Bubblicus officialus

bubble1

r-housing09rb1
In the news:
House sales surge, but best brace for a rough 2010.
Few think prices will decline again: LePage

Pulling my gunmetal Hummer up on the sidewalk, I eyeballed the address to ensure it was where my colleague worked. The street was solid, stop sign to stop sign, with semis built about 80 years ago. Mutual drives. Postage-stamp front yards. Dreary facades. And a solid streetscape of covered porches.

This part of Toronto was built as a decidedly working-class neighbourhood, a dozen blocks north of the Danforth, and as many in from the now-dead Don River. Inside, the small living room opened into a small dining room, which opened into an unrenovated kitchen, and a narrow backyard. No sidewall windows. And I marvelled at what a half million dollars now buys. As does my colleague.

The usual question: ‘Should we sell?’ My usual answer: ‘Absolutely.’ The usual next question: ‘But where would we go?’ My answer: ‘Sell with a long close, and then into a better hood.’

For some months I’ve detailed the housing ascent and the delusional human condition behind it. Had it not been for the emergency interest rates we got earlier this year, this bubble would never have inflated. And had it not been for the federal politicians overstating economic conditions, our lenders pushing 5/35 madness, CMHC sucking all the risk away (for now) or the self-dealing and irresponsible real estate hierarchy, the bubble would have been far smaller.

But, now it’s too late. Sales up 74% this year. Prices up 22%. At the same time exports down 18%, the economy off 3% and unemployment up to 8.5%. This is utterly unsustainable and, as I’ve been bleating away, exhibiting every classic sign of an asset balloon reaching burst. When people say, ‘buy now or buy never,’ it’s over. When they line up in the rain and cold to buy unbuilt condos on spec, it’s over. And when every rational investor knows prices have exceeded value, it’s over.

And soon it will be, with the consequences for recent buyers which were detailed here last week: negative equity.

But, here’s the news. The financial establishment is now lining up behind the bubble theory. This week Gluskin Sheff economist David Rosenberg did it again, pointing out it makes no sense for  housing to be popping when incomes are dropping. Oh, and here comes Merrill Lynch’s Canadian economist Sheryl King, telling the company’s clients, “the seeds of a bubble are definitely in place.”

“With monetary policy in such stimulus overdrive,” King cooed, “there is a real risk that the market could become overheated and an asset bubble form.”

Ya think? Was it the primitive one-bedroom, one-holer cottage in North Van that sold for $999,000 that did it, or the 17 bids on a teardown in East York, or the weenie who paid $704 a square foot for a condo closet in Yaletown?

In any case, it’s now official. The Bank of Canada boss said enough bubbly things last week (in urging us to be prudent) that it’s okay for the rest of us to see the elephant in the room. And it comes just in time, as Canadians are slathering on new layers of debt like thermal undies in Edmonton. Household indebtedness has just hit a new all-time record of 145% of disposable income. This is more debt than US families had when their real estate market collapsed. At the same time, relative to incomes, our housing prices are also higher than they were in America when real estate ate the middle class. Our CMHC is acting just the way Fannie Mae and Freddie Mac did before the collapse to the south. And, of course, our emergency mortgage rates are having the same effect as did teaser rates on American subprimes.

So, why would there not be a similar result?

It’s been obvious here for, lo, these past many months. Now the bubble’s gone mainstream. We are all primed up for the feds and the BoC to drop the hammer, which will surely be coming in the next few months. Because if it doesn’t, the inevitable consequences will be even more difficult to manage.

Hence my advice to my semi-owning bud.

This is the peak. Grab it. Realize your capital gains. List below market. Do some viral marketing. Create an auction frenzy. Sell for a premium with a supersized deposit. Go for a long close. It’s Bubble Buster One, and you cannot lose.

Soon, like our quaint innocence, the greater fools will be gone.

131 comments ↓

#1 Onemorething on 12.14.09 at 10:02 pm

Well Garth, it’s just about time for it all to come to a head as all indicators (stars) are lined up.

I think the last round of sheeple have given in to the 5/35’s and with Fed and Analysts now stepping up and making a case for bubble, which we have noted for the 6-8 months growing, it will be a bloody mess.

I just got off the phone with my lawyer in HK who has done at least two dozen USA family cash ins which paid the 30% cap gains on assets and have left areas such as Las Vegas, Miami and Cali. They are looking to grow what is left in Asia with no taxes and growth potential which the recovery on the 30% could be less than 3 years.

Canadians are now doing the same he said as they are in much better shape. Two are RE agents from Canada
taking their show on the road.

Anything denominated or valued in USD will be a waste down the road as the US tries it’s best to bankrupt the world little by little. 2010 will show everything to us including the dump of Canadian RE FINALLY!

Exports will dump with it, Unemployment will continue and especially jobs lost will NEVER COME BACK! A decade of muttling through.

Yesterday the Big Lobowsky had a good read on GOLD but was very N.American centric as the rest of world is adjusting right now to limit reliance on this country.

I will not play the gold game, nor the RE game but will look for currency which can survive the devaluation process and it wont be USD/CAD/BP or EURO.

As for my investments and the ten eggs in my basket, I am looking only to emerge with 5 in tact. Those in RE in Canada right now with less than 30% into their home will have one broken egg.

With increases in taxes and everything else coming those with 50% down will only be able to afford to live in their homes as the 145% debt to income ratio which could go to 180% if you take a 20% haircut in salary is what is to come.

Good Luck!

#2 Siberta on 12.14.09 at 10:05 pm

Some of the readers have raised very valid points from overall government ineptitude to lack of vision to deal with the very complex issues. The simple fact behind Alberta’s growing socio-economic, environmental and sustainability issues is the lack of inclusive and citizen based economic planning. The PC’s have run Alberta like a mom and pop corner store without even having the basic understanding of global economics, externalities or lack of commodity or trade diversification. The Alberta bureacracy is analogous to the practice of taxidermy for “stuffing everthing up”. In many respects the level of incompetence is very akin to third-world kleptocracies where a legion of inept political cronies and over-paid unemployable bureaucrats are conditioned to give postitive spin on all isues and stifle any rational debate on the province’s gloomy future. Alberta is largely hostage to a completely out of touch poilical sytem and kleptocratic “public service” that has missed all the storm cloud signals. Almost 68% of the province’s revenues are based on natural gas and not the heavy polluting tar sands. Gas and oil prices are not in a for a rebound as new alternate sources and technoologie s come into play. In the next few years more and cheaply produced oil and gas supplies are coming on line in Central Asia, Iraq and Iran. In is now surprise that China is increasingly diversifying its enery markets. The real costs of CFC discharge and pollution are about to dawn on Alberta’s heavy polluting tar sands as sooner or later a user pay carbon capture regime will be imposed. The US is heavily investing in alternate energy as well and the focus of tar sands will become more acute. So pinning futile hopes on a rebound of energy prices is delusional indeed. It is time to bring Alberta government under adult supervision and seriously look at develloping a citizen engaged policy to deal with the perfect economic and environmental storm. The days of ignorance and crony capitalism must come to an end or face a even bleaker future,

#3 T.O. Bubble Boy on 12.14.09 at 10:10 pm

Garth – what are your odds on the official end of the bubble being July 1st, 2010?

This date (Canada’s 153rd birthday) is important for 2 reasons:

1) HST comes for Ontario and BC

2) It’s past the June 2010 target for Carney to start re-flating the 0.25% BOC rate

Maybe someone will put together a movie like that 2012 disaster flick — 2010: The End of Real Estate

#4 AxeHead on 12.14.09 at 10:16 pm

‘Like thermal undies in Edmonton’

Nice touch Garth. When the Feds start warning of a bubble, it’s getting scary. Garth – when will you be in Red Deer?

Jan. 19. Spring then. — Garth

#5 George on 12.14.09 at 10:17 pm

Don’t you think this might be a sneaky way to mop up liquidity by flushing out all the dollars from the hands of the herd rather than the BOC doing the more traditional approaches. The banking systems way of hanging as many people upside down to shake what’s left in their pockets and then once impoverished bring on the power grabs. By enticing unsophisticated people to spend on the basis that “real estate always goes up” it allows inflation to sneak into the game while people are distracted by the delusion of asset increases.

#6 Oakville Owner on 12.14.09 at 10:33 pm

Thank you!!!!!

No more gold talk.

#7 Mel Eager on 12.14.09 at 10:37 pm

#3 T.O. Bubble Boy ,

I agree, I think the peak will hit it’s highest the couple months before the date BOC has promised to raise rates. So I am thinking April – June 2010.

I believe there will be an even greater scramble as buyers attempt to make a last ditch effort to buy a house and secure a lower mortgage rate before the BOC raises rates and HST makes closing costs more expensive.

