Hormones

Sure, I know the images are compelling. Long lines of young people snaking around a new housing development complex someplace in suburban GTA, Vancouver or Calgary. Camping out all night. Living off Tim’s. Peeing in the bushes. Desperate to get inside and buy a new house in 14 minutes. Then staggering into the sun in a post-coital HGTV kinda haze, sales agreement in one hand, mortgage doc in the other, feeling great about being ravaged.

The first-time buyer is the holy grail of real estate. Lenders like the big banks court them. Developers drool over them. A whole housing industry creates products for them. And politicians suck up to everyone, with the creation of misleading programs like the Home Buyers Plan.

Like the wood that fuels a fire, these hormonal young things give energy to an entire real estate market, starting the climb on a property ladder which ends up creating an endless chain of sales and sells. Well, endless until now.

There’s mounting evidence – despite the high-profile events where TV news cameras are always invited – that the kids may be taking a pass. In fact, this is a prime explanation for a phenom that’s tricked many people and which answers the question, why are prices going up when sales are going down?

You know what I mean. For the last six months, sales of houses in key markets like Toronto, Calgary, Vancouver, Edmonton and Winnipeg have tanked on a year-over-year basis. And yet average prices have held firm or even (like in the GTA and the Lower Methland) shot higher. Days ago I recounted the orgiastic grunts of pleasure which could be heard over Richmond and Surrey as the latest property assessment arrived, showing a delighted population that they’ll soon be paying more in taxes.

But how can prices swell like a gland while sales seek Cialis?

One explanation (not a bad one) is tumbling listings. As fewer homeowners put their properties on market, the competition between the remaining buyers results in average prices rising, even as sales levels fall. After all, prices are far more volatile on any market (including stocks) when trading is thin.

But here’s a better reason: a seriously declining number of young buyers is resulting in falling sales of cheaper (starter) homes, which leaves more activity (in relative terms) in the pricier end of the market. So, average prices rise. That this is a statistical quirk may be of no interest to most of us. But the fact realtors then beat the crap out of us with the same old stick – buy now or forever be priced out – is highly relevant. And wrong.

At least one real estate guy gets this, and I was alerted to his blog after he complained about mine. (See? I have a purpose.) Norm Fisher crunched the numbers in his Saskatoon market and found a big 18% drop last year in the sale of houses under $300,000, and a corresponding 13% rise in deals for places worth more than that. Of course, this would account for the fact that real estate had a crappy year in Skatch, and yet houses ‘cost more.’

But they haven’t really risen in price. Only the average price is higher. Lots of houses are falling in value, at the same time they remain unsold. And I think Norm has highlighted a situation which is now affecting every market in the country – certainly the ones I have done a sales analysis for.

This also suggests 2011 could well be the year the fire starts to go out. As I have been saying for some time, sales drop first, prices second – especially when the first-time buyers start to fade. And why would this happen? Let us count the ways.

First mortgage rules stiffened a bit in April, with first-timers having to qualify for five-year loans. Now it looks like F is poised to strike again at the urging of the big (scared) banks, who are having a few kittens over the 5/35 mortgages out there. (As I have told you, these high-risk loans now account for the vast majority of all new ones).

Second, interest rates rose in 2010 with the Bank of Canada hiking its key rate three times, jacking VRMs a similar amount. And while five-year money declined for a few months as bond yields tanked, all that’s now in the rear-view mirror.

Third, debt. We’re drowning in it, the kids included. In fact, young couples coming out of university today sometimes already have student loans the size of mortgages. Look for this to continue as the feds trim their contributions to education, a la Britain.

Fourth, this is the year Mark Carney slips the whoopee cushion under the middle class. Interest rates will be rising just as soon as the little nipper figures he can do it without murdering the economy. The central bank boss is determined to cut back on cheap credit, now that we’re all hopelessly addicted to it. Such a joker.

Fifth, the virginal young among us may have too many hormones, but they’re also totally wired. They can see and smell real estate deflation taking hold. With teensy down payments, they know any drop in prices can wipe them out in a weekend. Why buy now, when houses may well be cheaper in six months? Why self-destruct just like mom and dad? It’s amazing what six years of post-graduate studies can do to a mind.

So, yeah, I agree with Norm. Except he’s a realtor.

And he’s doomed.

181 comments ↓

#1 PostCarbon on 01.11.11 at 12:05 am

Yep, this is precisely what my savvy 23-year-old is doing….waiting for the bubble to burst.

#2 rental monkey on 01.11.11 at 12:10 am

Like the new format Garth and yesterday’s post was terrific. Keep on, keepin on man, we appreciate your insight and humourous writings. Some of your retorts to other posters are down right belly laugh funny. Thanks, and Happy New Year!!

P.S. I’m constantly learning here too…..

#3 Patz on 01.11.11 at 12:11 am

Doomed? Not in Winnipeg. At least according to CKNW’s promo for an interview tomorrow morning with a realtor from Remax who’s apparently gonna tell us that the hottest market in the country is right there 500 miles south of The Pas. Better mush over there fast or be priced out of the market for good. Real estate collapse?…” nothing to see here folks, Oh, look at Winnipeg!”

#4 squidly77 on 01.11.11 at 12:15 am

Calgary and Alberta building permits take a massive hit.
http://www.calgaryherald.com/business/Calgary+region+building+permits+fall+from+last+year/4085263/story.html
Don’t come West this year young man.

#5 JET on 01.11.11 at 12:16 am

I heard the most ridiculous thing on a radio show in the car this weekend. The real estate guy was asked whether prices will drop. His answer? And I quote, “It’s pretty tough for prices to drop when everything we use is rising, like utilities, food, etc.” What an idiot.

#6 Mark on 01.11.11 at 12:21 am

I’m 28 and have about 150k in liquid investments. Been renting and just saving my money since finishing grad school a few years ago. I could easily afford a house right now but figure what’s the rush? Even if the predictions of declines don’t come true than I’ve got a ton of cash to put down one day and the longer I wait the more I will have.

It’s going to be hard to cash it out one day if I do go that route – I really like logging in and checking my investments and researching new ones. A house or investments… that’s a tough question.

#7 phinny on 01.11.11 at 12:21 am

My wife and I (early 30’s) have settled into a thousand-a-month house rental in Edmonton, in a neighborhood where the same house sells for mid 300’s. Don’t know exactly what a mortgage in the 300’s looks like, but I’m thinking we’re getting a deal.

Oh, and my twice-lent copy of Money Road ( and a 12% drop in RE Values in the past six months) has convinced a friend of mine and his wife to sit and watch for a couple of years.

Don’t even care if I have to rent forever. Not waiting breathlessly for prices to fall- I prefer that cash flow, anyway.

#8 Tim on 01.11.11 at 12:24 am

Garth,
how low would the median house/condo price need to fall to in order to justify buying? 4 times avg income?

At least. — Garth

#9 nonplused on 01.11.11 at 12:26 am

And let’s not forget the young nippers are having trouble finding a job. High unemployment and housing go together like rice and chopsticks, except no rice.

I buy the arguement that the shift of what’s selling has changed as well, but even the big ones around here are selling at 10-15% below the original list. To use a worn out example, the one down the road from me listed originally for 1.4mil, and sold eventually for 930g, but that would still weight the average up.

It’s too bad we don’t have a timely index like the Case Shiller for Canada, that compares same home sales.

#10 RAINBIRD on 01.11.11 at 12:27 am

By REUTERS, , Updated: January 10, 2011 3:24 PM
Bank of Canada sees low rates during ho-hum recovery

By Louise Egan

KINGSTON, Ontario (Reuters) – Low inflation and weak growth mean Canadian interest rates must remain low for now, while households must be wary of taking on too much debt, a senior Bank of Canada official said on Tuesday.

In comments after her first speech since becoming one of the central bank’s deputy governors in July last year, Agathe Cote said Canadian inflation remained lower than the bank might have expected for this stage in the economic recovery.

#11 Tim on 01.11.11 at 12:28 am

What is the correct way to find the right price for rent? Do we look at the listing price for a place on the market? — see how much a mortgage would cost + maintenance + other fees versus the rental fee?

Looked around and with the market as they are, My girlfriend and I are thinking really strongly about spending 1 year renting a downtown condo.

