 40% of Quebec’s population paying no income taxes. — Garth

#80 Northeast Canuck on 11.27.09 at 11:47 am

#29 omg, Yes this is exactly the issue. There are some specific condo developments, apparently, which the CMHC does underwrite for the developers (I don’t know why but I suspect they have more of a social housing type of aspect to them), and those according to a developer yesterday have been “very successful”. Of course they have.

In my view, if the banks won’t touch new developments with a bargepole then that says to me that the banks don’t see RE in the lower mainland as a “sure thing” unlike the developers. There’s a really big disconnect here.

What I would like to know is, in the face of all the other factors weighing in on RE in the near future (ie interest rates, retiring baby boomers etc), how much will a shortage of new housing actually affect the market? The developers clearly believe it is a huge effect. I don’t think they are right but I have no figures to back up this view.

#81 Evangeline on 11.27.09 at 11:50 am

#61 pbrasseur

If you have time please read this:

http://www.zerohedge.com/article/markets-gap-down-3-pct-sovereign-nations-nearing-default-or-firesale-cant-say-i-didnt-warn-y

If banks are betting their depositors’ money in ‘off balance sheet’ high risk bets, can even the government afford to bail out the banks if they lose? And even if they win, what happens when the counterparty cannot pay back the debt, per Dubai big picture, subprime mortgage holder small picture.

Going back to my mortgage back securities question, when just about everthing in the world economy is built up on an unending tower of debt, how trustworthy, in reality, government guaranteed insurance?

I hope you don’t mind my questions, I am directing them to you because your responses seem rational and unbiased.

#82 PeckedToDeathByDucks on 11.27.09 at 11:55 am

(Jeeze, my keyboard’s been hijacked. I say, I say again, with better spelling…)

Don’t anyone look at at today’s Canadian current account deficit or the increasing budget deficit. If you think that socializing the risk is good and that future debt is a different story then you must not be a taxpayer. The H1N1 medical bills haven’t even come in yet.

Does the House ever discuss Canadian matters anymore?

That was one big cockroach that just came out of the Dubai woodwork. Good thing there’s only one, eh.

#83 Evangeline on 11.27.09 at 11:57 am

#73 Calgary Rocks

((It’s still early. Give your left wing fans a chance. ))

I consider myself to lean right. However, what is Harper doing that is any different from what Obama is doing?

#84 Downsized and Delighted on 11.27.09 at 12:04 pm

#24 Boombust – In “financial” speak, the very same factoring that makes Garth’s example a financial disaster makes it a financial winfall if the market goes up 10%. The higher the leverage, the more money to be made or lost. Many buyers have already increased their equity to the point where they will be relatively unscathed in a market downturn. Quack quack.

#85 McSteve on 11.27.09 at 12:07 pm

Hurry up and crash – I want to buy a cottage!

#86 rory on 11.27.09 at 12:16 pm

#33 Terry

I was thinking individuals not corporations and yes contrary to what most believe or think the slideshow is true even though some artistic license is included.

The link below (US Gov data…am looking for similiar Cdn data) shows that the top 50% (gross income) pay 97% of all personal income tax – the top 25% pay 86%, 50-75% pay 11%, and the bottom 50% pay 3%….so kind of close to the slideshow before…that would be a yikes.

http://www.ntu.org/main/page.php?PageID=6

#87 CalgaryRocks on 11.27.09 at 12:16 pm

I consider myself to lean right. However, what is Harper doing that is any different from what Obama is doing?

The US is a corporate fascist nation right now, Canada on the other hand, and some provinces in particular is in a tax and spend socialist death spiral.

Both countries should have an opposite approach. Neither can do much because in both cases, there is not enough of a majority to get anything done.

To Harper’s credit he has, so far, kept us out of the global warming scam. Not that we shouldn’t help the environment, which he has done, but transfering trillions to 3rd world dictators is not the way to go.

#88 Bogdan on 11.27.09 at 12:17 pm

#55 Confused and… To #34 (Bogdan): Do you or anyone agree with #35 (Jeff Smith) that even if you are bankrupt you still have to pay for the money you owe (the difference) ?
If that is the case then filing for bankruptcy when you owe tons of money is not exactly a best idea, isn’t it?

You got the comments numbers wrong.

Bankruptcy is going to discharge the unsecured debts, not the secured debts. The mortgage for a house is a secured debt, however the CMHC debt can be cleared through the filing of a bankruptcy, if you went for foreclosure first. This is where Jeff is wrong.

Garth, (I just want to reiterate my suggestion from a previous comment) you may want to consider getting prepared with some topics on bankruptcy, or even a book, as this is going to be a hot issue and you do a great job scaring out the coward-grubbers.

One more thing I have to say about this entry… the name is “Soft landing”, you do argue with some guys about the “gentle-decline scenario”, but you offer no time frame. This is a very political type of entry. You do play with words like “scenario of multiple years”, “for a number of years”, but you make no real time difference between what those guys say and what you do, between Soft Landing and Hard Landing.