Mel

#8 LS on 12.14.09 at 10:55 pm

“When people say, ‘buy now or buy never,’ it’s over. When they line up in the rain and cold to buy unbuilt condos on spec, it’s over. And when every rational investor knows prices have exceeded value, it’s over.”

Hmm, not exactly. All those things were happening 5 years ago here on the west coast, and the market went happily careening on for a long time.

If the market was logical it would definitely correct, but it’s not, so I wouldn’t be surprised if the insanity continued for a bit longer.

#9 Wealthy Renter on 12.14.09 at 10:59 pm

Pulling my gunmetal Hummer up on the sidewalk

Geez Garth,

It is hard to keep up with all of the weapons you use to protect your crib. It wasn’t more than a month ago you talked about building your drone runway. Add a rifle range in your bunker, and your neighbourhood watch will really begin to talk.

At the very least, I hope your hummer was built in the Good Ole US of A. Hopefully, the new Chinese version of Hummer will work better than the Chery.

http://www.youtube.com/watch?v=3F3nLj9ljWo (off topic, but cool for the car buffs.)

#10 Boombust on 12.14.09 at 11:29 pm

Today I spoke with a “twenties-something, soon-to-be-married” woman who is bound and determined to buy a ratty old house on Marmont St. in Coquitlam. It was listed at 488K.

Seems their bid of 502K may go through after all, as the other party has dropped out.

She’s all jiggy with excitement.

So young. So naive. Very sad.

#11 Marina on 12.14.09 at 11:49 pm

to #1 ” but will look for currency which can survive the devaluation process and it wont be USD/CAD/BP or EURO.”

It will be Russian RUBLE for sure.

#12 Get Real on 12.14.09 at 11:55 pm

Oh boy, Im getting tired of all the same predictions that never come true . I remember reading cometary from garth in the Toronto Sun way back in the late 70s or early 1980s, it was basically the same stuff. It never stops from garth even 30 years later. You people need to get a life, relax , turn off the tv and computer. Stop worrying and have a Merry Christmas everything will be okay

#13 InvestorsFriend on 12.15.09 at 12:09 am

And then there are the many (not me) who might say.

See, it’s not a bubble, see, house prices have not peaked because they just went up another 22%…

Jack and Jill’s House went up the Value Hill…

… we know how this story ends, it’s a question if when…

#14 Into The Sunset on 12.15.09 at 12:18 am

I read day after day, comments about why our government and civil servants can’t see what is happening or why they don’t do something to prevent it from happening……..I have even written critical sarcasim.

MP’s , MPP’s, Ministers of the Crown, along with the Carneys and CEO’s of other financial institutions are fairly well paid.

When criticism is levelled at these salaries, an old clique is put forward ” We must maintain these salary levels to attract the most competent and capable people!”

I ask a very simple question. When are citizens going to see happen?

#15 adam noonan on 12.15.09 at 12:21 am

you are ALWAYS right Garth. All your ‘comments’ agree

#16 nonplused on 12.15.09 at 12:53 am

“The market can stay irrational a lot longer than you can stay solvent.”

I remember that when Alan Greenspan, chief at the US Fed at that time, said that the markets were showing signs of “irrational exuberance”, he was chastised by everyone and the dot com bubble resulted. Of course that did crash too, but not for several years and from much higher levels.

From that we learn to things: First the Fed can spot a bubble, even though they say they can’t. Second, the politicians will not allow them to rein it in. A bubble produces tax revenue, after all.

So Carney Blarney can say whatever he wants, he will not raise interest rates until the government thinks that is a good idea, which will be when the dollar is at $0.80 US and unemployment is trending towards 5%, and we have a majority government. Any other result means a new BoC governor.

But the bubble could run out of gas all on it’s own. Once everyone has all the HELOC they can stomach for Christmas, maybe they stop borrowing against their houses for no apparent reason at all. Then the knock on effects through the economy slow, and the tax boost is gone. At this point it there is nothing the government can do, since interest rates are already well below inflation. What are they going to do, make mortgage rates negative? Buy a house and we’ll pay you 2% per year on the money you’ve borrowed? I suppose it’s mathematically possible, but if they do that even I will buy 4 or 5. No money down of course, to maximize the payments.

In essence, that is what the negative amortization loans in the US must have looked like to consumers. Buy a house and don’t pay for 24 months!

#17 Tony on 12.15.09 at 1:12 am

The unemployment rate will spike at least one full percentage point higher for the month of December in Canada. Rate increases are in the very distant future.

#18 Nostradamus Le Mad Vlad on 12.15.09 at 1:44 am

Bubblicus officialus = Biggus Dickers Ever Seeners. In any event, sheeple have been coaxed back into their lairs of luxury. Soon the pandemonium starts.

Not much happening in the world today. A-H1N1 has fizzled, all economies are hot-buttered toast (that was The October Surprise, soon to be repeated at a country near you), a group of six Asian businessmen are preparing a one billion pound offer to buy Manchester United Football Club shortly, we get the HST next year, Labor and Christmas Days will be lumped together, to be known as Chrabor Day”.

Date hasn’t been set yet.
——
Food inflation is starting to head north. Check back in Sept. 10 to see what kind of mess we’re in — Milk
——
Nostradamus Jr. could be on to something — Two Failures / Money Laundering / Blwing In The Wind? / Housing Dump Is Good
——
Against the tide — GD2

#19 omg on 12.15.09 at 1:46 am

No Correction in the near term.

While I believe we will trend back to normal housing values (say mid 1990 levels) it will occur over the next decade not the next year.

We will not see any meaningful bursting of the bubble until a large number of Canadians are forced into selling. It will either be significantly higher interest rates (a prime rate of 7 to 10 percent) or much higher job loss.

Because

1) the recovery is fragile – interest rates in Canada and the US will be kept artificially low for the foreseeable future. They will not move up until the economy improve significantly or markets refuse to support the low rates. Neither are likely to occur in the next year or two.

2) a move of a few percentage points on mortgage rates will only trigger a small number of foreclosures. Not that many housing have been bought at grossly inflated prices compared to the whole of the housing stock and not that many people will not be able to make the higher payments.

3) While most people will tell you they are stretch to the limit, they will be surprised how much money they can find when they are faced losing the house. They may have to sell the extra car and use public transit to get to work, they may have to eat out on 3 times a month instead of 10. They may have to take little junior out of private school but they will find the money to avoid losing their house.

4) People will do everything they can to hang on because all the forecasts by banks and real estate boards will be for the market to recover the next year.

My two cents. Only time will tell of course or I would be a billionaire!

#20 ManfredSteyn on 12.15.09 at 1:55 am

This is good advice you’re providing your home-owning Danforth friend, Garth. My question to you and the better-informed commenters on this blog (ie, no Gold Freaks) is this: My wife and I recently sold a Vancouver (well Burnaby) special; now renting a great condo across False Creek from downtown. We’re sitting on a big chunk of change in our savings account. What do we do with it?! All advice welcomed.

#21 Dave on 12.15.09 at 2:26 am

I don’t get any love for my comments about gold mining. The inflationists get all the attention, too bad they’re wrong.

I know there’s some of you out there that have read what I wrote and know the source I get my material from. He is the greatest gold mining mind in the world and has gotten everything right from top to bottom in the past few years.

ah well

#22 Canada's Housing Bubble on 12.15.09 at 2:31 am

Higher interest rates, more household debt raises fears for households

Julian Beltrame THE CANADIAN PRESS 14/12/2009

OTTAWA – Canadians are taking on greater debt at a time when higher interest rates – and debt servicing costs – may be just around the corner, economists warn.

In the newest outlook, Royal Bank analysts say Bank of Canada governor Mark Carney will likely start raising rates as early as next summer.

“The next tranche of rate increases will likely come from Canada, New Zealand and the Eurozone, whose economies weathered the recession slightly better that the United States and the United Kingdom,” the economists write.
……

http://www.winnipegfreepress.com/business/breakingnews/79256682.html

#23 TheBigLebowsky on 12.15.09 at 3:56 am

#1 onemorething. Why mess around in the currency markets when they all will and have been devaluing verse gold for the past 6 years. Picking the best of a bad batch still means what you are holding is not good. The Chinese government has been running ads on T.V and promoting its citizens to buy gold/silver for the past year. They know inflation is coming and also refuse to de-peg its currency from the USD. They have also stopped exports of any locally mined gold and instead are buying everything then can get.
#98 kurt from yesterday. For the past 30yrs Central banks have been in a coordinated effort selling and leasing gold into the market to suppress the price. The bullion banks, JP Morgan, Goldman Sachs, CITI, HSBC have been leasing gold back and forth and using paper gold(derivatives) to suppress the price. They are basically working appendages of the U.S Government which has for the past 30 yrs, tried to hide the devaluation in the world’s reserve currency. We are at the point now where the bullion banks are essentially out of physical gold which they can use to manipulate the price down. Paper gold only works for a few days and costs the U.S taxpayer billions of dollars. Central banks are now net buyers . Demand has been outstripping mine supply by several tons a year for the past decade. It has been the bullion banks job to fill the supply/demand gap. What happens when they run out of gold to sell like I think they are near doing? up, up ,up. Google John Williams of Shadowstat.com Best economist out there. Usually appears on internet radio show The Korilen Economics Report / http://www.Kereport.com
Is it just me or is it just too coincidental that Canada is following the U.S real estate bubble blueprint to a T? Just put different names on the government agencies and you have a spitting image

#24 Mike (Authentic) on 12.15.09 at 5:59 am

“Household indebtedness has just hit a new all-time record of 145% of disposable income. This is more debt than US families had when their real estate market collapsed. At the same time, relative to incomes, our housing prices are also higher than they were in America when real estate ate the middle class.”

