rate Carney to Canada: Stop that!

“Households need to assess their ability to service these debt obligations over their entire maturity, taking into account likely changes in both income and interest rates.”

Ottawa condo
Frenzied buyers snap up Ottawa condos Monday

The obvious thesis of my new book is the global financial crisis did not end in 2009. The MSM is wrong. Politicians are deceiving. Biz leaders are self-serving. You could tell that yesterday when the BoC kept rates pat. The Big Guy is hoping consumers borrow and spend their brains out, because that’s the only plan.

But this would not be wise.

I’ve tried to spell out the dangers for some time. And I’ll continue. Every day that passes now there’s another brave soul joining me in warning interest rates will rise and people who feel clever today may feel eviscerated tomorrow (like BMO’s Michael Gregory). But this is not the only mistake being made.

Take 111 Richmond Road in Ottawa, for example.

People lined up to buy an unbuilt condo there this week. About a hundred were sold in a hour, which means folks spent on average less than 10 minutes buying a property worth hundreds of thousands. Said a local real estate broker, “We’ve never experienced — and I’ve been in the business for 27 years — such a frenzy of people wanting to buy real estate.”

This is noteworthy because it’s Ottawa. Historically stable market. Fewer crazy price increases. Levelling influence of the massive civil service. Lots of available land. Endless cheap properties across the river. And not a place where people have speculated much on real estate – unlike downtown Toronto or Vancouver.

But no more. The fact R1E1 has spread to the nation’s capital well demonstrates a dangerous thing taking place. Not just people buying stuff on spec. Not just maniacal purchasers who can only buy because of emergency rates. Not just lineups to snap up properties when the local home price is at its all-time high. But rather the fact that future demand is being brought forward now thanks to the deception, the hype, the self-dealing and the herd instinct.

This means people who might have considered buying at some point later are totally convinced they must do it now. They may know rates will rise and the economy slide, but they’ve bought the story house prices will only go up, so this is a no-lose deal.

Fine. They’ll see.

But for the rest of us, there is an economic consequence. The more government stimulus there is, the more screwed up market forces become, the longer it will take to rebalance. A bank rate at one quarter of one per cent and mortgages at 2% are having a profound effect, and not a good one. When it comes to housing, the legacy will be:

  • Houses average families won’t be able to afford for years.
  • Tens of thousands of new owners over their heads.
  • The potential for widespread financial disruption as a result.
  • Falling real estate values as supply overwhelms demand, once demand withers.
  • Less consumer spending due to increased household debt.
  • Diminished disposable income leading to lower growth and fewer jobs.

All thanks to the consequences of this government-induced bubble.


And while we’re at it, why is the National Film Board spending our tax dollars promoting a 27-year-old narcissistic realtor in Vancouver?

As part of a series on the economy, the government agency has shot, edited and posted three episodes about Keith Roy, a former restaurant manager who now dishes up listings. In one episode he helps his lawyer flip a condo for a $100,000 profit, and openly admits he uses gifts to bribe clients.

“If you’re looking to make a cool 100 grand by flipping your condo – then Keith is your go-to guy,” says the NFB’s promo for this online series.

If you’re looking to just flip, watch this. And this:


#1 TaxHaven on 12.09.09 at 9:08 pm

There ought to be a discount for those of us who can buy properties in cash.

But that would downgrade the using of credit, wouldn’t it? (wink!)

#2 shane on 12.09.09 at 9:10 pm

Vancouver the next nevada

#3 Just Wondering on 12.09.09 at 9:18 pm

My father taught me that the lowest form of life on earth was a used car salesman. He was wrong.

#4 Peter Pan on 12.09.09 at 9:25 pm

Remember, this is a good thing… You have to see that final explosion of frenzied buying before an asset bubble can truly pop… The more it seems like a sure thing, the more certain you can be we’ve reached a top.

As well, when frozen hellholes like Ottawa garner this type of speculative frenzy, you know you’re close… Very Close…

#5 OnlyTheBankersLaugh on 12.09.09 at 9:32 pm

You think you know some fundamentals of jobless rates and demand surging for many, many years on end and then the government turns everything you’ve thought to believe upside down as they figure that they can run the economy better than market forces. I would say that we could continue Japan style for a 5-10 year ride of going up a bit but ultimately coming down but it will be painfully slow. I am still not convinced a crash will happen but a slow painful unwinding.. again at 0% interest. When the horse is out of the bar, government will go to the debt wall to save themselves and people who bought into their stupid and irresponsible plan. You would have figured we would have learned something from USA but Carney alone did and thought it would work here, too, for a while. Like he cares about Canada. Criminal, not shame, Garth. Spending our stimulus government style to blow up real estate to make people feel good about their home exactly like what happened in US. Manipulation into financial ruin for LIFE for some young ones – the taxes I see in Canada are unbelievable on top of the large tax drag already. Can they destroy Canada? I don’t know but I think they’re giving it their best shot. Again, Only the bankers laugh….

#6 Cash is King on 12.09.09 at 9:38 pm

But rather the fact that future demand is being brought forward now

This sounds familiar. Like when the (no longer) Big 3 auto companies announced “lease buy backs” Lease owners with a year or less on their leased vehicles could come to the dealership and lease a brand new vehicle with the cost of the old lease wrapped up in the price of the new lease. Future buyers buying cars now instead of later.

Kinda like when home owners are buying new furnaces, air conditioners, hot tubs, garages, gazebo’s now to take advantage of the Federal tax credit and enviromental rebates. Taking future buyers out of tomorrow’s market.

Worked well for the (no longer) Big 3 and I’m sure it will work out well for economic growth in 2011.

#7 Nostradamus jr. on 12.09.09 at 9:41 pm


…One of your best “improvisationals”.

It will be used by others, no doubt.

…The NFB film is no different than an article, a book or a painting.

But, a Henry Cartier Bresson’s…”picture of the crowd who are viewing a parade” hommage>>>>an NFB film documenting Garth Turner’s view of R1E1 across Canada would be a higher art.

Nostradamus jr.

#8 DrC on 12.09.09 at 10:08 pm

Heh heh – R1E1 – love your work.
It’s a special strain of affluenza.

#9 Joseph on 12.09.09 at 10:22 pm

Maybe these folks are listening to David Dreman. David Dreman is the founder and Chairman of Dreman Value Management. Dreman has been a regular columnist for Forbes for 25 years. He claims real estate in the US will take off again in a few years because of the US Treasury’s printing of new money leading to 10-12 percent inflation. The difference with applying his advice within a Canadian context is that the US housing market has already undergone a severe correction and I do not think that Canada is devaluing its currency to the extent that the US is doing, so the similarities stop there. But he now says, in the case of the USA at least, real estate is now a safe bet and will only move upwards in value.

#10 Bill on 12.09.09 at 10:27 pm

I have a relative who is an RN and their spouse is a chef living in Calgary. Combined income about $110K/yr. Recently purchased a $400K home in Calgary with 5% down payment. 3.7% fixed rate for 5 years. Since one of them has a stable, high paying job as RN (she), they feel that they have nothing to worry about. Garth, can you or someone here please tell me what advice I should give them. Thanks.

#11 kc on 12.09.09 at 10:28 pm

This has to be repeated. Read about the great housing bubble of the 1920’s in FLA and then take all this information and by only changing the year to 2009 in a area close to you… and POOOF like magic we have close to the same set of problems.

then follow it up with this read…


#12 tjmikey on 12.09.09 at 10:31 pm

#3 Just Wondering

Yes, he was wrong…..the list of bottom feeders goes like this,

1. Lawyer
2. Banker
3. Stock Broker/Investment Adviser
4. Mortgage Broker
5. Realtor
6. Used car salesman
7. New car salesman
8. Land developer
9. Builders, home/condo/whatever
10. Construction contractors

#13 Marina on 12.09.09 at 10:46 pm

Many people put money into real estate because they expext hyperinflation coming soon; in this case many debts will be gone. Garth says that hyperinflatin would never happened, but Peter Schiff has just opposite opinion.

#14 Habs 76-79 on 12.09.09 at 10:46 pm

In the end nothing that the greed hand central bankers, their cronies, government bureaucrats and politicians can do will fix what is in reality a monetary system and a political/social/economic idealism that is set to fail. Sad thing is the ivory tower types breathe the rarefied air and become as arrogant and conceited as any of the a hole despots of days long past. The line that separates modern day greed hands and their cronies from the likes of a Hitler, Stalin and host of others in our past is there is still no clear or easy to see noticeable blood on these corrupted jerks hands.

The fiat monetary system with usury interest and the politicking used to carry on what in reality is very much a phony free market idealism can and will only end in abject failure and not even the elites will escape the bogus system they created, manipulated and brainwashed us common folks to accept as if Moses brought our global monetary and economic system down from the mountain top.

No, before the house of cards crumbles though these guys will throw everything they know and can to prop up the system they created, manipulated and know. It is in their nature and they believe their fanciful vision as if the vision was divine. So too did Adolph Hitler and Mao Tse Tung to name two on their vision of the future. The problem is 6billion others will have something to say in the end and life and the way the world works by nature always no matter what and how one looks at it tries to find or regain balance or a sense of it.