#12 Soylent Green is People on 01.11.11 at 12:31 am

You no longer have reporters, you have repeaters.

http://thetyee.ca/Mediacheck/2010/12/28/NewNewJournalism/

The new game began in Canada on Aug. 27, 1980.

Black Wednesday, as it became known, was the day newspaper corporations across the country colluded to swap properties and kill competition.

The Ottawa Journal and the Winnipeg Tribune folded, and Vancouver Province’s owner, Southam, bought the Vancouver Sun. The two had been in bed together since 1950s via a press-and-profit-sharing agreement at Pacific Press that killed the third paper and defended against upstarts.

Suddenly competition for readers was no longer necessary; these publicly traded corporations now focused on advertiser-pleasing copy as the technique for pulling more ads.

At least Postmedia has an understandable reason for changing standards: they’re legally obligated to maximize profits.

But the fact that the commercial-free public broadcaster also ignores the public good suggests that there is a new definition of journalism.
.
.
.
.

#13 Min in Mission on 01.11.11 at 12:41 am

“Fourth, this is the year Mark Carney slips the whoopee cushion under the middle class. Interest rates will be rising just as soon as the little nipper figures he can do it without murdering the economy. The central bank boss is determined to cut back on cheap credit, now that we’re all hopelessly addicted to it. Such a joker.”

This statement proves that you have either the most accurate crystal ball around, or, you really do have an understanding of the current situation.

Many Canadians are not able to see this happening around them.

I really like your imagery and descriptive prose. Must have the same kind of twisted sense of humour.

#14 Serge on 01.11.11 at 12:42 am

Forget stats: have a look at all the MLS postings, with pictures taken in the summer. In Montreal, you cannot move the map anywhere where summer taken pictures are not the majority.

have fun!

#15 kitchener1 on 01.11.11 at 12:53 am

The listing are what have kept prices in check but that tide is going to turn very fast.

Tons of new listings so far in the first 10 days of 2011.

Toronto or GTA has 10’s of thousand of condos that were purchased on spec, who am i kidding, the # is probely in the 30K ballpark. Keep in mind that project from 08-09 are going to be completed in 2011. Those spec sellers will all be listing at the same time.

Just wait until we hit March-April-May-June, those months were record months for RE, bidding wars were the talk of the town. Sales records were broken in those months. This year we will see 30-40% drop in sales volume based on YoY numbers.

No doubt the RE agents will spin it as not a big deal as last year was record terriority. BUT if we google there press releases last year, they will say, buy now or be priced out forever.

People, we are going to 3.5 times income in GTA at least, best case scenerio. Worst case scenerio is 2.-2.6 and stay there for years– as long as it takes us to revert back to mean.

Law of mean revision. math never lies.

#16 a prairie dawg on 01.11.11 at 12:57 am

Yes on 1 and 2.

And here’s some proof about #3.

Helocs outpaced mortgage growth 2-1.

http://www.financialpost.com/news/economy/Home+equity+loans+surge+twice+fast+mortgage+growth/4087788/story.html

Ayy Carumba. This definitely won’t end well.

#17 604genX on 01.11.11 at 1:06 am

Serge #14. Ha! Nice one, classic stuff. Love those trees in full bloom on the MLS listings.

On a separate note, a Massachusetts outlined the rules stopping US banks from rushing foreclosure on homeowners. Those clowns in US banks were assigning the debt (the note) without attaching the collateral security (the mortgage). That is so dumb they deserve to lose the right to foreclose. A glimmer of hope for some homeowners.

The big question: Can the banks figure out a way to push this on to US taxpayers (again)?

“The banks argued, as does the securitization industry, that the right to a mortgage follows the sale of the promissory note it secures, and since they held the notes, they should be deemed to have the right to the mortgage. The court disagreed. In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage,” Gants wrote.”

“The court rejected the banks’ request to apply the decision only to future foreclosures if they lost. It does that when it makes a big change in the law, which it didn’t do here, it said. ”

“Thomas Mitchell, an analyst at Miller Tabak & Co., said yesterday in a note that “we do not see this type of decision as representing a major financial event” for banks. Lenders will already have taken 85 percent to 90 percent of their losses on the loans by the time of a foreclosure, he said. ”

http://www.bloomberg.com/news/2011-01-07/us-bancorp-wells-fargo-lose-pivotal-massachusetts-foreclosure-case.html

#18 race against time on 01.11.11 at 1:19 am

Much better. These are the kind of comments I come here for. I like question and answer posts such as #8 here and #256 from “Big Life”.

Informative, interesting and pertinent.

Garth, I am curious about your view on the NE of BC. There is a massive amount of Natural Gas there currently being punched and plumbed. They promise they are building a LNG shipping port in Kitimat. These factors encourage the locals to believe that it IS different there.

As the various factors you list start to effect the National economy, will there really be NO places immune to the crash?

Apparently the region is currently growing 15% faster than the rest of BC. As a designer working with a local builder, should we consider not building this spring?

It does seem ironic that as I encourage the inlaws to sell, I am personally considering building.

We will make our own decision, and I won’t hold you to any of your statements, but if you have any insight, it would be appreciated.

TLDR (Too long, didn’t read): Will the popping of the bubble be heard equally across this great land, regardless of localized economic factors?

#19 Kevin on 01.11.11 at 1:20 am

First time buyers are being priced out in Saskatoon and across the nation. Just take a look at these graphs.

http://saskatoonhousingbubble.blogspot.com/2010/12/saskatoon-housing-prices-inflation.html

Saskatoon housing prices inflation adjusted 1980-2010

#20 T.O. Bubble Boy on 01.11.11 at 1:21 am

Mish is calling Australia’s housing market “Tulip Mania”:

http://www.businessinsider.com/australia-housing-shortage-bubble-2011-1

The day of reckoning has finally arrived for Australia. A day of reckoning awaits Canada, China, and the UK as well. It’s too late now to do much of anything except
* Exit the Australian stock market
* Get out of the Australian dollar
* Pick up some popcorn
* Stay on the sidelines and watch the collapse unfold

Now, given that Australia is home to many of the world’s largest commodity-producing businesses (much like Canada), I’m not sure that you can “exit” commodity investments completely… but the point here is clear: the day of reckoning is here for the over-leveraged, and many economies will suffer when the magic housing bubble bursts. For Canada’s situation, the 20% of GDP that is tied to housing will be shrinking, and unless there is an equivalent boom in another industry, the economy will be in recession (again).

#21 Carp Coyote on 01.11.11 at 1:37 am

On my last contract where a bunch of IT boomers or X-gens were buying far too big homes, the y-gens were the young adults less than 30 saying f&$K this, renting is much more cost-effective and the bubble will burst! So we refuse to buy until the crash ….

#22 Just a Tech on 01.11.11 at 1:37 am

It shouldn’t take six years of post graduate studies to figure this all out, but then again there’s a difference between book smart and street smart!

#23 Fritz on 01.11.11 at 1:39 am

What? No gun control comments today? B-O-R-I-N-G!!!

#24 Two-thirds on 01.11.11 at 1:39 am

This one’s for DSP – courtesy of BoC:

Select quotes from the article:

“Ms. Côté said that over the past decade, lending backed by real estate rose as a share of total Canadian household credit, with the volume of home-equity lines of credit and loans surging by as much as 170%, or almost twice as fast as mortgage debt.”

Ms. Côté said “lower interest rates for secured lending and increased access to credit as house prices rose have helped fuel net increases in credit and have supported household spending in Canada in recent years. Going forward, house price gains are unlikely to provide the same support to household wealth as they have in recent years.

“This,” she added, “combined with the fact that the level of household debt has reached a record high, leads us to expect that the growth of household expenditures will slow to a pace closer to that of income.”

Credit contraction in 2011, anyone?

Read more: http://www.edmontonjournal.com/business/interest+rates+threaten+debt+levels/4086530/story.html#ixzz1AhY3MiRo

#25 WiseGuy on 01.11.11 at 1:40 am

Just to further your argument with debt, lets not forgot all those Condo owners in Toronto. At my weekly poker game, held ironically at a downtown Toronto condo, I heard two or three condo owners complaining of rising maintenance monthly fees.

