Happy meals

Moans Kitty in Calgary: “I am just wondering if Calgary house prices will ever come to normal. It seems like it will take forever and probably it will happen just before the end of the world. This was never meant to happen if people weren’t so stupid. I blame all these jerks and I really hope that they will pay hard for this.”

Ooh, Kitty. All hiss, spit and claws.

Meanwhile ‘Houseless in Toronto’ asks: “Can you offer an ETA on when the ‘end’ in ‘it will not end well’ will be? I am looking to vulch on a central TO bung; I have approx 40% of the current going rate ready as a downpayment. The more I wait, the higher prices become. I am worried that the eventual fall may end at a price higher than current if this thing keeps going. What’s your ETA?”

Clearly the natives are getting restive, barely able to keep their swelling pent-up demand in their trousers. At least the natives without real estate – those who crawl into this iniquitous blog with MLS morning breath looking for a fix. Meanwhile a whole slew of homeowners are hoping like hell the housing ‘crash’ thing is a Garth Turner fabrication and that I’ll be as successfully self-destructive at this as I was at politics. Hey. Just watch me.

But I think it’s maybe time for a big picture kinda review of the current situation with regard to real estate’s troubled future, based on a few current developments.

As you may have heard, mortgage rates (well, some of them) went down again this week. Beemo and TD nicked a tenth of a point off five-year fixed money, which means you can lock in for 60 months at 3.89%. This may sound like good news, but I wouldn’t be quite that hasty. Yeah, you can get debt for ten basis points less than last week, but first ask yourself: why are the rates falling?

You can bet if the economy was improving, the cost of money would be rising. In fact, long-term mortgage rates are set in the bond market, where yields have been falling and prices pumping as investors stampede in to escape the storm outside. The US, as I’ve been describing of late, is one sick puppy. The current foreclosure crisis, the likelihood of Obama getting his butt kicked next month and the latest dismal jobs numbers all point to the same thing. Trouble.

The Fed said as much in his latest missive yesterday, setting the scene for a Nov.3 move to further stimulate things. What does that mean? Creating funds to buy government bonds (that’s called quantitative easing) which will force interest rates a little lower and throw more money around. Maybe a trillion or so. The whole idea is to engender inflation, which shows you what a ridiculous world we now inhabit.

America is teetering on the edge of deflation. Businesses can’t raise prices and create profits because consumers are bummed out on debt, with their houses depreciating and jobs non-existent. So, they stop spending – bad news in an economy which is 70% dependent on people buying Happy Meals and Capri pants.

This is why mortgage rates are falling. It ain’t good.

Meanwhile, guess what the feds in Ottawa are doing? Spending $55.6 billion more than they have this year, according to F’s big speech Tuesday in romantic Mississauga. It’s a record deficit, and we will be racking up losses for another five years – which seems to be the best-case scenario. By then the federal debt will be about $600 billion, and anyone under the age of 50 can look forward to higher taxes for the next two generations.

And, speaking of oxygen-sucking, Depends-wearing, walker-bound, drooling Boomers, seems a growing herd are becoming as insolvent as they are tedious. The number of bankrupt people over the age of 55 has more than quadrupled in the past ten years, reaching an astonishing 20.6% last year. This is the sharpest increase in the entire population. And you thought these geriatric farts had all the money, right?

So let me summarize. Lower mortgage rates are the result of an American economic crisis. What’s left of the US middle class is being slowly bled out by real estate. Canadian government and personal debt is off the charts, while income-starved Boomers are already washing up on the shores. We’ve only just started to see the inevitable housing correction, and mortgage rates could go to zero without effect. And hissy little Kitty’s pissy she can’t afford a house?

But she may be prophetic. “Probably it will happen just before the end of the world.”

Ah, Kitty. For more people than you realize, we’re close.

134 comments ↓

#1 InvestX on 10.12.10 at 9:25 pm

Well, well. Lowered rates. Looks like prolonged low rates are becoming a reality.

#2 Tom on 10.12.10 at 9:27 pm

We’ve been close for a long time, shouldn’t it have already happened? How many more warning signs does the market need? It seems as though rates will never reach what they did in the 80s. Most home owners have had the benefit of cheap rates for 10 years now, almost half the time of a conventional mortgage. It seems as though it will continue for several years, OK, maybe they’ll rise a percentage or two, this won’t affect people with conventional mortgages that much. Yes, we should have bought five years ago. The market is stubbornly sticking to high prices. We’ve had more turbulence in the economy than we’ve had over a 20 year period, yet prices have dropped a whopping 5-10%. Yippee, they’re still overvalued by 50%. It will take a massive correction for it to make sense to buy in Vancouver. Though I’m convinced the market will trend down over the next few years, I’m not sure that it will correct to the level where it makes sense to jump in, so most of us sit by the sidelines, for years…
Thanks to the “Conservatives” for running up the biggest deficit in history. Trying to buy votes by rolling out a half baked stimulus program which gave jobs to wrench bangers, but did nothing to improve our productivity, which is one of the lowest of the G7 countries. We won’t even elaborate on Harper’s dismal record of foreign policy, not getting any seats at the UN. But hey, we don’t have to worry because F said on the National tonight “we’re watching the economy” Oh, what a relief, Harper’s stooge, the finance minister is watching the economy. Doesn’t that make you feel better folks?

#3 rain8 on 10.12.10 at 9:38 pm

Garth please do a column which explains why it is a good idea to invest in bank stocks. If the real estate market in Canada is heading for a correction, employment still high, personal household debt high and consumer spending is at an all time low, how can this be good for the banks? Despite much of the risk of mortgage defaults being back stopped by CMHC, what about defaults on Visa accounts, home equity loans and car loans? How can the current scenario be anything but really really bad for the banks? Please explain.

#4 concessionman on 10.12.10 at 9:49 pm

lol..

“and that I’ll be as successfully self-destructive at this as I was at politics.”

Not your fault Garth, you were an honest politician, a combination doomed to failure….

#5 concessionman on 10.12.10 at 9:54 pm

Hmmm…

so how is it when the government creates money it’s called “Quantitative Easing” but when we create money it’s called “Counterfeiting”….

#6 Alanis on 10.12.10 at 10:02 pm

Hi Garth,

Very interesting news regarding high rates of bankruptcy among boomers. Could you post the link where we can read this information?

Cheers!

#7 bsallergy on 10.12.10 at 10:03 pm

The part that kills me about the low rates is that people increase the size of their loans instead of increasing their payments to slay their debt. Now what is the line about fools and their money . . .

#8 bridgepigeon on 10.12.10 at 10:08 pm

barely able to keep their swelling pent up demand in their trowsers…
oxygen sucking, depends wearing, walker- bound, drooling boomers…
hissy little Kitty’s pissy…

just a recap of the highlights ;)

#9 hobbygirl on 10.12.10 at 10:09 pm

Garth – you mentioned in one of your posts this spring that later on this year would be good time for vultures to start looking but not to buy yet until next year sometime. Have your projections changed any with the recent developments?

#10 Devil's Advocate resurrection on 10.12.10 at 10:10 pm

Gee that graph looks to suggest to me that “Inflation Adjusted Housing Prices” are at, or very, very close to, the post 1920 trendline. How could that be?

Really we need prices to fall a bit further to entice buyers back in to the market. Screw interest rates, let’s get these prices down, down, down.

#11 nonplused on 10.12.10 at 10:23 pm

Interesting times indeed. The gold & stock markets seems to be forecasting inflation, while bonds are forecasting deflation. Can they both be right? Meanwhile there is talk of begger thy neighbor currency wars, real wars, wars on terror, scandals left, right and center, and now they tell us the crops didn’t come in as planned in the US, to add to the problems already present in the rest of the world. Yikes!

The seller’s strike in Canada won’t be busted until somebody is forced to sell. That could be a long time. Interest rates probably won’t go up until inflation is alive and well, probably in the 5% range. Sooner or later these central bankers wil figure it out and get the money to debase, if a real recovery can’t be made to go.

#12 nibs on 10.12.10 at 10:26 pm

Good stuff Garth

Realtors…..they’ve got your back!

http://financialinsights.wordpress.com/2010/10/12/realtors-theyve-got-your-back/

#13 Kurt on 10.12.10 at 10:27 pm

Garth buddy:

The number of bankrupt people over the age of 55 has more than quadrupled in the past ten years, reaching an astonishing 20.6% last year.

Whoa. Do you mean the *increase* hit 20% last year, or that 20% of people over 55 are/have been bankrupt, or that people over 55 now account for 55% of the bankruptcy? What you wrote is the second, but I think what you meant was the third. Please clarify.

Cheers!

-K

The group now represents 20.6% of all bankruptcies. — Garth

#14 Devore on 10.12.10 at 10:36 pm

#2 Tom

F said on the National tonight “we’re watching the economy” Oh, what a relief, Harper’s stooge, the finance minister is watching the economy. Doesn’t that make you feel better folks?

Sure does!

Reminds me of that Seinfeld routine where he talks about a guy driving a car down the highway with a mattress strapped to the roof, always with a hand out the window and holding on to the mattress. You know, in case the mattress rips off the roof going 100kph, it’s ok, I got it, I got it!

#15 Zee Free on 10.12.10 at 10:39 pm

Wait a minute. Isn’t there just even more fuel for the housing market:

(1) Fixed Rate Mortgages just went down again (as announced by two major banks today)

(2) It looks like Rob Ford will get elected in Toronto. If he does, it’s likely he’ll repeal the land transfer tax. This will simply add more fuel to the fire.