#89 taylor192 on 11.27.09 at 12:20 pm

#13 ConsessionMan

People do not buy 400 sqft 1 bdrms as a place to grow roots. ~50% of the units in Vancouver condo buildings are 1 bdrms or suites. Many new buyers are single 20-30yos who will move within 5-10 years to start a family.

#90 somecatchyphrase on 11.27.09 at 12:22 pm

Great article at the Globe and Mail today. Discusses the impact of rising interest rates combined with higher gas costs.

“Home buyers face a double whammy”

http://www.theglobeandmail.com/real-estate/home-buyers-face-a-double-whammy/article1378509/

#91 taylor192 on 11.27.09 at 12:26 pm

#15 Downsides and Delighted

If the house goes up 15% before crashing then you are correct, the owner will escape with no loss.

Most of these 35/5 owners will quote “I don’t want to throw away money renting” when asked why they bought. They bought as investments, yet they are maxed out on TDS/GDS and paying far more than renting. They are now throwing more money away than renting.

A 35-year am is renting money. There is no equity accumulation, and yet the homeowner is now responsible for property taxes, insurance and maintenance costs and debt, after forking out land transfer tax and CMHC premium. The slaughter of the innocents. — Garth

#92 Popeye on 11.27.09 at 12:30 pm

#68 CalgaryRocks on 11.27.09 at 10:23 am
———————————————-
Have you ever stopped to think that perhaps they have a higher proportion of children due to certain provinicial policies to stimulate population growth (and children do not pay tax), as well as a higher percentage of unemployed people?

#93 $fromA$ia ( o Y o ) on 11.27.09 at 12:32 pm

I think this blog needs a lift, we doing need to go as far as Jerry Springer but the old RE topic is down right overdone. Perhaps economic 101 or…

Garth, you might want to post another sexy realtor thread.

Hubba Hubba. :)

#94 Men With Hats on 11.27.09 at 12:42 pm

And now another thirteen percent tax bite on top of all the other fees .
Good luck in the work house .

#95 rory on 11.27.09 at 12:47 pm

#78 CalgaryRocks …a link for you on the 40%.

“Data for 2003, the most recent available, show 5.7 million Quebecers filed tax returns. Of those, only 3.37 million, or 59 per cent, actually paid income tax. Quebecers earning under $28,089, 60 per cent of filers, had 26 per cent of the revenue, but paid less than 7.3 per cent of income tax.”

Translation – 40% of Quebecers paid no income tax.

Am not saying what is right or wrong …being poor bites but one cannot continue to bite the hand that feeds it …gov’ts need to face the new realities of the world …IMO.

http://www.canada.com/montrealgazette/news/editorial/story.html?id=85da8137-de3d-4a04-8ca3-2b5572641da7

How does this compare with Albertans? Please factor in that Quebec residents pay HST while Albertans pay no provincial sales tax to support their newly deficit-plagued government. — Garth

#96 Evangeline on 11.27.09 at 12:51 pm

Garth

I didn’t do the maths so I don’t know if the 40% is accurate, but I beleive this Revenue Canada table for 2006 has all the raw data needed to make the calculation.

http://www.cra-arc.gc.ca/gncy/stts/gb06/pst/fnl/html/tbl1-eng.html

#97 Jeff Smith on 11.27.09 at 12:57 pm

Looks like another former real estate boom economy has gotten into trouble.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_YL7Wbn6RL8&pos=2

#98 Evangeline on 11.27.09 at 12:57 pm

#94 rory

((#78 CalgaryRocks …a link for you on the 40%.

“Data for 2003, the most recent available, show 5.7 million Quebecers filed tax returns. Of those, only 3.37 million, or 59 per cent, actually paid income tax. Quebecers earning under $28,089, 60 per cent of filers, had 26 per cent of the revenue, but paid less than 7.3 per cent of income tax.”))

there is data for 2006 at this Revenue Canada link, if you want to do the maths

http://www.cra-arc.gc.ca/gncy/stts/gb06/pst/fnl/html/tbl1-eng.html

#99 Gregor Samsa on 11.27.09 at 12:58 pm

#72 David in Calgary – great post. Thanks for reminding me that normal people DO live in Calgary. All I ever come across are the pretentious douchebags, scrambling and crawling all over each other in an empty race to get ahead.

A family member from out of town visited me here made recently and made an interesting comment that “the people here seem so unhappy!” I’d never thought of it that way, but I think there is some truth to it.

#100 Reasonfirst on 11.27.09 at 1:02 pm

#14 HP

Correct me if I am wrong but didn’t this extreme measure happen until after the bubble popped in the states and still hasn’t stopped the downward trend?

