More than money

Days ago I told you there are eleven indicators I track to signal where the real estate market is headed. A few are yellow. Most, red. This leads me to the conclusion all sane people should take cover. The American middle class experience comes.

If you have any illusions what this means, watch last night’s Sixty Minutes report called “The 99ers”. It profiles professional people (like a $200,000 personnel manager and a $70,000 office manager) who have been out of work a year or two, and are descending into the financial abyss. It also explains clearly why US housing plunges still.

And there, but for the grace of God, go us.

Actually, the big guy has precious little to do with what’s in the cards for most Canadians.

After all, if we failed to learn anything over the past four years watching the USA self-destruct, and then walked the same path, why should we expect a different outcome? As I’ve said so often, our leaders also dropped rates to nothing, reduced lending standards, lied about the economy and purposefully engendered house lust. Canadians borrowed their brains out, bought beyond their means and got caught up in a Bre-X, Nortel, dot-com-like frenzy. When real estate prices advanced by double digits in the middle of a job-killing recession we all should have seen the outcome. Now it’s at hand.

There is no good end to this story. Except for those who understand what unfolds over the next years, and act on that knowledge. When the property market withers, a stunning 20% of our country’s GDP will be at risk – which is far bigger than the entire manufacturing sector. If you think we have job and debt and social problems now, just wait.

I mean, if you knew that within a few years your major investment would lose much of its value while your debt remained, completely erasing your family’s entire net worth – would you act? If not, why not? And what if you then lost your job?

We have watched that play out in America. We’ve been warned. I’m doing it again now.

As I mentioned on the weekend, one of my 11 indicators is media sentiment. It will turn negative towards real estate over the coming months, and it will have an effect. The fact the Globe published these two charts, showing the twin peaks of housing prices and household debt is an indication. They should show every responsible family that we’re nearing the cliff.

With record debt, structural unemployment, an aging population, our major trading partner on its knees and rising taxes what will save real estate? If you have the bulk of your net worth in a house, what will save you? If this letter’s any indication, not much:

“My wife I have been following your blog for a few years now and went to your presentation. We have even read your book. Everything you have talked about makes sense and has come true or looks like it will.  I realize that we are in the start of a real estate bubble and yes our home values will fall.  For some of us however selling, moving and renting is not an option.   We have kids that are in high school, like where we live and are at the point in our lives where stability is very important.  Selling our house may make financial sense but is completely idiotic from a family lifestyle standpoint. Leaving ourselves to the whims of a landlord who may want to sell the house you are renting (because he reads your blog) exposes a family to upheaval and turmoil.  If everyone wanted to rent who would own property?  So I think the working middle class with kids in their 30’s and 40’s still makes our country revolve and is its engine and will always be. It would take a lot of money for me to sell my house right now and even if it falls by 50% in the next five years I am not sure it would be worth it.  Your home should not be like a stock; bought low and sold high. For most of us its a place to live, to raise your family, set some roots and become part of a community.  Sounds corny but the value in this is worth more than money.

“Having said that, guess if you are in too deep then sell your house now.  I do intent to follow your other investment advise. Thanks.”

See what I mean? This is the mainstream middle class view. And it comes from a person who has been exposed to all the alarmist things I’ve had to say – in books, in person, online. But none of my economic, financial or strategic arguments can hold a candle to this guy’s overwhelmingly nastiest possible outcome: upsetting his family’s lifestyle.

Of course, his points against taking cover are justifications for inaction. Landlords are capricious. Real estate’s good for the economy. It costs money to sell. Houses are emotional assets, not financial ones. Family roots trump money.

And all that may actually be true. But I’d wager a family in Pennsylvania that knew what was coming and had the chance in 2006 to harvest a capital gain selling their home before the storm hit, trashing debt while retaining precious retirement assets and college funds (and choices) would have jumped.

Strikes me the best possible thing a parent can do for a family is protect it. The worst thing is confusing wants with needs.

Obviously most people will never listen to me. They won’t move their net worth from a house into a balanced collection of liquid financial assets that pay to own. They won’t wriggle out of debt or avoid taxes. They won’t take pre-emptive action to protect those they love. Even if they know trouble’s coming.

It’s just too… disruptive.

195 comments ↓

#1 RealizedReturns on 10.24.10 at 9:16 pm

[i]Selling our house may make financial sense but is completely idiotic from a family lifestyle standpoint.[/i]

Coming to the conclusion that your house will decrease in value but choosing to hold it anyways simply means you are willing to pay the price for the family lifestyle that house is affording you.

The question is, how much is that lifestyle worth to you? Is it $20k? $50k? $100k? The problem is, none of us can say for sure if real estate will decline in our respective regions and if it does, by how much. So even with a figure in mind, holding the house is still a gamble.. and if a rapid decline in value begins, you may not be able to easily/immediately sell the house when your limit is reached. And at that point, another kind of psychological mindset will kick in – “we must be at the bottom, things will start going up again soon”

#2 TaxHaven on 10.24.10 at 9:32 pm

In your correspondents’ defence…perhaps the house they currently occupy is rather unique. Perhaps it was bought outright. Maybe the neighbourhood is worth something extra…

Can’t make a blanket statement. Housing as art? It all depends on the family’s individual financial circumstances…some can afford to pay for the above, others should not…

We have our eye on a pre-War heritage house in a small town – a little pricey for small town properties – but it does feature high ceilings, wooden beams, stained glass windows, NO particleboard or vinyl siding and the better-quality construction of that era.

I’m prepared to pay a little ‘too much’, in cash, for that because of uniqueness. However, NOT for tract housing, modern anything, mortgaged anything or Van/TO anything…

Supply & demand…

#3 Terpy on 10.24.10 at 9:35 pm

I agree with the letters author. We have rented and waited for 2 1/2 years for real estate prices to head south. It hasn’t been healthy for our family and if I knew in 2008 that I would be in this position now (still renting), I would have bought. The prices are higher now and yet the houses still sell, they just take a few weeks longer. Sorry Garth, a family home and the stability it provides is a priority.

I appreciate your sentiment. But tell me what the ‘stable’ difference is between paying a landlord to stay in a house or paying a bank to allow you to remain. — Garth

#4 sho-gun on 10.24.10 at 9:41 pm

Every so often my husband has one of those days that your reader talks about “family stability” “roots” “community” blah blah blah. We rent. We are diversified. We have choices. We are setting stepping stones in place for our children to have choices. Once again a post that could not have come at a better time after a what IS NOT important kinda of day! Thanks

#5 somejerk on 10.24.10 at 9:47 pm

As in your example, the folks in Penn would have had the lifestyle and then some if they only seen what was headed their way… interesting thing with the 99’s is the majority had to blow through their investments because they thought they were protected and invested correctly (like the ones you recommend) and then eventually the house, forgoing the ‘lifestyle’ forever… poor kids… hopefully grandma has some saved…

#6 Potato on 10.24.10 at 9:50 pm

RealizedReturns above makes a great point: it’s an expensive lifestyle choice.

As a renter I also like to point out that renting isn’t some second-class citizen thing: odds are good that there’s a detached house in your same neighbourhood that’s being rented that’s similar to your owned house. You don’t have to try to cram your family into some tiny highrise apartment to reduce your real estate exposure, or live in a slum.

Many landlords have owned their rentals for decades, and very likely won’t try to sell the place out from under you; even then, they can’t kick out a tenant before the lease is up. In the unlikely event that that does happen to you, you just move. Moving is a pain in the butt and I hate it… but if I could realize a 6-figure tax-free gain just for moving two or three times in the next 5 years, you bet I’d take it. A stable lifestyle isn’t worth that much to me.

#7 Taxpayer like everyone else on 10.24.10 at 9:54 pm

Sorry – comments from last thread turned off

250 RER – again, my apologies. I would have assumed (oops) that an “avid” (your word) cyclist would have a fendered bike for those days when needed (especially on
group rides BTW) and be prepared for inclement weather.

You can fit skinny tires on a ‘cross bike. I’ve raced one on the road when the road steed was in the shop. If you
only want to own one bike, ‘cross bikes are an excellent
choice. Try titanium with maybe a carbon fork.

Not sure what the reference to pounding joints to bits is about.

As far as the weather, here are your quotes pasted

@133

” freezing in BC in the winter, below zero for months”

@218

“The winter temps also go below zero all of the time. -5 ”

and then @250

“Getting tired of this but -5 is at night as I said”

You can see my confusion as to those remarks. Unfotuneately, this can lead to questioning the validity of
other comments.

#8 Contrarian Canuck on 10.24.10 at 9:57 pm

Good stuff Garth. Keep speaking it, even if it falls on deaf ears.

I’ve noticed an increase in bubble-related blogs as well as the increased media attention. Should all play on mass psychology to get the wheels turning.

I found these an interesting read:

http://financialinsights.wordpress.com/2010/10/24/on-credit-deflation-housing-and-recovery/

http://americacanada.blogspot.com/2010/10/growth-in-consumer-credit-collapses-by.html

http://vreaa.wordpress.com/2010/10/16/realtors-will-add-crash-value-sharp-pricing-will-assist-the-bubble-deflation/

#9 GenXer on 10.24.10 at 10:03 pm

Garth – tonight’s post is dead on. I have been following your blog for the past 2 years and was sure that housing was going to correct, but was reluctant to sell and rent for fear of disrupting my family’s lifestyle.

What prodded me into action was a business dinner where some of my American peers were discussing how the housing crash in the US had affected them. Many of them were hundreds of thousands of dollars into negative equity and faced dire economics at home that their families would never fully recover from. When I told them about the continued strength of real estate in Canada, they all shouted at me to sell right away. That if they could rewind the clock, they would absolutely get the equity out of their homes before it was too late. That the only thing that stopped them was the inconvenience of it.

When I got back from that trip, I put our house on the market in early September – it sold in 3 days. We are renting a house that is nicer and bigger, for a lower monthly cost. It’s also much closer to work – better for the environment and our monthly costs. Still, I defend the decision to rent every day. I think most people believe that I am poor and can’t afford to buy another house. It is so frustrating some days, but I have come to realize that most people are so overleveraged on housing that they have to believe it will increase in value – the opposite is so scary, they can’t possibly face it as a reality.

As for the question of the landlord kicking you out if they decided to sell – sign a lease for one year. They cannot kick you out of the house for that year. Afterward, it moves to 90 days notice automatically. Even if they sell, the new owners cannot break your rental agreement. Do your research everyone – renters have a lot of power in the landlord tenant act. Don’t be afraid to rent due to fear of being under the control of a landlord. Most of the landlords we met were more afraid of tenant problems than the other way around. If you are a family with a solid financial record, you can use that to your advantage when negotiating on rent too!

One other piece of advice. If you are in a fixed rate mortgage – mind the IRD. (Garth – when are you going to write about this terrible policy? – it is highway robbery on behalf of the banks, based on fictitious rates that no one has ever paid. Clearly breaking a mortgage is going against the grain, because if these policies ever came to light, there would be riots in the streets). If you are thinking of selling, max out your monthly mortgage payments right away and take out a line of credit for 15% of the outstanding principal so that you can throw that money down on the mortgage before close. With a little effort, you can knock down 30-50% of your IRD penalty in a hurry. Then be ready to negotiate to get the remainder back if the bank ever wants your mortgage business in the future. Good luck all!

#10 Alpha_Bear on 10.24.10 at 10:05 pm

We have our eye on a pre-War heritage house in a small town – a little pricey for small town properties – but it does feature high ceilings, wooden beams, stained glass windows, NO particleboard or vinyl siding and the better-quality construction of that era.

By better-quality construction do you mean knob-and-tube wiring, lead plumbing, sawdust insulation, single-glazed windows, and asbestos insulation on the furnace?

#11 Old_is_Gold on 10.24.10 at 10:08 pm

If there is a potential 20% hit to the economy it will not be limited to just the real estate sector alone but will be spread clear across the economy. So how can this guy be confident that he will have his job for sure in five years and still be able to pay his mortgage? I wonder how his lifestyle will fare if he one day faced with financial ruin because of his house. 500,000 people in the UK would be quite happy as debtless renters, and so would countless more in the US, Greece, Spain, Ireland….and so would their kids. It’s amazing how a little thing like a bankruptcy can split families apart in no time…after all finances not infidelity is the #1 cause for divorce. It’s the relationships inside the house that make a family not the neighbors or the parks or other amenities in the community… family stability is not possible without financial stability, at least in the majority of cases.

#12 dd on 10.24.10 at 10:08 pm

#3 Terpy

…We have rented and waited for 2 1/2 years for real estate prices to head south….

I have too. Every night I count my extra cash that I earn and invest in assets that WILL go up overtime. House price fundmentals are not good. No matter which way to look at it (price to income, demographics, taxes, maintenance) odds are greatly against price increases.

If you have studied that market and fundamentals you would soon conclude that prices AT BEST will go sideways for years to come.

#13 LB on 10.24.10 at 10:13 pm

Your letter writer’s arguments make sense only if his house is not mortgaged AND if he has other investments equal to or greater than that.

If not,the stability and security that he desires for his family as his main goal in owning real estate is highly at risk.

#14 Dan in Victoria on 10.24.10 at 10:13 pm

Good read over @ Jonathan Tonges blog
Growth in consumer credit collapses by 50%
http://www.americacanada.blogspot.com/

#15 dd on 10.24.10 at 10:15 pm

”’stability is very important”’

WOW. Stability means having a house and paying a mortgage instead of a house and paying rent.

Utter bullsh*t.

#16 Erikson on 10.24.10 at 10:18 pm

‘Oh, Those Russians!’
on picture
I’m sure they can fix the economy

#17 InvestorsFriend (Shawn Allen) on 10.24.10 at 10:19 pm

Some people can easily absorb a 50% drop in thier house’s value. For example those with no debt and with substantial financial assets.

Some people would be wiped out by a hit like that, or even a 25% drop. Those are the people who should strongly consider selling.

You pays your money and you takes your chances…

#18 dd on 10.24.10 at 10:24 pm

#1 RealizedReturns

…The problem is, none of us can say for sure if real estate will decline in our respective regions and if it does, by how much…

True. However an educated guess is a lot better than pi$$ing in the wind.

#19 Soylent Green is People on 10.24.10 at 10:29 pm

I’m very upset at all the crap I have to scroll by via Devil’s Advocate rantings that I can not read at all. Plus I’m pretty sure he’s posting under more than one name. He’s a stupid egotastical freak that I hate very much. I might hate him more than Stephen Harper… that’s a lot of hate. If he can post that much crap and get away with it, then I’ve decided to post my stuff too. At least my post is something about saving Canada whereas his posts are just fit for the bird cage. HATE HIM HATE HIM HATE HIM SO MUCH !!!!!!!!

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Just punch in your postal code and a list of your neighbours will pop up.
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#20 freedom_2008 on 10.24.10 at 10:32 pm

Hi Garth,

Saw the 60 minutes clip you sent, was a bit shocked as I used to travel to SJ for business meetings quite a bit while working for a big high tech company. We quitted more than two years ago and do thank “God” everyday that we don’t have to find another job. As if we do, we would be just like those in the show.

To me, selling house before the crisis hit is only part of the story. The more important part is that people have to change their “life style”, and to live BELOW their means, regardless they own a house or renting. Otherwise, selling house alone wouldn’t help anyone in the long term.

#21 Boombust on 10.24.10 at 10:36 pm

Well, I see that RE is getting very soft in the Tr-Cities area outside of Vanacouver.

Older listings are cutting prices in an attempt to sell and new listings are coming on much lower than seen a mere 6 months ago.