We are in the last days of the great faux-capitalistic /monetary system. We each have been brainwashed to accept as divine. We cheered as the USSR and its systyem collapsed 20 years ago. I recall talking to family,friends and others that the West’s time of reconing will come too and likely will be much bigger and harder than the lowly USSR and its faux system full of cronism and arrogance.

More of us know who won the last season of American Idol than for sake of discussion what was a significant event on just the other day Dec. 7, 68 years ago. That is the way the elites and their minions want us all to think and behave.

All we hear since the crash of 2008 is how to get consumers to borrow more money and use credit to spend, spend, spend. Mortgages are the easiest and largest way to inflate the ponsi-scheme of fiat money which is only created via debt instruments.

What will come out of the smoldering ashes of of this system’s inevitable collapse I do not know but it certainly can’t be any worse than the pain we are all going to see and feel as we live through these next days.

Keep your debts in check, keep a hold onto your wallets, keep your expectations firmly planted on the ground and keep informed about real issues if you want the pain to be less hard on you.

#15 Cassandra on 12.09.09 at 11:11 pm

The last time I looked, my lawyer, accountant and engineer friends with six-figure incomes (those same people this up-and-coming realtor is trying to woo) weren’t spending their Sunday afternoons munching popcorn and watching the NFB film-fest. So I’m guessing not a whole lot of ‘promotion’ is going on here, and we are meant to be watching the videos with a sense of irony.

If there is any irony left in Vancouver. I’m not sure about that.

Love the NFB, though!

#16 Garth Vader on 12.09.09 at 11:11 pm

I get a kick out of the pictures of the ‘frenzied buyers’ GT posts. All looking at condo layout plans and other documents with an apparent keen eye for details, like they have some clue as to what they are doing. Yet, they know and we know, they are going to buy regardless of what they are being shown on paper. Hoping to get the penthouse, they get the bottom floor for twice what they were wanting to pay in the first place. But, hey, they are now part of the Canadian home owners dream.

I heard igloos in the northern Yukon are now selling for $1M. Best get one before they are all gone…

#17 Bogdan on 12.09.09 at 11:17 pm

Those episodes are so… gay.

But for the rest of us, there is an economic consequence. The more government stimulus there is, the more screwed up market forces become, the longer it will take to rebalance. – I’m not sure I get this part. Yes, there is an economic consequence for the rest of us, but which one? By “the rest of us”, I imagine you mean “savers”. The savings are going to devalue, that’s for sure. However, I think this it’s not going to happen without some -big- opportunities first, to place the savings. Cash will be king… but not for long.

#18 West Coast on 12.09.09 at 11:33 pm

Just Wondering wrote:

“My father taught me that the lowest form of life on earth was a used car salesman. He was wrong.”

Amen! The really sad thing is how totally earnest Mr. Roy seems to be. My god what a terrifying way to live out your life.

The appearance of gravitas… but there’s nothing there except the search for the next crop $$$.

#19 T.O. Bubble Boy on 12.09.09 at 11:34 pm

Didn’t Ottawa (Nepean) have a bit of a housing crash when the tech bubble burst?

Here is the Ottawa Citizen article on that 111 Richmond Rd. line up:

“Dino Corbelli, 52, was among the buyers at 111 Richmond. He said he was going in with his 25-year-old son on the deal. He said it was a good time to help his son make an entrance into home ownership.”

Dino Corbelli, you just introduced your son into much more than home ownership… like potential bankruptcy.

#20 West Coast on 12.09.09 at 11:37 pm

Just watched the third one:

Poli-sci major, all his friends are lawyers. I’m cured – no agent for me.

#21 Phil on 12.09.09 at 11:42 pm

I currently live in Marpole, but am moving due to the high amount of unsavory characters. It is a marginally cleaned up version of Whalley!

True story: I receive a pamphlet from this Roy guy on a weekly basis, and it infuriates me. I saw him in that coffee shop in the video and was going to give him his pamplet back, but when I saw him he looked so slight and nerdy, i felt bad for him. Too bad I did not know he wants to be recognized!

#22 Grey on 12.09.09 at 11:56 pm

Garth, speaking of Realtor’s, I read this one’s blog because I actually agreed with his fresh blunt approach to the market and real estate. He’s quite candid about the lunacy of what’s going on.

But this blog entry, hit the wrong nerve. For all obvious reasons:

I really think you should take this on as an entry of your own.

#23 CalgaryBoy on 12.10.09 at 12:16 am

WoW, that’s unbelievable!

Harper has a leash on Carney…woof woof!

#24 david on 12.10.09 at 12:27 am

Those who have their doubts about anthropogenic climate change can apply the identical logic to the industrial world’s sustained nonresponse to the peaking of world oil production, or to any of half a dozen other global crises that result from the collision between an economy geared to infinite growth and the relentless limits of a finite planet. In each case, the immediate costs of doing something about the issue are so high, and so unendurable, that very few people in positions of influence are willing to stick their necks out, and those who do so can count on being shortened by a head by others who are more than willing to cash in on their folly.

#25 nonplused on 12.10.09 at 12:31 am

R1N1 – I too am amused. Is their a vaccine?

#26 Tallyman on 12.10.09 at 12:31 am

R1E1 and a steadfast refusal to seek treatment!

Not while Govt keeps supplying the placebos that keep the hamsters spinning the greed wheel.
The only way out is for people to wake up to the true value of RE and refuse to jump into the quicksand.

#27 DownbytheriverNiagara on 12.10.09 at 12:33 am

I think the tech industry coming to Ottawa made it more prone to booms and busts & even before that the early 90s hit Ottawa pretty hard. There was a public service hiring freeze for years, then the famous 40K in layoffs in 1995 (I remember all too well as I graduated university that year there!).

The same thing could easily happen again. I also have a lot of friends who live in Ottawa still who haven’t bought in the city itself because prices are way too high and they saw no point in sacrificing their financial future to save 10-20 minutes commuting to work (smart friends!).

And people lining up to buy things really does seem to be a brilliant ‘top’ indicator. BTW – GREAT call on gold!!!

#28 Soylent Green is People on 12.10.09 at 12:39 am


#29 vreaa on 12.10.09 at 1:01 am

Stories about Vancouver RE, and some around the 2010 Winter Olympics, at times get so bizarre that it can be challenging to differentiate fact from fiction.
See this:
$35,000 Olympic Rental – Hail Mary Pass? …or Excellent Prank?

#30 AxeHead on 12.10.09 at 1:16 am

Hey, what’s with Alberta? Our real estate crashed about 20% last year and hasn’t moved since (except starter homes). With the exception of some builders continuing to build, I see no buying frenzy here like this idiot in the video describes in Vancouver? What gives?

#31 Bubble 'n F(izzle on 12.10.09 at 1:18 am

“This is noteworthy because it’s Ottawa. Historically stable market. Fewer crazy price increases. Levelling influence of the massive civil service. Lots of available land. Endless cheap properties across the river. And not a place where people have speculated much on real estate – unlike downtown Toronto or Vancouver.”

Hmmm. There’s another possible explanation for this–perhaps Garth is wrong about Ottawans suffering collective insanity, and RE is genuinely booming!

#32 Emma on 12.10.09 at 1:36 am

#6 Cash is King – good point!

The fact is most people can’t or won’t do the math. Take the reno tax credit for example: Sure, it’s a great rebate for those who are have the cash and were planning to reno this (or next) year anyway but I know a lot of people have stretched themselves in order to ‘cash in’ on the credit and ‘build equity’.

So you borrow 10K to do your renos and you pay $400 that year to borrow (assuming 4%) – you get the full rebate ($1350) and apply it to your loan – leaving $9050. In just one year, interest will have eaten 30% of your credit. If you carry it any longer, you’re an idiot. Well, maybe my point is that if you borrow any part of it, you’re an idiot.

And what has the credit (and the recent RE boom) done to prices? My mother in law got a quote for an 8′ x 10′ single storey extension to her kitchen….120K – or $1500 per sq. ft – ridiculous! I am also a firm believer that auto prices are only as high as they are because financing is in place. That’s what got us started with the distorted perspective of ‘monthly payment’ vs total cost.

It seems obvious that the economy will suffer greatly from burning up future demand today. Especially since people are spending money they don’t have today rather than money they ‘might’ have in the future. We treat our possessions like Kleenex and there is no pride of ownership anymore – only arrogance because we are a nation of renters who think they are owners.

I would love to see a return to a cash-based society – but there’s gonna be a lot of pain before we get there!

#33 Chaostrology on 12.10.09 at 1:38 am

What’s he bribing them with?


ha ha ha ha ha, hee hee hee hee

#34 truegrit on 12.10.09 at 1:41 am

Say what we like about realtors, but that “kid” realtor looks like he is providing a very high level of service to his clients. He’s running a “long game” career plan from the looks of it.