#101 PeckedToDeathByDucks on 11.27.09 at 1:22 pm

ING’s paper airplane did not have a soft landing today dropping 19.78%. They needed money quickly and offered up their shares at a huge discount. Lloyds offered a 39% discount and Societe General 27% last month. Dubai only underscores that speculative money is tight…not surprising if treasuries are being snapped up at negative interest rates.

#102 CalgaryRocks on 11.27.09 at 1:24 pm

Have you ever stopped to think that perhaps they have a higher proportion of children due to certain provinicial policies to stimulate population growth

No because I was raised in Quebec and my parents always paid income tax.

Besides, perhaps having someone else’s taxes pay for your kids’ education and healthcare is not such a good thing either.

#103 CalgaryRocks on 11.27.09 at 1:27 pm

How does this compare with Albertans? Please factor in that Quebec residents pay HST while Albertans pay no provincial sales tax to support their newly deficit-plagued government. — Garth

Newly deficit being the key word. Btw, how much does Alberta contribute to equalization per household. Research that Mr Turner. How much does Quebec contribute?

The country is not run on numbers, cowboy. If it were, you’d flex your muscles and send only Conservative MPs to Ottawa. Oh wait… — Garth

#104 Brian in Victoria on 11.27.09 at 1:28 pm

Garth, you really should update your chart and include the CMHC fee of 2.9% which must be purchased with a 5% down mortgage. Normally this gets added to the principle so you start with only 2.1% equity.

http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm

I was being kind, trying not to scare the kids. — Garth

#105 PeckedToDeathByDucks on 11.27.09 at 1:35 pm

Extensive Financial Analysis:

The TSX is high on POT.
:-) going forward ;-)

#106 kansai_92 on 11.27.09 at 1:50 pm

People also forget that market psychology is more powerful than fundamentals.
Once people get it in their heads that no money to be made in real estate, they will flock to the next shiny object.
That will have a negative re-inforcing effect on the entire market.

In 2008, when things started to unravel, it took an improvement in affordability of over 30% (combination of low rates and falling prices) to reverse the trend.

The smart money has already exited the market.
Remaining speculators should feel fortunate that they’ve been blessed with second window to sell near the top.

#107 Crikey on 11.27.09 at 1:55 pm

In Eric Sprott’s November 2009 Newsletter, there are some interesting tidbits about the possible state of Canada’s big 5 banks. I’ll direct your attention to pages 3 and 4 of this document:

http://bit.ly/4Q20YD

My apologies for the length of the excerpts:

“Looking at the Canadian system more closely, all five Canadian banks are levered at an average of 31:1, which is actually the lowest leverage ratio during the three years that we reviewed. This implies that if the Canadian banks’ tangible assets were to drop by 3%, their tangible common equity would effectively be wiped out. Now, that doesn’t mean they would go bankrupt per se, but it does give us an indication of how little asset prices would have to decline in order to wipe out their tangible common equity. These leverage ratios worry us because they leave such a razor thin margin for error on the ‘tangible asset’ side of the leverage equation.”

“Acknowledging the leverage levels above, you may wonder how the Canadian banks escaped the 2008 meltdown unscathed. The answer is that they received significant assistance from the Canadian government. First, they received $65 billion in liquidity injections from the Insured Mortgage Purchase Program (IMPP), whereby Canada Mortgage and Housing (CMHC) purchased insured mortgages from Canadian banks to provide additional liquidity on the asset side of their balance sheets.
Next, the Bank of Canada provided them with an additional $45 billion in temporary liquidity facilities. Finally, a Canadian Bank (that shall remain nameless) also received assistance from the Canada Pension Plan (CPP) through the purchase of $4 billion in mortgages prior to the IMPP program, for a total government expenditure of $114 billion.
For reference, the entire tangible common equity of the Canadian Banks in 2008 was $68 billion. Can you put two and two together? The Canadian government injected a sum through mortgage purchases worth more than the entire tangible common equity of the Canadian banking system! On top of that, the Bank of Canada provided more than 50% of the tangible common equity of the system in emergency liquidity facilities. “

#108 Kash is King on 11.27.09 at 2:00 pm

#61 pbrasseur, actually Canadian banks are better than some US ones.
They recently spent @ $1billion becoming Basel II compliant,
http://www.banktech.com/news/showArticle.jhtml?articleID=204803666
as part of a requirement in an apparent new financial system for the world.

Everyone is alledgedly on board and set-up, except for a few non-compliant countries, and some of the large notorious US banks.
Part of Basel II means no “off-balance sheet” books. Everything gets exposed…. good or bad, with the goal being honest banking. Yes, honest banking.

If or when the new system kicks in, the non-compliant banks will not be able to trade with the rest of the world and will be snuffed.

#109 rory on 11.27.09 at 2:06 pm

GT you frothily said from my #94 post:

“How does this compare with Albertans? Please factor in that Quebec residents pay HST while Albertans pay no provincial sales tax to support their newly deficit-plagued government. — Garth”

Let us say it is the same or higher. It does not matter as the HST or PST is not a deduction on your federal taxes so the 40% that pay no income tax just have none or very little income.