One was upset how in the first year of ownership, the condo fees were at an attractive $179/month, the second year, they increased to the standard $369/month and now this year they are set at $449/month.

Apparently, the cost of living is going up substantially and quickly living in already a saturated condo market in Toronto. What happens, when condo owners decide that it just isn’t worth holding on to an asset that just keeps getting more and more expensive to maintain.

#26 Debtisforever on 01.11.11 at 1:46 am

Yup, I’ll pass on this bubble. No, thanks.

#27 realityguy on 01.11.11 at 1:46 am

Had an interesting week. Went to a bunch of Open houses
and You can sure feel the desperation for a lot of these Horny First time buyers who saw the Price of Property Taxes rise by 17 percent. Most of these newbies thinks that Housing prices rosed by 17 % last year.

And with CREA reporting an stable market and things are looking up as causing panic for people to take one last stab into getting into the market quick.

On the flip side, I had lunch with two couple, one who bought their house just before the olympics and one a 1/2 a year before. One with 7% down and one with 5%down and a rebate from the bank ( which is basically 0% down).

Both saw no gains for the complete year, although they didn’t admit a loss. Already struggling to meet their payments on a mediocre income and high taxes.
Both couples are really really worried about the double bang they received in their property tax accessment and increase from 2 to 4.2 percent for property tax.

Down to the USA, gas is 3.03 cents a gallon or about 75 cents per liter vs 1.20 in vancouver. Cost of OSB sheets are 6 bucks and plywood at 11 bucks versus 10 and 16 here in vancouver (cost to build a house is about 30% more in vancouver + add HST). Plus they can write-off their mortgages in the US. The list goes on and on.

Holy crap, Vancouverites cost of living must be double the US and EXTREMELY HIGH housing cost add more to our daily cost.

All I can say is “What the Hell?”

#28 smartalox on 01.11.11 at 1:51 am

Garth, I’ve been following the stories of overzealous and disorganized foreclosures in the US news right now – stories of how the US banks are foreclosing on properties with incomplete, or even erroneous information, having foreclosure notices ‘robo-signed’ by an over-worked (over-loaded?) judiciary.

See below for an example:
http://www.dailyfinance.com/story/real-estate/florida-judges-let-banks-break-affidavit-rules-foreclosure-cases/19787669/

I’m not at all aware of how similar proceedings are carried out in Canada, but given the quality of service and record keeping I’ve experienced at Canada’s banks, it’s not a stretch to imagine similar madness in this country.

You don’t need to post this comment to this particular story, but could you please consider this topic for a future blog post?

#29 InvestorsFriend (Shawn Allen) on 01.11.11 at 1:57 am

Garth mentioned higher assessments lead to higher taxes.

Not true. Property tax increases are budgeted as if asessments stay same. Then the mill rate changes to reflect both the announced increase in taxes and the change up or down in asessments.

Example, my house asessment is up over 200% in the last 12 years. But my property taxes are up about 50%.

The last two years my assessment fell and my taxes still went up.

Unlike income taxes, which go up automatically with inflation (even despite some indexing of brackets)property taxes in creases are actually calculated honestly. Property taxes tend to rise no matter what house prices do, there is simply no connection.

Garth knows it, I know it and God knows it. And now you know it. Thank goodness I am here.

Boy, are you naive. — Garth

#30 Tkid on 01.11.11 at 1:59 am

Is it bad that Istill surf through the mls.ca site? Does this mean I have to turn in my Garth Turner membership card? I mean I wouldn’t buy, not unless I found a sweet deal on a 3 bedroom condo.

#31 rentin on 01.11.11 at 2:01 am

C’mon Garth, you don’t want to start misleading Joe Average on assessments, mill rates and property taxes do you?

“… as the latest property assessment arrived, showing a delighted population that they’ll soon be paying more in taxes.”

There is no doubt what higher assessments will render. — Garth

#32 InvestorsFriend (Shawn Allen) on 01.11.11 at 2:04 am

I believe the Teranet index tries to track the price of the same houses, so that index should tell the story.

Averages are often misleading. On average men are average. In reality, all men are not created equal.

Property assessments should actually be a reasonable guide since they track every house not just those that sell. The issue with recent assessments is many are market based (as they should be) but basically compare market data from Spring 2010 to Spring 2009. So these data are simply not reflecting market price drops that happened past about July of 2010. Be patient.

Don’t worry, gloom and despair will come our way soon enough. But as I mention above, don’t count on that lowering your property tax, aint a gonna happen.

#33 InvestorsFriend (Shawn Allen) on 01.11.11 at 2:09 am

Garth says:
Virginal young housebuyers) know any drop in prices can wipe them out in a weekend.

Yes, and the wipe out will not stop when their equity reaches zero. No indeedy, they are on the hook for the whole house price and so their equity can fall to minus 100 grand easily and unless they are prepared to declare bankruptcy there is nothing they can do but tough it out and pay off that house.

#34 InvestorsFriend (Shawn Allen) on 01.11.11 at 2:16 am

Kids that buy a house at 4 times their income with 5% down are basically like a county running a deficit.

They are speniding in effect multiples of their income byu buying a house 4 times their income.

The house is financed by let’s say seniors who have cash deposits in banks lent out to virgins.

Then for 35 years the kids must spend less than they make as 5% or so of their income flows back to the seniors.

Life cycle – Age 30 run huge deficit to buy house

Age 30 to 65 run surplus to pay off house and also run additional surplus to save for retirement

Age 65 lend retirement fund to virgins who buy house.

Age 65 to 90 – Collect 5% annuity from virgins…

Simplified example of course but that is basically how things work.

Some might call this seniors scr*wing virgins… would that it were so… They are F’ing themselves in fact…

#35 Bobby on 01.11.11 at 2:19 am

The reason CREA reports average prices is because it gives a false impression the market is rising. The real indicator is median price. My guess is many of your readers don’t know the difference.
Here in Victoria, sales in December were not much different than the previous month which means a lot of realtors here weren’t getting paid. VREB was touting the rising average prices in the press but if you look closely at their web page the median price was lower again this month. It only takes the sale of a few high end homes to skew the statistics.
If you want the real facts about the real estate market, don’t ask a realtor!

#36 Arthur Buttock on 01.11.11 at 2:34 am

http://www.news1130.com/news/local/article/167447–building-permits-in-bc-down-in-november

‘The trend line” …LMAO

#37 Western Canadian on 01.11.11 at 2:35 am

“I recounted the orgiastic grunts of pleasure which could be heard over Richmond and Surrey as the latest property assessment arrived, showing a delighted population that they’ll soon be paying more in taxes”

WRONG. Just got my assessment, value did go up but taxes went down.

Wait. — Garth

#38 andrewS on 01.11.11 at 2:37 am

I’m in my late 20s and biding my time as well.

The number of my peers that seem to have given up on careers is astounding. When you think about it though, moving back home, living in the basement, putting in just enough hours at Mickey D’s to make your OSAP payment, inherit the house, and keep on putting in just enough hours at Mickey D’s to make the property tax payments and maybe buy a bag of Doritos to eat once in a while, it’s a pretty good life. Almost like you’re retired, maybe. The Boomer parents love it because they know kiddo will be there to change their diapers, if he wants the house.

The longer term consequences of this recession remain to be seen. However, the last of the 20-somethings that graduated early enough to get a toehold before the recession that want to own, do already, a lot of us are waiting or just not ready to settle down, or are just too scared to plop money down when the economy is so unsettled yet. Those even 2 years behind us are unemployed and playing Xbox all day. There is nobody left that wants to buy a home, that can.

#39 Maxie on 01.11.11 at 2:40 am

Good evening Garth,

First of all, Happy New Year!

Ok, enough chitchat. I have been reading your comments for a long while and I find them truly educational and inspiring. However, I don’t think I have read a single one mentioning the RE situation/expectations regarding the Quebec market. Thanks to you and your readers’ postings, I have learned about Calgary, TO and Vancouver… but what do you think about areas like Montreal, Hull and Quebec city?

This province has been hit by the recession but it seems not so badly as the other provinces. People are still going nuts about RE over here, particularly when it comes down to condominuims. In Montreal, in areas like the Plateau, Laurier street and the Lachine Canal I see small 700sqf condos selling for above 250K, no parking, shoddy-finished “little boxes in the air”, like you once said.