This is scary. There’s no end in sight to rising prices I’m afraid.

#16 Guy_in_Regina on 10.12.10 at 10:43 pm

“Meanwhile, guess what the feds in Ottawa are doing? Spending $55.6 billion more than they have this year, according to F’s big speech.”

If I ran my finances like the feds run, uh, my finances, I’d go bust!

Great post Garth – I’m sick of hearing about twits in Toronto and Victoria.

#17 tkid on 10.12.10 at 10:44 pm

Rent! Houseless In Toronto, Rent!

I just did, got a place that scratches all the itches and doesn’t have me paying out a mortgage! All of the fun (I finally have granite countertops in the World’s Smallest Kitchen With Full-Sized Appliances), none of the worries (who is going to eventually buy a place with such a small kitchen)!

#18 Taxpayer like everyone else on 10.12.10 at 11:01 pm

From the office of the super of bankruptcy

“From 1989 to 2009, the proportion of insolvent
consumers between 18 and 34 years of age has fallen steadily (from 12.9 percent to 4.4 percent among those 18 to 24 years of age and 43.0 percent to 22.3 percent among those 25 to 34 years of age). Over the same period, the proportion of insolvent consumers among older age groups has increased (from 11.3 percent to 24.7 percent among those 45 to 54 years of age and among those 55 years of age and above the proportion has more than quadrupled from 4.6 percent to 20.6 percent).”

Its a little confusing, but this refers to the percentage of all insolvencies. So the 55+ now represent 20.6% of all insolvencies. They used to be just 4.6%. But it doesnt mean that 20.6% of all 55+ are insolvent. Just to be clear.

So why has the 35- demographics insolvency decreased?

CUZ THEY WONT MOVE OUTA THE HOUSE!!

#19 john m on 10.12.10 at 11:01 pm

2 Tom on 10.12.10 at 9:27 pm…how very true..it just makes one feel warm all over knowing our future rests in the hands of “H””F””C” and company. As far as “H”‘s loss at the UN its all Iggy’s fault? What a pathetic bunch of lying cry babies …..

#20 mel on 10.12.10 at 11:04 pm

Tom:

So what if it takes long time. Watch price/rent ratios , if it falls to 15 or below, only then should you buy. Watch out however, adjust it for future higher interest rates. Higher interest rates are next, after deflation.

Take the difference between owning and renting and invest it. Stocks will be a much better buy in the coming few years. Wait for it! Meanwhile, invest safely or if you are a pro. do whatever you can make $$$

Patience is the key here. You do not want to own a house when it is correcting, no matter how long it will take. Enjoy life, while you wait.

#21 Carla on 10.12.10 at 11:10 pm

Garth, I assume that chart is for the US? It would be interesting to see a Canadian version…

#22 dark sad person on 10.12.10 at 11:11 pm

Moans Kitty in Calgary: “I am just wondering if Calgary house prices will ever come to normal. It seems like it will take forever and probably it will happen just before the end of the world. This was never meant to happen if people weren’t so stupid. I blame all these jerks and I really hope that they will pay hard for this.”

****************

Tune for ya Kitty-

Sounds a bit like you-pissed-but a tad more optimistic-
I especially like her market position-

“Cash”

Cuz-Deflation isn’t coming-it’s here-

http://www.youtube.com/watch?v=JfYdh-l01zI

**************

#23 When? on 10.12.10 at 11:25 pm

When will it pop? – when u least expect it….

#24 Basil Fawlty on 10.12.10 at 11:26 pm

So if Obama get’s his butt kicked in the November elections, do they then end up with someone from the Sarah Palin Fan Club? Imagine Sarah Palin with Glen Beck as the VP and Bill O’Reilly as the Minister of Funny Walks.

#25 Patz on 10.12.10 at 11:49 pm

Tom, I think you’ll see the market “trending down” more akin to the way a mountain bike heads down a rocky trail at a 90 degree angle. You know, the ones you see films of just before they wipe out.

Murphy’s Law: what can go wrong, will.

There are more tipping points in the world economic system right now than a room full of happy waiters.

#26 Nostradamus Le Mad Vlad on 10.12.10 at 11:58 pm


Some friends mentioned to us that they had put an offer in to rent a home.

The home is a fairly new McMansion. The excess costs and trouble involved in maintaining the home eventually caused the original owners to split, mtge. payments weren’t made so the bank foreclosed.

It’s been sitting empty for close to a year. Our friends put a low-ball offer in for renting a 6600 sq. ft. home, and they may have the offer accepted. Even $2000 / month rent would cover the property taxes. We’ll see.

“. . . if people weren’t so stupid. I blame all these jerks and I really hope that they will pay hard for this.”

See link further down. Kitty is correct!

“why are the rates falling? Trouble.” — I’m curious. If the bond market flatlines, deflation is riding high followed by inflation, derivatives, CDS’s, housing, stock markets all moving in a yo-yo fashion — is it nearly time for Scottie to beam us all up?
*
#99 miketheengineer — Hello Mike. The site may be down for maintenance, but curious nonetheless.

Cheers!

5:19 clip Guns drawn raiding a health-food store?

Pelosi = Compassion? Not bloody likely.

Nothing is sustainable here, esp. the world’s economic system.

Guess this can be applied to a few million Canuckleheds as well. [This one].

Now we know why the BoA stopped foreclosures in all 50 states.

Krugman’s “I told you so” moment of illumination.

#27 Victoria steve on 10.13.10 at 12:03 am

our guru arrives tomorrow, bought all the books, sold the mansion at the peak in 2007, took the money and vultched on another downtown condo, since then have bought preferred etfs, fixed income bonds of all types, stayed in whack of cash because we can! Running giddy on the profits of global precious metal funds for the last few months. But all our friends in Victoria pity us because we got out of the market, you,ll never get back in and Victoria is different!
Single me out tonight and let me bow to the alter of common sense in front of the masses! Be the change you want to see in the world!

#28 dd on 10.13.10 at 12:04 am

A must-read over at VancouverCondo.info http://vancouvercondo.info/2010/10/the-cmhc-and-canadian-style-subprime.html/all-comments/

So the sideways prediction in home prices that homeowners are predicting? WISHFUL THINKING. The downward spiral the bears are predicting? The natural outcome of moral hazard.

If you understand that the government of Canada became the biggest subprime lender in the world, you are right. If you don’t understand this, you are the one we are all going to laugh at.

If you don’t understand that the government of Canada is actively trying to deflate this bubble (praying for a soft landing that never actually happens) you are the village idiot!

#29 Kestral on 10.13.10 at 12:12 am

There’s a saying that markets usually inflicts the greatest pain to the greatest amount of people. If this is the case then the path of maximum pain would be a slow-as-Chinese-water-torture drip down in prices for real estate. This will frustrate the Kittys out there as well as the debt – I mean home – owners.

#30 Chariscuro on 10.13.10 at 12:28 am

Hi Garth,

I’ve reading and enjoying your blog for a long.

Wondering where the 20% bankruptcy number is coming from (in people over 55)? It seems astonishingly high.

Thanks, Chariscuro

Federal stat – Superintendent of Bankruptcy. — Garth

#31 Jonathon on 10.13.10 at 12:36 am

What’s the equivalent Canadian Inflation-Adjusted Housing Prices look like? How about Vancouver?

#32 raj on 10.13.10 at 1:08 am

I keep waiting and finally bought a 1 bedroom condo in Etobicoke for 230000. I am putting 62000 down and my mortgage taxes and maintenance comes up to 1000 max. The same unit is renting for 1500. Now I do understand prices will go down but how can i go wrong. I will be paying 500 more for renting. That doesn’t make sense

#33 Landless Serf on 10.13.10 at 1:08 am

I’m losing faith that the market will drop in Vancouver. It’s getting depressing seeing everyone have a nice home and it constantly increasing in value.

While I sit in my tiny basement suite paying very little rent and saving cash that earns no return at all.

Not to mention the pressure from family to buy, consistently being reminded of how wrong I am over the last 2 years since prices still go up.

#34 The Original Dave on 10.13.10 at 1:15 am

I don’t think lower rates can cause a rally in real estate again. The panic already happened. The people that were desperate and needed to buy, lined up throughout 2009 and the first quarter of 2010. How many crazy people are left?

#35 The Original Dave on 10.13.10 at 1:19 am

anyone have mid month numbers for activity in October? Family members at thanksgiving were commenting that prices were up last month or something like that. I didn’t want to get into the conversation…must be some Re max report translating a better September over August means that everything is fantastic again

#36 VancouverGoinUP on 10.13.10 at 1:25 am

Great great news. Mortgage rates going lower. Folks they are never going higher….Again.
Time to back up the truck and load up on the West Coast. Rents are going much much higher and so is the pirce of your house. When the next financial collapse comes the rush towards gold and Vancouver real estate is going to be incredible. Imagine Lake Okanagan being forced through a garden house and you get an idea of the stampede to safety about to happen….Again
Deflation is not going to happen. Inflation is.
See you on the Coast

#37 Waiting in Vancouver on 10.13.10 at 2:35 am

Garth, that inflation adjusted graph makes it look as though the minute drop we’ve had in the second half of 2010 has brought us halfway to inflation adjusted prices. Could you explain? It seems from that graph like another minute drop would put us at 1950 levels…or is that graph the US?