The die is cast.

#22 TaxHaven on 10.24.10 at 10:36 pm

@Alpha_bear, no, I mean the no-plywood, no- particleboard, 8″x6″ real wood floor beams, wood-framed windows, little touches like octagonal second-fl. windows, nailed (not stapled) joists and hardwood flooring (NOT that parquet crap).

#23 Dan in Victoria on 10.24.10 at 10:40 pm

Taxpayer like everyone else @7
Got to agree with you.

” Victoria is one of the sunniest places in BC and gets more sunshine than other cities in Canada except the southern prairies”
“During the summer months Victoria is the driest major city in Canada”
Check out the climate part.
http://en.wikipedia.org/wiki/Victoria,_British_Columbia
Does it Rain OH YEAH.
Do we have problems OH YEAH.
Is it perfect? NO.

Live where you want, enjoy where you live, but at least present some balance.

#24 nonplused on 10.24.10 at 10:48 pm

In some cases I agree with the letter writer. I am not advising my parents to sell for example. The house they are in is where they want to live, my dad built it himself a good 6 years or so ago now (he’s in that line of work), it is all set up the way they want it complete with a really unique shop, and they are done paying for it. So it’s all notional money to him, and he has other resources. They think of it as shelter, and that it is. The neighbors house goes up in price, the neighbors house goes down in price, but his house stays the same to him; his house.

If he did sell, where do they go? To a rental? What does he do with the old car he’s restoring? What kind of a rental would have air processing for sand-blasting and spray painting? Where would he put all his tools? Does the rental have an indoor hot tub?

One day he will sell all that stuff as he gets too old to maintain it, but he’s in good shape so that could be 5 to 10 years away. He’ll probably sell the old car to me, so he can still drive it once in a blue moon, but I’m not to worried becasue even if it goes market it will be worth north of $50,000 fully restored. (Earning him a pitance per hour, buy the way. It’s a labour of love.) The tools not so much.

His commercial real estate holdings on the other hand, I’ve been saying “sell, sell, sell”! But that’s his livelihood right now and it’s paying pretty good with 2.5% financing. They hold some pretty unique real estate that survived 12% mortgages in the past, and likely will in the future. The new stuff has fixed rate financing that carries through to payout and as solid of tenants as you could imagine, but I think the future growth and most of the rate of return is already priced in. Why take the risk? But he doesn’t see it as any riskier than say government bonds. In that respect, he’s probably right.

But if you have less than 25% equity, your job is not secure, you are having trouble making your debt payments, or you are planning to downsize/upsize/relocate any time soon, bail, rent, and wait, like Garth says. Movers are cheap compared to real estate agents, and you get to check out the area before you commit.

#25 dark sad person on 10.24.10 at 10:48 pm

#9 GenXer on 10.24.10 at 10:03 pm

As for the question of the landlord kicking you out if they decided to sell – sign a lease for one year. They cannot kick you out of the house for that year. Afterward, it moves to 90 days notice automatically. Even if they sell, the new owners cannot break your rental agreement.

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

You might want to reconsider locking in your rent price for a year-
Rental vacancies will go up and rental prices will come down and with a lock in-you have no bargaining power-
I think-that renters will be in the drivers seat and landlords will be forced to follow the market rental prices-which will be down and the tenant will be in high demand-so getting booted will become less of a concern-
I would not not lock into “any” long term contracts-for anything-

http://calculatedriskimages.blogspot.com/2010/04/rental-vacancy-rate-q1-2010.html

http://1.bp.blogspot.com/_pMscxxELHEg/S4RoZFYWGDI/AAAAAAAAHlc/l4niL_7Ouvc/s1600-h/PriceRentDec2009.jpg

U.S. apartment vacancy rate hits 30-year high

On average, close to 60 percent of all rental buildings across the New York metropolitan area lowered their rents from the third quarter.

Year-over-year, effective rents in New York fell by 5.6 percent, making 2009 the worst year for landlords by this measure. This was even worse than the 3.8 decline in 2002, when New York reeled from the after-effects of the Sept. 11, 2001 attacks.

http://www.reuters.com/article/idUSN0614064020100107

The average rent for a unit in a large Orange County apartment complex fell to $1,473 a month in the fourth quarter of 2009, the fifth straight quarter to see monthly rents drop.

http://www.calculatedriskblog.com/2010/01/rents-fall-to-3-12-year-low-in-orange.html

#26 BrianT on 10.24.10 at 10:51 pm

The guy has a wife-renting is lower status than owning-“stability” is just a polite or politically correct way of saying higher status. Try this exercise with your friends, both male and female: You will be given a pension of $13000 monthly ($156000 annually) from the Cdn guv for life-you can continue to work for additional income if you choose to do so-the only requirement to collect your cheque is that your principal residence cannot be valued at more than $156000. You will find that pretty well all your male friends will think this is the greatest thing since sliced bread and the only ones that even perceive any snags are the ones that need to convince their wives or girlfriends. Most of your female friends (especially if you live in TO or Vancouver) do not see this as a great opportunity at all, more of a trap preventing their ultimate acheivement of a million dollar mansion (even if that goal is known logically to be unrealistic)-most will refuse the monthly cheque. Obviously very few USA women would trun down the monthly cheque at this point, but they have already been through the RE fantasy wringer at this point-the washing machine has barely started here.

#27 Steve from Calgary on 10.24.10 at 10:52 pm

Garth, a house for people is like a Hummer, a status of wealth. Why would people live BENEATH their level of wealth by renting? A house is also a place to put their accumulated physical wealth. When I hear people complain about disrupting their family, I hear people complaining about having to rent storage space for their junk. It’s not about buying low and selling high. It’s about how you look to your family, friends and strangers.

#28 BrianT on 10.24.10 at 10:53 pm

Make that multimillion dollar mansion.

#29 Devore on 10.24.10 at 10:54 pm

If everyone wanted to rent who would own property?

That’s idiotic. But a very popular soundbite.

For every seller, there must be a buyer. By definition, everyone can’t sell and rent. So if everyone wants to sell, what do you think would happen?

#30 LiveOttawa on 10.24.10 at 10:57 pm

Lets see what coms next

http://www.nationalpost.com/news/Tories+await+stimulus+program+audit/3719341/story.html

#31 T.O. Bubble Boy on 10.24.10 at 10:58 pm

Just to be clear, the 20% of the economy that is tied to housing cannot go to 0%, or else there are zero homes being bought/sold/built/renovated/furnished/etc.

Yes, this is the beginning of the end of the 10+ year bull run for housing in Canada, but 100% of that 20% of GDP cannot suddenly evaporate.

#32 Mark on 10.24.10 at 11:02 pm

The desperation is showing.
Quite nauseating actually..
Vancouver Canucks….a reason to spend my money on an overrated product????

http://www.vancouversun.com/business/Five+reasons+home+equity+growth+more+likely+than+local/3716875/story.html

#33 Nick on 10.24.10 at 11:05 pm

Check out the previous CBS video “Extra: Wiping Out Savings”. Gotta love the granite countertops behind them.

#34 Kanata squirrel on 10.24.10 at 11:09 pm

It’s been a while since I’ve been on this blog … I should have listened to Garth and my gut last May! After listing our place last May, at our Realtor’s recommend price, we dropped our price to what I beleive would clear this home … and one weekend later boom, we conditionally sold are wonderful home. Such are great place but far too risky personally should the ecomony turn like in the states.

F that, I’m not to be house poor for a decade – my kids and family will adapt but have their university education all paid for and my retirement set.

#35 Patz on 10.24.10 at 11:11 pm

One of the dangers of owning your home in a deflationary period is the illiquidity and the lack of options if you need to move. When, not if, the market starts to tumble much more will be affected than the price of homes. Job security for one. Suppose you keep your job but your employer says their economic needs dictate that they move you. Renting no problem; owning maybe very big problem.

The character of your neighborhood could even change. Don’t think so, again look south.

Which sounds better in tough times: a rented home and a lotta change in your pocket or spare change and locked into a depreciating asset?

Nobody can judge for another what they should do. But everybody should take an unemotional look at their situation and run a number of scenarios from best case to worst and see if they’re making the best choices. It’s obvious from many comments that the prejudice against renting is strongly embedded in many family’s psyche—put there in part by the relentless worship of home owning by governments and the industry.

#36 Tim on 10.24.10 at 11:12 pm

The piece on 60 minutes was done in San Jose. It is interesting to note, that, despite all the carnage, foreclosures and unemployment, the median house price is still over half a million dollars. If housing is still that expensive there, then what is the likelihood of a large correction in Toronto or Vancouver? Even if prices drop by 25% in Vancouver, they will still be unaffordable, overpriced, and it will still be cheaper to rent

#37 Tim on 10.24.10 at 11:14 pm

Not that San Fran is the same as Vancouver, but the median sale price there is still over $700k, despite having the worst economy since the depression

#38 Mark on 10.24.10 at 11:19 pm

#16
over rated product=delusional real estate in Vancouver

#39 Fiendish Thingy on 10.24.10 at 11:21 pm

In the first graph, it looks like prices dipped 10-15% over two years (87-89), then were fairly flat for the next 10. More of a stagnation that a crash.
Seems like conditions are ripe for at least as big a drop, but with the increase in debt, probably more. Does massive personal debt alone create conditions for a “cliff” rather than a “correction”?

#40 rory on 10.24.10 at 11:22 pm

GT/Dude hi …

You more than anyone here knows that a lot of the comment info portrayed is US biased.

I get it that Canada follows in most instances BUT …

Does Canada have the same foreclosure issues/troubles.

Are we, as some/most US states, ready to implode in .gov spending and layoffs…. as in the UK/California?

I get that we are not different …but are we different in some other ways that may save our ass – currency, oil, banking, minerals, water, and so on.

Like …the US dollar goes down and so does ours … why are we not stronger? I get we got to parity and then faded like your fav in the fourth at Woodbine. WTHeck?

#41 josh on 10.24.10 at 11:23 pm

great post! it shows how emotion plays a large and foolish roll in housing

#42 tryingtobepatient on 10.24.10 at 11:25 pm

Dear Garth,

Would you agree, in Toronto, there is a major “divide” in real estate listings/sales/prices between the condo market and the SFH market. We had a condo and sold it last year when the maintenance fees climbed to the point where it no longer made sense to own. A 1600 sq. ft. condo in midtown, taxes $5500 and maintenance fees of $1050/month. And that was before the HST bumped up those fees to $1200/month. Just look at the MLS listings for condo sales–there’s tons for sale out there!

However, the SFH market is still stubbornly clinging to prices because there aren’t many of them in the same area. Supply and demand: still the greatest factor.

The last bubble burst in 1989/90 beginning with a crash in the condo market and there were nowhere near the number we have now. Even in the heat of the 2009/2010 real estate frenzy, where homes sold overnight over asking, it took us months to sell our condo — and that was in a great building and in the most desirable part of the city! We didn’t get the price we had hoped, but now are thrilled!

We would still like to get back into a small sensible house that would cost us less to maintain than our condo and our current rent, but we are terrified to buy too soon. The last Globe and Mail article along with many more to come will introduce a renewed media fear that will certainly worry vendors. Now, will it shake them enough to sell realistically or will they hold on to their properties waiting for better times? That is the big question.

Thanks for your article.

#43 Mean Gene on 10.24.10 at 11:34 pm

To the letter writer, teenagers are the most flexible people around, it’s the old farts that are inflexible.

Sell the house and rent in the same neighbourhood or close to it, in a few years when the kids are finished school they won’t really care, as long as they graduate with their friends.

#44 dddd (van) on 10.24.10 at 11:38 pm

re 15 dd
“WOW. Stability means having a house and paying a mortgage instead of a house and paying rent.

Utter bullsh*t.”

whoa…easy tiger – different strokes and all.
we paid mtge for 12 yrs and now it’s gone, no rent to pay. the empty suite downstairs would pay the tax,mtce,utils and more if we wanted to rent it. The first few yrs we were prob underwater but we didn’t know or care, since then the value has gone from 250 to 950 (with upgrades 50k and all my labor ,another 50-100value)
Stability? Looking at 40 yrs rent free – lotsa cash to save every month. I know that my young kid can live in a great house in vancouver without a 6/49 win. We love the area , have heavily customized the house to our exact desires and will likely never move. To me that is stability.

yes . i know we will drop some, but being close to dt van we saw virtually no reductions in LAND prices during the 08 mess. condos are a different story… in fact, there have been a few price drops VERY recently, this in the land of bidding wars where any sfh on the market over ONE WEEK was highly unusual

I strongly agree, however, that being mortgaged to the max right now , or anytime, is not stability. But in the long run, if handled wisely, there is no comparison (try building a garage and a very large deck, or to install skylights, a new kitchen, gas fireplaces (and more) in your rental)

#45 Crash Callaway on 10.24.10 at 11:51 pm

Excellent topic.
One that needs to be repeated over & over.
I feel for ya Garth.
Warnings falling on deaf ears but ya gotta keep trying to haul their waterlogged butts into the lifeboat.
Nasty job but someone has to do it.

New epitaph for the bubble tombstone.
“Inconvenienced By Meltdown– 2011”

#46 Onemorething on 10.24.10 at 11:51 pm

I agree with Garth, what a lack of responsibility on this writers part. The ultimate goal is protection of family. What’s worse renting OR just flat out loosing your home in the future…you tell me which one is more disruptive!!!

#3 Terpy…your almost at the finish line! However, if you have not been harvesting those returns on the capital from the sold property…now that’s a problem.

#9 GenXer…This is the play, nicer location, bigger house, 1/2 the cost of ownership. I’ve only mentioned it here a dozen times when the wives and family put pressure on you to buy!

Try before you buy…will buy you time to set up nicely for the correction.

#47 Jsan33 on 10.24.10 at 11:52 pm

How could the Canadian media turn all but a blind eye to the shenanigans that was pulled by the CMHC? Somebody please answer this question for me and tell me why we are not marching on parliament hill with torches and pitch forks? By this I mean how could the media and most of the financial community in Canada not be screaming about the reckless lending standards over the last few years on behalf of a government…….no, TAX PAYER backed corporation in the CMHC? It is one thing if banks are willing to give million dollar mortgages to individuals with middle class salaries, I could care less about that. It is a totally different situation when they are handing out mortgages such as this like candy purely due to the fact that the Canadian Tax Payer (CMHC) will take all of the risk.

The Canadian Tax Payers should be mad as HELL about this!!! My guess is only when this mess comes crashing down and home owners lose their little bubble built nest egg will they become furious about this. Until than as long as they have equity they can spend they are happy to be ignorant of the situation.

#48 Devore on 10.24.10 at 11:53 pm

#10 Alpha_Bear

By better-quality construction do you mean knob-and-tube wiring, lead plumbing, sawdust insulation, single-glazed windows, and asbestos insulation on the furnace?

No, he means hardwood framing, real paneling on exterior, solid foundation, good floors, you know, “bones”, not particle board and engineered I-beams that will melt in a fire or disintegrate when wet, and who knows how long that glue lasts for or what it will turn into.

#49 ulsterman on 10.24.10 at 11:59 pm

The frustrating thing about renting a house in the lower mainland is the rent ($2400) is about all l can comfortably afford. OK, it would cost be 3500-4000 to buy, but this is all rather academic because i could not afford the mortgage.

So i rent yet do not get the pleasure of “saving” the difference and becoming one of those rich renters that appear to permeate bear blogs.

#50 Waiting and waiting on 10.25.10 at 12:04 am

The lifestyle is very important and your house is more than just an asset. And renting is not the same.
But the writing on the wall says a big drop in value and unemployment is possible.