And yes it is hard to compare taxes. In Quebec’s case it could be because of more people staying home to manage families (1 income families) or it could be a smoke and mirrors game to garner more federal money or they are just poor. I no not.

What it is is a fact pure and simple…the whole basis for the start of my post was education to show the people that the lowest 50% pay less than 5% of all personal income taxes in this country and a lot pay 0% …so the rich are not all bad …as stated previously this limits a gov’ts ability to continue to tax higher … the rich will just move…all one has to do is look at SOME of the richest Canadians and their off shoring practices.

PS – Better to be a newly deficit-plagued government then an old deficit-plagued government.

#110 rory on 11.27.09 at 2:15 pm

GT you said: “The country is not run on numbers, cowboy. If it were, you’d flex your muscles and send only Conservative MPs to Ottawa. Oh wait… — Garth”

Maybe forgetting the numbers is part of the problem.

Also agree that not everything can be taken be purely based on the math. Again, a balance is needed. Many perceive the balance is off…me included.

#111 Elle on 11.27.09 at 2:28 pm

Garth,

Caught your interview on Bill Goods show just now,
Wow…..feel kind of proud ………..you really knocked your points right across home base!

Great job!

elle

#112 AlienVoice on 11.27.09 at 2:28 pm

Here is a fantastic 2 hour film on the Fed, Bernanke, Al Gore, Obama, World Government etc.

All questions answered:

http://articles.mercola.com/sites/articles/archive/2009/11/26/How-Trillions-of-Dollars-Were-Stolen-From-US-Taxpayers.aspx

#113 nonplused on 11.27.09 at 2:35 pm

Ha ha, US home buyer tax credit bankrupting FHA:

http://online.wsj.com/article/SB10001424052748704335904574497692260915588.html?mod=googlenews_wsj

That couldn’t happen here too could it? The tax credit actually is the downpayment for some of these people, so it’s still zero down to buy with government financing in the US. You’d think they’d learn. Guess not!

#114 Popeye on 11.27.09 at 2:53 pm

After it takes 35 years and $800,000 to pay off my $275,000 house I will come back to this website and gloat.

#115 Calgary_rip_off on 11.27.09 at 3:02 pm

#20 Rory: Thank you for your post. Of course the rich pay their fair share of taxes. This is Canada! The rich didnt get that way by being irresponsible and not helping others out. #108 post: Of course the rich pay more in taxes. This is Canada, there are alternatives, like Monaco. The person who has more is responsible to help more. That’s a law of civilization. So what exactly is your point? That Alberta should secede or that the rich shouldnt pay taxes? Tax evasion is a good thing? Not sure if you get jail time for that here, in the USA you would.

#72 David in Calgary: Yes people in Calgary actually think their $180K houses are worth $400K. Totally arrogant and ridiculous. People are stressed here because even middle class are struggling. What’s up with the fact that a person earning $100K a year cannot even afford to buy a decent normal house? Yes, ownership is not a right, but still wtf??

May I kindly suggest that all the right wingers on here move to Texas and vote Republican? You have no business in living in a socialized country. If you are anti social and want to whine and complain about taxes, then leave. Very simple. Go marry an American, and stop complaining. Good luck, I grew up in the USA and its a very bad place. You are entitled to it, and good riddance. You would be in a bit of a culture shock when you may find that what you thought you wanted wasnt what you wanted. Be careful what you wish for. It may end up like the current mess the world and Canada is in.

“Every month it is a drain on wealth, cash flow and manhood (hey, it’s a guy thing).” Hey Garth, how does home ownership have anything to do with manhood? Last time I checked there is no correlation, judging by what the home owners on this blog think. A house is simply a dwelling that you live in. And actually, if the city wants to widen the road in many cases, educate me if I am wrong, they can do it and deal with the homeowner rather forcefully in order to get the job done. So even if you own the house you cannot do just whatever you want on the property to the ultimate limit. Sure there is a drain on wealth and cash flow but thats all.

#116 Popeye on 11.27.09 at 3:09 pm

As a wise old judge once said, “I don’t mind paying taxes. It buys me civilization”.

#117 JFoo on 11.27.09 at 3:16 pm

I’m just waiting till the government starts to pay me a bunch of money to dive into real estate.

#118 CalgaryRocks on 11.27.09 at 3:16 pm

May I kindly suggest that all the right wingers on here move to Texas and vote Republican? You have no business in living in a socialized country.

That was my suggestion to you. Move to a socialized province and help the poor with your taxes. I think that you’re a typical left wing hypocrite though so you’ll never do it.

By your own admission, your landlord is an uneducated boob and therefore you shouldn’t even have to pay him rent, in your perfect world. If you were a real socialist, you would give him something extra every month to help him out because he’s so stuuuuupid.