Yes. — Garth

#38 Ken on 10.13.10 at 2:36 am

“It” will take a while…

There are still too many “Kittys” out there that can’t stand being granite and sub-zero deprived. Many of them will continue to cave into the temptation of low mortgage rates, keeping the balloon pumps humming for a while yet.

I’m still getting laughed at by the real estate moguls (like the lady that cuts my hair and owns a half-dozen spec-u-rentals in Vancouver) for paying rent that covers about 65% of my landlords ownership costs.

This is like religion to the boomers. They (we) go to yoga classes and chant “real estate always goes up” while doing our downward dogs and sun salutations. It will take a while, but the epiphany will come.

Until the last of the Kittys start to not care about real estate anymore and see the house of cards for what it is, this will drag on for a while yet.

#39 kitchener1 on 10.13.10 at 4:06 am

These things are all actually positive developments.

The fact that people over 55 are going bankrupt is a good sign. It means that they can rid themselves of huge burden of debt and maybe live a little easier or sleep better.

Weither people like it or not, we need a huge purge in this country if we are to recover in a proper way.

Simple fact is that Canadians (like Americans) are in way over there head in terms of debt. Someone with a 148% debt to income is not going to be driving this economy at all.

Peak credit seems to have been reached and boy has it been a great ride, but from here its downhill for at least 2-3 years. Maybe even more depending on govt intervention.

Its really quite simple, consumers are tapped out, these folks- boomers included will have to curtail spending not because they want too, but because they have too.

Younger folks in their 20’s 30’s and 40’s will be lucky if they can hold on to their homes while cutting back on expedentures (no movies, resturants, fancynew clothes or gadgets) just the basics. This does not bode well for a service driven economy like ours.

Things have to get worse, much worse before they get better, the sooner things go down, the sooner things get better.

Once the mother of all recessions is done with we will have the mother of all recoveries, so keep posistive and see the light at the end of the tunnel, but understand that this recession HAD TO HAPPEN. Its natural product of economic cycles and because we had the longest run up of good economic times, we will now have the longest(in recent memory) recession.

Older folks, 55 plus will have to learn to live with less and budget accordingly, younger folks in their 20’s or 30’s will have a much higher tax burder to shoulder then the boomers did when they were the same age, such is life and demographics.

Cest le vie

#40 jman on 10.13.10 at 5:51 am

Hi Garth,
I read the Globe article on bankruptcy yesterday as well. I believe the article was poorly written especially the 20% figure for the over 55 crowd. The 20% refers to the proportion of totl bankruptcies and that their share of the total has quadripled. I can’t believe that a fifth of the largest segment of the population is bankrupt.

#41 Ben on 10.13.10 at 6:04 am

Low rates mean high house prices, the rest doesn’t matter.

Not this time. — Garth

#42 House on 10.13.10 at 6:38 am

The Toronto Star’s Moneyville is giving 10 tips on buying the right house. It doesn’t seem like paying the right price is part of the equation.

#43 Billy in Nobleton on 10.13.10 at 6:44 am

My bank offered me a 3.49% @ 5yrs 2 weeks back.
I’ve been muling the varialbe rate though,

How long do you think BoC rates will hold for?????

#44 Moneta on 10.13.10 at 6:54 am

Hi Garth,
I read the Globe article on bankruptcy yesterday as well. I believe the article was poorly written especially the 20% figure for the over 55 crowd
———–
Who cares about the writing. What counts are the facts.

Not that long ago, people retired with NO DEBT. Today, boomers are retiring with debt. That explains the higher level of bankruptcies. The excuse is that they’ll keep on working but reality strikes and for 40% of 50+, they are forced into early retirement due to layoffs or health issues. 40% is a significant number. But for some reason, most people downplay the potential for negative events.

When our leaders tell us that retirees are just fine, they’re looking in the rearview mirror. For the last little while, each retiree has been supported by 5 workers. If you use the current population table, you’ll see that this number is peaking right now. We’re currently in a sweet spot so it’s not surpsie that retirees are still fine, apart from the ones going bankrupt or the 20% living below the poverty line.

But in the near future we are heading towards 2 workers per retiree. This will mean less workers to fund their retirement and a mortgage on top of that.

Why is it so hard for most to believe this? It’s coming to a theater near you. Don’t forget your popcorn.

#45 MO on 10.13.10 at 7:05 am

Interesting take…according to Jeff Rubin, the US housing crash has little to do with housing (video):

http://www.planbeconomics.com/2010/10/13/panel-discussion-on-peak-oil-jeff-rubin-andrew-nikiforuk/

#46 lonely limey on 10.13.10 at 7:09 am

Finally, a UK minister says what’s needed. ” Your home is a place to live, not a pension”

http://tinyurl.com/2622ewf

#47 bigrider on 10.13.10 at 7:14 am

At ground zero.

I can tell you from the buiding industry that sales of new and high rise and medium density housing in GTA has been as strong as ever. Pricing for units have risen from last year. The belief among builders and agents that prices will continue to rise is not a lie formulated for the public to continue to buy..they really believe it.

Until we see clear signs of fatigue in this market, this blog is going to be inconsequential. I am strongly in the bear camp for RE for sure for obvious reasons, but the streets of GTA do not as of yet share my/our opinion .

#48 pjwlk on 10.13.10 at 7:20 am

A little off topic perhaps but interesting I think. I read this comment from an investment firm email.

“Consider this little tidbit from the Miami Herald from 2008:

Between 2000 and 2007, “regulators allowed at least 10,529 people with criminal records to work in the mortgage profession. Of those, 4,065 cleared background checks after committing crimes that state law specifically requires regulators to screen, including fraud, bank robbery, racketeering and extortion…”

Yikes! No wonder they’re in such a mess…

#49 T.O. Bubble Boy on 10.13.10 at 7:33 am

If the market is slowing with 5-year fixed-rate mortgages at a historic low of 3.5%, why would it suddenly get hot again @ 3.39%?

Are there really people sitting on the sidelines waiting for that .1% drop? (obviously not, when almost 70% of Canadians own a home)

#50 brainsail on 10.13.10 at 7:39 am

Does a chart like the following exist for Canadian house prices?

http://mysite.verizon.net/vzeqrguz/housingbubble/

The US chart indicates house price have almost returned to the pre-bubble trend lines but what will happen to future prices after the nominal trend line crosses the inflation-adjusted trend line?

#51 Kevin on 10.13.10 at 7:40 am

#11 nonplused

The reason the bond market appears to be predicting deflation is because of the first round of QE. This is the reason for QE2 as well. To keep bond rates low in the US.

This is not a free market and does not reflect the real market price. The US can not under any circumstances meet all of their current financial obligations. They will eventually default on some of them. The bond market does know this but they also know that front running the fed and buying bonds ahead of the next round of QE is free money. They just buy them know and sell them back to the fed (taxpayers) later.

#52 Makeorbreak on 10.13.10 at 7:53 am

Has anybody watched that new, stupid show on W called “Burn that mortgage”?

Last week were featured a couple in their 40s, 2 teenagers, and a $450,000 mortgage at 2.5%interest rate over a 25 or 30 year period. The show is misleading in that they don’t take into account the mortgage will reset a few years from now, at probably a higher interest rate. The husband is an accountant, so how can he not see that?

The couple spends $1,000 a month on take-out food, $17,000 a year on sporting equipment and another $17,000 on home maintenance (cleaning, landscaping, snow removal services, etc…)

They were advised to cut their spending in half in these areas so as to save many years off their mortgage…nobody told them though that is assuming their interest rate remains at 2.5% over the next 30 years, and assuming they keep their jobs at their current salaries.

Doesn’t matter how much expenses they cut, these idiots will join the bankruptcy statistics when their mortgage resets.

#53 dark sad person on 10.13.10 at 8:00 am

#11 nonplused on 10.12.10 at 10:23 pm

Interesting times indeed. The gold & stock markets seems to be forecasting inflation, while bonds are forecasting deflation. Can they both be right?
***************

Bonds and Gold are “both” forecasting Deflation-
These two are never wrong-

The Stock Market?
Several reasons for its stellar performance-
Main one being the GS Quants with their HFT capabilities and the fact-that the Stock Market has a lot of Dumb Money in it-while Bonds and Gold have always had the Smart Money–
And-you ain’t seen nothing yet-just wait until the Hot Money starts really flowing into Bonds and Gold-

#54 Delighted on 10.13.10 at 8:01 am

Zee Free
(1) Fixed Rate Mortgages just went down again (as announced by two major banks today)

(2) It looks like Rob Ford will get elected in Toronto. If he does, it’s likely he’ll repeal the land transfer tax. This will simply add more fuel to the fire.

This is scary, There’s no end in sight to rising prices I’m afraid

2 great things how can it be scary???? Why would you want to pay land transfer taxes? and why would you want high interest repayments?

#55 mn_op on 10.13.10 at 8:37 am

May be I need to be explained with crayons…but why is the graph that shows that our current inflation adjusted housing prices are only 30% higher than 1890 is necessarily bad?

Houses in 2010 are far better than houses in 1890 and have built in Microwaves still we pay only 30% more for them? That sounds like a very good deal to me.

#56 Signal Loss on 10.13.10 at 8:38 am

Garth, what is the source for the chart at the bottom of the post?