Ok, 250K might not sound like a lot in other cities, but around here, it is some money.

So any insights? Or any sources of information you could refer us to?

Thanks and keep up the good work!

#40 Aussie Roy on 01.11.11 at 2:41 am

“But here’s a better reason: a seriously declining number of young buyers is resulting in falling sales of cheaper (starter) homes, which leaves more activity (in relative terms) in the pricier end of the market. So, average prices rise. That this is a statistical quirk may be of no interest to most of us. But the fact realtors then beat the crap out of us with the same old stick – buy now or forever be priced out – is highly relevant. And wrong”.

Garth this is the same as happened here in Australia during most of 2010. The way I now monitor prices is to divide them into 400k (local median price).
Its not hard to see how the median price has been increasing as the number of sales at >400k now exceeds the number of sales at <400k. Of course everyone points to prices rising without considering the make up of the sales being reported. What gives a clear picture is the volume of sales (in a set price band) and volume of listings now coming to market. IMHO the rush to the exits has started here, my fear is its too late for many speculators.

Aussie Update

For years I have been hearing about a housing "shortage" in Australia. That myth has been shattered by latest stats that show a 44% jump in property listings.

http://globaleconomicanalysis.blogspot.com/2011/01/australias-tulip-mania-about-to-crash.html

The floods continue with the Toowoomba river rising 19 metres (60ft) in 40 minutes. Brisbane today is on alert as flood waters head towards it and another 300mm of rain being predicted to fall within the next 24 hours.

http://www.abc.net.au/news/stories/2011/01/11/3110689.htm?section=justin

http://www.abc.net.au/news/video/2011/01/10/3109884.htm

#41 Carla on 01.11.11 at 2:46 am

Meanwhile in Vancouver… 906 West 20th Ave (MLS #V861766) listed at $1,088,000 sells for 1,611,000. Teardown on 45′ x 122′ lot.

#42 Sasquatch on 01.11.11 at 2:51 am

#3 Patz

Your right man, It’s ONE GREAT CITY!

http://www.youtube.com/watch?v=rq_s_q0u2DA

#43 Mike on 01.11.11 at 2:57 am

A simple look at just mean or median price month over month is pointless, the variance is WAY too high. Like you said, it doesn’t take much of a change in the distribution of house types being sold in a particular month to mess up the stats.

What I don’t get is why we haven’t had someone in Canada properly replicate the Case-Shiller Index complete with regression analysis going back 80 years in Canada

….. I mean Dr. Shiller is a pretty damn famous prof, you would think someone in academia here would want to piggyback off his name and create a Shiller-xxxx index for Canada just for the recognition?

#44 pablo on 01.11.11 at 3:08 am

Liked the pic garth, lmao. Also enjoyed the writing.
I’m praying, hoping that the general public doesnt wake up to the truth too quickly, I’d like to cash out in the spring market; the wife willing. Still not certain about what to do after the fact, likely rent til we figure it out. (read as; argue about it all.) I really am attracted to the whole small/tiny house movement, much to my spouse’s dismay.

#45 Vancouver smart renter on 01.11.11 at 3:10 am

Garth, if inflation is low and our currency at parity is delaying the recovery due to lack of currency competitiveness AND the recent comments about currency devaluation on the CDN $ by Carney, could one not find it reasonable to deduce interest rates are going to have little reason to move up?

I guess this is the paradox central bankers have now that they have pulled all the levers and nothing happened: increase rates and you halt the recovery through currency strength, decrease rates and you create an even bigger credit bubble, or have I missed something?

#46 pablo on 01.11.11 at 3:12 am

Unemployed making ends with medical experiments!!!

http://www.youtube.com/watch?v=eejTBuhR1zE&feature=player_embedded#!

Where can I join up, I’m just in it for the money!!

#47 nomadic on 01.11.11 at 3:17 am

In general, I agree with your points above Garth, with some disagreement on #3.

I do think it is important, to draw a parallel between CMHC and Government Student Loans in their effect on the prices of houses and education.

Much like the Taxpayer-backed lending of CMHC that helped loosen mortgage credit, and artificially drive up the price of homes; increasing supply of credit for Education has also driven up the cost of Education.

Obviously both were in demand, however it is the supply of credit (backed by Taxpayers unfortunately) that caused these “assets” to inflate to where they are today. Likely not where they would have been without the meddling.

People will argue that without government loans for education, poor kids would be unable to attend school, and would then be at a disadvantage. However, I would argue that having kids leave school heavily indebted is a similar disadvantage with perhaps more damaging consequences. The cost of education is prohibitive, and only appears to benefit those who are employed, and have pensions by these institutions, and those who collect interest and broker the deals.

That point aside, yes. We are in for lean times, and I think for those of us who have wealth that is not locked-away in bricks and mortar, our biggest challenge is going to be how to preserve it in the future. That includes our currency.

#48 Blobby on 01.11.11 at 3:51 am

Id perosnally like to see the return of the rule of not being allowed to borrow more than 3 times your income.

That’s a sensible figure.. you wont overspend with that.. it wont kill the economy if prices drop (As people could still afford their mortgages), it stops property from over inflating, etc etc.

Unfortunately, people are so in love with paying more tax on their ever increasing property price – that they’d crucify any politician who dared to bring this (rather sensible imho) idea back in.

#49 Tiffa on 01.11.11 at 4:14 am

#11 Tim

Here’s a fun widget to play with, when deciding when it’s better to rent vs. buy. Nobody’s going to be able to give you a definitive answer; there’s just too many variables and everyone’s different. But this is a great tool, none-the-less.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

#50 604genX on 01.11.11 at 4:20 am

Early indications for Vancouver Lower Mainland listings and sales (based on 25% of sales days for month of January, 5 of 20):

Projected for January, 2011 based on 25% of sales days:

Sales Estimate = 1,552 (2nd lowest in last 10 years); -19.3% YoY, -18.3% MoM

New Listings = 4,484 —> This would be BY FAR the HIGHEST listings for Jan. in the last 10 years – TWICE as high as the next highest (Jan/02 = 2,248 listings).

Current Sell/List = 34.6%

#51 Roial1 on 01.11.11 at 4:53 am

A sign of the times???

I drove through town (Courtenay B.C.) today and noticed several stores in the process of putting on “closeing out” sales.
There are already a number of empty store fronts on main street.

Can it be the “Walmart” effect???? Or just a dead economy????

#52 TheBigLebowski on 01.11.11 at 4:57 am

We are living in a world of culture creation. Opinions are formed, expressed and given to us . Media, education, government experts, are the main conduits for this to take place. The younger generations then take these opinions and adopt them as if they were their own. Is it any wonder why so many have been dooped by artificially low interest rates and media spun mystical, magical facts and figures on the direction that real estate is heading.
The best thing for a non home owner to do right now is to stay that way. If that isn’t possible due to children, family or other commitments , the paying down debt is your next best option. Selling would be ideal but that isn’t always possible because of the above reasons. I can’t mention what I did with the proceeds from the sale of my house or I fear Garth will delete my entry. But real estate is not where one wants to have 80% of their net worth tied up. I fully diversified into sound money both the grey stuff and the yellow. Its the only safe place to hide with what is to come.

#53 Dave in Victoria on 01.11.11 at 6:58 am

Great post Garth.

“But here’s a better reason: a seriously declining number of young buyers is resulting in falling sales of cheaper (starter) homes, which leaves more activity (in relative terms) in the pricier end of the market. So, average prices rise. That this is a statistical quirk may be of no interest to most of us.”

I’m seeing this more recently in the Victoria sub 500K market, while the rest of the Island and the Penticton area are in serious rewind. The 500-750K sales prices along with sales are sliding too….. something is definitely in flux.

Reminds me of when 2008 started to slide, though less rapid, which probably indicates bigger trouble.