#35 Emma on 12.10.09 at 2:17 am

There’s just too much fodder in this article for me to fully comment….“Lower mortgage rates spur housing sector recovery”

But my favourite quote was from yet another brainiac chief economist, “A positive shift in popular sentiment with regards to income level sustainability and job security helps explain the increased spending and overall health of the housing sector”.

Who, what, where, how and why?

Oh right, this must be related to November’s 0.1% drop in the unemployment rate!

#36 jmcanuck on 12.10.09 at 5:01 am

I swear I heard Mr. Go To Guy Keith say “large ONE bedroom house” for a cool $1.3-1.4 million. Well shoot sign me up! I’ll just have to sleep in the same room as my hockey gear. Hope my wife doesn’t mind. Nah, I think I’ll keep renting my TWO bedroom ocean view apartment for a tiny fraction of that cost. At least that way I don’t have to smell my stinky hockey gear and I have plenty of cash left over at the end of the month to put into that unheard of thing called SAVINGS…you know in case I lose my job or have to retire or buy a house one day with more that 5% down. Life is better without dept anyways. Way less to worry about. Fortunately some of us have been vaccinated against the dreaded “R1E1” so we won’t be buying an as yet not built condo in less than 10 minutes. Garth is the vaccine.

#37 Oakville Owner on 12.10.09 at 5:12 am

I like the sound of Japan style deflation (over a pop). The key is to have got into the market at the right time and bought in a good location. At this rate the McMansion will be paid for in 10yrs and will have saved big $$$ in interest. Sure the value may drop but, it will be paid for and I will still have another 40 plus years of not having to worry about paying rent or a mortgage. Feel sorry for my old neighbour. Townhouse’s were built in late 80’s and he had rented it since day one. Smart move to start but he should have considered buying at some point. We moved in next door in 2003-$210 000. Sold in Sept 2008- $376 000 at the worst part of dip. He was not to happy when he realized that he should have bought the place back in the mid to late 90’s and saved himself from paying rent for the rest of his life. Sometimes you have to educate yourself and take a chance.

P.S. If your new to the game, take your chance after July 1 2010.

#38 Genghis on 12.10.09 at 6:46 am

Note: I accidentally posted this to Tuesday’s blog. I re-submit it here.

I live in suburban Ottawa, about 20km from the core. The house next to mine went up for sale a couple of weeks ago.

I went and checked the MLS listing on the Friday (the day it went up for sale). I was astounded to see the asking price, nearly 15% higher than the previous record (for end-unit row house, all the same size). This for a house in so-so condition (30 years old with original furnace, doors, a broken driveway, fence about to fall down, dented siding, etc.).

In the MLS listing there was a little note stating that offers would be presented on Monday evening. Yes, multiple offers expected within a couple of days, despite a sky-high asking price and a property in need of significant upgrades.

As it turned out, the place was sold by Tuesday, as the realtor so confidently predicted. The frenzy over that week-end was surreal. I have never seen anything like it. Presumably it went for the asking price, or even higher (I will know in a few months).

What I find astounding is that there are not more people like you out there, Garth, sounding the alarm bells. The numbers voicing some concern is growing (slowly), however most still seem to view this nuttiness as perfectly normal, in fact, as a good thing. It just blows my mind.

#39 theshaj on 12.10.09 at 8:18 am

Keith is such a f*ckin’ twerp who clearly has been to his share of motivational weekends. I’d like to think he’ll crash and burn along with the 1.5 million dollar house in Marpole but he’ll likely be making way more than he is worth for years.

#40 Nostradamus jr. on 12.10.09 at 8:34 am

“”Jim Rogers: I’m Loading Up On Dollars,””

…Another follower adhering to my prediction.

After the U.S. bankrupts the world…gold being sold for food by China/India…the U.S. Dollar will remain the world’s currency.

Nostradamus jr.

#41 David Bakody on 12.10.09 at 8:56 am

R1E1 …… is there a vaccine? will hockey players and politicians get it first? as for the Ottawa crew perhaps they are aware of some future plan for all taxpayers to pay for their stupid adventure.

Sometimes ( more often than many know) governments cause problems or let them happen and jump in to solve them at taxpayers expense to look good. Ladies and gentlemen: Harper/Flaherty/Carney must know what is really going on around the world wrt finances and R1E1.

#42 Nick on 12.10.09 at 9:10 am

Wow! You should really watch this video about China’s empty city. All built to try and maintain 8% GDP growth rate.

#43 Zero_Down on 12.10.09 at 9:11 am

R1E1 and vice-versa: ER!! Blaaahh! You don’t like it!

#44 calgary kid on 12.10.09 at 9:20 am

Lots of anecdotal information here and armchair economists. Not a bad thing, some good advice (5/35/variable scary for first timers) but should also be taken with a grain of salt.

Prices are at top, but maybe they aren’t. Mortgage rates will spike soon, but maybe only going back to levels we saw throughout the 90s

This blog has caused me to reflect a bit on when I was buying my first house in 1991. Motivation: 2 babies, yard, garage for car and tools, fed up with crappy apartments with smelly hallways and noisy neighbors.

Financials: In Ottawa, 170K for a nice newer home in the burbs, Interest rates around 12% as I recall. Fear things could spike back up to 18%. Min down (10% I think with a personal loan from my parents). Huge mortgage at about 4x gross annual income. Locked into a 5 yr term. Scary yes. Was I a greater fool that bought the place for too much? Probably. I recall reading Garth’s yearly paperbacks at the time for financial advice (thanks).

Same house today around 400K 20 years on. Not a huge price appreciation over that time. From what young professionals are making where I work – maybe 80K – a big mortgage could be 5x gross income which is a bit higher. But 5 yr interest rates below 5 %. If I was a first timer I would sure as hell jump in now on a fixed term and pay it down hard as I could.

Outcome: glad we entered the market. Mortgage paid off some time ago, saving for retirement, worried about that now.

Best to all

#45 Grantmi on 12.10.09 at 9:39 am

The more sexy TAX THE BANK BONUS story on the front page is typical of MSM.. (insert National Post here).. but the real story is buried on page 9.


Interest rates may rise despite BOC deadline

Scotia economist warns of bond, mortgage hikes

Jonathan Chevreau, Financial Post
Published: Thursday, December 10, 2009

Bond yields and mortgage rates could head higher before the Bank of Canada’s pledge to hold interest rates steady expires in July, the chief economist at Bank of Nova Scotia said yesterday.

“There’s a very good chance long-term rates will head up before then,” Warren Jestin said in Toronto at a briefing sponsored by the Investment Funds Institute of Canada.

He warned new homeowners with variable-rate mortgages not to be influenced by the central bank’s neutral statements on rates on Tuesday. The bank has pledged to hold rates at a historic low of 0.25% until the end of the second quarter of next year, inflation conditions permitting.

This will be more like the front page of the post in a year!!!

Move Along!! Nothing to See here!!

#46 Soylent Green is People on 12.10.09 at 9:39 am

I missed the part where he bribes clients but I did hear he bribes tenants so he can get showings in.

He is very nerdy but I can’t help it, I kind of like him, dressing up in daddy’s clothes and making videos.

Beats beer belly sitting on the couch 4/20 24/7.


#47 Repatriated Expat on 12.10.09 at 9:52 am

I used to live in Marpole about 10 years ago as a renter. It was a crummy neighborhood near nothing other than the airport / strip bar and far from everything. But at least it was one of the last few area’s on the West side still affordable. With all the RE speculation I am sure most of those units are now converted into condos.

If low/reasonable rental units are pushed out of the market like Marpole, I would guess that all the low-income people starting out have to live somewhere further away. This in turn pushes up costs/wages and therefore inflation, at least locally.

Other than realtors, lawyers, bankers and a few lucky owners who dumped their properties out of dumb luck – I really don’t see any upside to high RE prices.

#48 pezzazz on 12.10.09 at 10:01 am

It bothers me that there are many blog dogs bashing “bottom feeders”. Last time I checked that’s what this blog is about. We are all here to trade thoughts on when the best time to buy real estate is going to be. Don’t blame the people in the private system for doing there jobs. Blame the government for manipulating the invisible hand of the market. I’d take a lawyer or a banker any day of the week over the thousands of useless public system employees that don’t have to worry about an actual job market where performance means you get to keep your job. Take your head out of your [email protected]#.

#49 sutluc on 12.10.09 at 10:11 am

#12 tjmikey
Good list, although I would move land developer down to #2 or 3.
I would also add politician (sorry Garth) somewhere down there in the bottom four.

#50 Ray MacDonald on 12.10.09 at 10:12 am

My daughter and son-in-law bought a house in suburban Ottawa a few years ago. It’s an older place with a nice yard and convenient to public transport.
I thought at the time (wrong it turns out) that they were buying at peak real estate prices. However the selling price was not excessive, and for them it was a lifestyle decision. They have since started a family.
I have told them that today’s interest rates are a historic opportunity to pay down principal and get out of debt as soon as possible. Then they can get on with life and do some serious investing if they want. This approach served my wife and I well at times when interest rates were exorbitant, so it should work OK today.
I don’t see how any sane person can expect to buy a house or condo, leverage themselves to the max and then expect they can simply sit there and get rich without further thought or action.