#57 Kestral on 10.13.10 at 8:51 am

raj said: I keep waiting and finally bought a 1 bedroom condo in Etobicoke for 230000. I am putting 62000 down and my mortgage taxes and maintenance comes up to 1000 max. The same unit is renting for 1500. Now I do understand prices will go down but how can i go wrong. I will be paying 500 more for renting. That doesn’t make sense

Uhh raj, add in property taxes, mortgage interest, condo fees, future increases in condo fees, 10% round trip to buy/sell the place and you’re paying way more for your condo than it is to rent.

#58 brunt on 10.13.10 at 8:51 am

#32 Raj

I keep waiting and finally bought a 1 bedroom condo in Etobicoke for 230000. I am putting 62000 down and my mortgage taxes and maintenance comes up to 1000 max. The same unit is renting for 1500. Now I do understand prices will go down but how can i go wrong. I will be paying 500 more for renting. That doesn’t make sense
***********************
I get the following rough annual numbers:

$6720 interest
$3450 property taxes
$4000 maintenance
$2480 lost income on your down payment
$2400 condo fees

That’s $1400 per month. I could be out a bit, but then again, there are often surprises that cost you more that are not obvious going in.

On top of all this, the purchase requires legal fees and inspection costs of about $2,000. Make sure that you get someone to examine the condo board to make sure they are solvent – another major potential cost. If you are a first time buyer, then land transfer tax does not really matter.

When you sell again, then you pay an agent 6%. Assuming that you live there for five years, this is an additional annual cost of $2760.

These two points increase your monthly payments to about $1667.

And if real estate drops by 20% during those 5 years? Then $766 of your wealth will be lost per month, bringing the cost to over $2400 per month.

So, not only can it go wrong, it can go very wrong.

And you should also look harder for rentals. I currently pay $1300 for a place that would cost about $350,000 to buy.

#59 AxeHead on 10.13.10 at 8:51 am

October Real Estate Stats – Red Deer, Alberta

Sales 2009 – 28
Sales 2010 – 16

It’s slow out there (good) but there are still fools buying overpriced McMansions (600k range). When will the SHTF?

#60 Makeorbreak on 10.13.10 at 8:54 am

I wouldn’t be so quick as to label boomers with living above their means. I am sure the majority of them don’t. After all, boomers were raised by a generation that lived through the Great Depression. I am a boomer and even if I hate to admit it, my parents’ ways still resonate in my ears. Although my parents did well, debt was worse than a capital sin, damaged shoes were brought to the shoe repair shop, socks were mended, not thown out, electric appliances were supposed to last their lifespan, food leftovers were eaten, furniture lasted a lifetime, no household item was discarded before giving it a second thought, and money was always put aside for a rainy day…

From what I see, with easy credit, the younger generations want everything right now and are quick to waste or discard their stuff. They want it all, from trendy restaurants to 5 star travel to expensive beauty salons and electronic gadgets. “Debt? Oh doesn’t matter, everybody is in debt anyways,” seems to be their mantra.

#61 Devil's Advocate on 10.13.10 at 8:56 am

As stupid as the masses were at the very peak when it was a “sellers market” that they fought to buy overpriced listings with unconditional offers for more than list price in order to avoid being “priced out of the market” so to will they be at the bottom of the market when amid a “buyers market” they fear that prices have yet further to fall and are frozen in inaction.

There is no rocket science in timing the markets there is only folly in trying to make exact your timing. Fear and greed are costly emotions.

#62 AM at LHR on 10.13.10 at 8:58 am

#32 raj on 10.13.10 at 1:08 am said:

I keep waiting and finally bought a 1 bedroom condo in Etobicoke for 230000. I am putting 62000 down and my mortgage taxes and maintenance comes up to 1000 max. The same unit is renting for 1500. Now I do understand prices will go down but how can i go wrong. I will be paying 500 more for renting. That doesn’t make sense
__________________________________

Yup,
Over a quarter of a million $ for a 1 bedroom box in the sky.
Of course the Corporation is your best buddy, the price will go down only smidgen (if and when it does eh?) as will the eventual rise in interest rates and taxes and fees.

All because “I will be paying 500 more for renting. That doesn’t make sense”

Riiiight……

Can you scroll up to the very top of the page please.

#63 Colin on 10.13.10 at 9:00 am

Don’t know about Calgary, but here in my Ottawa hood prices are coming down. A bungalow down the street was listed this Spring for $450,000. Several months later reduced to $439,000. Late summer saw it slashed to $414,900. And now, with frost overnight, it is listed at $405,000. There are other examples too.

Of course, there are those who are stubbornly and psychologically attached to a certain number. Like the chap who listed FSBO back in April for $559,000, reduced to $539,000 and now has been listed with a Realtor for months for $539,000. Still not getting it. But, sellers are like that. Once they become attached to a number, they have a hard time moving from it. Hence why sometimes it may seem like prices are not going down as fast as you would like them to. Only the truly serious sellers adjust their prices. The rest just continue to hang their heads in the clouds as they deal with the daily stress of trying to sell their over priced castles. They just don’t get it.

Your house is only worth what someone else is willing to give you for it. If no one is knocking on your door with an offer, than that is nothing. That’s right – your castle is worth nothing if it continues to sit on the market day after day, month after miserable month.

#64 Blorg Dorg on 10.13.10 at 9:04 am

To clarify for some, and as Garth (tersely) revealed in the comments, that graph is for U.S. prices (Shiller’s index) and only goes until mid-2009, ie. it is still dropping.

http://www.econbrowser.com/archives/2010/04/follow_the_mone.html
http://www.econbrowser.com/archives/2010/01/john_cochrane_o.html
http://seattlebubble.com/blog/2009/04/27/robert-shiller-at-spu%E2%80%94psychology-and-the-housing-market/
http://www.thestreet.com/story/10736848/1/where-did-us-households-get-the-money-they-needed-to-bid-up-house-prices-so-high.html

I’d love to see one of these for Canada, but not sure if there’s data going back that far; StatsCan maybe?

#65 Shoggy on 10.13.10 at 9:14 am

#7 bsallergy

I believe the saying goes, a fool and his money are soon partying…

#66 Timing is Everything on 10.13.10 at 9:18 am

#16 Guy_in_Regina said -““Meanwhile, guess what the feds in Ottawa are doing? Spending $55.6 billion more than they have this year, according to F’s big speech.”

If I ran my finances like the feds run, uh, my finances, I’d go bust!”
————————————————————-
Agreed. But as Garth said, He’s “profoundly relieved I’m not running anything.”…Ha!

#67 prairie gal on 10.13.10 at 9:22 am

The level of discourse on this blog has increased markedly since I do not have to scroll over Bill’s rantings, which were getting increasingly bizarre. I hope he gets the help he needs.

Now that I am in a nice, comfy rental home, I don’t look at mls anymore. With the price of energy rising and the federal transfers to provinces set to decrease, the cost of living will just go higher, including property taxes and utilities. I’d rather not be chained to a money-sucking house right now. Renting is where its at.

#68 Numbers. on 10.13.10 at 9:26 am

“Meanwhile ‘Houseless in Toronto’ asks: “Can you offer an ETA on when the ‘end’ in ‘it will not end well’ will be? I am looking to vulch on a central TO bung; I have approx 40% of the current going rate”

I can offer what I think is “the end”

It is when the majority DO NOT WANT to buy Real Estate, believe it’s a bad investment and it’s not the #1 thing on people’s minds.

When RE isn’t cool to own, it’s “the end” and time to buy.

#69 Dan on 10.13.10 at 9:27 am

Take it easy people. It seems the realtor propaganda is working. FACT is sales in the GTA and Van. are DOWN. How much are they down? 10%? No MORE. OK 15% No MORE….Ok… 20% NO MORE. Come on more then 20% DOWN in Sales? Yes…… Ok for how many months? 3 months? NO MORE! OK……4 months? NO MORE! F#$K i don’t . Let me get this straight prices are DOWN! and sales are down and people think the market is not falling?

POP

Realtors………..Our propaganda of lies is working even though prices are down and sales have crashed over the last five months.

New Greater fools…….. I still can’t get approved for a mortgage.

Greater fools………I might have to go bankrupt if no one buys. Please realtors sell my house.

Mortgage brokers……….I hope realtor propaganda works cause i’m in trouble. Thank you TD for allowing deadbeats to borrow a little more from their homes. You some of you do not understand that people are using their lines of credit to pay their mortgage? People are close to going bankrupt. Unemployment high and Ei has run out for many.

#70 Willy H on 10.13.10 at 9:34 am

(1) Fixed Rate Mortgages just went down again …

(2) It looks like Rob Ford will get elected in Toronto. If he does, it’s likely he’ll repeal the land transfer tax. …

This is scary. There’s no end in sight to rising prices …
————————-
Not much to worry about in my opinion:

(1) It’s not just about the rates – we have had virtually free money for a decade, most folks are maxed out. It’s about affordability and most of the GTA is no longer affordable on an average income.

(2) Rob Ford and can slash and burn as much as he wants but it won’t make any difference. You either pay taxes for gov’t services or you pay the private sector (eg ETR 407 Toll Highway). If the Land Transfer tax is eliminated then services will be cut and tax-payers will have to pay out of pocket.

Lower taxes and lower interest rates will be offset by higher prices for food and energy over the next 5 years. If gas is $1.05 a litre at $75 a barrel what will it be at $100 a barrel?

Listings appear up in the GTA and prices are softer out in the burbs, specifically the $500K+ McMansions. Boomer’s must be doubling up their adult diapers each night worrying about whether or not they will find a “greater fool” to fund their retirements.