#54 gutcheck on 01.11.11 at 7:07 am

This seems unexplainable.

http://www.winnipegfreepress.com/breakingnews/Citys-resale-homes-market-ended-2010-with-a-bang-113211224.html

#55 This is Wonderland on 01.11.11 at 7:27 am

As Americans downsize in the aftermath of a colossal real estate bust, at least one tiny corner of the housing market appears to be thriving. Tiny houses are emerging as a whole new marketplace.

http://www.theglobeandmail.com/report-on-business/video/tiny-houses—real-estates-new-wave/article1817042/?from=1863687

#56 Worldwide on 01.11.11 at 7:27 am

FYI – Hasn’t hit the news yet but here you go below. It’s a good reminder of how you need to be aware of stock markets and risk:

Riots in Bangladesh as stock market appears to be crashing

The stock market had fallen 7.8% on Sunday, largest in the history of the Bangladesh stock market. It then fell an additional 9% on Monday during just the first hour of trading, after which trading was ended for the day. Rioting spread to other cities after trading was suspended.

There seems little doubt that the stock market was in a large bubble. The stock market index rose 80% in 2010, peaking on December 5 of last year. Then, on December 19, the market fell 6.73% fell, according to CNN. This trigger protests in Dhaka and around the country, though not as large as the new protests.

There are 3.5 million investors in the Bangladesh stock market, and this appears to be a full-scale panic. Regulators are trying to use every tool available to them stop the panic, but it has not yet been announced with trading will resume.

If you’re an investor in the stock market, then you should understand that the same thing could happen to you at any time. There were several “mini-panics” last year, especially around the time of the bailout of Greece. The euro zone is going through another crisis this week, so be prepared for anything.

Source: Generational Dyanics

#57 pessimist on 01.11.11 at 8:06 am

#8 Tim on 01.11.11 at 12:24 am

Garth,
how low would the median house/condo price need to fall to in order to justify buying? 4 times avg income?

At least. — Garth

The average is 2 1/2 to 3 times – Garth’s right.

And remember if average incomes fall (not unthinkable), houses will fall further.

Furthermore, after a bubble bursts, prices tend to over correct. It’s conceivable that the ratio could go as low as two.

#58 luketheduke on 01.11.11 at 8:12 am

GArt you are so full of shit ,an agent knows that event if a house is not “listed” that the owners are indeed sellers and that they would not refuse a reasonnable offer..so less listings meaning higher prices is a lot of your big BS.

Thank you, Mr. Soper. Always educational. — Garth

#59 Kaganovich on 01.11.11 at 8:38 am

Back to the old format Garth?

Here is a month old interview with David Stockman on CNBC for those of you who have not caught it yet:

http://www.washingtonsblog.com/2010/12/david-stockman-only-job-growth-in-last.html

In it, he analyzes the stagnant job situation in the US and what it means for the economy as a whole. He also fields one of the most asinine (but nonetheless revelatory in the context of the US basically offshoring their manufacturing economy in order to focus on providing services) questions I have ever seen posed on air (pink shirt guy) not to mention tells the CNBC boys that the equities market is crazy, irrational, and not to trust it. Classic.

Maybe Aussie Roy can elaborate on a recent Mish article pointing out a 44% rise in listings in Oz, yes? If accurate, then uh…oh.

#60 Kaganovich on 01.11.11 at 8:52 am

Aussie Roy, please disregard my query as you have already addressed it. Thanks.

#61 David B on 01.11.11 at 8:59 am

Garth ….. You have mentioned the generation who will never work again to which I agree … coupled to this is another shift that has been tied to the devaluation of residential Real Estate.

Downturn’s Ugly Trademark: Steep, Lasting Drop in Wages .

http://online.wsj.com/article/SB10001424052702304248704575574213897770830.html?mod=WSJ_hp_MIDDLETopStories

#62 Moneta on 01.11.11 at 9:06 am

The market?

2 households in Westmount.

A Gen-X couple that bought at 300K and sells at 600K to buy a boomer couple’s house, bought at 50K, for 1 million. The boomer couple is downsizing. The Gen-X couple is moving up.

The new average price is now 800K. Hey, imagine that, house prices are still on fire! LOL.

#63 X on 01.11.11 at 9:30 am

F should tighten up the mortgage lending rules, without a worry of its effects of what it would do on the housing market. He should do the right thing and protect the easy credit lovers from themselves.

A potential hosing flop is less of a concern than the coming retirement crisis for all too many baby boomers…

#64 avenirv on 01.11.11 at 9:38 am

just a question guys:
shouldn’t the big bank be worried by normal mortgages and NOT by subprime ones ?
the 5% down mortgages are insured by the canadian taxpayer so the banks have no worry. on the other hand the 25% mortgages are all banks’ risk…

#65 Moneta on 01.11.11 at 9:55 am

Here are some stats on listings:

Montreal:
Average income = 65K
53% of listings over 300K
20% over 500K
7% over 900K

Ottawa:
Average income 75-90K (gatineau-Ottawa)
48% over 300K
19% over 500K
4% over 900K

Toronto:
Average income 75K
70% over 300K
36% over 500K
15% over 900K

Analysis:
At 3.5 times income with 5% down, 50% of households could afford a house of around 300K yet more than 70% of houses are priced over 300K in Toronto. Therefore, in Toronto we can conclude that households at every level will feel the crunch.

In Montreal and Ottawa, lower income families still have a chance. But since only 10% of the population can truly afford 500K or more, yet more than 20% of listings are in that price range, the upper end is in for a tough time.

In the US, the foreclosure rate is 1/13. But in the 1 million plus range, it’s 1/7.

#66 a prairie dawg on 01.11.11 at 9:58 am

Apologies to Alex. I wasn’t ripping off your link from the last blog entry. When the site went down last night I turned to the mainstream media for awhile to do some reading. When I found the Financial Post article I checked this current blog entry for duplication before posting, but you managed to squeeze it in at the end of the previous one. ~ apd

#67 HouseBuster on 01.11.11 at 9:59 am

Wow, those real estate numbers really sucked this morning. I’d like to see the spin on this one.

#68 chris on 01.11.11 at 10:02 am

http://www.themortgagelender.ca/

sorry if this has been posted before – found it quite odd….

#69 Moneta on 01.11.11 at 10:06 am

The reason CREA reports average prices is because it gives a false impression the market is rising. The real indicator is median price
——-
If the entry level is not moving it won’t get recorded in the median price either.

I should be based on comparables… but who has time for that.

#70 boomer62 on 01.11.11 at 10:20 am

#39 Maxie on 01.11.11 at 2:40 am

Hope this link helps…

http://www.tripadvisor.com/ShowTopic-g155032-i51-k726039-o10-Where_to_live_in_Montreal-Montreal_Quebec.html

#71 Devil's Advocate on 01.11.11 at 10:25 am

Never is it so clear just how naïve people are on matters of real estate as when a discussion of municipal property tax assessments ensues.

GARTH;

I’m not seeing any drop in the number of First Time Buyers. In fact I am seeing more first time buyers peaking their heads into the market lately. What I am seeing is more buying strata titled properties than single family and there-by their added numbers don’t show up in those SFD stats.

BTW, as you know, average price is up, in Kelowna anyway and that amid fewer multimillion dollar sales. The complexion of the market is indeed changing but I don’t see it a consequence of FTBs leaving as they don’t appear to be. FTBs are pretty steady at 25% of the market with some added pressure by proposed changes in Canadian lending appearing to pressure that number up more recently. Low end SFD has seen the greatest increase in market value of all as rising average prices push prospect buyers from that which they want to that which they can afford. As they do their added demand in that lower end segment of the market amid a neglected supply that has remained constant these past years while builders sought the high end granite, stainless and hardwood crowd, pushes those prices up. Really, in my experience far, far more shift expectation down than balk and leave the market.

It is at the other end; the high end million dollar plus homes which are taking the big hit right now. From what I see in my area average prices are no longer being pulled up by the high end they are being pushed up by the low end.

#41 Carla on 01.11.11 at 2:46 am

Meanwhile in Vancouver… 906 West 20th Ave (MLS #V861766) listed at $1,088,000 sells for 1,611,000. Teardown on 45′ x 122′ lot.

Don’t you actually mean;

Meanwhile in Vancouver… 906 West 20th Ave (MLS #V861766) a $1,650,000, 45’ x 122’ Lot with a piece of crap structure that will cost the buyer $39,000 to tear down and dispose of was listed for the bargain asking price of just $1,088,000?

#48 Blobby on 01.11.11 at 3:51 am

I’d perosnally like to see the return of the rule of not being allowed to borrow more than 3 times your income.