#119 jimmy on 11.27.09 at 3:25 pm

Housing bubble, record debt, rising unemployment. It’s time to consolidate people, pull back a bit, count your baskets and your eggs. Alas, the masses stick their neck out for an overpriced shelter being flogged as an investment, and you can diversify by buying two.

These same people no doubt call Goldman Sachs and Canwest Global greedy bastards. Oh the irony.

http://www.cbc.ca/money/story/2009/11/27/federal-deficit-adds-five-billion.html

#120 crs on 11.27.09 at 3:49 pm

Northeast Canuck: On the subject of Vancouver development. Vancouver city council is currently scrambling to make up for the projected loss of 10-12 million due to an almost 50% decline in building permit and inspection fee revenues. Together with the cost of the olympics Vancouver can expect significant property tax increases and significant park and community centre closures. It has already begun with 160 jobs being cut from the libraries and parks board, the conservatory and the petting zoo being the first low hanging fruit to jettison.

I imagine loss of building permit revenue and increased property taxes will play a part in the downward spiral to come.

#121 Vince on 11.27.09 at 3:49 pm

Here’s another bubble housing sale. Check out this listing:

http://www.kevinmccarthy.ca/recentlysold.php?propid=61

Ask: $589,000
Sold: $653,500 (11% above asking)

I personally had a look at this house when it was listed last week. Among the problems: obvious subsidence, knob-and-tube wiring throughout, strong likelihood of foundation problems with a report done already, and a basement that will need to be dug out for $50,000 if it is to be of any use at all. It looks as though the house was never once updated in 60 years.

My friend estimated the necessary repairs at $200,000. With the foundation problem, you might even need to tear the house down and start over. The lot was really narrow as well (25 feet) so you are really limited in the size of house you can put in.

There must have been a bidding war. So now the “winner” gets to pay over $3700/month, assuming a downpayment of 20% before putting another $200,000 into the house to update it.

I live down the street and rent two floors of an updated house for $1650/mth inclusive of heat, electricity, cable tv, and internet. Splitting that with my girlfriend we have plenty of money to invest or save for a downpayment when two-storey house prices crash when boomers become seniors , and we currently have none of the worries of the black hole of property taxes, maintenance fees, etc.

We really are in a horrible bubble — one that will likely burst as soon as the HST hits. Why do people keep selling with listing agents? Why don’t they just use forsalebyowner.com or something similar. Do yourself a big favour and save yourself the 3-5% commission.

If you want to post the house and area without the specific details, I think this would make a good mania post.

Cheers,
Vince

#122 Emma on 11.27.09 at 4:00 pm

Personal bankruptcy wipes out most unsecured debts but not secured debts (those tied to tangible assets like house/car).

If you want to stay in the house and the payments are up to date then bankruptcy could help those with no equity (or negative equity) but you’d continue to make payments – it’s not an avenue to a free house!

For those with equity, the equity is used to settle your other debts – but if you can come up with the $ amount of the equity (from family??) you can also stay in the house. Since presumably, the family has already been involved it looks like it’s the people with equity that are most likely to get screwed and therefore not benefit from a filing.

And as Bogdan stated – If you don’t want to stay in the house and you don’t want to be on the hook for the difference (Jeff), you need to unsecure the debt before you file for bankruptcy (ie. Default payments and allow repossession). For example, in Ontario, a power of sale may leave you with bills but since you no longer have the asset the debt would be discharged during bankruptcy.

http://tinyurl.com/yjtjt7k

#123 David on 11.27.09 at 4:05 pm

http://www.harrisinteractive.com/harris_poll/index.asp?PID=685&ref=patrick.net

Realtors Dead Last In Prestigue in US Polls

#124 Reasonfirst on 11.27.09 at 4:20 pm

About continuing to lengthen ams creating an illusion of affordability while maintaning or pushing prices higher – isn’t the long run effect of if this is that:

– equity will be built-up at a slower rate
– the gap between new debt added and debt paid off will grow

resulting in:

– all those young ‘uns who bought a condo won’t be able to upgrade when they have kids
– increasing overall mortgage debt levels

resulting in:

– less money for families to spend on other things pushing the economy down
– lower demand in the long run

resulting in:

– long run downward pressure on prices.

No wealth creation…just robbing the present to pay for the future.

#125 Reasonfirst on 11.27.09 at 4:22 pm

Sorry, I meant “robbing the future to pay for the present”

#126 Daystar on 11.27.09 at 4:46 pm

#4 Northeast Canuck on 11.26.09 at 8:55 pm

http://www.cbc.ca/money/story/2009/11/27/federal-deficit-adds-five-billion.html

We have a government that doesn’t know what its doing. They implimented tax cuts on the eve of a recession that have forced our nation to borrow like there’s no tomarrow. The Cons are leading us down the path of a currency crisis in an attempt to buy Canada’s votes for fleeting power.