For some, staying in their current house is preferred even if the predictions come true. Like our host. He states real estate is less than 40% of his assets. He will have no trouble riding out the storm. If his income shrinks too much, the other over 60% of his assets will sustain him for a long time and allow him to pick up some bargains. I think his income will rise if he gets to say “I told you so”. Talk about hedging.

If this does not apply to you, and the bulk of your assets are in one area, you have been warned. Diversify and protect yourself from the boom and bust that is inevitable. Nobody knows the future. The biggest mistakes happen when you think you know when you don’t.

“I can feel it in my bones!”
“It’s got to land on black this time!”
“Such a charming good looking happily married couple, surely they can’t be kidnapping, raping, murdering lunatics.”
“This housing market still has plenty of upside!”

For your family’s sake, consider the possibility you might be wrong and take precautions. Not just with housing, but with all the important things in your life.

#51 JB on 10.25.10 at 12:05 am

Garth,
Why shouldn’t home owners take out a HELOC, and use the HELOC to purchase diversified investments?

This way they can still live in their house, get some dividends, capital appreciation, and have some tax write-off at the end of the year.

#52 Nostradamus Le Mad Vlad on 10.25.10 at 12:13 am


“Now it’s at hand. There is no good end to this story.” — Yes, all us doomers and gloomers kept harping on that, sooner or later, the piper calls the shots and there is no escape. The west’s cycle has almost run its course.

“. . . upsetting his family’s lifestyle.” — Suggestion: Google video clips on Tent Cities in the USA. After watching a few, ask: Does living in a tent in winter upset your family’s lifestyle, or would renting a townhome be worse?
*
Just For Kicks A possible reason for the turmoil of the world.

US Fed Goin’ down south. Probably goes with the 60 Minutes story and Garth’s post. Plus — 7:27 clip Banking vultures — JPM is featured, along with others.

Inflation Coming here soon! Following — Timmy tries to dump on China, this is what we get back.

Now Timmy is blaming China for the US’s woes. Has he forgotten the buck stops here?

Market Manipulation for gold and silver on the COMEX market does happen.

An excellent headline and article; bang on the money!

Fance Normally a nice place to visit. Not at the present moment.

Tony Blair converted from Anglican to Catholic a few years ago. His sister-in-law converted to Islam. That’s what freedom of choice is all about. Blair is still a war-monger; that is not part of The Christ’s teachings.

1:16 clip We’re being watched by the higher-ups! Maybe it’s the Bilderberger Group dropping in for afternoon tea! 3:32 clip Or these over PA.

Curious link re: the Mayan calendar, nice (but strange) pics, and a new cycle beginning a week Tuesday. Includes the eye at the top of the pyramid on US currency, and cycles in art form after that. Only for whackjobbizarremeatheads like moi! Plus this.

#53 Freedom 85 on 10.25.10 at 12:14 am

Don’t forget that about 30% of Canadians own their houses free and clear – no mortgages. That’s a pretty big and stable pool of equity. That particular demographic has to concentrate on how to manage their savings from confiscation (inflationary trends). The other 70%………well, we will all be feeling the pain…..

#54 lexington on 10.25.10 at 12:14 am

Garth,

I agree that the housing bubble will burst in Canada, but Vancouver and Toronto won’t get hit. If the US experience has taught us anything it’s that a country’s important cities deserve higher than average price to income ratios.

Five years into a US housing bust, New York City and San Fran have price to income ratios of roughly 10, which is where Vancouver is today. Toronto is even lower, suggesting there is room for Toronto real estate prices to rise even if Canada’s real estate bubble bursts. Remember, at the height of the US real estate bubble, San Fran had a 13 price to income ratio.

The lesson is that the bursting of the Canadian real estate bubble will affect the middle sized cities, small towns, etc., but not Toronto or Vancouver.

#55 Snowman on 10.25.10 at 12:40 am

“You don’t have to try to cram your family into some tiny highrise apartment to reduce your real estate exposure, or live in a slum.
………………………………………………
Moving is a pain in the butt and I hate it… but if I could realize a 6-figure tax-free gain just for moving two or three times in the next 5 years, you bet I’d take it.”

Well, I guess the only way to find out is to wait for 5 years. However there is something you know now: 5 years of renting will most likely cost you 6-figure after tax, money you’ll never see again. Unless of course, you decide to cram your family into some tiny highrise apartment to reduce your real estate exposure, or live in a slum.

So Garth, I take you sold all your properties and currently renting, huh?

#56 rob in madrid on 10.25.10 at 12:49 am

I have been on both sides of the equation, both as a negative equity owner and as a renter, and when it comes to housing it’s really lifestyle, for this couple if they are good with their money, debt free, mortgage close to being paid off than it makes sense to stay, I have a brother in law (4 kids one disabled) who has moved going on 3 times since they sold their house (pre bubble days due to financial reasons) and yes landlords are A-holes who will gladly kick you out and most tenants won’t fight it.

Reality is if you have a nice house and a reasonable mortgage you’re generally better off staying, unless your sitting on 100s of thousands of dollars equity in a very bubbly market like Vancouver.

#57 Bailing in BC on 10.25.10 at 1:07 am

As some of you may recall, in June, we up rooted our family, sold our almost paid off house of seven years in Squamish and started renting.

Was it a pain? Yes. Did the kids cry? Yes. Did it freak the cats out and get the neighbours noses out of joint? Yes, yes.

Did it freak ME out? Yes.

Was it worth it? YES!

We haven’t doomed ourselves to some nightmarish rental hell. We have a two year lease on 2300 sqft with all the bells and whistles, granite and stainless steel. It doesn’t feel any different than living in our “owned” house except for the fact that now we don’t have the worry of all the maintenance. The kids still go to the same school, play with the same neighbourhood friends.

Stability and security is very important and the foundation of both of those is sound finances. Having my net worth gutted by housing is not my idea of stability and security. Knowing that I have the flexibility to change as my fortunes change helps me sleep well at night.

Based on comparables I would say that the house we sold has gone down in value equal to almost a year and a half worth of our current rent. A house down the street from our old house is still for sale. It started out listed at $579000 and has now dropped to $499k.

As my daughter and I put out the Halloween decorations this weekend I over heard two of the neighbours talking about prices in the complex. They were talking about another owner who had sold at a loss after being transferred, “he sold for quite a loss because he bought at the same time as me” one neighbour said. My landlord is in the same boat, renting to me because they don’t want to sell at a loss.

#58 Canuck DownUnder on 10.25.10 at 1:33 am

Ah, it looks like we are taking the lead here DownUnder in that coveted race to the edge of the housing cliff.

http://www.abc.net.au/news/stories/2010/10/25/3047493.htm

C’mon Canada – lift your game!

#59 Munch on 10.25.10 at 1:36 am

Very informative insight, Garth, thanks!

Now … you wrote “It profiles professional people (like a $200,000 personnel manager and a $70,000 office manager) who have been out of work a year or two, and are descending into the financial abyss.” … and Munch says … I haqve always been fascinated to hear a professional person described in terms of their earnings potential – “a $200,000 personnel manager” – when in fact their potential earnings, after two years of being unemployed, is probably more like zero. Your “$200,000 personnel manager” is in fact probably more like a “$12,000 personnel manager”.

Gnome sane?

#60 Aaron - Melbourne on 10.25.10 at 1:52 am

Views from the msm in Australia:

http://www.theage.com.au/business/mortgage-stress-jumps-bites-brisbane-hard-20101025-16zlf.html#comments

http://www.theage.com.au/business/property/super-saturday-soft-its-a-buyers-market-20101024-16z6n.html?autostart=1

*you have to scroll down and click to see more comments.

#61 Real Estate Realist on 10.25.10 at 2:11 am

#7-Taxpayer: “Avid” means enthusiastic, dedicated. 40+ years of cycling and counting. That’s all.

Fenders are for my motorcycle as I said earlier, and I am always prepared for inclement weather, ie. rain and temps down to +8. Lower than that I put my baby away for the winter. That’s me.

Weather, and real estate, go together. BC stinks. Van is hilly just like San Fran, which isn’t fun as it’s always forced upon all cyclists, there is no choice regardless of fitness level. Heck, even athletes are tired sometimes and want a break but there is none to be had in that town. Toronto, and more cities than I can name here, are fantastic. I also don’t do “group rides”. I’m not that kind of cyclist. Nor do I sit upright, have a basket of flowers, wear blue jeans, or putter. With a health company in the past I appreciate that type of exercise, and would love to see everyone on a bicycle no matter their style, but I personally, as I said before, cycle for fitness and speed. I don’t run errands in downtown Toronto with my car. I cycle. My car is for work. I can’t cycle in a suit and I can’t work in cycling gear. Perhaps now you can stop giving me advice about how I should cycle and what sort of cyclist I should be? When someone is “avid” and obviously had a long professional career (therefore not a youngun), maybe the lifestyle of that person has been determined? Just sayin’…. Honey, I’m one of the old school, hardcore, bicyclists that rides with the same feeling as I did when I was 10, and the bike I have is the bike I’ll be riding at 70. ; ) Sticking with a curly bar will keep anyone in shape for life. (major core workout and spinal muscle strengthener, also quads, ie. largest muscles in the body, also a “balance” workout). I also told you that I’ll keep the bike I have thanks, that my frame is special, that people want to buy it from me because of that. Solid steel is a GO bike, ie. fast. Speed isn’t just about being light weight. That’s a myth. ; ) On flats, and ownhill especially, I can fly. Uphill, I work harder. (ancient Chinese secret, ie. pull, carry more weight = strong like ox) Solid steel has more stability in a pinch too. It won’t abandon you in crisis like a featherweight bike will. Those are like a horse losing it’s legs underneath you right when you needed it to step it up a notch to save your life.

Re the weather comments about BC ~ they are synonymous.

Re cross bikes ~ they are made so that the rider can also ride on uneven terrain. That would interfere with my love of pavement, speed and penchant towards minimal shocks to my elbow joints.

We need to get back to REAL ESTATE here. If you want to argue that the winter temps don’t go below zero in BC (ie. Vic or Van) then give us a laugh and deny it. If you want to deny that the temps are ALWAYS cold and damp and miserable in the winter then go ahead and give us a laugh about that. People who move there because of the totally false hype about the weather are always burned, and if they’ve actually purchased based on that lie, well, that’s just sad. I knew quite a few burnees.

#62 State of Mind on 10.25.10 at 2:13 am

Renting is stable.

My folks rented the same home for 43 years. Some homes won’t even last that long. Is living at the same address for 43 years too unstable for some?

You would think 43 years of rent is crazy, but when you add all the rent up ($100/mo in 1967, $1000/mo in 2009) , they paid less in total than a comparible house was worth today.

43 years, renting at the same address. Now that’s STABLE living.

#63 Mark on 10.25.10 at 2:16 am

What kind of messed up business/country pays a personnel manager $200k/year? Insane.

#64 Renting in Toronto on 10.25.10 at 3:26 am

Excellent post Garth.

I rent after selling an expensive house we owned free and clear. The place we rent is a brand new townhouse with all the bells and whistles and in the same neighbourhood so our kids can go to the same schools. We have dropped our real estate to 20% of net worth from 40%. We have the resources to own a house but prices are crazy. We are considering selling the cottage to take us to 0% residential real estate. Things are just too pricey. This is a house I would consider buying in Oakville. It is expensive at a million dollars and yet it is asking for way more than that. Makes on sense to me.

http://www.realtor.ca/propertyDetails.aspx?propertyId=9955251&PidKey=1274548137

#65 Willy H on 10.25.10 at 3:56 am

For some of us however selling, moving and renting is not an option. …. Selling our house may make financial sense but is completely idiotic from a family lifestyle standpoint. …

“Having said that, guess if you are in too deep then sell your house now. I do intend to follow your other investment advise. Thanks.”

– – – – – – – – –

What about a plan of action that is a compromise between Garth’s advise and your needs as a family?

If you are worried about the uncertainties of renting then take control of them. If you are hellbent on home ownership then sell your home, rent for 6 months to 1 year and purchase a smaller home (eg. downsize into a bungalow*). If you come out of this with a smaller or non-existent mortgage (and a wad of cash if your previous home was paid off.) you should be fairly content. You will have made your family more resilient than the status quo.

This isn’t perfect. Let’s face it, there are endless ways people piss money away – expensive cars, lavish vacations, granite and stainless, daily $4 lattes, cell phones for every member of the family, bottled water (more expensive than gas!) and we could go on and on …

* more likely to hold it’s value in future.

GenXer’s – excellent point regarding IRD penalty!

#66 SV on 10.25.10 at 4:23 am

Would you have a view on Australian RE?
our interest rate was never as low as yours;
our unemployment is at record low 5.1% (although I dont understand what could employ so many people);
our banks are just high on mortgages as yours but dont have that blanket federal insurance;
our government debt is not so high;
so at a first glance all seems ok or does it?
but our housing industry makes a bigger %% GDP than yours
what can one make out of this info?

#67 Brian1 on 10.25.10 at 5:44 am

Yes, his children are the precise reason he should sell. His community will never be the same anyway. However, noone will follow advice from someone who does not do it himself. If you do not set the example then why would they really listen unless they have been gifted with the same advantages as you. There are not many like you who can understand the fancy calculations that you can. If you truly want to lead you must walk the talk. A good general gets in the trenches alongside his men thus setting an example and sharing the pain.
Talk it over with your wife. Now take a minute. See, it is not so easy.

#68 C on 10.25.10 at 6:42 am

The “I don’t want to disrupt the family’s roots” argument is simply an excuse. Things in life take sacrifice. If it was easy everyone would do it. Ever heard of no pain no gain? What Garth said about home owners in the USA in 2006 was dead on. They would take those gains and a stress free life in a heartbeat. Look at the charts, that’s all you need to do. Maybe the truth is you don’t want to move out of fear of missing further potential gains?? You may be keeping things in order now for your family but by selling now you could be propelling your family’s future well being.

When you look at what has happened in the USA, and then you look at those charts it really makes you wonder what the hell Canadians are thinking??? They aren’t thinking they are on emotional autopilot.

Sell, rent, invest the savings, then buy down the road at a lower price. No pain no gain.

#69 Brian1 on 10.25.10 at 6:50 am

The G&M Saturday story was not the opinion of the G&M but was a freelance story.

It was compiled by a staff writer. He is not freelance. — Garth

#70 Aussie Roy on 10.25.10 at 6:53 am

#18 SV on 10.25.10 at 4:23 am

Please visit http://www.bubblepedia.net.au/tiki-index.php make a cup of coffee and spend 30 minutes reading the site. In short Aussie housing is a huge bubble its just a matter of time until we also have a price correction.

Garth your blog today rings true here in Australia also, most people I speak to say “well negative equity or not we just wont sell”. IMHO They haven’t actually thought about what kind of economic position they would be in under a “prices falling 30% scenario”. Of course the dewy eyed ones also say “Ah they go back up in no time”. I’m sure as in Australia there are lots of people there who have really no idea what falling house prices truely mean, let alone believe they actually could fall.
FWIW I sold my investment properties back in 2008/9.

Aussie Update

http://blog.aussie.com.au/index.php/borrowers-urged-not-to-get-carried-away-amongst-relaxed-lvr-offers/

http://au.ibtimes.com/articles/75314/20101025/banks-remain-concerned-with-opposition-s-proposal.htm

AUD parity with the USD here we come.
http://www.theaustralian.com.au/business/markets/we-cant-take-asia-for-granted-says-rba-chief-glenn-stevens/story-e6frg926-1225943175908

#71 Moneta on 10.25.10 at 7:01 am

Everyone blames the elite and their grand conspiracies for our woes but they also have been suffering from house lust, just on a grander scale.