Yes and a rule that says gasoline at the pump can not exceed the price of a loaf of bread which in turn should be tied to the average wage index. And we should assign people to jobs to ensure full employment. And housing should be a given; you get a home commensurate with your employment position in your community. And what’s with all the BMWs we should all be driving sensible, if unreliable, Ladas.

#50 604genX on 01.11.11 at 4:20 am

Early indications for Vancouver Lower Mainland listings and sales (based on 25% of sales days for month of January, 5 of 20):

Boy, you are a master of SPIN! All-be-it applied with the wrong intent. We could use someone like you at CREA. You want a job?

#72 Another Albertan on 01.11.11 at 10:42 am

#43/Mike –

It’s tough to run repeatable statistical analyses on raw data that isn’t fully accessible or that would be generally considered “incomplete” without multiple layers of non-disclosure agreements.

Running through data sets that have already been processed is simply going to amplify certain characteristics while stretching the propagation of variances and errors.

Real estate is one area where information asymmetry rules. Agents have access to more data than buyers and sellers. Real estate boards have access to more raw data than the previous three. Then, on the financing side, the banks, between them, have almost all of the data. The tilt doesn’t need to be massive in order to have an effect.

Everyone else’s mileage may vary.

#73 fancy_pants on 01.11.11 at 10:42 am

This example reveals it is possible to have a situation where real estate prices fall even though the average sale price increases:

period1 RE sales
lower end homes – 200k x 10 sold = 2mil
mid range homes – 500k x 10 sold = 5mil
high end homes – 800k x 10 sold = 8mil

15mil / 30 sold = avg sale price = 500k
median price = 500k

period2 RE sales
lower end homes – 180k x 6 sold = 1.08mil
mid range homes – 450k x 7 sold = 3.15mil
high end homes – 720k x 12 sold = 8.64mil

12.87mil / 25 sold = avg sale price = 514.8k
median price = 450k

Notice in the example that prices actually drop 10%. This example is what we have been seeing; the total number of sales has fallen, price average

has increased and the median price has fallen (largely unreported).

period1 = cheap and easy money drove many newbies to home ownership while some of the established homeowners went bigger.
period2 = less RE changes hands but more activity in the high end sales as the wealthy have a turn to display their greed. the shuffling subsides. Sales drop. new mortgages are not as easy to obtain and variable interest rates have risen.

today = there is nothing left to push prices up. In fact prices have been falling already (“hidden”). Further increases in interest rates and/or additional supply of RE on the market and the curtain falls.

…and the RE industry will announce nobody could have saw it coming.

#74 Devil's Advocate on 01.11.11 at 10:48 am

Oh and, for what it is worth, the assessed values of most waterfront properties in Kelowna (typically representative of our very highest end) has been dropped for the first time in many, many years.

#75 Devil's Advocate on 01.11.11 at 10:53 am

Thorium Reactors and Fossil Fuel Extraction

http://gordonmcdowell.com/tag/liquid-fluoride-thorium-reactor/

#76 Moneta on 01.11.11 at 10:56 am

A potential hosing flop is less of a concern than the coming retirement crisis for all too many baby boomers…
———–
The housing flop will trigger a retirement crisis!

If the US had not used QE, MBSs would have had to get written down and pensions would be even more underfunded.

ZIRP and QE are not fixing the systemic problems but they are propping up assets.

#77 Bottoms_Up on 01.11.11 at 11:02 am

#15 kitchener1 on 01.11.11 at 12:53 am
——————————————
You have a point but revision to the mean can also occur without a price collapse. This occurs over a long period of time, real estate prices remain flat and inflation works it’s magic. This has been how the Canadian real estate market has behaved in the past (on average).

#78 Mike B on 01.11.11 at 11:06 am

>why are prices going up when sales are going down?

Answer is Limited supply of homes has forced up prices as some stragglers who are still hot to trot. If rental housing is becoming scarce then I would say buyers are backing away but so far I really don’t see that here in GTA.

The big question is… what will the spring market be like. If prices are going up… and quite noticeably… then I can see a real spike this year in GTA home prices.

But I do agree with Garth that people are indebted up to their teeth. Credit cards are one thing but I have seen some mortgages well over 500K . In essence , these mortgages will never be paid off… I guess they are hoping their properties triple in value when they want to sell and they will end up with a huge pile of dough when all is said and done. Might happen if things continue as they have . Makes no sense to us savers but we are in the minority .

#79 eviee1973 on 01.11.11 at 11:09 am

I am one of those thirty somethings that have decicded to wait/give up on buying a place. Returning to my home province of NS after a decade away, I was prepared to buy and commit to this province. However I am not stupid and gullible like most people, grew up here and know what places are worth. Greedy people trying to get two to two and a half times the money for a place compared to eight years prior. Demongraphically NS has the oldest average age of employees because all 20 and 30 somethings have been kicked out of the province to find a life and employment elsewhere in the country, such as Calgaria. Because I have not bought into an overpriced house, at least when I leave this backwards province again, it will be relativley easy.

#80 boomer62 on 01.11.11 at 11:22 am

#18 race against time on 01.11.11 at 1:19 am

The easy part is getting into a RE market like NE BC.
The hard part will be getting out, especially if you go through with your plan to build. Budget accordingly and stay very friendly with your in-laws.

#81 David B on 01.11.11 at 11:27 am

Wages for American workers have fallen dramatically since the financial crisis, in what will likely turn out to be the worst such plunge since the Great Depression, the Wall Street Journal reports.

——————–

Thank Goodness for Canadian Shield eh?

Perhaps that is why Mr. Harper wants to spend $ multi billions on New Jails and Fancy unproven overprice F’35’s and “F” can not wait to sign the check.

Not to worry Real Estate will save everyone!
___________

Fr. Huffington Post

Wages for American workers have fallen dramatically since the financial crisis, in what will likely turn out to be the worst such plunge since the Great Depression, the Wall Street Journal reports.

#82 Ron Burgundy on 01.11.11 at 11:31 am

Future Topic of Discussion:
Canadian Real Estate and its impact on the TSX.

Garth, what will the impact of a Canadian Housing Correction (a slow melt similiar to what you have been predicting) have on the TSX?

#83 Dmitry on 01.11.11 at 11:33 am

Dear Garth,

Here’s an example of something you like to deride so much in your blog. I just saw the following story on the net:

Housing starts drop 13%

The pace of new Canadian home construction declined in December as the seasonally adjusted annual rate of housing starts dropped by almost 30,000 to 171,500.

Etc., etc….

Depending how one defines percentage drop in sales it would be either 30,000 over 201,500 (pre-drop level), 15%, or 30,000 over 171,500 (current level), 18% accordingly. How did they get 13%? Why journalistic accuracy is so passé?

Best regards,
Dmitry

#84 Justin on 01.11.11 at 11:34 am

Well, this is very interesting.

Toronto’s (Canadas?) most expensive home is up for sale. It’s owned by Lee Ka (one of the founders of ATI Technologies) and Margaret Lau.

For a mere 26 Million dollars you can rub shoulders with Canada’s rich and other worldly famous people. Annual property taxes…only $115,000.00

http://www.moneyville.ca/article/919482–toronto-s-priciest-home-is-going-for-27m?bn=1

Photos here:
http://www.thestar.com/fplarge/photo/919594

#85 Devil's Advocate on 01.11.11 at 11:40 am

#76 Moneta on 01.11.11 at 10:56 amA potential hosing flop is less of a concern than the coming retirement crisis for all too many baby boomers…
———–
The housing flop will trigger a retirement crisis!

The party may not continue into the wee hours of the morning but life will continue.

You think the HUGE demographic of Boomers is going to let it rain on their parade? Not likely. The Boomer crowd is the crowd which votes and there-by has the vote and there-by has the politicians. Until the following generations learn to exercise their right to vote and understand how powerful it is the party will be at the Boomers homes.

Change is inevitable but this one ain’t gonna change quite so fast as you think. Boomers are still a substantial, if not the substantial, driving force in our economy. It’s their game.

Learn the game or lose.

#86 dark sad person on 01.11.11 at 11:46 am

#76 Moneta on 01.11.11 at 10:56 am

A potential hosing flop is less of a concern than the coming retirement crisis for all too many baby boomers…
———–
The housing flop will trigger a retirement crisis!