#71 Numbers. on 10.13.10 at 9:34 am

#11 nonplused on 10.12.10 at 10:23 pm
Interesting times indeed. The gold & stock markets seems to be forecasting inflation, while bonds are forecasting deflation. Can they both be right?”

Maybe someone has already answered this but historicly, the bond market has been 100% right vs the stock market. (There is mega more money in bonds than stocks BTW).

#72 Tom on 10.13.10 at 9:34 am

#20 Mel,
I agree with you, I’ve been investing the difference and have way more disposable income than many of my condo owner friends. I’m just tired of waiting, as there are not many nice rental options unless you want to pay a lot of $

#73 Timing is Everything on 10.13.10 at 10:00 am

All you vultures; don’t forget to live your life while you’re waitng and waiting and wait…Moldicide futures are going up. Stock up now.
Could be a few cold, damp, winters to go yet….before
PRIME pickin’s.

#74 Fuzzy on 10.13.10 at 10:12 am

I can’t understand how people can be so self-limiting in believing that real estate is the only way of building wealth.

I guess these people never did enough homework to see that corporate bonds are doing well, and given the record amount of cash they are siting on, are not going to default anytime soon.

In the age of online brokers, mutual funds and ETFs, housing is not the only way.

#75 BAD on 10.13.10 at 10:17 am


Considering this news…

Half of Canadians struggling to save: RBC poll

..the bankruptcy rate in the older age groups will continue to increase. Anyone dare guess what impact on housing prices this will have?

#76 Mike B on 10.13.10 at 10:18 am

Politics is an interesting topic of late. Those who love Harpo will never EVER admit how much of a bungler he is..but facts don’t lie. The CONS have created a record debt for our nation without an centella of growth to justify the expense to taxpayers and our kids and their kids…
Do not believe F saying we will pay it off in 5 years… He was the guy who said that “no one knew about the impending recession” Give me a break !!!
The second massive GAF by Harpo… No longer on the security council of United Nations… beaten out by an insolvent tiny country in Europe. We have been on the council for decades and the CONS now blame Ignatief…. WOW…. is the calibre of politician plummeting by the second. Gotta shake your head…and be scared be very scared .
The dollar keeps rising, or really the US dollar keeps shrinking….prices keep going up… I see no sign of cheaper prices at the grocery store or the gas station or taxes or anything for that matter.
The system needs an overhaul and even Rob Ford cannot fix it…. sadly.
House prices in my hood are still rising at alarming rates… I saw a house for sale on the weekend that sold less than ten years ago at half the price. A local grocer clerk told me about a popular juice that he stocked less than a year ago at one price was now 20% higher. I see no improvement here in Canada… the land where we dig S&@!t up and sell it to other people.

#77 Ottawa S. on 10.13.10 at 10:23 am

#2 Tom
“Thanks to the “Conservatives” for running up the biggest deficit in history. Trying to buy votes by rolling out a half baked stimulus program which gave jobs to wrench bangers, but did nothing to improve our productivity, which is one of the lowest of the G7 countries. ”

Funny how quickly people forget the enormous amount of pressure the Liberals put on the conservatives do pour money we don’t have into this half-baked stimulus package, with all of their threats to bring down the government. There is enough blame to go around, without jumping on the Blame Harper bandwagon.

#78 Ottawa S. on 10.13.10 at 10:26 am

#32 raj on 10.13.10 at 1:08 am

“I keep waiting and finally bought a 1 bedroom condo in Etobicoke for 230000. I am putting 62000 down and my mortgage taxes and maintenance comes up to 1000 max. The same unit is renting for 1500. Now I do understand prices will go down but how can i go wrong. I will be paying 500 more for renting. That doesn’t make sense”

Your numbers don’t make sense…. $170K mortgage will be around $800 per month (unless you go for 35 year amortization, in which case you’d be a fool). Taxes and condo fees will definitely be more than $200 a month anywhere. That doesn’t include maintenance and upkeep inside your unit.

#79 lexington on 10.13.10 at 10:36 am

New home prices in Canada rose unexpectedly in August. How much longer can Garth be wrong for before people lose faith in his predictions? Even a broken clock is right eventually. But when will house prices fall. Could it be 10 or 15 years from today? And by then will the 20% correction Garth is calling for bring the average Vancouver home price down to $2 million?

#80 Alan on 10.13.10 at 10:42 am

Ahhhh….it’s different out here.

There. I said it.

#81 Dumfukanuk on 10.13.10 at 10:45 am

Folks, this time it is VERY different with rates being so low. This will NOT push prices higher. In the past, this has certainly aided in prices going North, but it will not happen this time. Because we tend ALWAYS to look to the U.S. for predictive behavior and as a guideline for what to expect, just look to them. The U.S. had low rates (so did we), but the housing market collapsed not because of rates going higher or lower, but instead because of market confidence. A shift in market perception, per se, was the ultimate nail in the coffin for American RE. In Canada, we have already sorted out the hungry buyers that just HAD to get into the market. That all happened in the last two years. Very little are left at this point, which is why we’re seeing a 30% drop in demand over the past few months. It was almost verbatim in the U.S.

“So let me summarize. Lower mortgage rates are the result of an American economic crisis. ” I would have to disagree with the previous line. Here’s why, our lower rates have nothing to do with the U.S. Our lowering rates are a direct result of the banks recognizing the party appears to be over in Canada, and therefore they will incentivize consumers to continue to buy. Unfortunately, though, this time they will not buy in droves. With our consumer household debt now exceeding Americans for the first time in history, our savings rate at -2% (Americans are at positive 6% right now, believe it or not), rates as low as ever, RE prices nearly as high as ever (the U.S. RE market collapsed at a ratio of 4.6 where as we’re sitting much higher), we’re certainly going to correct to the degree of the U.S. and then some. There’s no other way around it.

#82 BrianT on 10.13.10 at 10:47 am

Denninger thinks the USA is in big big trouble http://market-ticker.org/

#83 Bill ( Peterborough) is a FRAUD on 10.13.10 at 10:49 am

#118 Jacen on 10.13.10 at 12:08 am

Hallelujah! and Amen! 8)

Right on the money! not all us young un’s are off track!!

#84 Devore on 10.13.10 at 11:12 am

Oh boy, more fraudclausure mess. This little “expose” lays out the background. At the heart of MBS (mortgage securatization) is MERS, a shell company that “allows mortgage ownership to change hands efficiently and relatively quickly since it is electronic and allows all parties to forgo making a filing in local land records. Indeed, MERS was designed to function as a substitute for local land records.”

But a filing is not the only thing that takes place when a title changes hands. There is also a matter of a fee. MERS is, in effect, a giant tax evasion scheme to enhance the profits up and down the MBS chain.

Now, 49 states are investigating the foreclosures, and while I have no doubt that no heads of any significance will roll, this will give another black eye to the banking industry.

#85 wes_coast on 10.13.10 at 11:18 am

Hey Garth,

Can you clarify that graph above? I am assuming that is the US housing graph and not Canadian?

#86 Got A Watch on 10.13.10 at 11:18 am

Interest rates can continue to drop and it won’t make people borrow. The FED is just pushing on that string and all.

“I can tell you from the buiding industry that sales of new and high rise and medium density housing in GTA has been as strong as ever. Pricing for units have risen from last year.”

A bubble continues to expand until it pops. The last few Greater Fools to squeeze in the door will take the greatest losses. Prices have been on a run since about ’97 now, that’s pretty long in the tooth now.

But every market needs the Greater Fools. If they don’t buy, who will?

You still have to live somewhere. For me, I have so much crap, moving is an enormous PITA. It’s taken me years to get my workshop set up the way I want it. And I am quite happy with the location and my house. It needs some work, but what doesn’t. I have a bad back, getting to move is not the major project I want to be working on. You can call it the inertia factor.

But I live near the third nowhere on the right,just past nothing. A lot of my neighbors are seasonal, it gets pretty sparse out here in the winter. You have to decide is this the place I want to be, the property I want to live on. If that means you pay a bit more but have peace of mind and the lifestyle you want, it’s worth it. I could sell and rent, but good rentals are few and far between out here, and expensive for anything decent – it would be much more than my current mortgage payment per month, there’s not much left on it.

You could sell every second year or so, maybe every year if you have a good job excuse, and pay no tax on that primary residence sale. Do it too often and they’ll tax it as a business. But if you played your cards right, buying a cheaper fixer upper each time, you should be able to work your way up to that dream home you wanted eventually. In a rising trend market. Very hard these days.

Everyone makes their own choices.
————————————–
“49 States Investigate Foreclosures” only Alabama not piling on. It’s an easy win for junior politicians. Who likes a Big Bank anyway? The legal land rush was already on, everybody is lawyering up. Armies of lawyers are poised to attack. Go long litigation attorneys in 49 States…

“JPMorgan Stops Using MERS, Next Up: Everyone Else (And Don’t Forget CMBS)” <—– a strategic advance in a rearward direction. "We have full CONfidence…."

Always a good laugh in the financial news.

#87 Just Sayin' on 10.13.10 at 11:23 am

Garth could get dealt a BIG FAT Black Swan.

Just, What if rates stay low and RE prices (inflation) goes up?

Won’t happen right Garth?
You’ve got all the data backing it up.

The markets can stay irrational longer than you can keep from ever being right buddy!