Amazing, 145%, that’s incredible and incredible so many people are living waaaay above their means. Did their parents, schools or teachers not teach them basic budgeting? I feel bad for people who get hurt, but if you are living 45% (or more) above your means, you deserve the hard lesson IMO.

It’s obvious the 145%’ers are not going to learn by themselves, the gov’t needs to step in and raise rates by 1, 2 or even 5% in 2010.

Mike

#25 HouseBuster on 12.15.09 at 6:06 am

Garth… I want to try your Bubble Buster One but I still need somewhere to live.

Sure I can get the long closing, but when in the process do I start looking for a new place to move into?

#26 Nostradamus jr. on 12.15.09 at 6:45 am

“”No Need To Hate Wall Street, It’s Already Dying

China did double the IPO’s of the U.S. in 2009″”

http://www.businessinsider.com/no-need-to-hate-wall-street-theyre-already-dying-2009-12

…Bodes badly for Eastern North America and Europe…

…Bodes well for Pacific Northwest…from Hong Kong to Hongcouver.

Nostradamus jr.

#27 David Bakody on 12.15.09 at 6:53 am

Up just a little earlier this morning to read this wake up call. The question is: just how many people get it? I suspect RE people, the banks, and the last of the greater fools. Most people are just trying to hang in fully aware Harper/Flaherty/Carney must be on something to even believe their own words. The recent attack on banker bonuses will have an effect on us all, it seems to me to just jump on Bankers while people still line up with borrowed money to watch multi million dollar boys play sports is silly. With all that should be talked about the headlines are none other than the king of sports …. Tiger what’s his name.

Well in any rate I was thinking anyone who is living in a home that is worth more than 250K will be tough shape soon even if it is paid for. Soon the bubble will burst and all governments will increase taxes more and energy costs will rise and wages will go south as mentioned. Not everyone can sell and move most will have to try and stick it out, seems to me I read bus/trolley fares went up soon the HST will be applied to that as well to other services and stock items. Just think 35% of voters jumped for joy for a penny savings on cup of Tim’s now the are going bags full of pennies to pay for Harper’s Sales Tax and that coffee will be going up again well past post 2% GST election time.

Oh the house in my back yard sold just in time for Christmas at a reduced price, the one next door is still for sale, by the way he like the other one I mentioned threatened the agent with rent. Strange how it got more showings all of a sudden.

Still 1-4 children on food stamps south of border even with Washington saying the economy has turned the corner …. hello, to where? Could that happen here even with our strong Canadian Shield?

Who knows Ottawa is off till the end of January or longer
(remember last year) when you know who said he had everything under control.

What this all to do with RE? Everything read Garth’s words again …. bottom line force people to spend.

Remember that old line which Carney will soon throw in your face?

You can lead a horse to water but you can’t make hims drink.

Perhaps, but you can make me dam thirsty first ….. and cheap money (historic low interest rates) and easy credit will do the trick every time!

Sad news ………we will all will pay for it get? “ALL” soon

Merry Christmas 35% ers

#28 Repatriated Expat on 12.15.09 at 6:56 am

I’ve managed to negotiate a rental from a homeowner who’s leaving the country for a couple years. Rent is $500/mth less than I am currently paying. You can’t do that when you own a mortgage.

I also don’t need the extra cash to pay down debt and I won’t be stimulating the economy. Not being cheap, just staying prudent.

#29 Joe T. on 12.15.09 at 7:28 am

Hey Garth,

Been a while since I posted. I enjoy your postings, though enjoyed your political rants back when you were raising hell a bit more.

Anyhow, you dwell a lot on the Toronto/Vancouver markets for real estate quite a bit. I live in NB, just outside Saint John and would be interested to hear your slant on what you expect might happen out this way. Housing prices are not in the same stratosphere that the major urban markets are, but just the same, my $250K house is at around $400K in about 3 years. I’m not looking to sell, as we love the place, but I would be interested to know where you think the market in Eastern Canada is going given the local, national and internation forecasts.

Cheers!

#30 pbrasseur on 12.15.09 at 8:53 am

“So, why would there not be a similar result? – Garth”

Because CMHC and the Canadian government behind it can ensure mortgage lending remains available. The banks will keep lending since they don’t assume the risk, the taxpayer does.

Not to say the the bubble will not pop here too, it will happen differently though.

#31 BE on 12.15.09 at 9:37 am

Hi Garth,

Just wondering if anybody who took this same advice from you last year about this time has ever emailed you with the results?

How did they make out? Are they still renting since the big drop turned out to be a temporary head fake? Did they bite the bullet and buy back in and become even greater fools? Did they do the smart thing and invest their windfall in stocks and are now rolling in cash and biding their time. Even with an uber long closing date, their houses must have changed hands by now.

I would like to hear some of the results from people who took your advice, which hasn’t changed since last year or the year before and yet the big sustained drop in house prices hasn’t happened. Yet.

This blog started in early 2008 – 20 months ago. At that time real estate was flying high, and I said that was unlikely to last. The market did in fact collapse at the end of 2008, and by generally the percentage amount I forecast. Since then emergency interestrates have reflated things, creating a bubble which is even more worrisome than that of ’08, which also will not last. In March of this year I suggested that investing in equities (at their low point), as an alternative, would be astute. It was. For what comes next I suggest you continue to drop in here and add these comments to the opinions of others. — Garth

#32 E.Sundholm on 12.15.09 at 9:40 am

Don’t mean to change the subject BUT just read in the Globe this morning that Harper wants to prorogue( shut down ) parliament until after the Olympics!
Jeez…Peter McKay, our home grown torturer, must have some mega leverage if Harper is willing to abort gov’t to protect him.
Of course with no operational gov’t many things become possible,no?
As the boyz say, don’t let a crisis go to waste….

#33 The Vulture on 12.15.09 at 10:00 am

FOOL’S GOLD IN THEM THERE HILLS ROSCOE

Jed says “THE TROUBLE WITH FAKE, FONY, FOOLISH, FLAKY, FICKLE, FILTHY, FRUMPY, FABLED, FABRICATED, FOGGY, FACADISH, FACELESS, FACETIOUS, FACTOIDISH, FAITHLESS, FALLEN, FALTERING, FALSIFIED, FANTASY, FAR-FETCHED, FAR-FLUNG, FUNKY, FRETFUL, FAUX, FATUOUS, FATIGUED, FLUNKING, FAULTY, FEARFUL, FEEBLE, FEIGNED, FELONIOUSM, FERMENTED, FIBBED, FIDDLED, FOOLHARDY, FIDGETED, FRACTIONAL, FAILURE, FILCH, FIDUCIARY, FAUX-FIDELITY, FINAGLED, FISCAL, FIZZLED, FIXATED, FLAMBOYANT, FLAGELLATE, FIASCO, FOISTED, FLICKERING, FLOUNDERING, FLOOZIE, FLOUTED, FLUSTERED, FODDER, FOOLERY, FONDLED, FORBIDDEN, FOREBODING, FOREFINGERED, FORMIDABLE, FORGED, FORFEITED, FRAIL, FRAZZELED, FREAKING, FREAKISH, FREE”

FATALLLY FLAWED FIAT MONEY is that it is still FAKE no matter how you say it. Look to Mark Carney to tell you about the fiat money system and the greater fools that rush in.

“HOUSEHOLD DEBT-TO-INCOME The ratio rose two points to 145 per cent – the highest level since quarterly record keeping began in 1990. That means for every $100 of personal disposable income, Canadians now carry $145 in debt, compared with $88.60 in 1990.” (Globe and Mail – December 15, 2009)

LINK: http://www.theglobeandmail.com/report-on-business/debt-to-income-ratio-hits-record-high/article1400551/

#34 PeckedToDeathByDucks on 12.15.09 at 10:14 am

Seriously though, have we been invaded by a planet of millionaires?