After basking in the presence of the nouveau-riche financial lite and seeing what real money means, I feel so sad for all those homeowners who get themselves in debt with these 500K+ McMansions to impress other people who are just trying to outdo them anyways.

This whole thing where people get their self worth from their house is just ridiculous.

#72 pbrasseur on 10.25.10 at 7:18 am

Selling our house may make financial sense but is completely idiotic from a family lifestyle standpoint

It mat not be idiotic but right now it is still a very difficult thing to justify emotionally and in the face of peer and family pressures; we are just not there yet. When it becomes evident that selling is/was a good idea it will be too late for most anyway. That’s how bubbles work, if most could get out unscathed we wouldn’t call it a bubble then, would we?

#73 Mister Compounded on 10.25.10 at 7:23 am

“Selling our house may make financial sense but is completely idiotic from a family lifestyle standpoint.”

How will your life unfold if you end up in negative equity? How will the wife react?

I’m sorry but to maintain your quality of life you need to have your financial base covered.

#74 dd on 10.25.10 at 7:52 am

#44 dddd (van)

…we paid mtge for 12 yrs and now it’s gone..250 to 950

Sure. Timing is everything with inventments. Your $950 today could be worth $600 tomorrow too. Don’t get too comfortable.

#75 Joan on 10.25.10 at 7:53 am

This blog professes financial stability based on facts; these facts are proven only by the past. Emotional and mental stability are also open to unforeseen risks… risks that, for some, can be mitigated by owning a home. We rented for a hellish year (based mainly on advice from this blog) and, in retrospect, feel it was worth it only because we discovered a fabulous neighbourhood we wouldn’t have bought in a year ago. We do not equate our home solely with making money; our investment horizon on this property is for the long term and our quality of life while living here is more important than financial returns. Heck, many things in our lives are more important than money. Doesn’t mean we aren’t being cautious about saving for our senior years, it just means our priorities don’t include dealing with landlords when we have the financial means to buy a house. Sure, we know the short term returns will suck, but that’s not why we bought. Sure, we have a big mortgage but will be able to pay it off inside 10 years. What are you going to regret on your deathbed? Making that extra $100K in real estate? Maybe. The answer is different for each person – for us, it was a resounding no.

#76 dd on 10.25.10 at 8:03 am

#44 dddd (van)

…$250 to $950…yes . i know we will drop some…

dddd: You are in the bubbles of bubbles. I know it is hard to see it when you are living in it. It is only a 649 lotto if you cash your ticket in. Let me guess, 95% of your assets are in that one property.

#77 SaraBeth on 10.25.10 at 8:05 am

Garth – you may find James Kunstler’s post of today right up your ally.

The Tombstone Blues
http://kunstler.com/blog/2010/10/the-tombstone-blues.html

#78 Nancy on 10.25.10 at 8:10 am

This blog has obviously struck a nerve. Most of us don’t want the headache and uncertainty of selling our house in these headachy and uncertain times. It goes against human nature to mess up the nest when we don’t feel safe.

Everybody is doing their own math, some arithmetic, some emotional. I think this discussion is very worthwhile.

We bought our house low 12 years ago, after it had been on a very stale market for over a year. Housing prices in our area are fairly stable — the five-bedroom we bought for $125G can now sell for just over $200, with most of the run-up coming after F dickered with the mortgage rules in 2006 — and average incomes here are about the same as incomes in the GTA.

So if the price dropped 20% next year, that amount of money wouldn’t compensate us for the cost of moving in terms of money, time, and disruption. My husband and I both have businesses, and in this economy you have to keep focused and nimble if you’re going to survive.

Also, when we’ve looked into the cost of rent, we’ve discovered we would end up paying about 30% more for the rent than we do now for our mortgage+taxes, especially with these cheap variable rates. We could cram our family into a tiny apartment – but then, where would we put our home offices?

The other question is how much the housing market is going to crash in non-metropolis communities. While a correction is coming, will it be more than 10% or 20%?

10% of $200G is very different from 25% of $1.2M.

Also, 10% of $200G half of which you aren’t on the hook for (because the mortgage is for the original price) is very different from 25% of $1.2M all of which you are on the hook for.

Lots of numbers.

“We’ve discovered we would end up paying about 30% more for the rent than we do now for our mortgage+taxes.” I doubt this is true, since you fail to factor in the lost income the $200K equity in your home would earn you. It is dead money, and there is a large cost attached. Your failure to see this underscores the emotional blinders people don when they discuss their homes. — Garth

#79 Sail1 on 10.25.10 at 8:24 am

Synopsis: The Canadian economy has shown a decent (not spectacular) rate of recovery. But,
recent signs suggest that the rate of recovery will slow, led in part by housing (a slowdown in
housing starts as well as price reductions for housing, which will have a negative “wealth
effect”). Housing activity is likely to remain weak for some time, due to payback for the excess
activity that occurred over last fall and winter, as the consequence of changed mortgage rules,
and because consumer confidence is likely to soften.

http://www.wdunning.com/docs/2010-09.pdf

Yes, things will slow down, but the sky is not falling.

#80 brad on 10.25.10 at 8:29 am

Garth can you please post a link to the Globe and mail article that you referenced ? thanks…

I did. But here it is again. And this is today’s piece of negative real estate analysis. — Garth

#81 Jason on 10.25.10 at 8:44 am

Greater Fool published March 2008

Average house price Toronto in March 2008
$380K

Average house price Toronto in Mid October 2010
$444K

A 17% return in 2.5 years.

Garth loses. Case Closed.

Surely you cannot be that fatuous. My advice is to harvest capital gains and move to protect your financial position. Regardless, it’s better to sell too early than sell too late. That 17% advance could pale against a 30% drop. I invite you to come back then and lecture us. — Garth

#82 Tom on 10.25.10 at 8:58 am

“As I’ve said so often, our leaders also dropped rates to nothing, reduced lending standards, lied about the economy and purposefully engendered house lust.”
Credit in these times is stealing from the future. Our politicians knew what they were doing. Harper, Carney and Flaherty must be having trouble looking in the mirror nowadays. There is going to be a painful readjustment for all Canadians. Once the new home market declines more unemployment. Rome was burning and our Nero’s were fiddling. No one said that an economy always grows. We need full time jobs producing products that we consume and can ship elsewhere to create new wealth for Canada. Thank God for so called Dirty oil and our other commodities. It is amazing how naive most Canadians are. They actually believed our leaders.

#83 GregW,Oakville on 10.25.10 at 9:10 am

Hi Garth, An interesting picture today. Makes me mad and sad at the same time.

When has having your buddy holding both ankles started qualifying as backup fall protection?
or have they found a way to turn off gravity.

I hope they don’t have kids/dependant counting on them.
If they don’t get with the program they might end up with a Darwin award (natural selection).

I assume the smarter guy, the boss and the people that hired them are not the ones hanging over the edge. Just a slip and they should all have plenty of time in prison to think about it!

I guess common cense isn’t that common.

#84 BionicMan on 10.25.10 at 9:10 am

Here is the consent agreement between CREA and the competition bureau, http://www.ct-tc.gc.ca/CMFiles/CT-2010-002_Registered%20Consent%20Agreement_75_38_10-25-2010_2647.pdf

#85 Suburban John on 10.25.10 at 9:10 am

Garth,
Would you please explain to people that a landlord cannot just “kick tenants out”, even when a lease expires. They have to renew. Only way to get a tenant out is if they or an immediate family member want to reoccupy the house. (Better be legit, too.)

You just did. — Garth

#86 just wondering on 10.25.10 at 9:15 am

#80
Garth can you please post a link to the Globe and mail article that you referenced ? thanks…

I did. But here it is again. And this is today’s piece of negative real estate analysis. — Garth
*******************

The links appear to be broken.

Now fixed. — Garth

#87 T.O. Bubble Boy on 10.25.10 at 9:16 am

@ #54 lexington:

Are you joking? Toronto and Vancouver *won’t* get hit in a housing downturn?

With any market, don’t the assets that rose the fastest are the ones that fall the most.

Also — just look at Vancouver’s sales numbers, and try and convince me that there isn’t a downturn coming!

Projections for October are showing another -30% to -40% month vs. October 2009:

http://vancouvercondo.info/forum/topic/october-data

This would be the 4th or 5th straight month with sales volumes that are 30% lower than 2009.

#88 bruce corell on 10.25.10 at 9:24 am

Average home prices in October 1990 were 20% higher than 1988…..Ooops then came 91,92,93,94 95 and prices finally came back in 2001/2002. Does anyone realize the amount of wealtlost in early 90,s. It destroyed lives. The fact is anyone that purchased a home in the past -3 years will not get same return until 2020…..Its Over people. Real estate is done like dinner and no amount of blogs or words will help…

#89 David B on 10.25.10 at 9:25 am

The real sad news is: In less than 2 weeks Americans who are so fed up are about to shoot themselves in the one and only foot they are now standing on.

Will a new government (Republican) who’s primary purpose is to squash the past two years and work 24/7 to make Obama look bad put America (Word’s Largest Economy) back on their feet anytime soon?

“NO” A thousand times no!

Will there be money made by smart people and smarter investors

“YES”

As for smart homeowners, if you are living within your means, have little or no debt and a sound investment plan, enjoy life

For homeowners who still think all that Garth and others here have said is BS and King Steve will save you, …… good luck.

#90 T.O. Bubble Boy on 10.25.10 at 9:27 am

@ #64 Renting in Toronto:

That listing you linked to is absolutely insane.

$1.83M for a 2+1 bedroom house across from the train tracks!!! (yes, you want to be close to the GO, but not so close you can hear every train)

Who on earth is the target market for this place?

It can’t be a family, because there aren’t enough bedrooms.

It can’t be Boomers, because they should be selling their big pricey detached homes for smaller bungalow/condo options.

I guess that this is targeted at some kind of rich executive with no kids? Maybe someone working offshore in Canada away from the family?

#91 Toronto on 10.25.10 at 9:28 am

I wonder…are we all losers who currently rent hoping for a correction so that we can own once again !!!

#92 The Original Dave on 10.25.10 at 9:36 am

Garth,

I agree that the housing bubble will burst in Canada, but Vancouver and Toronto won’t get hit. If the US experience has taught us anything it’s that a country’s important cities deserve higher than average price to income ratios.

Five years into a US housing bust, New York City and San Fran have price to income ratios of roughly 10, which is where Vancouver is today. Toronto is even lower, suggesting there is room for Toronto real estate prices to rise even if Canada’s real estate bubble bursts. Remember, at the height of the US real estate bubble, San Fran had a 13 price to income ratio.

The lesson is that the bursting of the Canadian real estate bubble will affect the middle sized cities, small towns, etc., but not Toronto or Vancouver.
—————————————————–

makes total sense. It’s just like the songs go.

The Sinatra song goes something like this..

” I wanna wake up in a city that doesn’t sleep…..and if I can make it there, I’m gonna make it anywhere. It’s up to you Vancouver, Vancouuuuuveeerrrr!!!

Or like the more recent Jay Zee song

There’s nothing you can’t do, now you’re in Toronto,
These streets will make you feel brand new
Big lights will inspire you, lets hear it for Toronto.

Toronto and Vancouver are exactly the same as San Fran and New York….and I’m a Brad Pitt look a like – just better looking.

#93 Devil's Advocate on 10.25.10 at 9:40 am

#85 Suburban John

Actually, in BC anyway, upon expiry of a specific term lease, if the landlord has not or does not specifically agree to an extension, the tenant MUST vacate the premises or the landkord can have them focably evicted. Of course if the tenant formally disputes it with the RTA then they will likely be allowed to occupy until such resolution, which, if the landlord has their ducks in a row as thy should, will go their way. Occassionally you get pain in the ass tenants, which is why tgere must be reasonable profit in the business of being a landlord. Which is why rental eventualky must be more than the cost of ownership, as it will, eventually, retun to such equitable distribution.

#94 Devil's Advocate on 10.25.10 at 9:42 am

fat fingers small keypad

#95 bruce corell on 10.25.10 at 9:51 am

No Toronto you should wake up. $800 an ounce in 2008 for gold. Its now over $1350….Think logically and don’t be so foolish as to compare real estate with other investments. 25% of households will be effected. Can you fathom what that will do to the economy. It has nothing to do with rent vs buy. But many of you just dont understand that Garth’s blog is not about real estate but about an asset bubble. ONE WORD.. “.DIVERSIFY.!”

#96 ToddM on 10.25.10 at 9:54 am

IN vancouver, there seems to be a pick-up in real estate activity over the last few weeks – the doldrums of August are almost forgotten.

Here on the west-side, houses are again getting multiple offers – close to listing (not yet like the heady bubble days).

Anyone know why this surge in bu activities?

#97 Moneta on 10.25.10 at 9:56 am

What a great economy we have… where the best way to make money is to prey on the greater fool:

Sell the house and trade securities. Wow!

#98 pjwlk on 10.25.10 at 10:01 am

My wife and I took a drive up to Acton (ON) on the weekend and were completely stunned by the large number of houses for sale en route. It seemed like every third or fourth house was up for sale.

Our hosts informed us that all most all of them where in the one million and over price range. There were no “Reduced” or “New price” signs in sight though. Looks like the sellers are still holding out! Good Luck!

#99 dark sad person on 10.25.10 at 10:06 am

#47 Jsan33 on 10.24.10 at 11:52 pm

#82 Tom on 10.25.10 at 8:58 am

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

Wow–so now there’s maybe 6 of us here-who recognize the “plot” to enrich careless Bankers at Taxpayers (peoples kids) expense–

Believe me–F is only along for the ride-
He really is innocent-
Ya know-the village idiot–

Wonder how much effect we’ll have-banging on pots outside Parliament-

#100 Larry in Calgary on 10.25.10 at 10:09 am

We’ve been waiting to buy a house since 2006 here in Calgary. We’re quite happy to rent at a cost of $17K a year and watch houses lose almost 40K in the past 6 months. We’ll buy a house when we can afford one thank you very much.

#101 another opinion on 10.25.10 at 10:10 am

To your received letter writer.
Roots may be good and feel secure, but the bond between a family is far more important and a bond can’t break from having to relocate every once and a while.

#102 Devil's Advocate on 10.25.10 at 10:13 am

To sell your home today that you may crystalize that easily of late gained equity or face the prospect of losing it in a market decline is nothing short of gambling with your home. Might be easy for someone like Garth and his wife to do as, I understand, they have no children, but those of us with families tend to have a different outlook on life. It’s not all about money.

For many of us we never expected such wild gains on our family home in the first place. We bought it as a home not a financial ivestment. As such, easy come, easy go. We really don’t care that much in the short term . We are looking at the big picture, long term and more concerned about those things money can not buy. I don’t expect many of you kidless tyoes to understand this. To each their own.

“Easy come, easy go.” And people trust you to help them make the biggest investment decision of their lives? Incredible. — Garth

#103 Hiteclowtec on 10.25.10 at 10:19 am

#91 Toronto
I wonder…are we all losers who currently rent hoping for a correction so that we can own once again !!!
———————————————————-

Since I retired, I`ve moved 4 times seeking shangri la. If I would have purchased every time the costs would have been astronomical. The rentals have been fine and the landlords excellent. It would have to be one great deal for me to own once again. For now it`s REITs and the mountain of tools in storage.