#88 PTDBD on 10.13.10 at 11:23 am

Of Fairy’s & Sorcerer’s Apprentices & Liars in Magic Land

House prices will NOT go down because we live in a magic land. F sends his country into the biggest debt yet, but proclaims that we are better off than any of the rest. He says that he won’t tax you as much as threatened so that’s putting money back into your pocket and that of your employer. He talks magic talk.

Price of commodities are exceeding all time highs, yet Bernanke is prancing around waving his Quantitative Prestidigitation wand saying that he wants to goose inflation because it’s too low. Arent’ higher prices due to a lower dollar enough? Poof….out pops a little elf saying “higher prices don’t indicate inflation, that it’s actually deflation….blah, blah. Stuff it Elf! I know BS when I step in it.

The Elf pops out again and spouts off about no “velocity of money” so the newly created currency doesn’t get out into the real economy. Bull roar. Do you hear the roar Elf? That’s the money heading into gold, the stock market, commodities and Bonds all the same time. That’s your velocity.

The Mish expert agrees saying that price increases are not being passed on to the consumer. Really? Is that what you see? Everything I budget for is going up. Last month I paid 10X my utility use for added sevice and distribution charges. Food prices are going up. Food boxes are getting smaller. Energy prices are going up. Gasoline prices are going up. There is no magic semi-permeable membrane stopping businesses from passing through their increasing costs. Don’t be so silly!
Have a look at commodity charts from 1972 to the present…it’s an eye popper:
http://www.chartingyourfutures.com/historicworksheet.htm

Then we have every scompany on the stock market reporting 7% or more increases in Income every quarter. How do they do this if the consumer is not paying higher prices? You can only cut staff so much. Is there an Income Profits magic fairy? No, somebody has to pay for those profit increases.

Bernanke dons his magic cape and pronounces “exceptional low interest rates for an extended period of time” every few months. I could do that job. Jeeze, the Seniors are on the ropes and going down for the count in bankruptcies. First you blamed the country’s plight on them because they saved too much and now you’ve taken every shred of fixed income from them for the last five years. Meanwhile Wall street bonuses have reached new record highs?

Foreclosures have been halted becuase of “clerical inconsistancies”. How convenient, just before the elections. Extend and pretend.

Magic talk in a magic time
Buddy can you spare a new paradigm?

#89 eaglebay on 10.13.10 at 11:25 am

The next bubble? The bond market.
When governments interfere with the free market economy it creates market distortions as in housing and bonds.
Controlling the interest rates is like confiscating money and interest income from investors and savers.
Savings are required to invest in the economy to create jobs and increase productivity by producing goods and not just consuming goods.
We do blame the conservatives but I doubt that the other parties would have done any better. Our system of government is lacking in common sense and transparency.

#90 Larry in Calgary on 10.13.10 at 12:05 pm

The herd see low rates as a means to purchase more stuff.

#91 Devil's Advocate resurrection on 10.13.10 at 12:37 pm

#50 brainsail

Nice information. Thanks. Valuable, even though US stats, as I head out to speak with my clients about the price reductions they must agree to if they want to sell their properties.

#92 Devil's Advocate resurrection on 10.13.10 at 12:38 pm

But wait… that would be wrong… REALTORS always push prices up don’t they…. hmmmmm must rethink my strategy….. Nah… price reductions here we come!

#93 Devil's Advocate on 10.13.10 at 12:46 pm

Gold at $1,370 and ounce!!! Holy crap… clearly fools will indeed push it beyond reason. Garth as much as I will accept your arguments against gold, the fact is this baby’s gonna ride… just like every other bubble in history it’s got abso-f___ing-lutely nothing what-so-ever to do with value but everything to do with the mind of a fool. Some are going to make a killing… others will get slaughtered in the aftermath. Timing… it’s a fickle bitch.

#94 Mark on 10.13.10 at 12:47 pm

I keep waiting and finally bought a 1 bedroom condo in Etobicoke for 230000. I am putting 62000 down and my mortgage taxes and maintenance comes up to 1000 max. The same unit is renting for 1500. Now I do understand prices will go down but how can i go wrong. I will be paying 500 more for renting. That doesn’t make sense

The stock market, today, is priced with 10-15%/annum future returns in mind, for many years to come.

So 2 aspects:

Your $60k/year downpayment could be earning you $6000-$9000/year, or $500-$750/month.

*and*

Your expenses are based on historically low interest rates which are certain to not be so low over the entire term of your ownership.

#95 Mark on 10.13.10 at 12:49 pm

VancouverGoinUP….tell me buddy, just WTF do they put in the Vancouver water supply to make people so delusional?

#96 Devil's Advocate on 10.13.10 at 1:01 pm

Jeff Rubin on Peak Oil…

http://tiny.cc/rwbyy

#97 fu_ming_xia on 10.13.10 at 1:44 pm

Hey Check out Scotia Bankss Facebook page. Their lame attempt to spur savings at 1.5% Per year! LOL!!

http://www.facebook.com/scotiabank

#98 jess on 10.13.10 at 1:57 pm

It seems Canada was different until 1971

In Walter Stewart’s book “The Charity Game”, chapter 4 page 70 to 73, I read this…

… tax policy change for American corporations the 1954 u.s. budget companies were permitted, for the first time, to write off against u.s. taxes the costs, including the interest consts, of acquiring the shares of other corporations abroad the allowed american firms, which paid tax at a rate of 50%,to buy the corporations of other nations, such as Canada,for half price. The other half came from the American public purse…mergers, takeovers, plant closing,and the centralization of decision making became characteristic of multinational corp.”…

Annual report on the Minister of Industry,Trade and Commerce,under the Corporations and Labour Returns Act part 1, corporations,p.76 .
By 1971, more than sixty percent of our manufacturing sector was owned abroad 3/4 of it by Americans, along with 99.7 percent of petroleum and coal products, 82.3 percent of mineral fuels,81.3 percent of chemicals, and 62.8 percent of mining. Many of the takeovers were funded by the American taxpayer; the rest came from earnings of the captured ”

The Canadian Global Almanac shows that in 1970 the year before the tax reform, Ottawa collected
35,480.8 million from canadians in income taxes. Of this, individuals paid 24,739.7 million, or 69.7% (in 1950, individuals paid 47.8 percent);corporations paid 9,945.1 million, or 28%)The 1995 Global Almanac,op.cit.,pg.239
(The figures do not quite add to 100 % because some tax was withheld on payments to persons outside the country these are not broken down by individuals or corporations.)

1993
individuals = 83,989.6million in taxes
corporations = 6,537.5million
individuals =91.8 % tax hike of 339%
theirs down =7.1 % ————–> cut of 35%

#99 Sherri on 10.13.10 at 1:59 pm

Sell Canada Buy USA Hey!

You’re not gonna like this one….

Here’s the problem with that – what if the foreclosure was bogus and gets voided?

You just bought nothing and you have no title insurance against it.

Congratulations.

And people said the title companies wouldn’t except this sort of thing. Oh yes they can, oh yes they will, and oh yes they are.

Oh now we got trouble…..

Sent to me by an agent, redacted…note the date, and note that today is the 13th. Heavily-redacted to protect my source.

I have the full document, and it’s got a bunch of stuff that’s effective October 6th, but as you can see from the masthead stamp on the recipient’s fax machine, they got it today (I have blocked the time and TSI of the sender’s machine so the agent – and indeed the company name – cannot be identified.)

This looks like a MAJOR CYA move, and it’s bigtime trouble if there’s stuff that went through in the intervening time yet doesn’t meet these “new and better” requirements.

Most of the “changed requirements” don’t look all that important to me, but I’m not a Real Estate lawyer – just a reporter.

What’s important here is that the transmission was made to the agent seven days after the effective date, so they were running “blind” during the intervening time.

The issue of bank oversight on these mortgages does not apply to those states with the greatest foreclosure rates – excepting places like Arizona and California. Also while BofA has self-imposed a moratorium, most foreclosure actions are proceeding apace. Just so we are all working with facts rather than prejudices. — Garth

#100 Another Albertan on 10.13.10 at 2:01 pm

#18/Taxpayer:

Nice try at humour, but it’s time for everyone to have a refresher read of Boot, Bust and Echo or to start reading BMO/Donald Coxe’s publications. Current thirty-somethings were born between essentially 1970 and 1980. It’s the smallest demographic in Canada. If one was born in 1973, 1974 or 1975, one is bottom dead centre of the Baby Bust birth curve.

The study is over a 20-year period and the general trend is more around birth year, rather than specific age category. I’d expect the insolvent proportion of 18-to-34 year olds to drop. Their proportion of the general population has dropped. It’s also expected the insolvent proportion of 45+ year olds would grow. QED.

From my standpoint, these observations are intuitively obvious. That’s because I fit into that bottom dead centre area. Everyone is either older or younger. Just about everything is marketed at targets that are either older or younger. I’m not complaining, because there are decided advantages to being in this cohort, providing one plays their cards well. It’s just very difficult, from my experience, for people who aren’t in a particular demographic to really walk a mile in another demographic’s shoes.

Talk to an HR recruiter. It’s particularly tough to hire seasoned staff with 10 to 15 years experience. 10-to-15 is theoretically the sweet spot because the experience-to-cost ratio is still pretty reasonable. It’s tough to find these people because there aren’t a lot of us. We simply weren’t born in appreciable numbers back in the 70s.

Everyone else’s mileage may vary.

#101 Another Albertan on 10.13.10 at 2:03 pm

#44/Moneta –

Agreed.