Where is all this money coming from to soak up all these Billions in share sales…BofA, Citigroup, Wells Fargo, Barrick, and on and on? That’s not even mentioning these monthly trillions in bond sales. Who is snapping up all these houses?

$12.99 for a paperback?

#35 $fromA$ia ( o Y o ) on 12.15.09 at 10:23 am

“I don’t get any love for my comments about gold mining. The inflationists get all the attention, too bad they’re wrong.”- Dipstick Dave.

Keep telling people they’re wrong, jack ass.

If you can’t disagree without attacking the other person, instead of the argument, you are the ass. — Garth

#36 Edmonton_Yahger on 12.15.09 at 10:25 am

Garth – you coming to Edmonton anytime around Jan 19, or just Red Deer?

Will it be warmer? — Garth

#37 Herb on 12.15.09 at 10:40 am

Garth, some supporting fire for you from an unexpected source, one of my favourite political columnists:

In a time when we have it all, we can even eliminate deficits without tax increases, at least none that governments will discuss.

The new frugality and the new sobriety are up against the new normal: a society built on credit, addicted to luxury, innocent of sensible values. Some day, there will be a reckoning.

http://www.ottawacitizen.com/business/Excess+back+style+sadly/2341113/story.html

When The Ottawa Citizen publishes a “some day” scanario, you know that day is so close it can no longer be ignored or spun.

#38 artisuseless on 12.15.09 at 10:40 am

People over-paying on inflated real estate already seems to be negatively impacting Toronto.
Downtown I’ve noticed a lot of recently closed shops, and a LOT of ‘for lease’ signs in windows.
One business owner I know who’s operated in the area for two decades including the early 90s recession and housing bust says it’s the worst he’s ever seen it.

So please, people, if you can sell your house at an inflated price, go on a couple of benders and a couple of shopping sprees and some nice dinners afterwards – a lot of businesses are counting on you!

#39 CM on 12.15.09 at 10:50 am

Posted today from Kevin over at Edmonton Housing Bust:

“Debt-to-income”

We see in that graph that the US and UK ratios top out around 165% (1.65) and 160% (1.60) respectively in late 2007, and since then have witnessed declines of 5% or better… whereas here in Canada even the recession has shown no signs of slowing the trend toward increased debt-loads.

One should also remember though that the peaks of the US and UK figures also coincided with the peaks of their own housing bubbles… whereas our bubble is still building (on a national level anyway) in light of interest rates plummeting. So, there is no telling just how high our ratio might ultimately climb, and we should also keep in mind that housing bubbles are largely regional.

Thus, from region to region that ratio could change drastically. Unfortunately I haven’t found any data on the provincial or municipal level to share.

#40 Slice on 12.15.09 at 10:51 am

Someone asked about people who followed Garth’s advice a year ago writing in. Here’s our story:

We sold in 2006 and moved back to Toronto. Couldn’t believe the house prices back then and thought it was crazy (still do). So we didn’t buy a house. Put our cash into Bank preferred shares earning roughly 5% annual return.

Surprised the housing market continues to skyrocket, but less surprised when we consider the BOC messing around with fiscal policy, which will end sometime.

ANYWAY, by renting a nice suburban tract house and not paying a mortgage and property taxes we are socking away about $2,000 per month so that’s $75,000 in 3 years and growing. That’s cash that will always be ready to buy and connot be lost due to a housing market correction/crash. Waiting is tedious but do the math and see were we will be at in another 5 years. Can house investors say the same?

At least I sleep well at night.

Slice

#41 Onemorething on 12.15.09 at 10:56 am

#23 BL, simply if you dont own physical gold you never see the gains in gold if it drives higher. Secondly, if your physical GOLD is stored in the US or CAN likely it will be removed from you or forced back into the system at a percentage of it’s new value. Sounds familiar, say 80 years ago. This may be the reason China is promoting it as well.

Fiat currency is not going anywhere and again you can play it properly if you choose the right crosses that work in your future.

Printed money will expand the Fed’s balance sheet but cannot devalue the currency much more if the banks refuse to put it in play.

The banks are paying back TARP so they will not be forced to lend into a future of high risk after cutting costs and making enough money in the last 12 months on the cheap money.

When this all shakes out, cash will somehow finds it’s way as king as very few will possess it due to limited access.

#42 Jim on 12.15.09 at 10:58 am

Why Canada’s market didn’t burst
http://www.financialpost.com/news-sectors/story.html?id=2322012

Many Canadians have significant equity in their homes. For Vancouver prices to revert to fundamentals, we’d need about a 50% correction. This has never happened before, except maybe in the great depression

#43 Toronto C9 Renter on 12.15.09 at 11:00 am

#31 BE on 12.15.09 at 9:37 am, said….

“..Are they still renting since the big drop turned out to be a temporary head fake? Did they bite the bullet and buy back in and become even greater fools? Did they do the smart thing and invest their windfall in stocks and are now rolling in cash and biding their time..”

Since you are asking, BE, here’s what happened to us. I followed the third in your list of scenarios. We sold in Feb 2008. Net gain since 2001 purchase: $810,000. By no means did we invest it all in the stock market, since by the time of closing the stock market meltdown was threatening. However we have gradually gotten invested and have earned some excellent gains (so far at least)

So far, I would call it one of the better financial decisions we’ve made

#44 Nostradamus jr. on 12.15.09 at 11:01 am

#20 ManfredSteyn & #29 Joe T

…Both of you should relocate to Windsor… live like Kings in early Retirement…if $$$ are ur only considerations.

Nostradamus jr.

#45 Herb on 12.15.09 at 11:05 am

Neighbourhood party last Sunday night. Met two new families who had just bought and moved into houses within 100 ft of ours. Bright things around 40 with small children. One paid $905,000 for a renovated 3,000 sq footer, the other $720,000 for one that needs at least $200,000 in renovations. Both are tickled pink with their houses, have sold a couple of primary residences in the past, and expect to do well with the new ones.

Wondered privately at the size of their mortgages and what will happen when mortgage rates reset, but couldn’t think of them as “greater fools”. They’re just normal people who’ve been sucked in and had. To my mind, a system that fosters exploitation by persuasion is just as criminal as one that fosters extortion by force.

#46 Nestor on 12.15.09 at 11:10 am

who said inflation is dead??

US PPI comes out FAR higher than “expected”. up 2.5% yoy… up 4.4% for calendar 2009… running at up 10.2% for the last 4 months annualized.

where is this so called “deflation”…

#47 junius on 12.15.09 at 11:15 am

#26 Nostradamus Jr.

I seriously don’t understand how you can consistently believe that Vancouver and our relationship to Asia will make us immune from the overall Canadian market forces.

I am an executive at a company in Vancouver with an office in Toronto and I can assure you I don’t share your optimism. I hope your correct but believe you are wrong.

#48 Shameful, indeed on 12.15.09 at 11:23 am

#15 adam noonan on 12.15.09 at 12:21 am
you are ALWAYS right Garth. All your ‘comments’ agree

————————-
I’m sure you are being facetious, but it is commonly known that Garth doesn’t post arguments against his ideologies if he doesn’t like the message. Kinda sad, but explains a lot, n’est pas?

All arguments are posted. Weak ad hominem attacks are not. — Garth

#49 junius on 12.15.09 at 11:25 am

Garth,

What do you see happening in the rental market in Vancouver and Toronto if and when there is a crash?

Rents will continue to decline, only a lot quicker. — Garth

#50 Jim on 12.15.09 at 11:41 am

re#31
This blog started in early 2008 – 20 months ago. At that time real estate was flying high, and I said that was unlikely to last. The market did in fact collapse at the end of 2008, and by generally the percentage amount I forecast.

The market did not collapse. It had a minor correction of about 10 percent. It has run up over 100 percent in the last 6 years and you call a 10 percent adjustment a collapse?

If you have no equity, you bet. More to come. — Garth

#51 Jim on 12.15.09 at 11:50 am

re #49
My rent in Vancouver has increased 3.5%-the max they can get away with, every year for the past 6 years. There is a shortage of rental units, as they tear old ones down and build condos. They are not building apartments because it is more profitable to build condos and our spineless politicians, don’t do anything to increase the supply of rental units. I’ve been in Vancouver for 15 years and I’ve never seen rents go down. People don’t want to rent condos because they are stuck with leases, and can then get the boot if the owner decides to sell. People with unstable jobs don’t want to take the plunge to buy, so they keep the demand for rental units high.

Maybe you’re looking in the wrong place. — Garth

#52 David Bakody on 12.15.09 at 11:51 am

Was speaking with a I have known for some time, he is thinking of selling and renting a nice Condo. He said not sure what I can get for home yet but RE is up everywhere ….. I told him not everywhere. Strange just how many people read headlines only ….. exactly what Harper/Flaherty/Carney have inspired.