#51 Devil's Advocate on 12.10.09 at 10:39 am

I suspect the first sign that the bubble is about to pop will be the tanking of the automobile industry. I am currently looking to replace my vehicle and have been shopping for the past week. I can not believe the prices! Clearly demand has been fueled by easy money and prices pulled up along with it. I suspect many of the purchases made are with HELOC money and as that dries up, one way or another, it will be the automotive industry that first takes the hit followed shortly there-after by real estate.

Thing is the automobile industry is talking up a storm just like the real estate industry.
All is not as it seems in The Wonderful Land of Oz.

#52 Weston on 12.10.09 at 10:56 am


What if your wrong? What’s your black swan back up plan?

Time to start writing some investor what if articles amigo.

Because the trend is definitely not your friend.

Canada returns to trade surplus in October

I am not wrong about the future bringing higher rates, taxes, inflation, commodity prices, a game-changing demographic event and a range-bound market. The myopic judge the future by the latest headline. History’s a much better guide. — Garth

#53 BDG YYC - TODAYS SCARIEST POST on 12.10.09 at 11:08 am

#14 HABS 76 – 79

This one will hold up! Nothing scarier than reality!

Outstanding piece HABS !!!! Thanks !

I think you concluded right on the mark with this …

“Keep your debts in check, keep a hold onto your wallets, keep your expectations firmly planted on the ground and keep informed about real issues if you want the pain to be less hard on you.”

Unfortunately I’m AFRAID its TOO LATE for TOO MANY … who are TOO OVER-COMMITTED, OBLIVIOUS, and … having too much fun hot-shotting with thier heads down. They’ll wake up eventually … in a world of hurt.

Seems you can’t teach pain – it has to be experienced. So …. the wake up unfortunately is going to be a one at a time thing until enough people find themselves trying to answer the question: “who cornflooke Satrudayed?” or see a buddy lying on their back gasping “oxy-noggin!” that they’ll get what you’re talking about. The game’s only just getting out of hand though … there are going to be bodies all over the ice come the third period. You know what happens then right? Everybody “sort of get’s it” … so after the BRAWL … they’ll get things sorted out … and eventually … after the game … they’ll try to figure out what the ISSUE WAS ! And ….. you just know where that goes of course :-) FIGHTING and a SHITTY REF !!!! :-) :-) :-)

So … How many do you figure end up hanging up the skates and heading for the stands?

#54 Dawn in Calgary on 12.10.09 at 11:10 am

The new American dream: Default, then rent.

Coming to Canada? Never happen.

#55 Larry on 12.10.09 at 11:13 am

Interest rates in the UK will remain at 1% for maybe the next 5 years.
The difference with Canada however is that there is no CHMC and banks are strict on who they lend too.
Having waited for 4 years now, I’m taking the plunge here In Calgary and buying a place next spring. The manipulation and herd mentality will end up being protected by the govt anyways so why not join the party.

#56 Kurt on 12.10.09 at 11:15 am

I’d take him a lot more seriously if he had bumped the rate 5 basis points on Tuesday. That’s all it would take – he could have said exactly the same thing today and people would actually take him seriously.

#57 $fromA$ia ( :PY ) on 12.10.09 at 11:16 am

How can the Harp say that Michael Ignatief is just in it for himsalf. Its the Harp that’s looking like the Hippo!

These low rates are to extend Conservative Government.


#58 The VULTURE on 12.10.09 at 11:25 am

Educate yourselves in financial matters or pay the price!

To busy to comment fully, however….


You are incredible. You have true courage to call things the way you see them.

Here is some tid bits for your bloggers to Google search:

1.) John D. Rockefeller “General Education Board”

2.) “Prussian system of education”

3.) “Creation of the Federal Reserve in 1913”

4.) “1971, President Nixon takes US of Gold Standard”

5.) “Fractional banking system”

6.) “CDIC is really a means to keep the bank safe NOT your money – they don’t want you to do a “run on the bank”…you had better believe this. When you understand the fractional banking system, you will soon realize that CDIC would be toast if everyone went for a bank run all at once.”

7.) One more thing…Lord Moncton…interesting Brit…man has courage and he is well conected.”

Nuff said…really tragic times that we are living in. Educate yourselves in financial matters or pay the price!

#59 Nibs on 12.10.09 at 11:32 am

David Rosenberg weighed in once again on whether or not the Canadian real estate market was in a bubble. His conclusion is that we are 15-35% overvalued. Breakfast_with_Dave_121009.pdf

If it walks like a duck… — Garth

#60 The VULTURE on 12.10.09 at 11:35 am

Keith, with all the apparent money you are making dude…go to a gym to bulk up. The clothes in your video look too big and sloppy. Push your proteins pal. You don’t need a tailor, you need to lift heavy iron. Ask Arnold…Give yourself about 6 months to a year.


I, am in the wrong industry….Maybe I should look to the RE industry on the sales side instead of investment side…I need stupid, greedy, deceived, naive customers to sell over priced assets too. I need the big money and I need it now.

#61 Another Albertan on 12.10.09 at 11:37 am

In regard to the Vancouver Olympic rental:

I have a friend who has rented out his grandmother’s 1100-sqft A-frame in Whistler for the month of February. The client is a major international sporting goods manufacturer. The place will sleep 6 in cramped quarters and not all 6 can be in the kitchen eating breakfast at the same time.

The cost of renting for 28 days? $60k

#62 Jack Jones on 12.10.09 at 11:43 am

This NFB video is quite frankly unbelievable. I cannot believe they would put out a piece like this in all seriousness.

This guy, Keith Roy, really vindicates everything Garth and you guys have been saying on this blog about realtors. I am shocked by the stuff this guy says in all seriousness…at first I thought he was joking….

#63 Soylent Green is People on 12.10.09 at 11:47 am

I love reading G&M articles than the comments after are priceless:

The real question is, “What is the true value of imposed debt-based fiat paper/electronic tickets a.k.a Permission to Live/Work Points a.k.a dollars?”

The answer is: zero.


If I opened up “Tax Me’s Money Printing Shop” and printed up pretty pieces of paper with a uniform size and different inks on it, denominating different units of purchasing power (denomination) and told the market to use my money, what would happen? I’d be laughed out of town or utterly ignored. How could I prevent a competitor from starting the same enterprise?

People would rightly say, “Your money has no value! You didn’t do anything of economic value to create money! How do we know that you wouldn’t print a bunch of it up and give it to yourself or your friends to rob us of our economic output when you’ve done nothing to merit it! You’re a cheat!”

Now, if I had the biggest guns/thugs in town – a monopoly on violence – and demanded my form of money to be used to pay tribute (taxes) to me, then what? You’d cave. By way of violence, I have forced you to accept my form of money thus creating demand for my paper/electronic tickets. If you don’t pay property tax, I’ll take your f–king house. If you don’t pay income tax, my banking buddies will seize your accounts, deny you credit, have your employer garnish wages, or a whole plethora of devious tricks to prevent you from feeding your family. Don’t worry though. Once and a while I’ll let you replace some of the personnel in my system. I’ll call it voting. It’ll fool you into thinking you’re free. All hail me!

All of our money is created out of debt by the State/Banking cartel and backed by government violence via legal tender laws and taxation.

Now they control the value of our money. There is no way to escape theft through taxation and indirect theft through inflation in this “red market”.

We need to return to what money should have been before the government/banking cartel hijacked it.


#64 robert on 12.10.09 at 12:35 pm

Are they lending money to hairdressers, manicurists and poodle groomers yet? (Those still employed doing the hair, nails and canines of the sharpies who bought their houses in the spring). Sarcasm off.

Your first bullet point is the elephant in the room. Unless I need to turn my sarcasm back on, those buying now are anything but average. And what percentage of the buyer’s pool do they represent? And what happens when they all have the home or condo (or two) of their dreams? Perhaps they can just trade houses or blueprints amongst themselves to maintain a Potemkin village price illusion or, who knows, maybe the hairdressers will be given a shot. Those who cannot afford to buy these homes today certainly won’t be lining up to rent them from their distressed owners tomorrow. Falling prices are inevitable in this dynamic. One need only look further than south of the border for the past three years for affirmation. And to think the US did it without the interest rate “discipline” that so many seem to crave.

When there are no more buyers there are only sellers.

#65 pbrasseur on 12.10.09 at 12:39 pm

This is interesting, seems like biding wars are happenning everywhere these days, even in Montreal where medias where reporting recently about a condo unit receiving 31 offers…

At the same time you see more and more papers and comments in the medias saying that all this frienzy might be just a tiny bit unsustainable, no end of the world stuff mind you, but at least the realization that a number of people might end up in trouble by taking on too much debt.

#66 Mrs. Claus on 12.10.09 at 12:41 pm

Santa says you have been very good this year. Saved him from making a terrible mistake on an investment property. Keep up the good work!