#104 pjwlk on 10.25.10 at 10:19 am

Garth, It seems that your posting today presupposes that the owners either: 1) Will soon be underwater due to a massive mortgage. or 2) That they still have a lot of personal debt. Neither of which may be the case for them or for many of your readers for that matter.

In keeping their home they may only experience a lost opportunity but not any real losses. If I’m not mistaken Garth, you yourself own Real Estate that you are not selling and which will also be subject to the same conditions.

If he decided under those circumstances I can understand his decision. Only they can truly decide what is right for their family.

The issue is simple: to harvest capital gains, diversify and build a sound financial base, or to make the emotional choice to stay in a house and risk a decrease in its value. Sadly you have used an argument which references me and therefore undermines your points. I have said often if the aggregate value of your residential real estate is less than 30% of your net worth, and clear of debt (as in my case), then do whatever you want. If real estate falls 30%, my net worth goes down 10%. For most Canadians, unfortunately – with mortgage debt and modest equity – a 30% real estate decline equals a 100% net worth loss. Does that clarify? — Garth

#105 Real Estate Realist on 10.25.10 at 10:33 am

#91-Toronto:

You don’t have to “hope” for a correction. It’s coming.

#106 sue on 10.25.10 at 10:34 am

Hi,
Can someone help me out here? My bf has a mortgage that was orginally 190,000 at 4.5%. It was just renewed at 160K at 3.9%. Payments are $1400 (including property tax). If interest rates are at 8% in 5 years, can someone give me the new P&I? My bf can’t be bothered to look for his amortization schedule and I’m not sure how the bank refinances these things…are #’s based on original mtg # or new principal etc etc? no clue. I’m sure he can’t afford his house in 5 years and want him to make a friggen plan now.
Thanks!!

#107 Devil's Advocate on 10.25.10 at 10:34 am

#42 tryingtobepatient

Hang in there, you’ve got a better handle on things than most.

#108 Real Estate Realist on 10.25.10 at 10:36 am

#96-ToddM:

Herd mentality, ignorance, and no fear of sliding down a mud hill.

#109 Grandpa Grinch on 10.25.10 at 10:36 am

Marty Bakkerdax who is a quintessential d-bag is interviewing Phil Soper on BNN this morning regarding the changes to MLS. Soper is so greasey it makes my skin crawl. Bakkerdax is asking why anyone would tackle such a complex thing as a RE sale without a full service broker. Soper refers to low commission agents as “lower quality”.

These two are humping each other on camera….I just threw up in my mouth

#110 Real Estate Realist on 10.25.10 at 10:39 am

#96-ToddM:

Oops, you said “west side”. Different answer:

Herd mentality, ignorance, and no fear of living in a paper mache’d, cheaply framed, ugly for the most part, home. (but they’re everywhere in Van, so “west side” isn’t really relevant there)

#111 Devil's Advocate on 10.25.10 at 10:39 am

#19 Soylent Green is People

Hugs and kisses to you too.

#112 Devil's Advocate on 10.25.10 at 10:42 am

#19 Soylent Green is People

Nice

#113 TheBestPlaceOnEarth on 10.25.10 at 10:50 am

Buying a house is like putting your car on cruise control. Just relax and enjoy your life. Houses go up and house go down. But depending where you live when they go up they might never come down. Oh sure you get the odd dip here and there but in the BestPlaceOnEarth the trend is intact and going higher. Like the old saying “You never go hungry with a Half Loaf of Bread” and in Vancouver folks your getting a whole loaf and then some. Here’s a site many of you have seen but I always get a kick how Canadians are falbergasted by these cheap prices for homes out here on the unstoppable West Coast. Buy that home now and enjoy your life, renting leaves you consumed by self doubt for the rest of your life. Housing = Family Legacy, Renting = Family in Disarray and a troubled mind
http://www.crackshackormansion.com/

#114 Devil's Advocate on 10.25.10 at 10:54 am

Readers, I feel I must speak up. Either things vary wildly from one province to the next or most Blog DAWGs haven’t a clue what they are talking about. I find a grossly frightening amount of misinformation here where writers are advising others what to do. In most cases the are not merely offering opinion but blatantly telling readers what to do.

I sure as he’ll hope readers are not making decisions based on the information and advice given on this blog alone by Garth or the DAWGs.

Most of you haven’t a clue what you are talking about. That or you live in some seriously mixed up land I have never heard of.

I agree. Time you learned more of landlord-tenant legislation in those parts of Canada where most people live. — Garth

#115 BrianT on 10.25.10 at 10:56 am

#77Sara-great rant from Kuntsler as usual-one thing-Obama didn’t veto that scam bill-he “pocket vetoed” it-which means he reserves the right to OK it after the elections. Anyone looking for leadership from that guy is dreaming.

#116 Pete on 10.25.10 at 11:06 am

Once again out of work worried realtors maxed on debt or even still in the housing bubble need to sell or make sales since majority haven’t made any money for the past 5-6 months. The housing crash continues to be bad as sales have dropped 20% for the past 5-6 six months now. Realtors are worried (why they are here) and realtors understand they face a grim reality. The housing crash has dropped sales in Toronto and Van by over 20% and now prices are following.

#117 Real Estate Realist on 10.25.10 at 11:07 am

#96-ToddM:

I forgot to clarify, the mud hill comment was referring to “west Van”. I lost about 80-90% of my braking power in one of my classic cars once coming down from the top of West Van. Yes, that’s what I said. Fluid was gone from my manual system. I went to the top to see the view, and the real estate, one day and it was almost my last ride except for the one out to the Universe hopefully one day. (and the incident would have definitely made the evening news, ie. car plummets from tiny, steep, perilous road into kitchen of luxury. The granite saved the driver from landing in the sea.”

All I could think about, while I was discovering that dropping my slant 6 into the lowest gear and pumping the brake like I was slow dancing with my car wasn’t working as I tip-towed from hair pin turn to hair pin turn, almost landing in someone’s living room, kitchen, or on their roof at each of the endless perilous turns, was “what the “h” are these foundations sitting on????”. I thought, hey, if that was my last thought, why not make it a good one? ; )

p.s. I made it out of the hairpins with some sort of skill set from long ago, went right through at least a couple of stop signs on the still downgraded road near the bottom, all the whilst beeping my horn to warn drivers that I was a comin’ through, then managed to get the car back to the “west side” where I lived. I’d use the brake pedal in a way that I could build up enough fluid so that I could make the car stop at 10km/hr. Heading down the hill over the Burrard St. bridge into the west side was a little harrowing but doable.

And here’s a people portion of this story: I had my flashers on the entire time of course, all the way home too of course, as I was in the right lane traveling at about 10km/hr, no gas heading into each stop sign on the downtown flats, prayers on even the slightest downhills, and guess what? Almost incessantly people were leaning on their horns out of impatience because I was going too slow. Um, flashers on, mint condition, conservative looking, classic car, no brakes, feeling awful for disrupting the (not even rush hour) traffic, apologizing with hand gestures, yet everyone thought it would be more appropriate to be an ahole with no empathy or class. I’ll never forget how Van failed that acid test miserably as well. After awhile I just ignored the horns and thought “wow, this is one for the books. They think here in BC that Torontonians are maniacs and losers, yet we would NEVER do that to a car in distress, even in the worst hour of the rush. Many would also ask what was wrong and could they help. ” Ah, BC, did I forget to say goodbye?

#118 rory on 10.25.10 at 11:25 am

#19 SGIP … (click on #19 to visit the face book page)

Here is hypocrisy on display by a right wing bigoted racist Liberal …that would be you SGIP (no facts but fun to say, just like your stuff)

Below is your stated policy …now re-read your #19 post …your disgraceful or the RCMP trolling for hate mongers …maybe that is why GT puts up with this trash …you could be a poster child for the HRC …using hate to troll for hate …NICE … as before bugger off …please…kisses!

“The goal of this group is to effect democratic change through a reasoned exchange of facts-based information and ideas. While doing so, we strive to respect the dignity of all individuals and groups, even those with whom we disagree. Consequently, the following group policy on the content of posts will be observed:
-No hateful or unsubstantiated attacks on individuals or groups.
-No personal attacks/innuendo/denigration of someone including people whose policies and practices we criticize. Our criticisms should be fact-based, not unsubstantiated personal smears.
-No advocating violence of any kind.
-No hate comments toward any group. If a comment borders on hate it is not acceptable. …”

Again what do you do …violate everything you supposedly stand for …as in 2 wrongs make a right…NOT!

#119 Pat on 10.25.10 at 11:26 am

#36 Tim wrote:

“The piece on 60 minutes was done in San Jose.
… the median house price is still over half a million dollars. If housing is still that expensive there, then what is the likelihood of a large correction in Toronto or Vancouver?”

1. There are many zip codes in the SF bay area with average incomes well over $100k.

2. Owning RE is cheaper in the US – interest + prop. taxes are deductible. Utility costs are small in CA (hardly any heating and AC).

3. Income taxes are lower. And most stuff is cheaper, actually.

4. Prices in the SF bay area are still too high and will go down more.

Does this answer your question about Toronto and Vancouver?

#120 confused and a little crazed on 10.25.10 at 11:27 am

96 #TODD M,

I noticed there is a p/u in the west side 2. Historically speaking late Nove to Jan are the worst times to sell in the market …the most rain/ cold during those time frames… it’s either sell now or wait until march.

not that it will matter much. people who lust after homes will buy even in -20 weather…stay overnite to buy site unseen

#121 Industrial Guy on 10.25.10 at 11:34 am

Well, the biker from Milton is right again …..
” media sentiment …. will turn negative towards real estate”

They may be at the tipping point right now. Consider the following confusion from Today’s Toronto Star.

The following was published by Tony Wong. I wonder where he stands on RE???

First, he wants us to consider joys of renting.
http://www.moneyville.ca/article/879804–when-it-s-right-to-rent-a-home

“as we’ve seen with the collapse of the housing market in the United States, buying at the peak or in an overheated market could be disastrous. Much of the carnage south of the border was because many people weren’t qualified to own homes in the first place. They put as little as possible down and were at the mercy of interest rates that had nowhere to go but up.”

Second, he wants us to wake up and join the herds of RE Lemmings. “Why you should buy a home”
http://www.moneyville.ca/article/879772–why-you-should-buy-a-home

Here is some of the logic behind his thinking: “There are also other intangible reasons for buying a house. It is not just an investment. Owning your own place comes with value that isn’t an entry on a balance sheet. It offers a chance to put down roots in a neighbourhood you want to live in. That may be because of the schools, parks, shops and other amenities”.

By the way ….. Both articles by Tony Wong were published the exact same day!!!!

Sadly, in the dog eat dog economy of 2010, everything is about money. The “99ers” exist in Canada too. They come by my door everyday looking for work. Men and women with Masters Degrees in in metallurgy applying for a production line welding job. Somewhere along the way we made the transition from the “Just Society” to the unjust society. We built an economy based on consumption and disposable everything. I guess we shouldn’t be surprised when this progressed to its logical conclusion and we became just as disposable as the goods we consume.

So where does this leave us? Unemployment benefits last a maximum 50 weeks so the witching hour in Canada arrives a lot faster.
EI run out …check!
RSPs cashed in ….check!
Second car sold …check!
Liquidated everything you could for cash …check!
Found a new job? Yeah, 12 hours a week at Tim Hortons, Walmart, Canadian Tire or 5 weeks of Seasonal work at Future Shop.
Congratulations! According to the Government of Canada you’re fully employed. You’re a success story!

#122 Devil's Advocate on 10.25.10 at 11:34 am

Easy come, easy go.” And people trust you to help them make the biggest investment decision of their lives? Incredible. — Garth

I sell homes not investments. That being said, none are cimplauning if my best advice.

How are homes not investments when the average Kelowna house costs $450,000? As I said, you have just displayed an incredible and unethical side of your character. — Garth

#123 Wealthy Renter on 10.25.10 at 11:45 am

We rent. We are diversified. We have choices. We are setting stepping stones in place for our children to have choices.

Sho-gun,

I am in absolute agreement with you! Reading all of the posts today, I am struck how lifestyle (i.e. owning a home with a backyard) has become a value – like honesty or integrity, or living a life where you make difference.

We rent. My wife and I have long been able to afford to live in a good neighbourhood in Toronto, and we have savings far in excess of the average house price in Canada.

And we would give EVERY penny of our savings towards our children’s education.
We want our kids to be a) good people and b) have a solid foundation to make the most of their lives – at all costs – no matter what.

A house – that is far down the list!

#124 Chris no longer in England on 10.25.10 at 11:47 am

Buy to let investors coming unstuck in the UK

http://www.dailymail.co.uk/news/article-1323334/Homeowner-outraged-property-paid-84k-valued-just-1.html

#125 jess on 10.25.10 at 12:05 pm

Bruce corell

You may enjoy reading this point of view.

Not just here but worldwide! and what about the “hidden” money from developing countries bad guys? Nigerian accounting? Lots of oil while most nigerians are poor.

On page seven …”when in the early 1990’s causing a banking crisis and over 50billions francs in losses. Therefore, the small banks were taken over by the big banks which were able to offset their own losses with growing profits from international business. at the same time, consoldidation amongst the five surviving big banks left usb and cs fully dominant in the swiss market, and as universal banks competitive on the world markets
http://www.taxjustice.net/cms/upload/pdf/TJF_6-2.pdf

At the onset of this crisis, the two major swiss banks ubs and credit swiss held almost ninety percent of the balance sheet total of all banks in switzerland, which was eight times gdp.

By comparison,the balance sheet total of all american banks together is roughly the same size as u.s gdp..

In october 2008, the swiss confederation and national bank had to support ubs with a massive financial injection which was at the brink of collapse”. ..

#126 AxeHead on 10.25.10 at 12:12 pm

I rent a condo and own a townhouse (rental). This weekend I spent over 8 hours at the townhouse, fixing lights, plumbing, furnace, maintenance…had to have a plumber come in at $80 per hour to service my furnace and garage heater.

The condo requires nothing.

My opinion…rental is hassle free, there is always ‘work’ and worry with a house.

And remember, you can give 1 month notice and move out if you don’t like your rental, the landlord MUST give you 3 months notice AND have a good excuse (i.e. he’s selling or moving in himself), he can’t kick you out if he doesn’t like you. Rental favours the Rentee big time.

The biggest hurdle is getting your head around rental vs buy. I have owned my own home for 25 years and this is my first rental since….not bad at all folks.

I’ll buy again, but not now.

#127 Real Estate Realist on 10.25.10 at 12:14 pm

To add to #117, not that it isn’t long enough, for those of you scratching your heads about no mention of an emergency brake there’s a reason. It is akin to my earlier comment about the BC govt allowing you to drive a car with parts falling off of it, ie. bumper on the ground, etc. Case in point, my car was otherwise mint but my cable was broken underneath the car so I didn’t have one. (and then my master cylinder just happened to fall apart that day, oops)

So, first of all, I should never have gone up that mountain without a working emergency brake but I completely forgot about it on the day that I decided to go up there on a whim. I’m used to my cars being tickety-boo, plus it’s rare to contemplate emergency brakes with automatic transmissions. Still, my bad. I was going to have it fixed, and hadn’t as of yet.

However, the Province should never have allowed me to insure that car without one, and it did. Most people need babysitting 24/7 with respect to driving a killing machine, and a solid steel one like mine added insult to injury. I don’t need the babysitting service typically, but obviously did that day. That’s what rules and regulations are for in this category. To protect the general public from itself. (and it’s hard to think of a place in greater need of such a service than BC, ironically). In Ontario the thought of no inspection and being able to insure is nuts. Not gonna happen.