#53 Alberta Ed on 12.15.09 at 11:52 am

I have it on good authority (CBC Radio… quoting a local realtor) that folks from Calgary, where the economy is said to be robust (never mind the recent layoffs and the crash of the gas industry), are flocking to pricey Canmore to buy “second homes” so they’ll have some place to holiday in the winter. Go figure…

#54 T.O. Bubble Boy on 12.15.09 at 11:57 am

@ #42 Jim:

You need to read the fine print, my friend…

From that article:

“In Canada, nearly 85% of people with mortgages in 2006 had substantial equity in their homes (if you define that category as meaning that their mortgage was worth no more than 80% of the value of their house.) In the United States, only about 78% of people fit into this same category. More Americans had high-loan-to-value mortgages than Canadians.”

What do you think has happened SINCE 2006???

Well – CMHC kicked into high gear, and the majority of all new mortgages since 2006 have been in that risky 20% equity in 2006, but almost $400B in additional mortgage dollars have been added in 2007-2009 with 5%-7% equity (some at 0% equity), you tell me if we’re still at that 80% figure.

The media lies.

#55 T.O. Bubble Boy on 12.15.09 at 12:00 pm

whoops – my comment got truncated somehow:

I wanted to link to:

http://www.cmhc-schl.gc.ca/en/hoficlincl/mobase/upload/r303a-english.pdf

and show that CMHC has backed $350B-$400B in new mortgages in 2007-2009.

A ton of other stats here:

http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html

#56 lgre on 12.15.09 at 12:05 pm

Garth, I dont agree on the long close, if the market did start to soften, the buyers may get jittery and walk away from their deposit..normally $5k, I guess if you ask for a large deposit then they would have to think twice prior to walking.

Read my previous post. Anyone selling in this market who accepts a $5,000 deposit is a fool who risks missing the peak. Insist on a large deposit, plus a non-refundable one. The agents will fight you on it, but tough. It’s the only way I would sell at this precipitous time. — Garth

#57 Jim on 12.15.09 at 12:08 pm

#51
I don’t think so. Many “deals” are suites in houses, which you don’t have much control over if they decide to have uncle Ned move back in when your lease expires.
You can’t find much under $1000 for a one bedroom in Vancouver. Anything less is either a basement suite, or in a bad part of town.

#58 David Bakody on 12.15.09 at 12:15 pm

Refinancing with negative equity. I am not sure if our Banks are obligated to renew mortgages and L of C’s should house values plummet even close to what has happened south of border. Does anyone know?

There is no obligation to renew. — Garth

#59 Soldin08 on 12.15.09 at 12:31 pm

I really don’t know what people are smoking in here. Expect an incredible parabolic blowoff in Canadian Real Estate well into 2011. The prices will be up almost 20% by 2011.

Then, PROBABLY, you may see a downward trend re-emerge due to some “unforseen”, Japan-esque economic reckoning that bank losses can no longer be hidden, inflation needs to be fully checked, and the long hard grind is upon us to create employment (social unrest is not a good idea).

However, as it stands, if you sold in 06-09, you screwed up, as the blowoff will set home prices so high that even after the “crash” they will be much higher than now.

This is exactly the scenario from the 90s, exactly what happened before. Read some financial books from the time, it will help.

The folks at C.D. Howe are just warming up. The Fed is hamstrung and can not radically change policy, much less the subservient BoC. That is all that matters. Aggressive tightening has no place in a jobless, flat earnings recovery.

#60 snowbound on 12.15.09 at 12:35 pm

#31 BE on 12.15.09 at 9:37 am Hi Garth,

Just wondering if anybody who took this same advice from you last year about this time has ever emailed you with the results?

A year ago I was looking to buy a two bedroom condo in downtown Calgary for about 280 000 $.
Being not only a newcomer to Canada but also somewhat of financial illiterate, I simply googled “canada – real estate – trends” and that is how I became aware of Garth Turner’s website. It provided me with an advice I longed to hear: save, be patient and you will be rewarded. My savings indeed increased during the last twelve months but the condo I was hoping to buy would now cost me 340 000 $. I do continue to read this blog – I find it to be informative, entertaining and it’s author’s reasoning is rooted in sound logic. However, I’ve come to realize that Canadian banking system, government’s policies and pride-of-ownership mentality will successfully resist any logic for many years to come. While I do not perceive renting as failure to succeed, I do, to a great extent, regret listening Garth’s advice and not buying an apartment for myself one year ago.

#61 CM on 12.15.09 at 12:37 pm

@ Alberta_Ed #53:

You should never use ‘good authority’ and ‘realtor’ in the same sentence.

#62 Alberta Ed on 12.15.09 at 1:05 pm

CM: – roll-eyes.

#63 kw on 12.15.09 at 1:29 pm

check this out!
click on”but you’ll have to have a look over at the link”

http://market-ticker.denninger.net/

#64 Jim on 12.15.09 at 1:32 pm

#60
I agree with you. The percentage of home ownership in Canada is so high that there will be tremendous pressure to keep prices from collapsing and the people in power will keep rates relatively low for a long time to prevent any collapse or meaningful correction.

#65 pezzazz on 12.15.09 at 1:42 pm

Example of action taken…Bought condo in lower lonsdale (lolo) in north vancouver in dec 2003 155k, sold in sept 2008 (close dec, no mortgage penalty) for 75% gain. Benefitted from some stock market downside but mostly upside over last 8 months. Now down to 25% market exposure, rest cash. Waiting for carnage so I can grab some granite and stainless loving yuppy couple by the babymaker and relentlessly squeeze.

The math is not difficult, especially here in Vancouver. The worse it gets, the worse it gets. When prices start coming down the prices will really start coming down. This won’t be a quick and dirty decline, it will be long and filthy. Bears will awaken from winter hibernation to a bounty of unsold real estate. Everyone will be looking for someone to blame and the blog dogs will be holding up the mirror (and a low ball bid).

#66 andrew in toronto on 12.15.09 at 1:47 pm

#7- Mel

“I believe there will be an even greater scramble as buyers attempt to make a last ditch effort to buy a house and secure a lower mortgage rate before the BOC raises rates and HST makes closing costs more expensive.”

I personally believe that the ridiculousness that we see now is just this. The lay person is aware that interest is extremely low right now, and the RE lobby is preaching about how cheap mortgages are right now. Oh, and we’ve already had the correction so now we’re into the next RE bull cycle so prices can only increase.

The problem is that even if rates don’t increase, this market will burn itself out pretty quickly. Having brought forward demand and pretty much exhausted the pool of potential buyers the demand side is going to drop off sooner or later – when will unemployment catch up with Toronto?. The supply shortage causing the franticness will ease into the new year too, skewing the supply:demand ratio the other way.

The biggest concern I would have right now is that the market is so skewed that when the correction does inevitable occur, is that momentum will be hard and fast down, turning an otherwise minor correction into something almost American. There is a substantial risk of a pretty dramatic and rapid “overshoot” downwards – much like oil did last year. In a normal market this overshoot would rebound fairly quickly, but again, the RE market is so skewed today that I don’t think anybody knows what will happen.

This downward momentum is what you have to watch out for. The demand may well exhaust itself right around the time the BoC stops merely furrowing its collective brow over possible bubbles and steps in to take action (via interest rates or eliminating 5/35). Once the first-time buyer market dies off, the whole thing goes down the toilet. The FTB market seems to already be scraping the bottom of the barrel. The well off and the responsible bought years ago and are sitting back until the market calms down respectively. Be careful.

#67 Danforth on 12.15.09 at 1:56 pm

===
My answer: ‘Sell with a long close, and then into a better hood.’
===

Hey… I happen to live 6 blocks north of Danforth, between Coxwell and Woodbine. This is a perfectly fine neighbourhood! Better than dodging the vomit on the sidewalk in Parkdale.

And agreed … my semi is probably worth 500 in today’s market.

BUT…where – for the same money – can you buy a comparable house in a ‘better hood’ …and still have a 21×100″ lot, and 8 minute walk to the subway?

#68 Nostradamus jr. on 12.15.09 at 1:56 pm

Beginning Jan 4th, the stock markets will begin major corrections to the downside.

…The U.S. Investment Banks have been “shorting” the markets in inticipation of making huge profits this way.

…Hence, all their repayments of TARP back to the U.S. Govt. before hand.

The U.S. Dollar will be one of the few beneficiaries of next years market crash.

…The U.S. is out to bankrupt the world.

Nostradamus jr.

#69 malbadon on 12.15.09 at 2:00 pm

Red Deer?!! gah, Garth come to Calgary!
(no seriously, come to Calgary so I can shake your hand, I promise to protect you from the Greater Fool red-necks).