#67 Future Expatriate on 12.10.09 at 12:46 pm

Realtor: Happy guy. Not.

#1, there is a discount for cash. In Nevada and Arizona, you can pick up a trashed foreclosure for 70% of peak, and the banks are only selling to cash buyers.

As far as Canada? All in due time; ALL in due time.

#68 Genghis on 12.10.09 at 1:10 pm

The China Bubble
Gady Epstein, 12.10.09, 06:00 PM EST
Forbes Magazine dated December 28, 2009

China’s economy is humming along in high gear, thanks to a fast-growing pile of dicey debt. Such booms tend to end badly.

#69 Grantmi on 12.10.09 at 1:23 pm


I think it’s probably more like:

“I am CARNEY! The Great and Terrible Wizard!!

#70 Alex on 12.10.09 at 1:43 pm

Carney is a funny guy. First, he reduces the interest rate and thereby makes RE more affordable and then warns not to buy!
Would Carney expect that typical man would refuse to have free sex with a perfect stranger as attractive as, say, Nichol Kidman because he might get infected? Yes, there are a few men who would refuse after having a painful hesitation, but they are minority.
I think Carney should go back to school and start the economics refreshments study from this:
K.Marx: “With adequate profit capital is very bold. A certain 10 percent will ensure its employment anywhere; 20 percent certain will produce eagerness; 50 percent, positive audacity; 100 percent will make it ready to trample all human laws; 300 percent, and there is not a crime at which it will scruple, nor a risk it will not run, even to the chance of its owner being hanged. If turbulence and strife will bring a profit, it will freely encourage both. Smuggling and the slave-trade have amply proved all that is here stated.”

#71 $fromA$ia ( :PY ) on 12.10.09 at 1:56 pm

Carney/BOC, “Households need to assess their ability to service these debt obligations over their entire maturity…”

Sure blame the people, Blame the people for voting Conservative.

Flaherty is the reason for all this!

#72 Jeff Smith on 12.10.09 at 2:16 pm

>#13 Marina on 12.09.09 at 10:46 pm
>Many people put money into real estate because they
>expext hyperinflation coming soon; in this case many
>debts will be gone. Garth says that hyperinflatin >would never happened, but Peter Schiff has just
>opposite opinion.

Actually, Garth said there is 20% chance deflation &depression will happen. I am glad we escaped that prediction (hopefully)

#73 PeckedToDeathByDucks on 12.10.09 at 2:20 pm

Disconnected Speakers

Pelosi is quoted as saying that “The party is over, the American public will no longer be at the mercy of Wall Street”. Tough talk. Meanwhile she announces that the American debt ceiling will be raised as part of the Defense Spending Bill. A little liquidity treat before they go on Holiday celebrations. Who will they charge this to? Is there a hint in the latest poorly received treasury auctions?

Carney announces that he is worried about Canadian personal debt and rising deficits and debt in many countries which may lead to “disorderly adjustments” to global imbalances, yet he keeps cheap money flowing.

#74 Alex on 12.10.09 at 2:31 pm

Sure, the Conservative leadership has made their fair share of mistakes, but make no idols. Just recall Liberals’ policy and you find that they are far worse.

Wrong blog. Try this. — Garth

#75 ant_626 on 12.10.09 at 2:36 pm

2 Marina:
Taking into account your name I assume that you have a sort of connection to ex-USSR. If it’s true you should have the memory of how hyperinflation evolved in there (the example of Zimbabwe is kind of caricature, and Weimar Republic is kind of old).
First of all, remember how much was the average “commercial” 2-room flat in Moscow in 1989-1990? It was the price of 3-4 cars, about 40000 soviet rubles. When the inflation hit in 1991-1993, 2-3 thousands USD (or just one decent used Japan or Germany made car) could’ve buy you the same apartments. No one even considered selling for rubles. And there were no buyers. Since no one considered RE as an investment. People were thinking about getting basic food and clothing. So forget about RE as a shelter for investments, since if or when hyperinflation hits, there would be none. Even gold – gold is precious where you are not hungry.
If a government (no matter in what country) ever dares to erase its debt by hyperinflation, that would be its end. The history has no precedent, when the hyper, induced by a government, helped that government to stay in power.
As per Canadian RE, it would be even worse. What is that that a hyperinflation kills first? That’s the credit. Who’ll be lending you a buck if a half of it vanishes in a couple of months? Oh yeah, there are talks about “controlled” hyperinflation. Well, one more time – there are 0 precedents of such a thing. Since when the money start devaluating, it also increases the speed of their circulation, which leads to another devaluation and so on. You might conclude – well, that means that my debt would be erased. But you still have to consume some goods – food, beverages, gas. Or you think that your employer will compensate devaluation accordingly? And there are still several years to pay what’s left of your mortgage – could be 50%/year, 150%/year, 400%/year. What you say, you clever enough to have a fixed? The hyperinflation is treated as an emergency, so be prepared to fork out what’s left or your mortgage. Or default might be an option. And a bank could sue you (and make it after things got settled down, if they ever will). Still want that hyperinflation to happen? Be careful what you with for. For sure, hyperinflation will destroy all saving, pensions, RRSP whatsoever, kill retirees and welfare suckers, and will destroy all equity that does not generate cash flow. And at least read Garth’s “After the Crash”, despite the fact that some chapters look naïve to me and anyone else who survived the crash of USSR (like items to be stashed: Garth, there’s no need to stash toilet paper, metronews will do the job just fine when water supply is cut off).

#76 Thetruth on 12.10.09 at 2:39 pm

Post #52 …Garth Believes in inflation :)

Well lets forecast 6% inflation per year over the next 5 years. Thats about 30-35% total over the 5 years.

Even if house prices were to remain stable in real terms over 5 years, the actual inflation adjustd price would be 30-35% lower. Example, a $500,000 house in 2010 worth $500,000 in 2015 would actually be worth less in inflation adjusted terms (approx. $350,000 in 2010 dollars). There you have it…a housing crash of epic proportions in disguise…and chance for Garth to write a new book :)

Homeowners need not worry. You will inflate away your debts. Plus, immigration will increase demand. China has declared Canada an approved tourist destination…and China has more millionaires (investable assets) NOW than Great Britain. Do the Math! This will make Hong Kong migrations of the late 80’s and its effect on vancouver look like nothing. Couple that with the Canadian dollar devaluation!

Markets are never wrong. But the smart money has pushed asset prices up (because of impending inflation) 300% in some cases. Look at price of metals excuding gold (like copper), recent rise in lumber, etc. They have already forecasted inflation in their expectations and metals are already priced at 2015 levels. Too late to get in there. Real Estate is illiquid and lags, but is catching up as people can see.

Don’t believe the inflation rate that BoC quotes. It is already much higher. Have you been to your Grocery store lately?

The real problem as it seems is people got to demand a higher salary at least one that keeps up with ‘real’ inflation. It is they that are being left behind and caught in an “Anti-Bubble”.

You’ll be lucky to see 2% inflation next year. Your arguments fail. — Garth

#77 conf in Tor on 12.10.09 at 3:07 pm

I wonder if Carney’s ever experienced the feeling you get when you are driving your car and suddenly you have to put the brakes on and…nothing happens,
then you have to use other means like steer yourself out of the mess…
I wonder if he is starting to get that feeling of butterflies, like other central bankers already have experienced.
I see he is being plastered on on “Globe and Mail” blogs, some blogs scoring rating 140+thumbs up! Thats pretty negative Carney!!! Listen to the people and raise those rates!!!

#78 bob on 12.10.09 at 3:14 pm

Wow — to think that Carney should expect Canadians to behave responsibly. What a fool. Instead we should have the Government hold our hands to make sure that we are responsible. Heck, why don’t we just have the Government make all of our financial decisions for us. No need for us to even make the decision to buy a house or not — the Government can tell us where to live and how much we can afford to pay. That way we could never get into any trouble.

Give me a break. Of course Carney wants to stimulate the economy by keeping rates low. And there are a whole lot of people out there who can and are taking advantage of the low rates responsibly. This is a fantastic opportunity to convert high-interest debt into low-interest debt.

But I guess Garth doesn’t like the idea of personal responsibility. Better that Carney should change the purpose of his office to “Real Estate Overlord”.


#79 BAD on 12.10.09 at 3:20 pm

#63 Soylent Green is People on 12.10.09 at 11:47 am wrote:

If I opened up “Tax Me’s Money Printing Shop” and printed up pretty pieces of paper with a uniform size and different inks on it, denominating different units of purchasing power (denomination) and told the market to use my money, what would happen? I’d be laughed out of town or utterly ignored.

Well, interestingly enough it seems that one can start private/community money.

Making moneyIn hard times, some towns are turning to homemade currency

I wonder if one could start a community deposit bank that deals exclusively in such currency.

#80 Mungy on 12.10.09 at 3:21 pm

The CPI has underestimated the true cost of living thereby keeping interest rates artifically low in the last decade or so. Carney and the rest of the bankers know what is going on. If Carney says that people should watch their debt load because rates will rise down the rate; he will just say ” well, I told them but they did not listen”.
CPI, cost of living measure, but at what cost?