I also pulled into a side street at the bottom of West Van as soon as the steel box was going slowly enough to make a right turn without, well, not being able to make a right turn. Duh. “Caroline” was going to let me know when she felt like allowing me to do that, however many stop signs later. So, eventually I did crank it to the right, stopped the car, turned it off, thanked all of the Gods and Goddesses I could think of for saving my life, and others that may have been having lunch in their otherwise peaceful homes, turned it back on, tested it in a tiny parking lot I found, weird luck, and figured out my 10km/hr formula. (weight vs. speed ratio).

Anyway, be aware people that read this that are in BC. You never know who is out there without something vital working on their car cuz there are very few rules. ; )

#128 AxeHead on 10.25.10 at 12:15 pm

# 122 DA… ‘I sell homes not investments. That being said, none are cimplauning if my best advice.’

I wouldn’t buy a house from a realtor who can’t spell or who sucks at grammer.

#129 Alan on 10.25.10 at 12:22 pm

As usual, the rants and dire warnings of an impending housing crash are whipping the dawgs into a frenzy worthy of a serious sedative.

One must consider that recommending one sell their home and re-invest their gains into the stock market might just be the worst advice one could give. Simply put, for most people, the only way they have been able to save is by paying their mortgage down. This represents their savings and while you may be correct that having one’s entire savings in one asset is taking undue risk, it only becomes a problem should you need to sell. The average homeowner is comfortable with this predicament because we all need a roof over our families heads.

The problem I see with selling one’s home and taking those proceeds to invest in the stock market is that one must accept greater risk due to the nature of the stock market -it’s liquidity works both ways, up and down and in some cases entire fortunes can be wiped out overnight. I caution everyone to not follow this advice. When the stock market plunges it will be a different kind of pain but one far greater than having negative equity in your home. At least you have a place to sleep. The Quantative easing will only drive prices higher in the future, not lower. It is the only answer the feds have to solve the crisis. Deflationary policy will can only usher in an economic shit storm that none of us will survive and will not save any asset class including publicly traded equities with or without dividends.

Where in my post did you see the words ‘stock market’? — Garth

#130 Michael on 10.25.10 at 12:23 pm

Here is a question I hope Garth or someone else can answer me:

What happens when the mortgage resets but, say, the house is valued $200K less than the principal? Will the bank just renew the mortgage over the full amount or will the lender have to cough up the difference?

Logic would dictate the latter, but it seems when it comes to finances and real estate North America uses something else.

Anyone?

#131 Dorf on 10.25.10 at 12:31 pm

“It’s just too… disruptive.”

People have to be allowed to fail, in order for others to succeed. We just don’t want them to have failed due to withholding information from them or misguiding them.
Give them good information and let them enjoy their greatest gift of all – Free Will and the right to make their own choices.

#132 lonely limey on 10.25.10 at 12:33 pm

Axehead #128

You were doing so well. It’s “grammar”

#133 Dorf on 10.25.10 at 12:38 pm

**** Question For All Blog Dogs *******

I am interested in getting a life insurance policy, and wonder if it is a secure investment.

(i.e.) By the time I die, will the policy be worth anything, will there be money available to pay the policy, etc.

I am 43, male, good health, no illnesses or injuries, n/s, work in heavy industry, high risk jobs. No bad health history in family.

I want a really good whole-life policy ($500k), that will eventually be paid up in premiums and cost me no more.
Any other extras would be considered, but that’s the minimum standard to be met.

****** Your input and recommendations ? ********

#134 TheBestPlaceOnEarth on 10.25.10 at 12:39 pm

Wealthy Renter
***
The vast majority of educated people in the world invest in their kids education so they can by a house one day. No parent and no parent wants to see their child as a long term renter. Home ownership is a sign of success where renting long term is a sign of poor judgement and suspect morals
**
And we would give EVERY penny of our savings towards our children’s education.
We want our kids to be a) good people and b) have a solid foundation to make the most of their lives – at all costs – no matter what.

#135 Live within your means on 10.25.10 at 12:57 pm

Posting without having read all the comments. My parents owned 2 beautiful homes (before I was born in ’47 – have 3 older siblings plus 2 younger). We lived most of our lives in rental houses and 3 BR apts, depending on how many were still at home. In those days, I had friends who lived in rentals & those who lived in some beautiful homes in new subdivisions. Back in the 60’s those who rented were considered the ‘lesser class’ – at least in Mtl.

In my life, I’ve moved at least 25 times. Hubby & I bought in 91 – for about $119K, 25% down and paid off in 7 years. We are not ready to sell. We are looking at Time Of Day heating units. Have recently put in extra insullation in our 30 yr. home & is rarely rarely used. (Rec’d fed & prov. rebates which will largely cover the costs of our ETS units.)

ETS units – http://www.steffes.com/off-peak-heating/ets.html

#136 bruce corell on 10.25.10 at 1:24 pm

Real estate in SAn Jose???. You have got to be kidding.
Someone posted that avg price is over 500K.
Our associates have emailed me this. Real estate in that area as gone from 669K to under 360K
And unfortunately its a better place than BC.(Weather, work , taxes and play) So this is what is coming within weeks.( I say weeks because banks in Canada have tightened up and are now waiting for the shoe to fall) Goodluck Vancouver and B.C. Your gonna need it.POOOOOOOFFFFFFFFFFFFFF Did i hear a baloon POP

http://www.trulia.com/real_estate/San_Jose-California/market-trends/

#137 AxeHead on 10.25.10 at 1:26 pm

#132 LL…Good thing I don’t sell real estate eh? Dang, I’ve become too dependant on spell checkers. thx

#138 Devore on 10.25.10 at 1:27 pm

#27 Steve from Calgary

A house is also a place to put their accumulated physical wealth.

Wealth? You must mean junk. George Carlin had something to say about that.

#139 Live within your means on 10.25.10 at 1:38 pm

OOPs to my last post. We put in 2-3/6ltr toilets and will put in another 6 ltr toilet which iwill be arely used. Actually, only one is often used. We also pay a high rate for water and pay 2nd highest power rates in Canada.

#140 Devore on 10.25.10 at 1:39 pm

#49 ulsterman

So i rent yet do not get the pleasure of “saving” the difference and becoming one of those rich renters that appear to permeate bear blogs.

Well, you’re renting because there is no way you can afford to buy. In fact, you can barely afford to rent.

This brings up a question: why are you still here? If housing is so expensive, that you can’t even put any money away, you are either living beyond your means, or this is not the city for you. You’re not alone. Increasingly, many young couples are coming to the same conclusion, and opting to pack up and move east, where housing is cheaper, and job opportunities more plentiful.

Young families, and young people in general, are apparently not wanted in Vancouver. Some are starting to take the hint.

#141 AxeHead on 10.25.10 at 1:46 pm

I’m guessing…

I think THEBESTPLACEONEARTH is really Devil’s Advocate in drag?? They both say the same thing, only the former is more agressive and blatant.

#142 Lance on 10.25.10 at 1:54 pm

Many (most?) people who know they should sell now to get their money out but won’t are hesitant because they don’t want to make a mistake and look stupid if the housing market continues to climb, leaving them in the dust.
For my part, I’m living in a mostly paid-for house that I don’t plan to move out of for 20-30 years… so the housing market can do whatever it wants. Maybe I’ll jump on the train in 2017 and buy some cheap investment real estate. Maybe.

#143 Cashman on 10.25.10 at 2:02 pm

9 GenXer on 10.24.10 at 10:03 pm

Your absolutely right about tenants having a lot of rights! My parents own a rental and I have seen them all. Really nice people who could not only afford to rent, but also buy as well to the scum of the earth welafare recipients who get everything for free. The problem with welfare people is if they decide not to pay the landlord, your out of luck. You can’t even come back on them for damages either.

At any rate I still think the price of housing in the GTA is way overpriced. To all those greater fools, Cheers!

#144 Live within your means on 10.25.10 at 2:12 pm

some balance.
.#24 nonplused on 10.24.10 at 10:48 pm

The main reasons we don’t sell (2 boomers, no children) is because we have 1) great neighbours with whom we socialize, and 2) my hubby has a workshop downstairs in which he keeps & works on one of his ’85 beemer bikes; the shed also houses lawnmover, gardening tools, etc.

#145 Devore on 10.25.10 at 2:12 pm

#93 Devil’s Advocate

Actually, in BC anyway, upon expiry of a specific term lease, if the landlord has not or does not specifically agree to an extension, the tenant MUST vacate the premises or the landkord can have them focably evicted.

While technically true, this is absolutely false in practice. A lease almost always includes provisions to automatically revert to month-to-month occupancy after end of lease. It is a very rare and special lease agreement that stipulates vacant possession after end of tenancy term.

In fact, if no end of tenancy date is specified (as is the case 99.9% of the time), the lease automatically reverts to month-to-month. If you show up with a locksmith and eviction notice at the end of the lease, you will get the door slammed in your face, and will be learning very quickly the ins and out of the dispute process.

Only time you can take back possession on an occupied rental with no end of tenancy date is with a two month notice (assuming a no-problem tenant who pays rent on time). If a term lease is in effect, those two months will include one month free rent, and you can only do so for “landlord use”, ie, you’re moving in yourself.

So while being technically correct is the best kind of correct, in this case you are dead wrong. And if you knew this, then how slimey and calculating of you to tell such mistruths by omission.

#146 tre on 10.25.10 at 2:15 pm

Garth the warning signs are always there but like that saying goes “everybody gets what they want”, it’s disturbing but so very true.

#147 whodiman on 10.25.10 at 2:20 pm

I know many of you Calgarians like to post on Truman’s blog. Since he is away for the winter I would like to offer you another spot you can continue discussing the Calgary market and that is http://www.tactfulinvesting.com . Hopefully this is ok Garth. Thanks

#148 Chris in Langley on 10.25.10 at 2:20 pm

Devil’s Advocate,

Garth responded to one of your posts today with the following…

How are homes not investments when the average Kelowna house costs $450,000? As I said, you have just displayed an incredible and unethical side of your character. — Garth

I’ve been reading this blog for six months and for the first several months your angle was pro real estate. You were posting on the premise that you were giving an opposite point of view to Garth. That seems reasonable. During the Labour Day weekend you blew a gasket and posted 17 times. Many people complained about your rants and the lack of focus on the subject at hand. Recently people have called your writings “brain splatter” and “mindless babble.”

You told the viewers that you were not going to frequent this blog and did so for the month of Sept.

Your original post back in early Oct. complained about how great things for you because you weren’t reading all the negative stuff people on this blog post. You had done so well without all this negativity. And yet in spite of that, you’ve come back full force.

Since you’ve come back, your positon has completely changed. You’re rarely presenting an opposite opinion to what Garth promotes. Sometimes, but mostly you’re talking about how good a correction will be and so forth. (No I don’t read all of them…cause so much redundancy and useless info)

On the last blog entry you respond with 34, count em, 34 entries, the soylent green dude blows a gasket, Garth reprimands you for getting waaaaaaaaaay off topic as a result of your slander of another poster.

So, when you went over the top and posted 17 times in one day during the labour day weekend, you acknowledged you were a “bit” out of balance. What would you consider 34 for a single day?

Garth said that you are “displaying an incredible and unethical side of your character.”

Ethics are based on deeply held beliefs. Based on your erratic behaviour it’s rather clear you are little more than a cork on the ocean of life when it comes to what you believe.

As I said several weeks ago…you’re running on fumes, there’s not much left in the tank.

Try this…open another browser and type in “emotional intelligence.”

p.s. – I doubt soylent hates you as much as he/she is expressing. What we fear we create. People who fear becoming irrelevant tend to shout louder and louder in the hope that they will be heard and respected. You’re creating what you fear by 34 posts with very little value, and lots of slander. You’re screaming to all of us how insecure and scared you really are by your yelling and screaming (excessive rambling posts).

It’s probably a good idea not to drink in large quantities before you post!

#149 Alan on 10.25.10 at 2:21 pm

Where in my post did you see the words ‘stock market’? — Garth

It’s been a central theme in your advice to sell your home now to avoid losing any capital gains (if any) and purchase pref’s and REIT’s and other income producing investments that all trade on a public market.-thus a “stock market” In addition, cash, GIC’s or similar bond like returns is not an investment that you would recommend, so one would also assume that this would require you to own investments in business entities that I presume would be publicly traded as the majority of people in Canada do not have access to private equity based investments.

Not sure why you would start back-pedaling now?

You have much to learn. — Garth

#150 Hell in a Hand Basket on 10.25.10 at 2:25 pm

@ Soylent Green

I understand your frustration with Harper. But voting for Ignatieff won’t change anything.

For that matter voting NDP won’t change anything.

I’m even unsure about Voting Green.

But one guy who got my attention. He is running for Premier of BC in 2013. Jamie Scott of the Truth Party.

#151 Real Estate Realist on 10.25.10 at 2:31 pm

#130-Michael:

First of all, let’s pretend the mortgage balance is $400K and the property is worth $200K due to depreciation, ie. what is coming. Ok, time to renew…

The first thing you have to get into your mind is that the $400K is a DEBT, a PRODUCT, that the Bank gave to you in order to make a killing in profits from you. It just happens to be secured by a document attached to some real estate. If that DEBT could go on forever, with you faithfully making payments as agreed, they would love you like you have never been loved before. Security, schmurity. They want cashola long term. (and mortgage documents give them something to fall back on if you fail to meet your obligations.)

IF you still qualify for that $400K with respect to being able to make payments they are going to continue to milk you dry in interest and laugh all the way to, um, themselves.

IF you are in trouble financially for whatever reason, ie. lost job, illness to deal with, etc, (combined with a possible higher interest rate which will also increase the monthly amount due to the Bank) and you therefore cannot handle the newer payments on the $400K debt then there will be a problem. Remember, this it’s about repayment of the DEBT, or “ability to pay” in Bank speak. Everything else is secondary to that fundamentally.

Ok, so now let’s pretend that you can’t qualify for the newer payment for whatever reason. They won’t care about you and yours. You’ll either have to go to a private broker or loan shark to pay out the Bank that you’re with, and trust me, those payments will be higher so you can forget that idea.

Simply put, and it’s harsh, you will now go into default with the Bank because no renewal will have taken place. It’s a dead loan without the rollover into new terms. You stare at them, they stare at you, you care, they don’t.

They won’t want the house back due to the difficulty in selling it, NOT because of the loss they are about to incur. CMHC will cover that. No, they won’t want the house back because it’s a pain in the butt to secure, market, and sell. All costs are added to your payout balance at the end of the day so they’ll get it back off of the top of the sale proceeds, and then when the house is gone they’ll turn to CMHC and ask for the money that they lost on the sale. CMHC will cover it. The Bank wins, wins and wins. You lose.

IF your mortgage is a Collateral Mortgage, ie. a personal loan secured by a mortgage identical to the one just talked about, then is it NOT insured, the exact same scenario applies as above from the time you walk in to renew, BUT, now they have to take the house back, incur the costs to secure, market, and sell, apply the proceeds first to those costs and then to the mortgage balance, and what is left over is called a “shortfall”. YOU are going to be getting a call as you are liable for that shortfall. Most people go bankrupt, or if not, pay or get garnisheed for ever? Interest still accrues. Nice.

So, bottom line, if you can make the payments towards the PRODUCT, ie. DEBT, under the new terms of a renewal, you’ll sign the new docs, leave, and they will get up and get another coffee.