#70 dd on 12.15.09 at 2:13 pm

Why is it always a great time to buy real estate as per the Real Estate industry? Isn’t there any times that real estate is a bad investment? One year ago was the “best time to buy.” But now is the best time to buy. But if I wait I will never get in the market. So if I wait it wouldn’t be the “best time to buy’?

#71 Grantmi on 12.15.09 at 2:24 pm

Wait till the HST kicks in next year in DaltonLand and GordoLand.

If only some had stood up to their convictions… and actually showed up for the commons vote on the HST last week!!

Pathetic!!!

http://bit.ly/8hBzCT

Move Along! Nothing to see here!

#72 dd on 12.15.09 at 2:25 pm

#31 BE

I sold last July in the Calgary burbs and moved downtown. Have I lost out? No.

First, have cash in the bank. Did I sell at the top, no. However there is more downrisk risk than upside potential at this point.

Second, we got rid of one car which means more money in the bank.

Third we walk a lot of places. Heathly

Fourth RE is still overpriced in Calgary. More layoffs happening. Rent is still going down too.

I have desided to move cash into select stocks that pay a great dividend/unit. I can’t see real estate in the mid to long term returning the money invested.

#73 Kash is King on 12.15.09 at 2:38 pm

#59 Soldin08:
“The Fed is hamstrung and can not radically change policy, much less the subservient BoC”

Good observation, but is it possible someone else is calling the shots now?

Chris Story seems to have his opinion:

http://worldreports.org/news/251_47_trillion_lien_against_u.s._treasury_and__fed

#74 Emma on 12.15.09 at 2:40 pm

#58 David Bakody

They are called ‘orphaned mortgages’ and they don’t necessarily result from being underwater. Tighter lending practices can cause people to just not qualify for the next term. Just last week there was an article on a family about to be turfed in Hamilton – their payments are up to date and they only got 3 months notice.

http://tinyurl.com/y9d9l49

#75 T.O. Bubble Boy on 12.15.09 at 2:49 pm

FYI – my favourite bubble property is still up for sale in Leaside:

http://www.realtor.ca/propertyDetails.aspx?propertyId=8813254

$850k for a teardown bungalow that hasn’t been updated since the 1940’s… great for all those first-time buyers who can take on a $800k mortgage with another $300k-$500k in cash lying around to spend on actually building the house.

#76 Kurt on 12.15.09 at 3:03 pm

#23 TheBigLebowsky – thanks! Time for me to do some reading.

#77 Emma on 12.15.09 at 3:03 pm

Now the MSM are really jumping on board!
“Housing market has big cracks”
http://tinyurl.com/y9wsas6

#67 Danforth
Don’t be knocking Parkdale, friend. You and I can obviously handle living in a real neighbourhood (personally, I wouldn’t want to live anywhere else) but most of these suburban raised ‘granite counter / double sink’ people wouldn’t last 2 seconds in your ‘hood or mine.

#78 r on 12.15.09 at 3:12 pm

#70

ask a car dealer when it’s the right time to buy a car.
if he says right now, then it’s the right time to buy a house too.

the world works this way, forever.

#79 A Bubble on 12.15.09 at 3:50 pm

Special Report — Is the Canadian Housing Market in a Bubble?
David A. Rosenberg Dec 14, 2009

http://canadabubble.com/resources/bubble-watch/special-report–is-the-canadian-housing-market-in-a-bubble.html

#80 Confused in Victoria on 12.15.09 at 3:51 pm

This is a property in North Carolina. In Victoria it would be at least 3 million. We are really out of whack.

http://homes.point2.com/US/North-Carolina/Mecklenburg-County/Charlotte/Ballantyne-Country-Club/4028113-Real-Estate.aspx

#81 Confused in Victoria on 12.15.09 at 4:02 pm

Further to my earlier message the property could even be $4 million here if it were in Beach Drive.

#82 VICTORIA on 12.15.09 at 4:07 pm

people are talking about investing money…where do you do it?
I have saved $100 000 and GIC give me 1.3%. Where else do you safly investing your money? I would really like to know it because 1.3% is a joke!

Preferred shares. Strip bonds. Investment grade corporates. Principal protected notes. Seg funds, bond funds, dividend funds. Lots of choices depending on your time horizon, need for income and tax profile. — Garth

#83 miketheengineer on 12.15.09 at 4:09 pm

Garth:

You said, ” Create an auction frenzy. Sell for a premium with a supersized deposit. Go for a long close”

Like I said before, you must be a strong character to carry that one out. What happens if they don’t like it, and they come to collect their deposit, with some big strong guys, with pointy sticks……hmmmmmm.

But at the same time, it is a brilliant plan, you just need the guts to carry it out.

No guts. A lawyer. — Garth

#84 Edmonton_Yahger on 12.15.09 at 4:12 pm

“Will it be warmer? — Garth”

Just bring a pair of those thermal undies you mentioned.

#85 AxeHead on 12.15.09 at 4:14 pm

# 60, Snowbound.

Don’t fret your decision to wait. $260 for that condo is still overpriced, I suspect the correction that is soon to come (I see it now in housing prices already in Alberta) will take prices back 5 years at minimum. That condo 5 years ago was worth barely over $200. Just keep watching, weekly, you’ll see you had made a good decision.

#86 Evangeline on 12.15.09 at 4:29 pm

#28

((I’ve managed to negotiate a rental from a homeowner who’s leaving the country for a couple years. Rent is $500/mth less than I am currently paying. You can’t do that when you own a mortgage.))

I hope the person you are renting from isn’t one of those Craigslist scammers who claim to be out of the country, get you to send them a cheque for the keys, and they get the cheque, but you never get the keys.

#87 HOMEBOI on 12.15.09 at 4:34 pm

I have said it before and I will say it again. The housing market will subside in the next 10-15 years but you will not see any sort of major price adjustment.

Long term interest rates are down and the banks and government will ensure the rates are kept low.

If you want to purchase a home for a reasonable amount of money, come back in 20 years.

Renters have everything going against them for the next 10 years at least.

By the way, where did you think all those stimulus money went? To hire many people in the government with at least 100,000 to start.

#88 Evangeline on 12.15.09 at 4:38 pm

#33

((HOUSEHOLD DEBT-TO-INCOME The ratio rose two points to 145 per cent – the highest level since quarterly record keeping began in 1990. That means for every $100 of personal disposable income, Canadians now carry $145 in debt, compared with $88.60 in 1990.” (Globe and Mail – December 15, 2009))

which must be directly correlated to how much more debt Canadians have take on nowadays to buy a house

#89 Daystar on 12.15.09 at 4:56 pm

Even MSN is whispering “its beginning to look alot like a bubble”, key ingredients in the pot being low interest rates and high turnover of houses sold. Funny how no one is yet willing to ascert that it actually is a bubble. I suppose to qualify for such an ascertion, the bubble must be at its most absolute peak and have nowhere else to go but down with no further possiblities left to control the damage caused from bubbles bursting into widespread “negative equity” spawned by rising interest rates that generally breed recessions that last years at a time.

http://news.ca.msn.com/top-stories/cbc-article.aspx?cp-documentid=23005342

We can so see it coming.

God, our governments suck.

#90 Mungy on 12.15.09 at 4:56 pm

It’s beginning to look a lot like a bubble- Douglas Porter BMO
http://www.bmonesbittburns.com/economics/econofacts/20091215a/econofacts.pdf

“The amazing rebound in Canadian housing continues apace. While we don’t believe
Canadian housing is in full‐blown Bubble territory quite yet, there is clearly a risk of a blow‐off to the
high side in the months ahead. Given that record‐low interest rates are likely to begin rising by the
second half of next year, and the HST kicks in next July in B.C. and Ontario, we could see a bit of a
buying frenzy this coming spring…followed by a “pop” in 2011?”

#91 Ghostryder on 12.15.09 at 4:58 pm

#51 Jim: “My rent in Vancouver has increased 3.5%-the max they can get away with, every year for the past 6 years. There is a shortage of rental units, as they tear old ones down and build condos. They are not building apartments because it is more profitable to build condos and our spineless politicians, don’t do anything to increase the supply of rental units.”

You know how you increase the supply of rental units? You get rid of rent controls. Who wants to build more rental units if the gov’t restricts your ability to generate revenue? You might as well build condos and sell them to homeowners.

#92 Timmay on 12.15.09 at 5:04 pm

#61 CM

Agree 100%. Realtors are truly in a filthy league of their own. Just read the comments here attacking Garth, and you know they come straight from the CREA members.

What an embarrassing profession.

#93 Evangeline on 12.15.09 at 5:28 pm

#87
((Long term interest rates are down and the banks and government will ensure the rates are kept low.))

Maybe the government and banks will be proven not to be the omnipotent forces that we think they are. As Garth has said in past posts, governments will be driven to raise interest rates by external forces. Looks like some of those external forces are tightening the screws on the US government even as we speak, and the same thing can happen to our government.