#102 dark sad person on 10.13.10 at 2:25 pm

#90 Devil’s Advocate on 10.13.10 at 12:46 pm

Gold at $1,370 and ounce!!! Holy crap… clearly fools will indeed push it beyond reason. Garth as much as I will accept your arguments against gold, the fact is this baby’s gonna ride… just like every other bubble in history it’s got abso-f___ing-lutely nothing what-so-ever to do with value but everything to do with the mind of a fool. Some are going to make a killing… others will get slaughtered in the aftermath. Timing… it’s a fickle bitch.

***************

Agree on timing-but-need to know how a bubble can form in “Money” while Deflation is occurring-

Gold “is” a currency and it’s kicking ass-in every ink stained piece of paper on Planet-

That is because-Gold is the King Currency-always has been-always will be-

http://www.youtube.com/watch?v=5ESqcg6jPCA

#103 Fred on 10.13.10 at 2:36 pm

By April 2011 one Canadian dollar will buy two US dollars. China will be forced to forgive about half the debt the US owes them.

#104 shifty on 10.13.10 at 3:10 pm

This is an interesting US housing financial turn of events. Makes one wonder what could happen in Canada.

http://www.theglobeandmail.com/report-on-business/video/how-foreclosure-gate-will-affect-us-housing/article1754758/?from=1755224

#105 Sherri on 10.13.10 at 3:19 pm

Wed Oct 13, 8:40 AM

By The Canadian Press
ADVERTISEMENT

OTTAWA – The New Housing Price Index increased 0.1 per cent in August after a 0.1 per cent decrease in July.

Statistics Canada reports the top contributors to the monthly increase were Toronto, Hamilton and Oshawa, Ont., along with Montreal.

Prices increased the most in Hamilton (up 0.9 per cent), followed by Windsor, Ont., and Winnipeg (both up 0.4).

StatsCan attributed Hamilton’s increase in part to builders moving to new areas with higher land development fees, while Winnipeg prices rose due to higher lumber and steel costs and in Windsor some builders reported higher operating costs.

Saint John, Fredericton and Moncton, N.B., along with Ottawa–Gatineau, Calgary and Greater Sudbury and Thunder Bay, Ont., all recorded decreases of 0.1 per cent.

Prices were unchanged in 10 of 21 metropolitan areas in August.

Year over year, the index was up 2.9 per cent in August.

We should be more interested in sales than prices at this point in the game. — Garth

#106 Tre on 10.13.10 at 3:46 pm

Hey garth the picture is funny.

#107 Jeff Smith on 10.13.10 at 3:49 pm

>#5 concessionman on 10.12.10 at 9:54 pm
>Hmmm…
>so how is it when the government creates money it’s
>called “Quantitative Easing” but when we create money
>it’s called “Counterfeiting”….

It’s the same thing actually. It causes inflation.

#108 Moneta on 10.13.10 at 3:50 pm

I wouldn’t be so quick as to label boomers with living above their means. I am sure the majority of them don’t.
——–
Have you seen the public debt? They all are.

#109 Contrarian on 10.13.10 at 3:53 pm

RE: #91 Mark

I was gonna post the same thing. However, you should probably include that raj’s capital gains are tax exempt whereas your stock market returns are not.

#110 dark sad person on 10.13.10 at 3:59 pm

#103 Jeff Smith on 10.13.10 at 3:49 pm

It’s the same thing actually. It causes inflation.

**************

QE doesn’t cause Inflation-it is Inflation-

***********************

#104 Moneta on 10.13.10 at 3:50 pm

Have you seen the public debt? They all are.

********************

“All” is a broad word-chick

#111 Jeff Smith on 10.13.10 at 4:04 pm

>#41 Ben on 10.13.10 at 6:04 am
>Low rates mean high house prices, the rest doesn’t
>matter.
>
>Not this time. — Garth

Garth is right, look at Japan. Low rates for over a decade but prices keep falling.

#112 Publius Enigma on 10.13.10 at 4:18 pm

#92 Mark on 10.13.10 at 12:49 pm
“VancouverGoinUP….tell me buddy, just WTF do they put in the Vancouver water supply to make people so delusional?”

Sufficiently advanced stupidity is indistinguishable from trolling.

#113 Sherri on 10.13.10 at 4:23 pm

Garth,

How you can put Fire Red Revlon on the US
RE pig is beyond me.

I’m imaging you in that. Not going well… — Garth

#114 Devil's Advocate on 10.13.10 at 5:59 pm

#90 Devil’s Advocate:
You clearly have no idea with regards to the fundamentals behind the gold rise do you ? I do and that why I will know when to sell if ever, and you don’t. #100 TheBigLebowski

No, you are correct… my crystal ball is but a cloudy marble unlike yours. “Fundamentals”? Are you serious? Funadamentals?!? Clearly I haven’t a clue what you are talking about. Yes those fundamental intrinsic benefits gold brings to the table… let’s talk about them why don’t we?

But seriously, gold’s meteoric rise is attributable to nothing more than anticipation of some major economic failing. Should that happen I’m thinking my Smith & Wesson, stash of SPAM and generator are gonna be worth a whole lot more to me than a cigar box of Maples buried in my back yard.

Don’t get me wrong… like I said I do believe there is some serious profit to be made in gold over the next year, maybe two, beyond that though??? Fact is getting in today will not likely yield much more than those who got in two years ago. I just prefer to invest in optimism rather than negativity as tempting as it is.

#115 VancouverGoinUP on 10.13.10 at 6:44 pm

Economist Magazine says Buy along with everyone else who knows whats goin in here

Vancouver is tops once again with the subscribers of a trendy U.S. travel magazine.

Readers of Conde Nast Traveler have voted Vancouver the top city in the Americas, outside the U.S., for the fifth time since 2004.

The poll asked readers to rate cities in Canada and Central and South America on criteria ranging from hotels and restaurants to shopping and friendliness.

The award is a tribute to the people who work on the front lines of the city’s tourism and hospitality sector, said James Terry of Tourism Vancouver.

The Readers’ Choice Awards will appear in the November 2010 issue of Conde Nast Traveler and detail the top cities, islands, hotels, resorts, airlines, car rental agencies and cruise lines around the world.

Last year, Vancouver was named the world’s most livable city by a business research division of The Economist magazine.

Read more: http://www.cbc.ca/canada/british-columbia/story/2010/10/13/bc-vancouver-conde-nast.html#ixzz12HiPI4k8

#116 S.B. on 10.13.10 at 6:48 pm

Majority of Canadian investors feel they will have enough money for retirement: CSA survey

Investors get the message on the importance of research

Tuesday, October 12, 2010

By IE Staff

Canadian investors are twice as likely to believe they will have enough money to meet their retirement needs (62%) as compared to their non-investing counterparts (31%).

This is just one of the findings in the 2010 Canadian Securities Administrators Survey on Retirement and Investing released Tuesday.

The survey was released as part of Investor Education Month in October. Conducted by Ipsos Reid on behalf of the CSA, the online survey asked 2,318 Canadian adults about their financial readiness for retirement and behaviour towards investment opportunities.

#117 Jeff Smith on 10.13.10 at 6:49 pm

>#74 Mike B on 10.13.10 at 10:18 am
>Politics is an interesting topic of late. Those who love
>Harpo will never EVER admit how much of a bungler he

If you voted him into office, then you probably should blame yourself.

#118 Jeff Smith on 10.13.10 at 6:57 pm

>#92 Mark on 10.13.10 at 12:49 pm
>VancouverGoinUP….tell me buddy, just WTF do they put
>in the Vancouver water supply to make people so
>delusional?

This VancouverGoinUP dude sounds suspiciously like the Nostri Jr dude we had on earlier.

#119 S.B. on 10.13.10 at 6:59 pm

#32 raj, it may make sense in the *short term* (putting down 62k on a 230k 1 bedroom condo in Etobicoke).

But…for how long do you wish to live in a <600 sq foot 1 bedroom condo? Plan to find a partner? Have a family? You will need a larger place.

You'll have to sell and pay 5% in R/E and closing fees.
And count on your condo fees rising by 10-20% in the first few years, at a minimum.

Plus you will lose at least 4%/yr opportunity cost on the 62k downpayment that could be invested elsewhere

Plus you are paying 2.5%+ interest to the bank every year on a 168k mortgage(declining each year)

Also plan to write off at least 5k in closing costs when you buy the place.

Let's summarize for the medium term:
– lose 5% x 230k in costs and realtor fees when you sell it
– condo fees will rise 10-20%
– Drop up to 5k on closing costs
– lose 2.5% x 168k paid to bank in mortgage interest every year (declining balance)
– Lose 4%/yr on the 62k you could have invested elsewhere

Have a calculator? Do the math and tell us if the medium term is so rosy compared to the short term….

#120 Snobby Calgary on 10.13.10 at 7:01 pm

Why is there an increase in luxury home sales across the country. One Realtor (http://bit.ly/bcPSzF)reported 12 multi-million dollar sales in Calgary just last week. I would assume that people that can afford to buy these types of homes must be educated and “know” what they are doing, right??

#121 Snobby Calgary on 10.13.10 at 7:05 pm

Sorry here is the link, it did not work properly for comment 118

http://bit.ly/bcPSzF

#122 Devore on 10.13.10 at 7:34 pm

#70 Tom

I agree with you, I’ve been investing the difference and have way more disposable income than many of my condo owner friends. I’m just tired of waiting, as there are not many nice rental options unless you want to pay a lot of $

On the other hand, there are NO nice buy options unless you want to pay a lot of $, because basically all real estate in major cities is overpriced. The stuff you can afford to buy may be even more sketchy than the stuff you can rent, but hey, at least it’s yours! right?