The problem is coming is that job loss is going to be rampant in this domino crash Canadian society is about to witness and participate in. Actually, the damage reciprocates in so many directions that one won’t be able to pinpoint if the egg or the chicken came first. Consumer spending crisis, store layoffs, factory closings, etc. It will just be a mess, just as in the States but for different reasons somewhat so not quite as bad.

Sell now, or if you are feeling REALLY secure in your job and make enough to handle the upcoming increases, and love your house and community, then good luck. The Bank will love you, milk you, and all will be well. Personally, if you have equity take the darned profit and rent, as is beat to death on here. Duh.

Btw, anyone can sell their home privately while the mortgage is up to date even if the value is WAY below the payout. All you have to do is prove to the Bank that the sale price was “Fair Market Value” via a professional appraisal, comparables report, etc. The Bank must do the same to you in the event of a shortfall after they sold it. They make sure the paperwork backs up any offer they accept because of this.

The Bank has 2 attitudes only.

#1: Milk the customer dry on the best product ever invented in the industry to make zillions, simultaneously pretending to love the customer, have personal feelin’s, care about your kids….whatever….

#2: What’s that? You can’t afford the terms? Close the door on your way out.”

Even a nice loan officer whose smile you’re accustomed to has a quota to meet for giving out money, but also has to worry about bad loans on her record. Trust me. ; )

#152 dark sad person on 10.25.10 at 2:34 pm

#133 Dorf on 10.25.10 at 12:38 pm

I am interested in getting a life insurance policy, and wonder if it is a secure investment.

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

Who knows if it will be secure-when you need it-after paying into it for all those years–
You “absolutely” cannot go by grade ratings-
Isn’t that right JM?

Here’s what happened to the elite of the elite Insurers-
Trying to invest-that far out-carries grave danger-imo-
*******************

Fitch Ratings said late Monday that it downgraded American International Group because the insurer’s ability to raise capital for its holding company has become “extremely limited.” Fitch cut the issuer default rating and outstanding debt ratings of AIG to A from AA-.

http://www.marketwatch.com/news/story/fitch-ratings-downgrades-aig-a/story.aspx?guid=%7BEE117033-1567-4C75-A764-C9EA6A2745FF%7D

*********************
Rating agencies are totally bogus–

Moody’s Corp’s (MCO) Moody’s Investors Service, a ratings agency accused of helping inflate the subprime mortgage bubble, named three new ratings executives on Wednesday and proposed changes in the subprime rating industry

http://www.reuters.com/article/marketsNews/idUKN2627816820070926?rpc=44&pageNumber=1

Credit ratings agencies need to separate their rating and advisory functions because of conflicts of interest in their relationship with Wall Street, the newly appointed head of a high-level government advisory panel said on Wednesday.

“I do not think that the market can discipline ratings agencies sufficiently,” said Mr Mindich, chief executive of Eton Park Capital and a former colleague of Hank Paulson, the Treasury secretary, at Goldman Sachs, the investment bank.

http://www.msnbc.msn.com/id/20997259/

At the heart of the controversy is the fact that it is the Wall Street banks that pay the agencies to rate the new products. One after another, Senators accused the agencies of giving artificially high ratings to ensure that the business did not go to their rivals.

http://news.independent.co.uk/business/news/article3001675.ece

******************
I guess the bottom line is-you cannot ever be sure-after paying into these things-that the Company will still be whole-when you need them-
You’re money can go up in smoke-at any time-even with AAA ratings–

#153 Alan on 10.25.10 at 2:39 pm

You have much to learn. — Garth

I’m all ears, oh sage of the ages.

#154 Real Estate Realist on 10.25.10 at 2:48 pm

#130-Michael, p.s. :

CMHC also wants it renewed despite the negative equity because as long as you are living there and making the payments there is a chance that the loss will be recovered via capital appreciation again one day. CMHC is just ‘there’, ie. useless unless something goes terribly wrong and they have to cover a loss. Unlike car insurance, CMHC insured the DEBT, not the ITEM. (cars depreciate, which is a good thing to the insurer).

#155 DaBull on 10.25.10 at 2:58 pm

#106 sue

I’m assuming he pays $200/month property taxes.

Initial mortgage.
190,000 @ 4.5% – 20 yr ammort = $1198/month
in 5 years
160,000 @ 3.9% – 15 yr ammort = $1173/month
in 5 years
117,000 @ 8.0% – 10 yr ammort = $1402/month.

His payment will go to $1,406.00 + $200 = $1,602.00 or $200 more than he’s paying now.

Tell your BF to shop around for a better rate than 3.9%. 5 year locks can be had for 3.4%.

Lets say he got a mortgage at 3.4% which was amortized over 15 years and changed to weekly accelerated payments, the monthly payment would work out to be $1,134/month + $200 = $1334. At the end of 5 years the mortgage principal would only be $109,000 instead of $117,000 paying monthly @ 3.9%.

Also, I wouldn’t worry about mortgage rates going to 8% in five years, the chances of that happening are next to nil.

#156 toastmaster on 10.25.10 at 2:58 pm

The bottom line to this upcoming crash/disaster is that 90% of the new buyers in the last five years could never be able to afford to reduce their payment schedules from a 35 year ball and chain payment to a 15 year bi weekly payment. That is the only way a family has a hope in hell of being mortgage free in their lifetime.

I did it in the 80’s when prices were rising and it was a mere $100 extra a month from 25 to 15 years and yes, there were two kids in the mix and all those extra costs on an average family income. I continued thru the 90’s when prices were going nowhere and knocked off major equity. How many can do that now ? 35 to 15 years in a rising interest rate enviroment ? Even with no interest rates hike ? Almost zero could pull it off. Good luck chumps, yer all toast.

#157 DJ on 10.25.10 at 3:05 pm

In DA’s defense, I don’t think it’s the responsiblity of a Real Estate agent to offer investment advice, or a mortgage broker, or the nice lady at the bank. That’s what an investment advisor does. Just like the guy at bestbuy is not going to tell you not to buy the biggest flat screen TV.
But, on the other hand, if your RE agent frequents this blog, they should give the full spectrum of sentiment for the RE market, because the RE agent is qualified to give the “fair market price”.

#122 Devil’s Advocate on 10.25.10 at 11:34 am
Easy come, easy go.” And people trust you to help them make the biggest investment decision of their lives? Incredible. — Garth

I sell homes not investments. That being said, none are cimplauning if my best advice.

How are homes not investments when the average Kelowna house costs $450,000? As I said, you have just displayed an incredible and unethical side of your character. — Garth

#158 Coho on 10.25.10 at 3:16 pm

The reality at this stage appears to be that there will not be enough money to pay out pensions. For most people it will boil down to whether they wish to own their own home or have enough to eat when they are old. The majority won’t be able to have both.

Problem is, how can people trust the markets when each day fraudulent banking practices are exposed, not to mention that our elected officials seem to be putting the “too big to fails” first.

And of course, if both spouses are not onboard to sell in an attempt to finance their retirement, there will be marriage trouble especially if the house is sold and either house prices don’t drop as much as expected and/or they lose money on their investments. The fingers will start to point and the blame game will commence.

#159 DJ Vibe on 10.25.10 at 3:26 pm

About the chance of being turfed out at the landlord’s whim, yeah I see how that could be an unsettling possibility, but here’s our experience for what it’s worth.
In the past two years we’ve rented two places in a nice neighbourhood in Mississauga. Neighbourhood was built in 2001 and landlords bought then. They both had opportunities to sell in the past two years (as tenants moved out) but didn’t. Even though they would have made huge profit. Current landlord didn’t even raise the rent this year. They seem to have preferred to keep renting out.

#160 BrianT on 10.25.10 at 3:45 pm

#156DJ-you are incorrect.The vast majority (95%+) of “investment advisors” are salespersons, just like real estate salespersons. Their earnings are based on how much money is brought in and commissions paid to move product, not the actual return on the money invested.

#161 JC on 10.25.10 at 3:47 pm

Everyone should just stop getting emotional, we are all in different situations in our lives and should not compare to others. I for one look at real estate as simply an asset class. If one takes a look at that hockey stick of a chart that Garth has put up ,well….if that were a stock would you sell?

We can compare RE to stocks.

Those that are doom and glooming have already sold and are out of the market and are praying for it to go down. Those that say they will sit tight are still in and are scared but they are stuck so they try to justify why they are still in…..would it be different when they see their net worth halved?
As we say in the investment world…”bulls win , bears win and pigs get slaughtered”
I chose to sell and see what happens next.

If you use Garth as your sole guidance for your future then you should lose everything….read a lot and make informed decisions and not by emotion.

good luck everyone.

#162 Michael on 10.25.10 at 4:08 pm

<The Bank has 2 attitudes only.

#1: Milk the customer dry on the best product ever invented in the industry to make zillions, simultaneously pretending to love the customer, have personal feelin’s, care about your kids….whatever….

#2: What’s that? You can’t afford the terms? Close the door on your way out.”

Yeah, that’s what I thought. I was just curious if they did something while I wasn’t looking.

I am not exposed, so it’s purely academical curiosity for me, though I do see this as a time bomb waiting to go off and I wouldn’t put it past current or future Governments to set up a “distressed (mortgage) owners fund” in order to:

a.) Don’t overly tax the CHMC
b.) Give the appearance that banks were doing everything right.

This will be interesting to watch, it would even be funny if I wouldn’t already know that my taxes will pay for the greed of all involved.

#163 Michael on 10.25.10 at 4:10 pm

CMHC also wants it renewed despite the negative equity because as long as you are living there and making the payments there is a chance that the loss will be recovered via capital appreciation again one day. CMHC is just ‘there’, ie. useless unless something goes terribly wrong and they have to cover a loss. Unlike car insurance, CMHC insured the DEBT, not the ITEM. (cars depreciate, which is a good thing to the insurer).

Yes, I understand the CHMCs role, hence the curiosity and all it strikes me as the big elephant in the room that nobody wants to talk about (the falling value of the RE and the overevaluation vis-a-vis the outstanding balance.

Man, I should start a bank, it seems like it’s a license to print money.

#164 Ron S on 10.25.10 at 4:10 pm

“#134 TheBestPlaceOnEarth
Home ownership is a sign of success where renting long term is a sign of poor judgement and suspect morals”

Your logic made American and European more poor..Canadian will get slaughter next.

What do you feel about people living paycheck to paycheck, house/bank slave for 35/40 yrs, no RRSP, no RESP, no saving, 2 paycheck away from loosing everything?

House ownership is good only when makes financial sense.

#165 Be A Man on 10.25.10 at 4:37 pm

#105 Real Estate Realist

“You don’t have to “hope” for a correction. It’s coming.”

Sure it is.

How does delusion taste? Bitter?

#166 Pete on 10.25.10 at 5:14 pm

Study says Canadian house prices overvalued by 23.9%

http://www.theglobeandmail.com/report-on-business/top-business-stories/study-says-canadian-house-prices-overvalued-by-239/article1771934/

The housing crash is going to get real bad. Sorry realtors and greater fools many of you are going to go bankrupt.

#167 Elmer on 10.25.10 at 5:25 pm

I can understand recommending against buying a house for people who would buy with 5% down or even recommending selling for homeowners who have very little equity and can barely make their mortgage payments, or for people who intend to move soon anyways, but here we have a couple with presumably no problems paying their bills/mortgage (otherwise they would have said so in the email), and no intention to move in the near future, and Garth STILL recommends that they uproot their lives and sell, incurring moving expenses and realtors fees in the thousands. And why exactly? Because the house might go down slightly in value temporarily? Even if this so-called RE correction occurs, your house might be worth less in a year from now, but guess what, I can guarantee you that it will be worth more ten years from now. Why does it matter if your house temporarily loses some of its value if you’re not plannign on moving anytime soon? Heck, for all we know, this couple could have their house fully paid off, the email doesn’t say. Does Garth still think someone should sell even if they have no mortgage? Knowing him he probably does, what a kook. I hope these people aren’t actually considering it.

Your entire argument is base don the belief that real estate has intrinsic value and any decline will be slight and temporary. Good luck with that. — Garth

#168 VICTORIA TEA PARTY on 10.25.10 at 5:33 pm

CLITTER CLATTER AND TIM BITS; DOES IT REALLY MATTER?

The 99ers (CBS 60 Minutes, Sunday Oct. 24/10) was not just one of those stand-alone jaw-dropping TV moments; no, it was a whole new level of wake-up call, even if you’ve fully paid off that mortgage. Middle-class destruction, in Silicon Valley USA, was a sight to be hold; gutwrenching with a subtext, something along the lines of “could it happen in my neck of the woods?” I think so. Yes.

SO, for those of you who’re thinking of losing you’re virginity, in the RE market, look at this piece and keep on renting.

For those of you living in the 5/35 Area Code, light some candles (just not in the wind!), quick, and purchase a few indulgences. You WILL need them.

TIMMY’S DOLLAR DEMOLITION DERBY CONTINUES APACE

Meanwhile the US dollar tanked following the South Korean G-20 waste-of-time meeting held this weekend just ended.

US Treasury Secretary Tiny Timmy G. bullied the others into agreeing to smooth out currency differences; but the sheep balked at specifics, meaning the session was unnecessary because it resolved nothing.

Geithner wants the Chinese to raise the value of their Yuan currency, by 20 per cent or whatever amount, because that will apparently solve all of the US’s financial problems! Why 20 per cent? Why not 1000 per cent? We’re talking nonsense here, anyway, for a currency with no obvious future and, therefore, legitimacy.

Also, Tim swears on a stack of empty KFC cole slaw buckets that he wants a stronger USD! But the reserve currency tanked instead, even before that stupid meeting ended!

So the Great American Currency Pillaging Racket continues. A collapsing USD just stokes the fires of currency protectionism world-wide, as other nations beggar their fiat currencies in trying to outflank the USD to try and gain a few more export markets for their goods and services.

It is a battle and war they will lose, and Timmy knows it, because the deck is stacked. That’s the upside for the Greenback. The downside is its ultimate meltdown when the other players get tired of being screwed and retaliate.

A smashed egg cannot be re-assembled. Just ask my long-time acquaintance Humpty Dumpty. He’s been telling me that since I was 3 years old. And Tiny Timmy hasn’t heard?!

#169 Real Estate Realist on 10.25.10 at 5:38 pm

#162 Michael: Yeah, and to add insult to injury it’s not even metaphorically printed. They’re just a bunch of numbers in a computer program. The biggest racket on earth. Not even real, just a r”ee”l.

THIS is why, if anyone on here has the chance to sell and get that equity in their hot little hands as REAL cash you should be doing it. It’s the one play the Banks can’t compete with.

#170 jess on 10.25.10 at 5:38 pm

business health over public health

…”In fact, companies responsible for allowing tainted food to reach consumers often have received high scores from inspectors before outbreaks occurred.

Wright County Egg and the Peanut Corp. of America were awarded “superior” food ratings by inspectors only months before their products were recalled because of salmonella.

#171 Ben on 10.25.10 at 5:43 pm

The supposed warning signs have been there for 3 years. Let’s get the party started already!

#172 dark sad person on 10.25.10 at 5:53 pm

#75 Joan on 10.25.10 at 7:53 am

Doesn’t mean we aren’t being cautious about saving for our senior years, it just means our priorities don’t include dealing with landlords when we have the financial means to buy a house. Sure, we know the short term returns will suck, but that’s not why we bought. Sure, we have a big mortgage but will be able to pay it off inside 10 years. What are you going to regret on your deathbed? Making that extra $100K in real estate? Maybe. The answer is different for each person – for us, it was a resounding no.