TIC Date Confirms foreign Appetite Gone

#94 Q on 12.15.09 at 5:40 pm

The greater fools might be gone soon but mass stupidity remains!

#95 Soldin08 on 12.15.09 at 5:42 pm

#73 Kash is King

Not sure about the link – The market doesn’t typically move predictably off of fringe research or theory. Even IF you believe in full-blown conspiracy theory, the market doesn’t believe and neither does the MSM. In trading markets, I am wary of being “too informed”.

Really, there is quite a bit of deluded advice to go around. Gold is not a bum investment in times of governmental mismanagement, and real assets aren’t either (i.e. real estate) provided they aren’t already at the top.

I see no indication of a top in Canadian real estate at this point, the spring recovery was robust, the year-over-year numbers are amplifying gains in a most flattering way for the industry, and as people go into next spring realizing rates aren’t moving up dramatically, this will be a replay of the 2002/3 mid-recession buying spree (albeit with an even lower bar set for mortgage qualification), and the prices will take off even higher.

The next real estate crisis in Canada will only occur after a major negative stock event, and that isn’t highly probable until very late 2010/mid 2011 or so, if at all.

In that same time period (2010/11), I expect anemic job growth to provide cover for hawkish central bank behaviour (let Laidler do his thing), and a mild deflating of real estate… super mild.

Unfortunately, HOMEBOI may have better instincts than half of the “blog-dogs” AKA sheeple that comment here.

#12 Get Real is on the money. Journalism is not the same as Financial Advising. There is a huge difference.

#96 Dan in Victoria on 12.15.09 at 5:47 pm

Post #80 Confused in Victoria, amazing isn’t it? There is a small subdivsion near me, the word on the street is 300k. Land Only. Surrounded by 40 year old “cab over” homes.
I bet you would have trouble building that house in Victoria, (Land not included) for what they want completly finished there.
You bet we’re out of whack here.

#97 Grantmi on 12.15.09 at 5:49 pm

For me…. I’m just waiting for this HangOver to end… and get back into a home I can afford!!!!

http://bit.ly/7McSRd

:-)

Move Along!! Nothing to See here!!

#98 David Bakody on 12.15.09 at 5:53 pm

So housing will not fall, the sky will not fall and all will be fine in the work place for years to come. Only in Canader eh!

As Garth has mentioned many many times and older wiser people here have, entering into a 5/35 mortgage with no renewal obligations by any lender paying closing cost and next nil reduction on the initial loan in five years even at modest increases in value you stand to loose. So what about a modest decrease? read past posts that has been mentioned many times also.

#99 Steve on 12.15.09 at 6:01 pm

When I was 24 (about 8 years ago) I was working at a grocery store in Victoria with a Maltan fella named Charlie, who was in his mid-fifties at the time. He had been around the world and liked to talk investments and finance, among other things. We got to talking about the US and Canada, and he posited that Canada’s housing market always followed America’s by two or so years.

“Anticipate a crash in housing values two years after the US tanks and you will be fine,” he always said.

Of course, the reason he was working in the supermarket was that he had lost all his cash in the dot com bust.

Still, I think he had a good point…

#100 EB on 12.15.09 at 6:05 pm

“((I’ve managed to negotiate a rental from a homeowner who’s leaving the country for a couple years. Rent is $500/mth less than I am currently paying. You can’t do that when you own a mortgage.))”

Yup, in North Van I just signed on for a 30% bigger place at $380 per month less than I’m paying right now, and in a better neighborhood. There’s an increasing number of good deals out there right now.

#101 Soju on 12.15.09 at 6:11 pm

Another day with the same old predictions… It’s always in the next few months, in the next few months, but still no light at the end of the tunnel. In the meantime, I’ve polished my gold bar today and removed it from my chain. Today, I’ll use it as a paper weight. I’m thinking of buying an extra gold bar so I can multi-task. Someone should write a book called “100 things to do with your gold bars”.

#102 nonplused on 12.15.09 at 6:22 pm

I sold 15 months ago. For the first while, the monthly drop in the average house price in Calgary was equal to my rent, so I considered myself to be living rent free. With the mini-bubble we are in now, the average decline in house prices over the 15 months is only equal to about 60% of the rent paid.

Nothing in the economy has gotten any better since then, so other than the cheap rates I can’t figure why houses should be going up in price now. Plus the house I’m renting is a way nicer shack than the one I sold.

But it has stretched my patience watching the BoC and CMHC continually change the rules so they could leverage up the housing market. What’s next? No rules? Why don’t they just start handing out $1,000,000 mortgages to anyone who has a social security number? Who cares if you even buy a house with the money? They know for a fact that anybody they are lending money to today will default by the time they have to renew their mortgage, so why are they doing it?

But yet I am now convinced that I grossly underestimated the government’s ability to create new ways to extend the amount of leverage allowed to individuals. I am also convinced that they will continue to do so. Seriously, they are going to start lending $500,000 to bottle collectors if they have to, based on “stated income”.

That said, house prices won’t be going up much longer either. If it takes this much of a push by Blarney and friends to keep the market inflated, imagine what would happen if the leak got bigger!

#103 jess on 12.15.09 at 6:32 pm

banks are hoarding …business are still in a crunch for cash therefore, go to bond markets pay more ….tarp for jobs next?

#104 junius on 12.15.09 at 7:07 pm

#102 nonplused. I hear you! A conservative federal government that prides itself on being a good financial manager is the one thing holding the “pin popping” from taking place. They should be following Australia and pushing up interest rates and tightening the CMHC rules but they are obviously worried what will be exposed.

Our leaders have failed us.

#105 CalgaryRocks on 12.15.09 at 7:09 pm

They are called ‘orphaned mortgages’ and they don’t necessarily result from being underwater. Tighter lending practices can cause people to just not qualify for the next term. Just last week there was an article on a family about to be turfed in Hamilton – their payments are up to date and they only got 3 months notice.

http://tinyurl.com/y9d9l49

This of course does not apply to CMHC insured mortgages.

The 5/35s can sleep easy, they will not be getting foreclosed on if they become ‘underwater’.

Clearly, it’s not in the bank’s interest to let ‘underwater’ homeowners walk away because of the domino effect. CMHC would not let it happen either since they are on the hook.

#106 ManfredSteyn on 12.15.09 at 7:19 pm

“Both of you should relocate to Windsor… live like Kings in early Retirement…if $$$ are ur only considerations.”

Well, dodging stray bullets from across the river would be a concern living there, no?

#107 MB on 12.15.09 at 7:22 pm

> #59 Soldin08 on 12.15.09 at 12:31 pm
> I really don’t know what people are smoking
> in here. Expect an incredible parabolic blowoff
> in Canadian Real Estate well into 2011. The prices
> will be up almost 20% by 2011.

In the past several years I had seen comments like this on different US blogs countless number of times. And where is US real estate now?

P.S. The next thing people like you usually say is that it is different “this time” or “here”. The reality is that it never is. But whatever _you_ are smoking prevents you from seeing it.

#108 pjwlk on 12.15.09 at 7:28 pm

#31 BE said: “I would like to hear some of the results from people who took your advice”.
————–
I decided to sell my house August of 2007. I had been thinking of doing so long before this blog was born. Finding this website, reading the Greater Fool book and bantering back and forth with the early people on this blog provided me enough substance to finialize my decision.

For me, it was the best thing I have ever done for a number of reasons. Yes, I sold a year early, but hind sight is always 20/20… I knew that if I was going to sell I had to be happy with what the result was and too not look back. I do not regret it to this day.

The selling price was double the price I bought it for. I do want to point out though, that does NOT mean I doubled my money. In fact a spreadsheet I put together to show my sister-in-law showed that I basically just got back the money I spent on the house in a period of 18 years. “A forced savings plan with no interest” as one person here put it. What it does mean is that I got rid of $100k worth of debt, and that makes me feel great. Money invested earning dividend and interest feels even better.

So after what seemed a very long wait, along came October 2008 – imagine my delight… As you pointed out though prices have risen to or exceeded the high prior to Oct 2008. Doesn’t bother me much right now as I’m renting for what it was costing me in taxes and interest payments alone. Now I’m just waiting for Act Two before I even think of looking for anything.

#109 pjwlk on 12.15.09 at 7:34 pm

#48 Shameful, indeed said: “Garth doesn’t post arguments against his ideologies…”

I’ve been here since the inception of this blog, and I can honestly say that Garth is much more tolerant and posts many more opinions than any other blog I’ve ever seen, even when they are contrary, rude, indignant etc.

I really don’t think Garth is under any obligation to post anything. I for one am grateful that his skin is as thick as it is because it sure has made this blog interesting.