Or you can relocate yourself out to the ex-urbs, where affordable houses still exist, and commute to work 2 hours each way every day. You know, it’s all about lifestyles at the end of the day; some people simply need to own for a variety of reasons (there could be very low availability of suitable rental stock in their area), others do not care to deal with owning no matter what the price.

As far as rentals go, put in some effort on Craigslist to find out what people are asking for rents for places you like, you can find some really good deals on places you’d never be able to afford to buy. No one needs to live in a basement. At the very least, you’ll have some ammo to ask your landlord for a rent decrease at the end of the lease.

#123 Ben on 10.13.10 at 7:37 pm

#72 Fuzzy on 10.13.10 at 10:12 am

Tax free capital gain Fuzzy and you can’t sleep in a bond or ETF

#124 cellar dweller on 10.13.10 at 7:40 pm

#59 Axehead
I just have one question. WHY are people paying 600k for a house in “Dead Rear” Alberta ?

#125 Debt Free in the U.S. on 10.13.10 at 7:44 pm

I got a jolly out of today’s column. Poor Kitty, anxious for a house, like a young woman is anxious to fund the “love of her life.” Well, 45% of the time their mind changes, eh? We call it divorce.

Take the US real estate bubble, much like yours today.

Bubbles popping are much like a dam break.
2005 Sub-prime is hot but forclosure rates are slowly rising-the wet spot. 2006 Sub-prime has a larger share prices up so are foreclosues but just a little-a little leak. 2007prices rise, interest rates steady, deals increasing sub-prime quality down but takes a larger share of loans underwritten-The crack is evident. 2008…smart people see prices STOP rising, loans still being made at low “teaser rates” that in 2-5 years will re-set substantially higher…stated income loans, NINJA loans being made….if you can fog a mirror, you can get a loan.
Lots of people buying 2nd and 3rd homes for speculation in 2005-2007……the SMART money saw the S&P peak in Oct 2007 and the money got out in early 2008…you knew this was not going to end well. I moved my retirement savings from the market to Bonds in March 2008. Worked my tail off to pay off my 15 yr mortgage later that year. Prices were starting to crack in some areas (not mine) but by late 2008 the jig in sub-prime was up. Borrowers crashed, banks crashed the FED had to pump in over a trillion to save our leveraged BUTT.

As we all see the real estate dam broke, then consumers broke, then jobs melted…and Joe average who bought his place with 5% or 10% down…well, his wife lost her job, or he lost his, or forbid BOTH lost their job. Then the problem went from sub-prime to prime borrowwers.

2009 markets looked up as the borrowed gummint money bought us time…now time is again running out.
Consumers have deleveraged a bit, but paying down you car note, your credit cards, your mortgage takes time. It is worse if their is no overtime at work, or you had to take a lower paying job when you lost yours.
Can’t refinance a home that lost 15% of it’s value at todays 4.5% rates from your 7% rate if the place will not appraise today – sorry. (see 5% down or even 10% down)

2010 we are still mired in crap. We threw Bush out, now we may throw Obama’s party to the wolves (maybe…check the headline Nov 3rd). There is no fast cure for stupid with money…it takes time!!

So, where is Canada? About 2008 from my read. Sell yesterday if you are going to sell. Rent for a while, you will be buying the same dump back for less possibly a LOT less. Do NOT wait until the Dam breaks, then it is too late. You’ll have a wet kitty, or a DEAD kitty.

#126 Devore on 10.13.10 at 7:52 pm

#72 Fuzzy

I can’t understand how people can be so self-limiting in believing that real estate is the only way of building wealth.

I guess these people never did enough homework to see that corporate bonds are doing well, and given the record amount of cash they are siting on, are not going to default anytime soon.

No, all they see is people (and themselves) losing lots of money when stocks crash. This is after buying when the market was hot (buy high) and then dumping when it tanked (sell low).

This is your typical retail investor experience, usually with bank or pension mutual funds. Then they get scared and put their money into GICs, and complain about not making anything. But then, although obviously risk averse, they are perfectly willing to dump it all into real estate, leveraged 10-1 or more to boot.

I guess real estate being, well, real, has something to do with it. It’s there, it’s tangible, you can touch it, live in it, see it. This kind of permanence must be very reassuring to many people.

#127 cellar dweller on 10.13.10 at 7:52 pm

#116 Vancouver Groin Up
……..Readers of Conde Nast Traveler have voted Vancouver the top city in the Americas, outside the U.S., for the fifth time since 2004.

The poll asked readers to rate cities in Canada and Central and South America on criteria ranging from hotels and restaurants to shopping and friendliness.

The award is a tribute to the people who work on the front lines of the city’s tourism and hospitality sector, said James Terry of Tourism Vancouver…….
++++++++++++++++++++++++++++++++++++
Arent these “low budget service staff” the same people that you commented on a while back? If they cant afford to live here they can leave.
I have noticed an interesting trend lately.
A huge increase in “for rent ‘ signs all over Vancouver. Rising vacancy rates is not indicative of a healthy economy. Vis a vis, people are leaving because there isnt any affordable jobs……

#128 45north on 10.13.10 at 8:03 pm

Andy Miller (my hero): talking about foreclosure gate

Years ago I said to you that what was happening in real estate was going to culminate in a big crisis, but that if it were to happen in a measured way that let the free market do what it does best, then the crisis would be less intense. But the latest developments are going to create a lot of intensity and only make things worse.

http://www.financialsense.com/contributors/david-galland/getting-real-about-real-estate

#129 Willy H on 10.13.10 at 8:08 pm

2 Tom

“Thanks to the “Conservatives” for running up the biggest deficit in history. Trying to buy votes by rolling out a half baked stimulus program which gave jobs to wrench bangers, but did nothing to improve our productivity, which is one of the lowest of the G7 countries. ”
—————————————–

Unfortunately CRAP messed up long before the recession and stimulus spending. Two GST cuts, Child Tax Credit and careless Corporate Tax Cuts further stimulated an economy that was already firing comfortably on all cylinders. In fact this all delayed the arrival and depth of the 1st stage of our recession in Canada. Indirectly this may have prevented the very housing correction that Garth has been talking about for years by allowing the “good times” to just roll on and on.

Our debt is not so much a product of careless stimulus spending but rather billons of $’s removed from gov’t coffers through the short-sighted policies mentioned above.

Peering down the road we can envision a world of higher taxes (possible reinstatement of GST back to 7% or higher and reversal of some Corporate Tax Cuts under a new regime). What other choice do we have to reduce the deficit and pay down our debt? We ain’t gonna grow are way out of this one competing with China, India and a low USD$.

Debt burdened consumers over the next 18 months will face higher energy and food prices further limiting their ability to drive economic growth (or purchase overpriced RE!). Interest rates will inevitably go up, although this may not appear to be the case at present.

This party is running out of beer, fast, real fast!

#130 groundzeropat on 10.13.10 at 8:46 pm

Hang in there Landless Serf. Just another few more months and you’ll see with your own eyes just how bad it will get. Sept. and Oct. has felt like the calm before the storm with realtors trying to prop up ‘hot corpses’. 2008 was supposed to be a crash but interest rates were cut to artificial lows to defer it. Now it’s pay back time and dropping back to 2008 pricing will just be a warm up. Just like the ‘dot-com bust’ stock brokers who were making a killing were killed soon after. All over the world, wealth is constantly transferred from the hands of the weak to the hands of the strong. So I urge you to hold strong for awhile longer.

#131 AxeHead on 10.13.10 at 8:57 pm

#125…Red Deer at $600k… F****ed if I know? There are quite a few above this mark…not sure why.

#132 Taxpayer like everyone else on 10.13.10 at 9:04 pm

100 AA – thank you for entertaining a taxpayers attempt at humour. But take a look at page 6 of the following:

http://www.statcan.gc.ca/pub/91-213-x/91-213-x2005000-eng.pdf

That big bulge (me) is actually retracting each year as more and more of us meet our maker. The younger demographic (you) has not quite started this yet and
remain very constant. The age proportions look to be 20 to 30% while the magnitude of the changes in the
insolvency proportions has been in the order of 100%.

#133 pablo on 10.14.10 at 2:48 am

Worried about home ownership, that’s the least of your problems: the u.s. is folding like a decaying, corrupt and putrefying corpse; and guess who our biggest trading partner is? Unemployment will increase worldwide as countries race each other to devalue their currencies and given that very few people will be able to or want to purchase the latest piece of crap from b.r.i.c., they won’t be able to jump start the world economy; oh and everything isn’t rosy in those countries either. The cost of food and energy will increase as will taxation, all the while currency values will be decreasing. We are not in a recession, this is a depression, and we’re just bouncing along the bottom while we skid to a stop. The next five to ten years will be uck’n fugly and only the super rich will be relatively unaffected, as was the case in the last depression. So if you’re not in the top 20%; your gold or silver or bonds or stocks or real estate or cash won’t save your ass. The carnage will be horrific and what will happen will leave us all deeply affected for the rest of our lives……………. or maybe not!

#134 Rawr on 10.14.10 at 6:16 pm

“Ooh, Kitty. All hiss, spit and claws.” – Garth

Garth Turner, you are so awesome.