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

This is a very dangerous attitude to carry-

You “do not know” that you will be able to pay your Mortgage off in 10 years-
Do not bet-that you and your husband will even have a job in a few years-

You have no idea-what the financial landscape will look like-10 years out and if you have to carry a large Mortgage now-you do not have “the financial means” to buy a house-
You have access to “credit” that’s all–

There are no guarantees what that neighborhood will look like in 10 years-

What if the home you bought is worth only 1/2 or 1/3 of what you paid in just 3 years?
The Psychological effects of that very real possibility happening-will totally change you-your partner and your thoughts and what will you be able to do about it?

There will be “no such thing” as returns on a home-only input costs-
I doubt any of us here-will ever see these prices again-

#173 richard on 10.25.10 at 6:05 pm

141 AxeHead on 10.25.10 at 1:46 pm

I’m guessing…

I think THEBESTPLACEONEARTH is really Devil’s Advocate in drag?? They both say the same thing, only the former is more agressive and blatant.
________________________________________

Go back to the last blog entry comments….do a quick search “best place on earth”….note who likes to say that OVER AND OVER AND OVER…..

#174 Timing is Everything on 10.25.10 at 6:07 pm

#23 Dan in Victoria

Agreed…Cheers from Peurto Morelos.

We’ve lived in Victoria for over 20 years now.
Until folks live here for 5 or so years, they just don’t ‘get it.’ We ‘bought in’ in ’92…a good decision we made….so far. Works for us.
Of course that goes for Weyburn too and all the rest.

Live where you want, but most live where they have to.

#175 David B on 10.25.10 at 6:13 pm

Fr G&M

Expansion of CPP emerging as preferred option for pension reform

———————-
Smaller take home pay from those who can lest afford it?

It would appear housing is not the only issue y’all should be concerned about.

#176 InvestX on 10.25.10 at 6:14 pm

rory

“I get that we are not different …but are we different in some other ways that may save our ass – currency, oil, banking, minerals, water, and so on.”

Great question. There’s been no evidence to show that mortgages have been securitized at the same rate as they were in the US. No stats to show that mortgages are being granted at the same rate to subprime (poor credit rating) borrowers or NINJA borrowers.

Is the above happening? Sure. But to what degree? We don’t know.

Check out CHMC’s securitization. As for subprime loans, the most damaging aspect was teaser rates. Have we not done the same? — Garth

#177 InvestX on 10.25.10 at 6:26 pm

Suburban John on 10.25.10 at 9:10 am
“Garth,
Would you please explain to people that a landlord cannot just “kick tenants out”, even when a lease expires. They have to renew. Only way to get a tenant out is if they or an immediate family member want to reoccupy the house. (Better be legit, too.)”

And how is that just as stable as a home you would own?

#178 goldenfox on 10.25.10 at 6:39 pm

MBS=

Mortgage Backed Securities

or is it

Malicious Bankers with Syphilis

http://www.msnbc.msn.com/id/21134540/vp/39836703#39836703

#179 Darryl on 10.25.10 at 6:50 pm

#106 sue
Hi,
Can someone help me out here? My bf has a mortgage that was orginally 190,000 at 4.5%. It was just renewed at 160K at 3.9%. Payments are $1400 (including property tax). If interest rates are at 8% in 5 years, can someone give me the new P&I? My bf can’t be bothered to look for his amortization schedule and I’m not sure how the bank refinances these things…are #’s based on original mtg # or new principal etc etc? no clue. I’m sure he can’t afford his house in 5 years and want him to make a friggen plan now.
Thanks!!
—————————————————–

Sue

10 minutes of your own research could answer your questions.
Sounds to me that you want to get your BF’s house but not his mortgage. Think that’s called gold digging. I know what friggin plan I would recommend to him. And it doesn’t start with the word wedding.

#180 Dan in Victoria on 10.25.10 at 6:52 pm

Timing is everything @173.

Well, you’re missing the first real good dump of rain for the year along with the wind.
Been coming down hard for the last 24 hours or so.
Pine needles and branches every where.
Yes there are great places all across this country, some are better fits than others.
Its all individual taste.

Good time for a vacation…..enjoy.

#181 Jimmy on 10.25.10 at 7:06 pm

Vancouver is more like Forrest Hill. It is a small area with about 30,000 single family houses and in good areas. So, prices are very high in Vancouver but Vancouver is but a rich area within the Greater Vancouver Area (Burnaby, Coquitlam, New Westminster, Surrey not really separate cities as no actual land separation from Vancouver) but legally they are.

A lot of the buyers in Vancouver are not getting mortgages or are very affluent individuals. The remaining owners bought years ago or are treating their houses as boarding houses or commercial rental units. Just some perspective on why Vancouver Real Estate is so high.

#182 Brynn on 10.25.10 at 7:16 pm

#3 Terpy on 10.24.10 at 9:35 pm
SAid:

I agree with the letters author. We have rented and waited for 2 1/2 years for real estate prices to head south. It hasn’t been healthy for our family and if I knew in 2008 that I would be in this position now (still renting), I would have bought. The prices are higher now and yet the houses still sell, they just take a few weeks longer. Sorry Garth, a family home and the stability it provides is a priority.

Garth Answered:
I appreciate your sentiment. But tell me what the ‘stable’ difference is between paying a landlord to stay in a house or paying a bank to allow you to remain. — Garth

Right on Terpy, Same situation happened with us and now, we are being turfed outof our rental home…sucks and is majorly destabilizing… So Garth I guess the difference between paying a landlord and paying a bank is that the bank isnt going to evict you ( and no, dont suggest I was heavily mortgaged and the bank would foreclose, because despite what you and your crazed dawgs might suggest I was not and neither are most canadians) (No, BOC and the major banks controls us and wont allow mortgage rates to rise so everyone will be just fine!)

I agree that Canadians are overly leveraged and I hate the BOC for creating a housing bubble..however, renting sucks for family and personal stability unless you are a vagabond. So buy within your means, dont see a house as an investment and for heavens sake dont sell your property out of fear and greed like I did – I lost my retirement nest egg by being such an idiot….and now I have to buy higher then I sold…

Don’t blame me if you don’t know how to rent. And why are you posting the same story multiple times under different names? — Garth

#183 Jimmy on 10.25.10 at 7:18 pm

What are people’s opinions on the recently published deal allowing individuals to sell on MLS for $100.00. Will this have any effect? or will Realtors find away around to lesson the impact and preserve their commission structure?

How many buyers these days search MLS.ca before contacting a Realtor and know what houses/condos they want to look at? If the majority look at MLS.ca rather than relying on Realtor to show them houses then this new rule should have a big impact.

I am not sure how it will work when you have retained a Buyer’s Agent and then you want the house that is being sold by individual with no commission. Perhaps the $100.00 fee will come with a fine print contractual clause stating that if a buyer comes forward represented by a buyer’s agent then a commission would be payable by the seller or the buyer’s agent will say that company policy not to deal with for sale by owner home and the buyer can negotiate that contract on their own or pay an additional fee.

Others have said that being allowed to list on MLS has already been around in BC and Ontario and this new rule will not have the overwhelming effect of reducing Realtor commissions that people think. It seems that when it comes to real estate most Sellers have FEAR and they rush to the most recommended Realtor to get their top dollar deal when selling their home. So, plenty of demand from buyers not so sure so many seller’s will opt for selling without a Realtor.

So what will be the impact? Much more competition and price declines or just minor impact.

#184 Taxpayer like everyone else on 10.25.10 at 7:54 pm

61 RER – Deal! My RE is 300m up a 10% grade. Lucky me! And thanks for calling me young – over 50. I think we are much more alike than what you expect.

I only ask you keep an open mind and let obstacles be a
challenge to you – like these people (or not like these people).

http://www.energeticcity.ca/fortstjohn/news/12/23/09
/blizzard-bike-club-holiday-update

Check the pic. The lead bike looks to be a Raleigh (I think thats an ‘R’ emblem), probably steel (thinner tubes) and
a cyclocross model (cantilever brakes).

Enjoy your rides. And always wear a helmet.

#185 Real Estate Realist on 10.25.10 at 7:56 pm

#164-Be A Man:

I don’t know how it tastes. Understanding how certain economic indicators work in relation to real estate values isn’t based on any delusional concepts –

– and as far as being deluded enough to invest in this mess, that train didn’t stop at my station.

#186 dark sad person on 10.25.10 at 8:07 pm

#177 goldenfox on 10.25.10 at 6:39 pm

MBS=

Mortgage Backed Securities

or is it

Malicious Bankers with Syphilis

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

Great clip–this Banker fraud needs to be looked at here as well-

H-F-C had the money in place “long” before-the
whocouldanode–lets play play dumb fu-k speeches–long before the actual blowup started–
“This” is what needs to be investigated-in Canada-where in hell is the outrage-where are the calls for justice-where are the people?
Ohhhhhh i know-they’re ragging on G about posting a pic of some fat assed chick-meanwhile these same liberal politically correct “assholes” watch and say nothing–as the next 3 generations are getting their heads served to them on a platter–
And anyone who does speak out here-is cautioned-by all the weak kneed losers-that there will be repercussions from what you say–
Unbelievable chickenshit Canadians–

#187 Real Estate Realist on 10.25.10 at 8:13 pm

#166 Elmer:

1) Costs incurred for moving expenses and realtor fees will be minimal in comparison to cash lost for YEARS, and to add insult to injury it’s against a beast known as compound interest.

2) They’d have to be in a rather unique profession to be at zero risk of losing their jobs in the next 5 to 10 years. Overvalued real estate isn’t the only thing that is wrong with this economy, as Garth has tried to teach you all numerous times.

3) It’s not going to go down “slightly” in value.

4) What you don’t understand about the “10 years from now” argument is all of the income lost to a) compound interest, ie. larger debt due to it sitting there doing the job that the Banks want it to do and b) all of the income lost as a result of not investing the equity in dividend paying shares and other sound diversification products. It’s really Kindergarten level math. God bless ya, but you need to get it, especially if you have a property with equity, hard earned by paying a beast down as fast as you can while begging it to toss you a bone of equity at the speed of a turtle.

5) The smaller the mortgage balance (ie. the larger the equity amount), the more one should get the house on the market NOW. (because of #4)

Some people just don’t give a crap about throwing money away, money that is supposed to be the foundation of their survival and retirement. C’est la vie. Their vie.

#188 Nostradamus Le Mad Vlad on 10.25.10 at 8:29 pm


Re: the various posters today who said “Renting is Good” — Wholeheartedly agree!

Poetry “We want our money on the nail;
The banker’s ruin’d if he pays:
They seem to act an ancient tale;
The birds are met to strip the jays.”

— Start a Cdn. currency without the BoC! —

European Lynch Mob for BoA.

Foreclosuregate = Hell “The same might also be true of student loans and credit cards! It’s not the foreclosures; it’s the fraud!” wrh.com.

In California, it is not The Great Recession any longer; it is The Greatest Depression.

Oil up, US$ dips Hmmm. Is the GoM fiasco starting to take its toll?

Unemployment During GD1 and now.

GW or GC? Could be the climate is changing!

Note the line beginning “al -Quaida . . .” — Rest of story is irrelevant.

What’s a few trillions between friends?!

Five Best Places to head after North America. Two are in South America.

Americana “. . . Assistant Treasury Secretary William Duer. Appointed by Alexander Hamilton in 1789, he left a year later to profit from insider trading, or so he hoped.” Sound familiar?

All things run their course, including the Royal Navy.

#189 waiting and watching Kelowna on 10.25.10 at 8:33 pm

To sell your home today that you may crystalize that easily of late gained equity or face the prospect of losing it in a market decline is nothing short of gambling with your home. Might be easy for someone like Garth and his wife to do as, I understand, they have no children, but those of us with families tend to have a different outlook on life. It’s not all about money.

For many of us we never expected such wild gains on our family home in the first place. We bought it as a home not a financial ivestment. As such, easy come, easy go. We really don’t care that much in the short term . We are looking at the big picture, long term and more concerned about those things money can not buy. I don’t expect many of you kidless tyoes to understand this. To each their own.

“Easy come, easy go.” And people trust you to help them make the biggest investment decision of their lives? Incredible. — Garth

Oh, sure. So much more stabillity in financial destitution… Think about it-there are people out there that can barely afford their mortgage payments, and they are ok with that as long as those homes are appreciating. But now imagine struggling to make a payment every month on something that is now worth less than what you owe? I can tell you that my family is much happier renting our home in a prime neighbourhood of kelowna, and having money to go skiing, boating and saving, rather than spending thousands of $ on interest, taxes and maintenance. We pay about a third of what owning in our neighbourhood would cost. When the numbers make sense, then we buy. Not sooner.

#190 miketheengineer on 10.25.10 at 8:50 pm

Garth et al:

This one is for Nostradus le mad dude:

It is a 3 hour MP3 file of Steven Quayle..

Put your tin foil hat on and bear down.

http://www.blogtalkradio.com/omegamanradio/2010/10/23/steve-quayle–one-minute-till-midnight.mp3

Reminder:

Fill up your red gas cans
Fill up your propane tanks
Have some candles
A Hurrican Lamp would be nice to have too (Home Hardware has them cheap)
Fill your fridge and pantry
Have some cash on hand

Due it before Nov. 7.

Co-incident that Obama leaves the USA on Nov 6 for India.

#191 betamax on 10.25.10 at 10:08 pm

#181 Jimmy: “A lot of the buyers in Vancouver are not getting mortgages or are very affluent individuals.”

BS. Most are borrowing all they can, even if they’re affluent. If you think prices go up forever and housing is the safest investment you can make, you don’t just pay cash even if you have it. You leverage all you can while counting on double-digit returns.

Why pay just a million cash when you can borrow two more?

#192 45north on 10.25.10 at 11:27 pm

Elmer: talking about your house: I can guarantee you that it will be worth more ten years from now.

I don’t know Elmer. I have been reading housing blogs for 5 years. Predictions of a housing crash in the US have come true. In the US, they’ve had 4 years of declining house values. Here are two stories that would have been science fiction:

Investors discover that the servicers and banks don’t have their interests at heart:
http://blogs.alternet.org/speakeasy/2010/10/21/the-elephant-in-the-foreclosure-fraud-room-second-liens/?source=patrick.net#body_main

Any way you look at the real numbers, they are catastrophic. The idea that there’s any improvement at all here is just completely false.

http://www.financialsense.com/contributors/lee-adler/existing-home-sales-lying-is-a-time-honored-sales-tactic

Elmer it’s now looking like in the US that your guarantee is so much nonsense. From 2006 to 2011 we are looking at five consecutive years of declines in house prices! In a narrow sense this may have happened during the Depression but in a modern sense this has never happened before. The US in the 1930’s was a largely agrarian society.

Elmer, I sense in the latest blogs and analysis an accelerating tempo.

#193 Pat on 10.26.10 at 12:30 am

@ #167 Elmer,

Learn to use paragraphs if you want somebody to read your rants.

#194 Brynn on 10.26.10 at 12:55 am

hmmmm dont know how to rent, he he there is a new one! wow, is that something else that Mr Smarty Pants knows how to do that us minions do not?

I keep repeating my story to illustrate that your lifes work of deciding “real estate is a sinking ship” is a joke. i am ticked to the eyeballs at guys like you who spew nonsense like it was gospel not thinking about the tremendous financial ramifications for morons like me who believe you!

THIS IS CANADA, not some libertarian mess like the US>.we have real banks run by real bankers…GET THE PICTURE< ITS DIFFERENT HERE!!!

#195 WINNIPEGER on 10.26.10 at 12:38 pm

http://www2.macleans.ca/2010/10/25/should-buyers-beware/