#110 Evangeline on 12.15.09 at 7:35 pm

I wasn’t following the stock market much during the summer of ’08 and I have a question about it. Immediately prior to the crash, were any bank economists, financial pundits, etc. warning that the price of oil was overheated? Just curious …

#111 pjwlk on 12.15.09 at 7:45 pm

#101 Soju

“Someone should write a book called “100 things to do with your gold bars”.”

Too funny…

#112 Boombust on 12.15.09 at 7:47 pm

“Anticipate a crash in housing values two years after the US tanks and you will be fine,”

It’s always worked that way in Vancouver. I should know. Seen it in all the previous cycles.

However, this upcoming correction will spank them silly.

#113 OttawaMike on 12.15.09 at 7:59 pm

RE:#12 Get Real on 12.14.09 at 11:55 pm
While I agree with your tagline to turn off the TV and computer and get a life. I must disagree with your synopsis of Garth’s journalism career.

I was married, the first time, in ’84. GT the biz editor of the T.O. Sun implored people at that time to beg, borrow or steal your way into home ownership.
I had a 25% down saved but wanted to hold off for a couple of years. I bought early into the suburbs of Toronto mainly due to those Sun columns and made out much better than those who waited an extra 2-3 yrs.

#114 $fromA$ia ( o Y o ) on 12.15.09 at 8:04 pm

If you can’t disagree without attacking the other person, instead of the argument, you are the ass. — Garth

Your joking right? Theres nothing wrong with disagreeing, telling people they are wrong is arrogance at its finest and it makes no argument to begin with.

Would you dare ever tell your wife shes wrong… oh oh.

#115 CTM on 12.15.09 at 8:09 pm

http://www.financialpost.com/story.html?id=2342678

You were saying?

“Who asked not to be identified…”

Nice!

#116 smw on 12.15.09 at 8:15 pm

#51 Jim

…there is a shortage of rental units, as they tear old ones down and build condos. They are not building apartments because it is more profitable to build condos and our spineless politicians, don’t do anything to increase the supply of rental units…

Sounds like Miami and Las Vegas a couple years ago doesn’t it?

#117 Danforth on 12.15.09 at 8:36 pm

@ #77 Emma on 12.15.09 at 3:03 pm

Agreed…inner-city neighbourhoods have a charm which suburbanites fail to understand. When it gets harder to get around by automobile at some point in the future, they’ll wish they bought 1200 sq feet downtown rather than 2400 sq feet in the burbs.

However, Parkdale will always be a mixed community with a notable amount of public housing. While that’s a reality in modern society and needed – my observation is that it does impede the ability of a neighbourhood to gentrify and appreciate in property value. The Danforth semi’s which Garth writes about don’t have much in the way of lower income rentals and public housing. And traffic on King/Queen has become a nightmare….I can still shoot across Danforth and the viaduct into the city in flash!

and…btw.. I’ve got a single-sink/granite countertop in my kitchen ! But I’m still an urbanite!

#118 andrew in toronto on 12.15.09 at 8:42 pm

http://www.theglobeandmail.com/report-on-business/fears-of-canadian-housing-bubble-ease/article1401704/

prices down 1% month-over-month! Supply up 5% MoM! “return to normal” with lots of comments about interest rates!

Yay!

#119 sd on 12.15.09 at 9:11 pm

Getting more and more media attention, when the masses figure out things are not that “different here” its time to run. http://www.montrealgazette.com/business/fp/From+Great+Depression+bubble+bubble/2342678/story.html

#120 Nostradamus Le Mad Vlad on 12.15.09 at 9:14 pm

#68 Nostradamus jr. — “The U.S. is out to bankrupt the world.” — and — #73 Kash is King

Kash, your link along with Nostradamus’ line and the links I provided last night / early this morning clearly show there is oodles of stuff going on, with the controlled m$m being complicit in keeping the truth hidden from the realists of life.

Guess this is why Internet 2 is already in place, so all sites can be seen / controlled / banned.

2010 — Summer and on: Wot say this is when China, the US and others start falling (bankrupting) like ninepins, and we’re left to clean up the mess? BUT (there is an unknown quantity involved in all this) . . .

Convenient and unexpected polar shifts, super- and under-sea volcanoes blowing, comets, asteroids and hemmorhoids, massive ‘quakes and other jollies happening with the bulk of the planet freezing over, all within the space of a year, should be enough to show sheeple there is something beyond the norm happening!

The scrap is strictly between the US and China. Both know that the US is sinking, and China is doing whatever it can to solidify its position, because it knows it will be fiscally hurt. Right now, China and the US both need each other, but when one blinks, it’s a different game for everyone.

Cdn. RE doesn’t matter anymore, except to receive an unexpected inheritance / gift / lottery win, pay all debts off and snuggle up to Garth in his bunker while riding out the storm!
——
Link is so-so, but comment from wrh.com is better — War Budget “Wow: they’re staving off a potential US government default by…… a whole 60 days?!?!? What then?!?”
——
Flashback to May 2009: A good piece from the Not So M$M
——
Talk about opulence. Received an e-mail today, PPS shots of luxury stretch limos and a Hummer (out and inside), Greg Norman’s quite large yacht with all the goodies added on, same for Roman Abramovich and the Sultan of Brunei’s custom-designed Airbus A-340.

Yes Virginia, there really is a Yankee-Doodle Dandy and it sure as hell ain’t me!

#121 Joan on 12.15.09 at 9:22 pm

#45 Herb
“To my mind, a system that fosters exploitation by persuasion is just as criminal as one that fosters extortion by force.”

I believe the former is called capitalism. Just an observation.

#122 lgre on 12.15.09 at 9:31 pm

87 HOMEBOI on 12.15.09 at 4:34 pm

you sound like the RE bulls in the US back in 06, they are all hiding under a rock now, I’m sure they will have space for you as well.

#123 Dave on 12.15.09 at 9:38 pm

I don’t get any love for my comments about gold mining. The inflationists get all the attention, too bad they’re wrong.”- Dipstick Dave.

Keep telling people they’re wrong, jack ass.

———————————————-

I don’t understand your argument. Yeah, the inflationists are wrong. Credit expansion brings inflation and credit contraction brings deflation. This is not rocket science.

#124 Wealthy Renter on 12.16.09 at 12:45 am

prices down 1% month-over-month! Supply up 5% MoM! “return to normal” with lots of comments about interest rates!

Yay!

Hi Andrew,
I think I will celebrate this good news by buying a house on the Kingsway! With just a casual observation, it not difficult to see that the 5% increase has occurred in the million dollar range. Over the last few weeks, there have been a lot of million dollar homes hit the market in west Toronto. There is certainly nothing affordable in a decent area much under $600K.

#125 Herb on 12.16.09 at 8:16 am

Joan @ #121,

you’ve done broke the code! Of course it’s all a matter of degree – and window dressing.

#126 Nestor on 12.16.09 at 9:30 am

where is the deflation??

PPI running at 4.4% for calendar 2009
CPI running at 3.0% for calendar 2009

where is the deflation??

the only bubble that exists is the amount of money governments are printing …

#127 dave from Oakville on 12.16.09 at 11:09 am

Garth, what happened to my couple of posts? They seemed to have been removed. I was just posting a bit of interesting news about the china rising.

All has been posted. I’ll take the elevator down to the Spam Dept and see if anything is there. — Garth

#128 Peter on 12.16.09 at 4:58 pm

Lining up for pre-sales is the opposite of buying condos on spec. Building a condo on spec would mean building it without selling the units first. Unless a developer is extremely wealthy, you just can’t do that, especially with the stricter lending practices over the last two years. A developer typically needs to sell 70% of the units in order to get financing, so pre-sales are an important part of the building and land development process (which helps increase the supply of housing and decrease prices).

#129 Peter on 12.16.09 at 5:18 pm

What’s really going to drive down prices in Toronto is the massive increase in the supply of condos in 2010. Over 30,000 occupancies are scheduled for 2010, while from 2005-2009 we were seeing about 15,000 per year. Investors trying to cash out are going to be disappointed.

#130 T.O. Bubble Boy on 12.17.09 at 12:59 pm

CMHC in 2011:

http://www.nytimes.com/2009/12/17/business/17wards.html?_r=1&ref=business

” lifeline could climb to nearly $1 trillion if the commitment to Fannie and Freddie is doubled, as some predict. ”

$1 Trillion for Fannie/Freddie = $100 Billion for CMHC if we use the 10-to-1 Canada/US ratio.

#131 Mike Scollard on 12.17.09 at 2:00 pm

This supposed 22% rise in prices is utter nonsense.

The only reason the “average” resale price is up this much is because no one is buying at the lower end of the market! Why buy an el cheapo little dump when they’ll lend you enough money to buy a nice move up house to hang yourself in.

The typical house has NOT gone up 22% in the past 8 months! It is statistical bunk.