They simply have no clue, as evidenced by the sheer size of their deficit spending. I’m hoping the electorate has a clue, but I’m doubtful and see Canadians learning hard lessons the hard way for a long time to come as a result. Look at the numbers buying homes with bloated bubbly values that can’t last and then remind yourselves that they also vote!

Lots of fools to be found when this is all over.

#127 john m on 11.27.09 at 5:05 pm

Federal deficit grew $5B in September

Ottawa added another $5 billion to its 2009-10 budget deficit in September, the Finance Department reported Friday.

Spending has outpaced revenue for the fiscal year that started in April by $28.6 billion.

That means the government is on track to meet Finance Minister Jim Flaherty’s latest prediction that the deficit will reach $56.2-billion for the full fiscal year.

That would be the biggest deficit in the country’s history.

The economic downturn had led the government to spend to stimulate the economy but it has also cut Ottawa’s revenues by $14.2 billion, or more than 12 per cent, reflecting a drop in personal and corporate income taxes and GST payments.

Corporate taxes were down almost 40 per cent, or $6.3 billion, in the first six months. Individual tax revenue dropped 7.5 per cent, or $4.2 billion, reflecting both tax cuts in the January budget and fewer people working.

GST revenue falls 17.9%

Canadians also paid $2.5 billion, or 17.9 per cent, less in GST than in the same period last year.

Stimulus programs such as cuts to income taxes, increased employment insurance payouts and the auto bailout cost Ottawa $11 billion up to the end of September.

Total spending by the government is up $16.3 billion, or 16.5 per cent, over the first half of the fiscal year, with EI payments to newly unemployed workers jumping 50 per cent, or $3.5 billion.

(With files from The Canadian Press) ……….hmmmmmmm things don’t sound too rosey to me…some pretty shocking numbers in a country in the midst of a real estate boom…………considering it took them till the end of november to release the figures for september certainly doesn’t give this reader much confidence in the future…………the day of reckoning is fast approaching IMO

#128 atrax on 11.27.09 at 6:03 pm

Rule 48!!

Bad News!!!!

http://www.nyse.com/equities/nyseequities/Today_Alerts_New.shtml

#129 robert on 11.27.09 at 6:24 pm

How do ‘years of slow growth’ (that is what you are saying right?) = rising interest rates?

In my book no wage/employment growth = no real inflation = no interest rate growth (at least of consequence to anyone other than the idiots rushing into the 35 and 40 amorts). I have no intention or expectation of suffering or paying in any way shape or form for that lunacy.

#130 $fromA$ia ( o Y o ) on 11.27.09 at 6:31 pm

“The slaughter of the innocents.” — Garth

And who was the elected moron that designed the slaughter of the innocents?

C’mon don’t leave all that hard work for me…

#131 My_view on 11.27.09 at 6:49 pm

“if the city wants to widen the road in many cases, educate me if I am wrong, they can do it and deal with the homeowner rather forcefully in order to get the job done. So even if you own the house you cannot do just whatever you want on the property to the ultimate limit.”

LMAO, you are way too funny.

#132 jess on 11.27.09 at 6:51 pm

apples to apples

“Hoover persuaded local and state governments to sharply increase public works spending. However, the practical effect was to exhaust state and local financial reserves, which led government by 1933 to slash unemployment relief programs and to impose sales taxes to cover their deficits.

Hoover quickly developed a reputation as uncaring. He cut unemployment figures that reached his desk, eliminating those he thought were only temporarily jobless and not seriously looking for work. In June 1930 a delegation came to see him to request a federal public works program. Hoover responded to them by saying: “Gentlemen, you have come sixty days too late. The Depression is over.” He insisted that “nobody is actually starving” and that “the hoboes…are better fed than they have ever been.” He claimed that the vendors selling apples on street corners had “left their jobs for the more profitable one of selling apples.”

By 1932 comedians told the story of Hoover asking the treasury secretary for a nickel so he could call a friend. Mellon replies, “Here, take a dime and call all your friends.”

http://www.digitalhistory.uh.edu/database/article_display.cfm?HHID=466

Mintz, S. (2007). Hypertext History: Our Online American History Textbook Retrieved November 27, 2009 from http://www.digitalhistory.uh.edu

#133 Boombust on 11.27.09 at 6:52 pm

“If those who embrace minimal down payments and don’t fear price corrections don’t get it now, they never will.” -Gord in Vancouver

I think you’re right. They never will.

#134 Boombust on 11.27.09 at 7:03 pm

“10:30 – 11:00
GARTH TURNER, FORMER MP, AUTHOR “AFTER THE CRASH, HOW TO GUARD YOUR MONEY DURING TURBULENT TIMES”

TONY IOANNOU, REAL ESTATE AGENT, DEXTER ASSOCIATES REALTY AND AUTHOR- BUYING AND SELLING A HOME FOR DUMMIES

Re: The local real estate market is booming once again after a tough few months last winter/spring…are we about to see another bubble burst?”