#81 T.O. Bubble Boy on 12.10.09 at 3:34 pm

Garth (or anyone on the blog) – any idea what this OFSI advisory/proposal contains?

It sounds like CMHC might get restricted in 2010 because it will be over-leveraged?

“OSFI is intending to change the capital governance rules to restrict a financial institution’s ability to originate CMHC loans for securitization or to require an injection of new capital to continue these operations.”

#82 Grantmi on 12.10.09 at 3:43 pm

Carney continues to suck and blow at the same time….

but at the end of the day… he’s running out of air.. and will eventually be pointing the finger at a house made of wooden match sticks. (Sorry Woody!.. No fire here)

#83 Bubble 'n Fizz(le on 12.10.09 at 3:44 pm

“…and openly admits he uses gifts to bribe clients.”

Wrong. He bribes renters, presumably to allow access to the properties.

#84 Zoronqueen on 12.10.09 at 3:55 pm

Please read the story below and explain, I fail to understand the economics and logic of this:

Is seems like it’s better not to pay off your mortgage as the smaller mortgage can ben carried into an asset for the bank and he was forclosed on??

“2 friends purchased adjoining identical houses in 1926 for 30K. A certain bank placed a 15K on each. In 1929 the 1st owner paid of 10K on his mortgage. The 2nd owner when asked to do likewise, requested a reappraisal of his property. When a value of 40K was placed upon it he was able to induce the bank to lend him an additional 2K, which he explained he needed in his business. In 1932 when both mortgages fell due the bank needed liquid capital and thefore, asked for full payments. Neither owner was again to meet his call. A repprasisal indicated that the value of the houses and fallen to 16K each. On one, the bank held a mortage for 5K, on the other for 17K.

What did the bank do? It commenced forclosure proceedings on the strong mortgage from 5K and allowed the weaker to stand. Why? It could readily transform the smaller mortgage into an assest on its books, whereas the larger mortgage would inevitabley show a loss if the property were taken over”

#85 James on 12.10.09 at 3:58 pm

This is a post from a friend, who seems to have been censored from Garth’s blog because he has made posts contrary to Garth’s views.

Simply put, my friend believes that interest rates will stay low in Canada for several years to come thereby continuing this housing boom. His rationale: the USA is in a bigger mess than us (for now) and will continue to deflate their currency further than ours thereby causing Carney and Co. to keep rates near zero in Canada until the Canadian dollar is at $0.80 relative to the USD, which likely won’t happen for several years.

Garth seems to not like this argument and will not allow the post to go up. This is petty behaviour by someone of Garth’s status.

Let’s see if he will redeem himself with this post.

No post making any argument is censored. Posts which do so through attacks on others are. Tell your furry friend that. — Garth

#86 bob on 12.10.09 at 4:16 pm

No post making any argument is censored. Posts which do so through attacks on others are. Tell your furry friend that. — Garth

Oh please. Talk about sucking and blowing at the same time — you frequently call on your “Dawgs” to attack other people. Pot? Kettle?

And what happened to my original post on personal responsibility — there was no attacking in that one . . .

#87 omg on 12.10.09 at 4:16 pm

China’s Approved Destination Status

To those thinking this will save Canada’s hpousing market by bringing thousands of millionaire Chinese into the market.

A reality check:

Canada is the 135th country to become a Approved Tourist Destination.

The US became “approved” in 2007 – lucky for them – just in time for the Chinese to rush in and forestall a US housing meltdown!

If you are a Chinese millionaire from a subtropical climate in China would you rather buy a nice condo in San Diego for $400,000 or one in Vancouver for $800,000?

#88 James on 12.10.09 at 4:29 pm

#83 James on 12.10.09 at 3:58 pm

No post making any argument is censored. Posts which do so through attacks on others are. Tell your furry friend that. — Garth


Oh, I get it, only Garth is allowed to attack others to make his point. I’ll let my “furry friend” know.

Shameful, indeed, Garth. Shameful, indeed.

Tell Judge Judy. — Garth

#89 David Bakody on 12.10.09 at 4:33 pm

Just before Harper/Flaherty/Carney lowered interest rates to give-a-way prices they topped up CMHC purse to $600 Billion to back the banks. Then big time house frenzies. Soon the the bubble will burst and we the taxpayers get the shaft and a overnight National Debt of a Trillion dollars or more. And to think we had multi billions in the bank when that Reform/Alliance/Conservative dude said: “Just give me a chance”!

#90 Hovering on 12.10.09 at 4:42 pm…..ry-America’s-Problems-%22Getting-Worse-Not-Better%22-Jim-Rogers-Says?tickers=SKF,XLF,FAS,FAZ,%5EDJI,%5EGSPC,UUP&sec=topStories&pos=9&asset=&ccode=

i love this

rogers says “The idea you can solve a problem of too much debt and too much consumption with more consumption and more debt defies belief. I cannot believe that grownups would stand there and say that.”

he goes on to say the only way to change is to let things collapse and rebuild

I agree. I’m afraid of the ramifications, but I agree.

#91 Hovering on 12.10.09 at 4:44 pm's-Problems-%22Getting-Worse-Not-Better%22-Jim-Rogers-Says;_ylt=Avsc.RCn43hHuj69vYMmQq.7YWsA;_ylu=X3oDMTE2dmk1MDc3BHBvcwMxMQRzZWMDdG9wU3RvcmllcwRzbGsDd2hhdHJlY292ZXJ5?tickers=SKF,XLF,FAS,FAZ,%5EDJI,%5EGSPC,UUP&sec=topStories&pos=9&asset=&ccode=

hmm link didn’t work.

perhaps this will?

#92 Popeye on 12.10.09 at 4:53 pm

#10 Bill on 12.09.09 at 10:27 pm
Tell your friends to make double-up payments whenever they can during the next 5 years. This could save them ~$75,000 in interest over the (1st) life of the mortgage, and will drastically reduce the principal owing upon renewal. For example, I just did a similar calculation, if I make 13 double-up payments (on an accelerated bi-weekly payment plan–thanks Garth!) for the next 5 years vs. not, leaves me with either $213,000 or $261,000 principal owing. This could make a big difference especially if rates reset in 5 years at 8% to 10%.

For example, for renewal at 8% to pay off $213,000, my biweekly payment is $746 and over 5 years I’m paying $80,000 in interest.

But if I don’t do double-up payments, I’ll have to pay off $261,000 at 8%, making my biweekly payment $914 and $100,000 interest over 5 years. (thus there’s a $20,000 interest savings (!) just by making every other payment a double-up during the 1st 5 years of the mortgage)

With rates at 10% it’s even more pronounced, the difference in interest paid over 5 years is $25,000 (and biweekly payments of $899 vs. $1100).

I think your friends will appreciate this advice. Just ask them if in 5 years time do they want to be facing lower payments and lower interest owing, or higher payments and more interest?

#93 surferbob on 12.10.09 at 5:02 pm

I was watching the CTV news channel and the headline was great … she said while the rest of Canadians are house poor the bank executives recieved huge bonuses today.

#94 anyone on 12.10.09 at 5:12 pm

Here is the key :

“…..That said, the central bank said Canadian banks currently have more than enough capital on hand to absorb potential losses, suggesting that even the worst-case scenario in the stress test would fall short of risking a collapse of the financial system.”

They only knew this:
Ok, will we have the crisis right now or later ???
Ok, latter!!! How?
Let’s some people (first time-no money) help us to push this crisis later. When the moment comes, many of them will suffer, that’s OK, understandable, … “but the system will be stable”. Yes, we will have some losses ….”but the system…”
Sounds like this: ” in a consumption society every one should consume and go indebted, otherwhise the economy will die. but…, don’t look at me”.

#95 MikeB on 12.10.09 at 5:20 pm

That video from NFB is just precious. The punk “wants to achieve celebrity status” Give me a f&*%$ break. Dude … anyone can do you job and make a decent living. It takes little education and precious little knowledge and a low level of scruples. So the bar ain’t set very high indeed. But celebrity status just takes the freaking cake. I have remarked several times on this blog that these guys/gals do perceive themselves as ultra special given the fact they actually put their picture on their cards. As if that gives them credibility. Just a joke . The fact that anyone and his uncle can become an agent is the very reason why there is a bubble growing and soon to pop. When he remarks that the correction was but a few months long starting in November of 2008 he proves how much of a punk he really is. Anyone with half a melon knows that was no correction just a spot of fear before we propped up banks and the like to give people hope for the future. Indeed… many CFA types I know feel next year will be a boom because the market is just shrugging off the bad news. But ignoring bad news is just that …ignorant… the writing is on the wall. Something will give next year and it is best people come to grips with it. Do not listen to punky brewster for financial advice thats for sure.

#96 AGIN on 12.10.09 at 5:33 pm

Re: #55 Larry
…”Having waited for 4 years now, I’m taking the plunge here In Calgary and buying a place next spring. ….why not join the party.”