If the US had not used QE, MBSs would have had to get written down and pensions would be even more underfunded.

ZIRP and QE are not fixing the systemic problems but they are propping up assets.

*********************
Could it be-that if governments did not prop up assets and stayed out of the market-that the cost of living would be drastically reduced and therefore the cost of funding pensions could also be cut to come into line with a lower cost of living-without any adverse effect to the pensioners?

If the cost of living dropped by 50% the cost of funding pensions could also be cut by 50% with no loss of purchasing power to the pensioner-

#87 David B on 01.11.11 at 12:11 pm

Just back from Tim’s …. was speaking with some housing contractors to which I said ” how’s things going, busy?” long face and this answer …”Not Really”

That ladies and gentlemen tells all.
—————

A trip to the mall and a coffee at Starbucks resulted in a easy parking spot for both … again a tell all.
—————

Three ocean front properties have appeared on a local R/E site well below the asking price others similiar ones were before Christmas …. others not sold were taken off. ….. what could possibly cause that?

#88 Bottoms_Up on 01.11.11 at 12:16 pm

#39 Maxie on 01.11.11 at 2:40 am
————————————-
Higher-end homes north of Hull are not selling. Many on the market for 6-12 months (or more). I’ve seen 10-20% price drops (asking price). The houses still aren’t selling.

The thing is, Hull is so close to Ontario, but for one to move into Quebec, they’re losing 10% of their income (due to higher income taxes). This is a significant barrier that keeps the demand down in that area.

#89 Bottoms_Up on 01.11.11 at 12:18 pm

#83 Dmitry on 01.11.11 at 11:33 am
—————————————–
It’s because they ‘seasonally adjusted’ the numbers! lol

#90 vreaa on 01.11.11 at 12:18 pm

A nice article in the latest Economist about momentum investing in the stock market might as well have been written about Vancouver RE (and Canadian RE, to a lesser extent).

http://wp.me/pcq1o-1JF

Excerpts:

“Momentum effects help to explain why bubbles develop. Put that together with borrowed money and you have a disaster in the making.”

“Too often, central banks have tended to give speculative buyers a one-way bet—cutting interest rates when markets falter, but leaving them unchanged when asset prices boom.”

“Asset bubbles can be deflated through limits on some sorts of borrowing rather than just interest-rate hikes.” [Let’s hope Flaherty’s listening. -vreaa]

#91 dark sad person on 01.11.11 at 12:20 pm

#175 dark sad person responding idiotically to:
#172 Utopia

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

Don’t tell me how to respond to comments-
Did you elect yourself board sheriff or what?
———————————————————-

You really got me thinking Mr Dark. You know, Garth is a very busy person. Mrs Turner misses him a lot too I think. Maybe I will ask his permission to become one of the boards moderators when the new sytem finally becomes a reality.

Just so I can delete your idiotic posts!!

That is a GREAT idea. Let’s have an election.
#185 Utopia on 01.11.11 at 1:20 am

************************
Good of you to take G’s love life into consideration and at the same time have you control what can or can’t be said here-
You control freaks really bug my ass-
So hold your election-Mr pinko socialist-

#92 throwstone on 01.11.11 at 12:20 pm

DSP#86–I’d agree with that…except their is a whole bunch of wealthy people out there that can not agree with a 50% reduction of their perceived wealth.

Like a boomer family member of mine that bought a condo in florida in the 80’s for 75k and was upset when it lost value in 2008 …appraised at 240k instead of 280k..she thinks it has lost value of 40k instead of the gain of 165k….

However I still agree with hitting the “reset” button.

#93 David B on 01.11.11 at 12:21 pm

Another GT Prediction comes to light.

FR this morning G&M

Rising gasoline prices are the stealth wealth threat of 2011.

Gas prices have been on the rise in recent weeks and are already taking a toll on consumers’ wallets. If, as expected, prices at the pump head even higher, they will pose a challenge to many families’ finances – especially if interest rates also begin heading up.
————-

#94 Kevin in Winnipeg on 01.11.11 at 12:22 pm

Crash in Winnipeg? Not likely.

Winnipeg is a funny place. It seems everyone wants to buy a house here. Prices are increasing, rental vacancy rates are very low and now there is a housing shortage. Still, you would be hard pressed to find someone who actually wants to live here.

#95 Basil Fawlty on 01.11.11 at 12:22 pm

Assessments do not drive changes in property taxes. Assessments can go up, down or sideways and your taxes will continue to increase. People may be more content with increasing taxes due to the wealth effect associated with increasing property values, however municipal budgets increase annually, which increases taxes.
Local governments do not control assessments, however they do control the tax rate applied to the property value. If values go up they can drop the tax rate enough to reflect a tax increase. If values go down, they can increase the tax rate enough to reflect a tax increase. If values stay the same they increase the tax rate to reflect the % tax increase desired.
This I know after 20 years in the property tax racket.

#96 throwstone on 01.11.11 at 12:24 pm

Garth,

You have stated that 70% of Canadian’s do not have pensions.

Does our public service represent the remaining 30%?

Just wondering…

No, that includes corporate pensions. — Garth

#97 Bottoms_Up on 01.11.11 at 12:26 pm

#65 Moneta on 01.11.11 at 9:55 am
————————————–
Those are good numbers, but you’re forgetting that lots of people bought years ago, and thus have significant equity in their current homes that they can use to ‘move up’. Thus a 600k home isn’t all that bad if one carries over 200k equity plus 50k savings for a final mortgage of 350k.

Thus you have first timers with mortgages of 350k, and ‘move-upers’ with mortgages of 350k, but guess who lives in the nicer places, in the better parts of town and has better paying jobs?

#98 Vancouver_bear on 01.11.11 at 12:49 pm

Canada December Housing Starts Fall 13.5%, Biggest Drop Since April 2009, while interest rates remain at generational low levels. POP….. WHAT WAS THAT?

http://www.bloomberg.com/news/2011-01-11/canada-december-housing-starts-fall-13-5-biggest-drop-since-april-2009.html

#99 Aussie Roy on 01.11.11 at 12:50 pm

Aussie Update

Housing its a great investment, buy, buy, please.

Latest from the RE lobby.

The report also challenges often strongly-held arguments about whether it’s more profitable to seek capital growth than rental returns:

“Most individual rental investors are motivated by capital returns rather than rental yields and will choose their investment strategy accordingly. A review of research by AHURI showed that rental yield plays a small part in the decisions of investors, who are motivated more or as much by capital gain and taxation advantages. MMM Thats called speculation, isnt it?..

http://smh.domain.com.au/home-investor-centre/blogs/domain-investor-centre-blog/measuring-investment-value/20110111-19m14.html

Credit Suisse tips sharp GDP fall in 2011

Investors should sell resources stocks and position portfolios defensively in 2011 ahead of a likely sharp slowdown in Australia’s economic growth, according to Credit Suisse.

http://www.smh.com.au/business/credit-suisse-tips-sharp-gdp-fall-in-2011-20110110-19kw4.html

#100 Alpha_Bear on 01.11.11 at 12:52 pm

Devil’s Advocate:

As you know, Kelowna’s December SFD average prices have been higher than the average November prices for the past six years, yet have been lower than the previous year’s December prices for the past four years. This information is plainly shown on page 8 of your OMREB December Statistics Graphs report.

When you mention,“BTW, as you know, average price is up, in Kelowna…” it looks to me as if you are trying to “spin” the numbers. They could use someone like you at CREA. Has CREA offered you a job?

#101 Derek on 01.11.11 at 1:04 pm

#18 race against time on 01.11.11 at 1:19 am wrote:
Will the popping of the bubble be heard equally across this great land, regardless of localized economic factors?

More or less. The reason is that jobs and the real estate market may be local but taxes and interest rates are national. So local prices may be different because of local wages, local employment prospects and the desirability of local real estate to foreign investors but when taxes, interest rates or living expenses rise, it affects all the local markets in the same way. So the prices in all of the local markets rise or drop together. The only thing that makes a difference in how much they change is, the local rate of unemployment. The change in that depends on what the predominant local industry is: in particular how interest rates and taxes affect it, and whether its product is more of an essential or more of an optional extra for cash-strapped consumers.