Dammit! Missed it! Hope you were in full attack mode and stuck it to ’em on CKNW/Vancouver this morning.

I’m surprised you were actually on. That station has, shall we say, revealed a “bias”…

#135 Terry on 11.27.09 at 7:31 pm

OK Guys …

Somalia = No Taxation at All

Scandinavia = High Taxation … All others are in between

Which countries always rank as the most transparent and least corrupt, are the safest and best places to live in the world?

How will you convince me of the myth?

#136 Wondering on 11.27.09 at 7:44 pm

Hi Garth,

I’ve been following your site for about the last month or so and I enjoy reading your blogs and the reader’s responses. My only regret is that I didn’t discover your blog earlier.

I live in Ottawa and I have been considering a 5/35 mortgage, or a 5/30 mortgage. I can’t really come up with more than 5% at the moment because I’m a new dad (2 year old son)and just put my spouse through college for nursing which she just graduated from. She’ll be writing the Registered Practical Nursing (RPN) exam in January for her license. Meanwhile, she is working as a PSW (Personal Suppost Worker) which pays about $8/hr less than a RPN.

Our childcare is about 40% of the wage she earns per week; 471$ take home pay, $200 childcare. I make about $70,000/yr.

All the worlds a buzz about owning a home, but I’m hesitating to buy after reading all your blogs and reader’s comments.

Would it be better if I continue to rent for a bit for about $1200/mth which includes all the utilities, or should I get out there and buy a home in the Ottawa area for a home in the $350,000 price range?

Do you have any money? — Garth

#137 Peter on 11.27.09 at 7:45 pm

Ummm…

Weren’t you advising people to unload their houses and rent several months ago? That means they would have lost, potentially, several thousand in higher prices for their shack, spent thousands of dollars in rent and, quite possibly, now not qualify to buy the house they owned back then?

Selling out just before prices head skyward doesn’t look like a good strategy.

This site is for entertainment purposes only. Thanks for adding to it. — Garth

#138 Nostradamus Le Mad Vlad on 11.27.09 at 7:54 pm

#116 JFoo — Excellent idea! If they (govt.) want to pay me an exorbitant amount for nothing, that’s fine as well!
——
What goes up (see chart) must come down.
——
And now . . . CBC Sucks! “CBC ignored the original story for seven days, but when the Global Warming Hoaxers want a forum to defend themselves, CBC is right at the front of the line!” (Comment from wrh.com).

Note the following sentence — Hoax / Depopulation (This page contains quotes supporting depopulation and devolution of society.)

Climategate explained.
——
The links I posted earlier seem to have been read by someone other than bloggers here! — Coup
——
ClimateGate, Watergate, H1N1Gate — the are all one and the same, designed to bankrupt us all! — Funny Munny
——
More codder for the fannon (something like that). Comment by wrh.com.

“Why would Iran do something like that?

“Of course, Iran wouldn’t. Iran has no desire to be invaded and conquered., but of course vested financial and political interests want war with Iran and indeed ultimately war with all Islamic countries.

“Why? Well, look at the Climategate scandal and its links to the push for a global government.

“A global government will require a global bank. But there are TWO different banking systems in use in the world. There is the western system of compound interest, and there is the Islamic system of repayment-plus-flat-fee.

“Therefore, at some point along the path to a one-world government, the nations under the control of the private banks will have to declare war on and destroy any and all nations using the Islamic system.

“… which is why we are being fed this manure about Iran hiding nuclear bombs on cargo ships to attack Europe. This is just a repackage of Phony Tony’s claim that Iraq was just 45 minutes away from attacking Europe.

“Fool me once …”
***
Turns out that dubya and phoney anthony had already conspired to have a “regime change” in Iraq a few months after dubya stole the first election. Oh well, shit happens!

#139 Dan in Victoria on 11.27.09 at 8:05 pm

Post #128 Robert, Its supply and demand for borrowed money, eg government deficit spending. Here and everywhere else in the world. Plain and simple.
Unfortunately we are all going to suffer and pay for this in the form of higher taxes and service cuts in the future. The bill eventually comes due, (hey lets kick it to the next generation!)
Also, don’t forget we are on the hook for CMHC.

#140 Schroedinger's Bull on 11.27.09 at 9:02 pm

I’ll tell you what: I think it’s highly unlikely that the CMHC would insure longer ams (40, 45, 50 yr) at this point…but if they did, I would buy the first 10 houses I could find, because this would cause home prices to skyrocket…just like the reduction from 40 year to 35 year ams excluded buyers and contributed (in part) to the correction from Oct 08 to Spring 09.

In fact, I think it’s fairly obvious that a great deal of the correction we saw earlier in the year was due in large part to the short-lived contraction in mortgage credit (i.e. lenders actually sticking to 5% 35 year for a few months. That has since changed, and you can, once again, purchase a house with effectively zero down.)