I’m happy to know that the next spring here in Calgary, still will be some greater fools (whatever their reasons are) around, as we are planning to unload our rental property. Please, spread the word, so we can have a multiple bidding. Thanks in advance!

#97 Ottawa on 12.10.09 at 5:47 pm

No direct funds were sent to prop up our banks.

Instead money was made available almost free of charge. In-house bank economists pumped the future of RE while the bank wrote new loans. 100’s of billions of these loans ave been purchased by CMHC to “inject liquidity.”

The loan originating banks have no exposure which now rests with the Canadian taxpayer.

If this is not a sideways type of bailout then these loans could be sold in the market for face value instead of exposing taxpayers to $500 billion in mortgages.

Ideologically, privatizing Canada’s mortgage insurance should be a nice fit with a conservative government but I doubt this is being considered.

Today BoC Carney warned of household debt levels and that the banks should be prudent in their use of insured mortgages since mortgage default would likely lead to defaults on other debt products (still resulting in some bank exposure). This warning is our risk mitigation for the taxpayer?

#98 Kurt on 12.10.09 at 5:52 pm

#82 Zoron Queen: I might be wrong, but I believe the bank would have got clear title from the forclosure, which means that they would receive *all* of the money from any subsequent sale. Bank forcloses on 5k mortgage, house is appraised at 16k: 5k asset is replaced with 16k asset. They foreclose and sell the house, netting 11k in liquidity. Bank forecloses on 17k mortgage, 17k asset is replaced with 16k asset, so they don’t foreclose and they tell neither the shareholders nor their inter-bank lending counter-parties that their asset base is impaired by being underwater. This is the reason for continuous evolution of banking and securities regulation, including mark-to-market accounting.

#99 wise on 12.10.09 at 6:10 pm

Today I saw in BNN that BOC warn the hike of canada household debt. It seems they will prepare a certain action to avoid bubble in RE as in US. Is anyone think a certain strategy will avoid this bubble burst??

#100 Live Within Your Means on 12.10.09 at 6:13 pm

I read Garth’s blog regularly more out of curiosity in case I miss something in the news re finances. Today a bro & sis visited me. Got to talking about RE. Bro’s comment was RE always goes up. Bro lives with sis and BIL. Well, after a few minutes I gave up. Switched the conversation to ‘inflation’. Supposedly there’s next to none. Yet at our Superstore (Loblaws) they keep promoting ‘reductions’. They must think the average consumer is DUMB. Within 2 weeks a PC baguette jumped 60 cents and this week they advertised a 69 cents decrease. I’ve watched this same ‘fraud’ on a lot of other products. They raise the products by 1/4 or 1/3 or more for a couple of weeks and then put price stickers to believe consumers are getting a good bargain. I drink PC gingerale. The other week they increased the price from $1/lt to $1.49. Yesterday they had a super discount sticker saying they reduced their price by $.49. We only have 2 major grocery stores here. Both are manipulating the consumer but I believe Loblaws are worse. I can buy 2 baguettes at Costco (tastier) for $4.29. They haven’t changed their price in months. I know Costco is a US co. but, why should I support our Cdn companies who rip us off. We buy lots of cheese and Costco’s prices almost half the price of local grocery stores. Rant off. Inflation, IMHO, for basic necessities, is over the top.

#101 malbadon on 12.10.09 at 6:15 pm

Popeye on 12.10.09 at 4:53 pm
think your friends will appreciate this advice.

unfortunately they probably won’t, because they will be interpreting it as Bill’s belief they did something “wrong”.

But of course, your calculations (and concerns) are correct. Imagine if they just sat and made normal payments till renewal.

5% down on a 400k house leaves 360k plus CMHC etc, so lets say 370,000. You didn’t mention if it was 35yr amort (I suspect it is) but lets be super-nice and say its 25yr amort.
After 5 years of $1896/mth they’ll owe $320628. Renewing at 8% will jump them to $2655/mth.
Can they take a $800 jump in mortgage costs? I sure couldn’t.
So they will flail, would a reset to a 35yr amort help?
$2323/mth @ 35yr amort rates. So in extending their debt slavery for 10 more years they’ve only reduced the monthly jump by $300, they still better be eaerning $500/month more in 5 years, put those baby plans on hold.

The horrifying part of this is that this is simply using the historical AVERAGE rate. This isn’t asking alot, it’s not like this is a magic unattainable number. It’s the average.

So what if it goes even higher?

#102 Hovering on 12.10.09 at 6:26 pm

can’t think of a “certain strategy” but I imagine they are hoping that they can ratchet up interest rates ever so slowly.

banks have full vaults at the moment due to the free money the “borrowed” from the Gov and then invested for a profit.

consumers who bought houses beyond their means.. well, they were warned.

I guess Carney is hoping to deflate the house bubble rather than see it pop

#103 Onemorething on 12.10.09 at 6:35 pm

#96, the only strategy to avoid the bubble from bursting is to sell your RE and rent as there is no way to stop it.

The government is trying to prepare us with sound bites and snippets of taking responsibility for our debt levels so then can say we told you so when the bubble finally bursts.

They will have no choice but to raise taxes (lower your income), raise rates (depreciate your RE value).

The bubble will come down hard when A/we finally hit the glass ceiling of stupidity, B/The US retests previous lows (double dip is actually the original bottom as it was fueled by stimulus), C/unemployment keeps rising, D/Salary cuts continue E/Exports sinks into next to nadda. F/Boomers start to take the money and run!

You cant stop this thing! You can only manipulate your way through, in your election term, and hand it off to the next guy! Isnt this what North America has built it’s future on for the last 40 years!!!!

The ship is full of holes, plugged with stimulus, and all it will take is something that is out of the governments control to get things going VERY QUICKLY!

#104 Grantmi on 12.10.09 at 6:37 pm

Well if the powerful Mr. Incredible Carney is going to save us all… (and the known Universe) he better start using his super powers to do it!!!

I’m finding him a bit tiring lately with all the jawboning, and his lack of action!!

Powww! Bammmmm! ZooooM!

#105 Kash is King on 12.10.09 at 6:40 pm

#63 Soylent Green, funny you mention a competing currency. ..
Look what just got introduced:

Statement Introducing the Free Competition in Currency Act

By: Dr. Ron Paul, U.S. Congressman

#106 David Bakody on 12.10.09 at 7:05 pm

Reading Canadian news on line wrt Mr, Carney words of caution it would appear he stops by here more often than not. It’s called pre-damage control to save his butt when the bubble burst so he can say I told Canadians in a news conference not to borrow money over their heads, it’s not my fault!

#107 Jeff Smith on 12.10.09 at 7:21 pm

#100 Onemorething on 12.10.09 at 6:35 pm

You cant stop this thing! You can only manipulate your way through, in your election term, and hand it off to the next guy! Isnt this what North America has built it’s future on for the last 40 years!!!!

>The ship is full of holes, plugged with stimulus, and all
>it will take is something that is out of the
>governments control to get things going VERY QUICKLY

Very well said!

#108 Jeff Smith on 12.10.09 at 7:25 pm

I think the only good thing that will come from all this Condo frenzy is that its actually good for the environments.

Condo buildings has the unthought of benefit lumping the negative taxing of the environment into a more discrete and in fact smaller package.

Instead of 1000 houses spread over a large area each consuming heating & AC and other bills. A condo building will concentrate it into a smaller area and thus probably reduce the energy footprint.

That’s about the only good that will come out of this condo building frenzy I am afraid.

#109 robert on 12.10.09 at 7:26 pm

#97 Live Within Your Means

I don’t know why anyone shops at Real Canadian Superstore or Metro or Sobeys unless saving money on one of our largest expenses (food) is of no concern. I live in London and can drive five minutes from both the RCS and Metro in my area and find lower prices. Funny thing is the discount competition (No Frills and Food Basics) carry a lot of the same brand names for way less. Stores are a little shabby and there is a guy with one leg begging outside on occasion but hey it’s real and it’s cheap. I do shop occasionally at RCS or Metro but it’s only when they have loss leaders beating even their discount brethren (it happens). I’m sure they hate guys like me who walk out with a load of cheap chicken or cheese or canned soup/vegetables and nothing else from their generally overpriced shelves. And the price con you refer to is insulting to the intelligence of even the most marginally sentient of consumers. Personally I say f*** ’em and buy and eat whatever is cheapest on any given week.

#110 jess on 12.10.09 at 7:32 pm

Elizabeth Warren,
chair of the Congressional Oversight Panel,
Consumer Financial Protection Agency

“The Federal Reserve, the OCC [Office of the Comptroller of the Currency], and the OTS [Office of Thrift Supervision] have had the legal authority to protect consumers for decades. The agencies’ well-documented refusal to protect consumers — refusal that ultimately jeopardized safety and soundness of financial institutions and that brought the economy to its knees — results from two structural flaws in the current system.