On the other hand, the best way for the CMHC to deal with the inevitable shortfall when variable and fixed rates actually start rising again next year is to start restricting the mortgages that they’ll insure, which means say goodbye to insured 35 year ams…and that all by itself will contribute to another minor correction. I think the confluence of reduction in insured amortization terms, higher variable and higher fixed interest rates will result in a fairly quick correction, entirely because it removes the entire moral hazard crowd from the demand side of the equation…but I also think that these factors won’t coincide for another 1.5 to 2 years.

In the meantime, I suggest that house prices will either rise slowly, or remain basically stagnant. I base this on the past year, which the various real estate associations have been pumping ad nauseum, but which, in Calgary for instance, only moved the Avg house price by $8,000 compared to last year at the same time…which, on a 35 year mortgage, has very little effect on payments. (and I dare anybody with a 35 year mortgage to start yelling about the interest that I’d pay on that 8,000…you wouldn’t have a 35 year am if you’d thought about that).

In short, I’m glad I waited, because nothing’s changed for me from last year as a prospective buyer, except that builders are offering all sorts of incentives, which are only likely to get better as time goes on. My rent is going down, not up, so that’s nice. Meanwhile I’ve paid off scads of debt (even better than saving the difference, if you have debt to retire), and I’m on track to be completely debt free (no student loans, no car loan, no credit cards, nothing) at roughly the same time as I expect the aforementioned factors to meet in a bubble-melting reaction like we saw in the U.S. in 2007-2008.

Which means I’ll be buying 10 houses anyways…and renting them out…don’t worry, I’ll accept you if you’re bankrupt…though you’ll have to give me a higher security deposit.

#141 Coho on 11.27.09 at 9:21 pm

Calgary Rocks #86,

To Harper’s credit he has, so far, kept us out of the global warming scam.

I have a hunch that’ll change after next months G20 on climate change in Copenhagen. He’ll, like everyoneelse will be told to fall in line.

Not that we shouldn’t help the environment, which he has done, but transfering trillions to 3rd world dictators is not the way to go.

The money generated will fund the NWO under a One World Government.

This will not end well for the sheeple.

#142 Taxpayer like you on 11.27.09 at 9:43 pm

[email protected]

“Through no doing of their own, their equity increases ”

So somebody else paid my mortgage?

[email protected]

Big thank you for the link. I get lost for hours in the stascan site.

Rory – did you have “USA sucks” in CROs list?

CRO – A lot of bloggers here own their homes, so
give it up. Your dumb landlord was smart enough to buy
when it was cheap. You missed the boat. Accept it. Live with it. There should be another boat sometime, just cant say exactly when.

#143 disconnect on 11.27.09 at 9:53 pm

Here are some links wrt how many paid income tax in CANADA:
http://www.cra-arc.gc.ca/gncy/stts/gb07/pst/fnl/html/tbl1-eng.html
For 2007, 16,638,470 paid taxes (i.e., “Taxable returns”) and there were:
http://www.statcan.gc.ca/start-debut-eng.html
33,739,859 people in Canada, so lets say 33mil in 2007.
That gives me 16.64/33*100 = 50.4% who paid income tax, that’s 49.6% who did not (pay any).
Must be a baby boom going on (not), or it’s all those folks with assets (undeclared) overseas (maybe).

For the bell province, you should be able to use the links to figure it out.

#144 alf on 11.28.09 at 3:34 am

CRO – A lot of bloggers here own their homes, so
give it up. Your dumb landlord was smart enough to buy
when it was cheap. You missed the boat. Accept it. Live with it. There should be another boat sometime, just cant say exactly when.

I prefer the term janitor over landlord, just feels more honest.

#145 robert on 11.28.09 at 10:43 am

#138 Dan in Victoria

Who is going to lend to a government that won’t raise taxes on those who have the money (Nortel execs, creatures of Bay Street, et al) and refuses to cut boondoggle spending (eg the music video they just dropped 650K on to encourage the 18 to 24 crowd to get immunized for H1N1)? They are either going to get with the new frugality, common sense, pay as you go program or find a whole new class of stupid on another planet to borrow from.

#146 Brendo in Calgary on 11.28.09 at 4:27 pm

Hey…Loved # 139. If you own your own house now mortage free, would you sell? I am confused. During times of inflation, don’t housing prices do up dramatically? So this would increase the value of your house, and its better to hold on to it, and see a even more ridiculous increase…..?

When interest rates rise with inflation there is no ‘dramatic’ real estate gain. — Garth

#147 Dan in Victoria on 11.28.09 at 8:39 pm

Post#144 Robert,don’t shoot the messenger man. Just go sit down town at a bench in a mall, look to you right then look to your left, they are all around you. The government hasn’t had any trouble fleecing a billion a week out of ’em so far. I wish that things were diffrent, we haven’t got there yet.