The first flaw is that financial institutions can choose their own regulators, which causes regulators to under-regulate. By changing from a bank charter to a thrift charter, for example, a financial institution today can change from one regulator to another. In fact, an institution may decide to evade a federal regulator altogether by housing its operations in the states and forgoing a federal charter. Institutions can shop around for the regulator that provides the most lax oversight, and bank holding companies can shift their business from their regulated subsidiaries to those with no regulation — and no single regulator can stop them. The problem is exacerbated by the funding structure: Regulators’ budgets come in large part from the institutions they regulate. This regulatory arbitrage has triggered a race to the bottom among prudential regulators and has blocked real consumer protection.

The second structural flaw is a cultural one: Consumer protection staff at existing agencies is small, the last to be funded, and always playing second fiddle to the primary mission of the agencies. At the Federal Reserve, senior officers and staff focus on monetary policy. At the OCC and OTS, agency heads worry about capital adequacy requirements and safety and soundness. As the current crisis demonstrates, even when they have the legal tools to protect families, existing agencies have shown little interest in effective consumer protection….”

#111 Contrarian on 12.10.09 at 7:55 pm

#96 WISE:

Today I saw in BNN that BOC warn the hike of canada household debt. It seems they will prepare a certain action to avoid bubble in RE as in US. Is anyone think a certain strategy will avoid this bubble burst??


Mr.Carney does not even have to raise the lending rate to control the bubble.

All he or the government needs to make a ruling that minimum down payment required is 15 %. No shortcuts allowed to make 15%.It has to come from buyer’s bank account.

This will take care of overextended FTHBs.Once they are gone, bubble pops.

so simple.

Mr.Carney , are you reading ??? Tell this to Jim.

#112 JO on 12.10.09 at 8:02 pm

Notice the hypocrisy of Carney showing concern about how much debt is in the system and warning people, but yet, lowering rates to absurdly low levels and trying everything possible to get as many people as possible into debt. Complete nonsense. This is the equivalent of kids hitting a ball from the park in the direction of your home, and then watching the ball about to hit your home, and holding their breath and hoping nothing bad will happen.

Former governor Dodge is on the record as having “concerns” about the government housing intervention through CMHC..yet, he also engaged in interest rate shenaginans.

Make no mistake, these folks, bright fellows though they are, are not as smart as you think they are when it comes to markets and economics. They have been LUCKY that bond markets have lowered rates on the long end (10 yrs out), and LUCKY that they found enough would be borrowers to take on the debt made available at artificial terms (including artifically low rates and approval conditions for anyone putting less than 20 down).

We now have a nation where record levels of debt, much of it secured against an overvalued and illiquid asset, hold down many among us. The crushing weight of interest and payments will eventually explode out of control as bond markets eventually demand higher rates to compensate for the risk of lending to a nation so indebted..whether that is 5 or 10 yrs away i cannot say, only that higher rates are by far the most likely path no matter deflation or inflation.

When the bond markets send their first warning signs (gov’t bond markets will likely have a horrible/scary 2010 year), anyone renewing a huge mortgage will come to realize the extent to which they played roulette with their lives. And these morons in power will get what’s coming. Markets never give the majority what it expects, but always what it deserves.


#113 john m on 12.10.09 at 8:03 pm

What a joke Mr Carney is and his political problem solvers IMO…….the word from these so called experts has been borrow,spend and don’t worry things are different here in Canada and everything is under control??………what a fraud….now they are starting to realize the time bomb they created and are now urging caution (an after the fact “i told you so” ..hoping everyone forgets that they have been saying the exact opposite for the last year)……….well buckle up sheeple because the crap hasn’t even come close to hitting the fan—those $150,000 dream homes with $1,000,000 mortgages will prove to be the destruction of thousands and could quite possibly be the final straw in our countries faltering economy…………my bet is Carney and our political leaders will be saying “i told you so”

#114 Nostramadus Le Mad Vlad on 12.10.09 at 8:07 pm

A great way to spend an off-day — Wipe-Out!
Complete stupidity in action — GoreTalk Comment by

“At forty seconds into the video. This man is a total idiot! Okay folks, forward this video clip to everyone you know who thinks Al Gore speaketh holy write on science. Then let’s toss carbon credits into the shredder along with Al’s peace prize, his Oscar, and human-caused global warming.”

The main reason for Climategate. “Make no mistake. Copenhagen is mainly about a massive wealth transfer from industrialized and energy-producing nations like Canada, to developing nations who will agree to curtail emissions in exchange for having their economic growth offset with welfare from the first world.”

Note the term “wealth transfer”. The western govts. are putting folks in the poorhouse to appease their masters.
An updated version of Musical Fruits, which pretty much sums up Copenhagen and Climategate!
What do San Francisco and Polar Bear have in common? — Hoax 1 / Hoax 2
I was under the impression that we lived in a free country / continent, but apparently not — Not News

#115 john m on 12.10.09 at 8:07 pm

#96 wise on 12.10.09 at 6:10 pm

Today I saw in BNN that BOC warn the hike of canada household debt. It seems they will prepare a certain action to avoid bubble in RE as in US. Is anyone think a certain strategy will avoid this bubble burst??
<<<<<<<<<<< lots of prayer and a miracle :-)

#116 $fromA$ia ( :PY ) on 12.10.09 at 8:33 pm

Don’t any of you people understand here that the Conservatives are dead if the housing bubble that they created pops. All blame will not be on the unresponcible consumer but the Turd that introduced us to Zero Down and 40 year ammortization.

That was the strategy, to prop up this phony market with phony money thus extending Conservate Government for the time being regardless of economic turmoil…

Wake Up People!!!

#117 Mike on 12.10.09 at 8:38 pm

Ya know this guy must be in a dream world .I live in the little city of Halifax and am very grateful for what I have .I have been reducing debt and preparing to survive whats comming.How can people do this ?Garth why are they still going down this road !People just surprise me!

#118 NKVD Black Raven on 12.10.09 at 9:00 pm

– Frenzied Ottawa condo buyers –

These are the kind of people who haven’t grown out of the Zhu Zhu Hamster phase…

#119 Dan in Victoria on 12.10.09 at 9:50 pm

Here’s someone else that eerily echos what Garth is saying about interest rates. Finance professor Franklin Allen….Re subprime mortgages -” rather, the problem was that the fed kept interest rates too low for too long”….. for the whole article.

#120 steven rowlandson on 12.10.09 at 9:56 pm

Hello Garth.
I reckon if tulip bulbs were shaped like houses canadians would pay a fortune for them.
Remember the history lessons about the south sea bubble and the tulip mania in Holland. It’s happening again in our time with real estate. Grab your money and head to the silver and gold shelters. Real estate may be usefull but it ain’t money and its worth less than what is being paid for it.. Just my opinion FWIW.


#121 Gord In Vancouver on 12.10.09 at 10:03 pm

Carney to Canada: Stop that!

Canada to Carney: Too little, too late.

#122 Bottoms_Up on 12.10.09 at 10:35 pm

.#84 omg on 12.10.09 at 4:16 pm
I’ve worked directly with the Chinese who come to Canada for a better life (some have been here only for 1-2 years, others 5-10). “I ask them what’s so special about Canada?”

Their response: “Nothing really. Most Chinese want to go to the US or Britain or Austrailia, Canada is really their last choice”

So, I love Canada, I am an 8th generation Canadian, but I do believe we’re not as great in the eyes of others as we think we are!!

#123 Dave on 12.10.09 at 10:44 pm

Re: #55 Larry
…”Having waited for 4 years now, I’m taking the plunge here In Calgary and buying a place next spring. ….why not join the party.”

I’m happy to know that the next spring here in Calgary, still will be some greater fools (whatever their reasons are) around, as we are planning to unload our rental property. Please, spread the word, so we can have a multiple bidding. Thanks in advance!

if you have friends in Toronto, please let them know too. I have a rental property I need a bidding war on in the spring. Thanks in advance as well!!!

#124 Bottoms_Up on 12.10.09 at 11:07 pm

.#106 robert on 12.10.09 at 7:26 pm
Same deal in Ottawa: I can drive 5 minutes to Loblaws and pay $5.15 for 4L skim milk and $1.49/lb for royal gala apples, or drive 5 minutes to Food Basics and pay $3.95 for milk and $0.99/lb for the apples….it’s sick really, how the ‘upper end’ stores gouge people….

#125 Peter on 12.11.09 at 2:03 am

A developer typically needs to get around 70% of their units pre-sold before they can get financing from the bank. Pre-selling units happens with almost any condominium project, otherwise it would be extremely risky for a developer and their lending institution because they’d have to build buildings worth tens or hundreds of millions of dollars speculatively without knowing if anyone would want to buy their units.

Also remember that there’s a 10 day cooling off period. There will be lots of people in line who will try to reserve the unit they like the most, then do the serious thinking about their big purchase in the following days.

#126 pjwlk on 12.11.09 at 12:15 pm

#12 tjmikey : Better make the list 11 long. You forgot insurance agents/corporations!

#127 Drake on 12.12.09 at 11:28 am

Nice Freudian slip at the end of that video.