#102 Guan-Di on 01.11.11 at 1:10 pm

Bottoms_Up:

If you have kids, the $7 a day daycare in Quebec more than makes up for the lost income. I went from paying $1,200 a month to $140. With my second one a year away from daycare we’re looking at saving about $27,560 a year for a total savings of $79,040 even taking into account all day JK puts your kids into the school system a year earlier in Ontario. You can get a bit of that back on your tax return in Ontario, but when you add lower Hydro, lower rent and house prices, baby bonus, free CEGEP, better poutine, buying beer at a corner store, it makes more sense to live as parents in Quebec, if you’re a DINK, stay on the Ottawa side:-)

#103 Kevin on 01.11.11 at 1:16 pm

The pool of first time buyers is getting exhausted. Never mind the upcoming mortgage tightening, what happens when Governments of all levels and lenders stop issuing subprime mortgages? Part of Canada’s economic action plan was to promote home ownership.

Subprime is alive and well in Saskatoon
http://saskatoonhousingbubble.blogspot.com/2010/11/subprime-is-alive-and-well-in-saskatoon.html

http://saskatoonhousingbubble.blogspot.com/2011/01/subprime-is-alive-and-well-in-saskatoon.html

There are hundreds of developments like this around the country funded in total cooperation by all levels of Government and guaranteed by our tax dollars.

Think about this. The average household income in Canada is about 70k, the average house is over 330k. But the majority of first time buyers have student loans, car loans and other debt that is probably close to 50k.
Most first time buyers can only get into the market with extremely low interest rates and creative financing.

If the first time buyers do not see the warning lights they are doomed.

#104 April on 01.11.11 at 1:23 pm

#87 David B
Why don’t people mention what area their talking about?
David could be in Timbuk2 for all we know.

#105 kitchener1 on 01.11.11 at 1:29 pm

#77 Bottoms up

Said

You have a point but revision to the mean can also occur without a price collapse. This occurs over a long period of time, real estate prices remain flat and inflation works it’s magic. This has been how the Canadian real estate market has behaved in the past (on average).

Very true, it can happen that way but two variables will ensure it does not.

1. inflation– lowest interest rates in history have pushed priced higher, much higher then historical averages. For inflation to work this time, rates would have to hit 6-7-8% as they did in the past in inflationary times.

2. For prices to revert back to 3.5 times mean income we need a huge drop. Currently we have been at 4.5 or above for years so in theory, they would have to drop down to at least 2.5 times and stay there for as long as it rose above mean. We will overshoot to the bottom.
Over supply only makes matters worse.

3. Wages would have to rise in order to offset that variable, thats just not happening and will not happen at a meaningful level. Global wage abritgage.

The math is the reason that F/Carney et all are all scared. They are numbers guys, they know what the numbers are saying. Numbers do not lie,
It is my theory that this is what is playing out in the US right now. Keep in mind that the math only accounts for median income and not over/undersupply.

#106 jess on 01.11.11 at 1:30 pm

soylent: “killing competition”

…”guest workers borrow money in order to pay the enormous fees that manpower or employment agencies in their home countries charge them to purchase their three year contracts in Japan, often amounting to $8,800 to $10,000. The guest workers and their families typically borrow this money at an interest rate of 10 percent a year, meaning the interest comes to $880 to $1,000 a year. This puts the guest workers under pressure to routinely work overtime, no matter how excessive the hours. At least in the case of Vietnam, it appears that the government is profiting off the trafficking of its own people, taking 15 percent of the profits of the local manpower agencies.”

visit: http://www.nlcnet.org .
===============
…”Thomas tells how Dell moved a factory from Ireland to Poland in 2009 and then months later closed a four-year-old factory built in large part with North Carolina tax dollars. The Irish taxpayers gave €53.5 million to Dell, while North Carolina gave as much as $242 million. But when the Poles offered €54 million more, it was enough to get Dell to move about 1,900 jobs to Lodz. ”

http://www.goodjobsfirst.org/accountable-development
http://tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8CSNLH?OpenDocument

#107 Utopia on 01.11.11 at 1:38 pm

#91 dark sad person

Ok that was funny. I didn’t expect to get my daily laugh from you but I cracked up when I read your comment.

#108 Timing is Everything on 01.11.11 at 1:40 pm

BCassessment ‘news’ from Victoria…

http://www.youtube.com/watch?v=YBz8l4JkdLk&feature=player_embedded#!

#109 Chaos on 01.11.11 at 1:54 pm

Mike the Engineer…

Are you still alive man?

#110 BDG-YYC - on 01.11.11 at 1:57 pm

#75 Devil’s Advocate on 01.11.11 at 10:53 am
Thorium Reactors and Fossil Fuel Extraction

One little problem … water.

#111 boomer62 on 01.11.11 at 2:34 pm

#93 David B on 01.11.11 at 12:21 pm

No – Inability to adapt is the threat of 2011. Car pooling and public transit are two of the best coping strategies for rising gasoline prices.

Unfortunately, neither may be available in your new, sprawling, sparsely populated subdivision.

#112 Guy_in_Regina on 01.11.11 at 2:35 pm

Norm’s blog is excellent. He puts a lot of work into it and it shows. He’s a straight shooter and tells it like he sees it.

He’s not doomed though. Probably the most known and respected realtor in Saskatchewan.

#113 Timing is Everything on 01.11.11 at 2:42 pm

‘News/Opinion’ from behind the ‘tweed curtain’…

http://www.bclocalnews.com/vancouver_island_south/oakbaynews/opinion/1131from 4804.html

#114 Pr on 01.11.11 at 2:48 pm

Canadian should terminate the mandate of banque du Canada and CHMC The inflated real estate is one good reason. Since 2000 price of real estate as quadruple in some places and now instead of paying your house in 15 years most of the time its the 35 years option, the prices are now just two high. Because of those politique, Canadian will live in DEBT most of their life. And they say they keep the inflation at the 2% target, what a joke!

#115 Timing is Everything on 01.11.11 at 2:51 pm

RE: Tweed Curtain….better link…cheers…

http://tinyurl.com/4g2q88x

#116 Devore on 01.11.11 at 2:55 pm

#41 Carla

Meanwhile in Vancouver… 906 West 20th Ave (MLS #V861766) listed at $1,088,000 sells for 1,611,000. Teardown on 45′ x 122′ lot.

And…? How are comparables? People often list way below market value to get an auction-style bidding war going. Sure makes those list/sell price ratios look great.

#117 Soper the Roper on 01.11.11 at 3:04 pm

Just watched Phil Soper on BNN. Talk about a divergent view on real estate. Garth’s antithesis/nemesis.

#118 Devore on 01.11.11 at 3:04 pm

#49 Tiffa

Keep in mind that’s for Americans, who can deduct mortgage interest and other goodies.

The folks at VCI developed an interesting one, check it out.

http://vancouvercondo.info/rentvsbuy

#119 wetcoaster on 01.11.11 at 3:05 pm

These real estate agents are so fricking stupid they don’t get that a falling market will increase their income by double and cross out any loss on their own personal property. The amount of people buying into a quick 10-15% decline would be huge.

With so many fence sitters waiting this out, they should be on their knees praying for major price reductions. Instead, dolts like DA and miley the realtor sit there and preach their own demise as their credibility as used car salesmen will be entrenched forever.

No one likes a liar, wether it’s Campbell, F, or DA. Once you lie and mislead your F’d.

#120 Pr on 01.11.11 at 3:11 pm

But the good news, because of the INTERNET and talk radio, people are discovering every day, by the hundreds, what is happening to them and who is doing that. Knowledge is power. You have one good source of information right here, take advantage of it and spread the word.

#121 David B on 01.11.11 at 3:13 pm

#100 April on 01.11.11 at 1:23 pm

East Coast …. HRM

#122 Devore on 01.11.11 at 3:18 pm

#69 Moneta

If the entry level is not moving it won’t get recorded in the median price either.

I should be based on comparables… but who has time for that.

It should be, but that requires much more work than just a simple spread sheet with a straight line going out forever into the future.

There are lots of indications in many markets that price/sqft is down and/or the product moving is much higher quality. Price declines are already here. Lower end and entry level are seizing up, as the latest lending rule changes cut out the ones with no money.

#123 nonplused on 01.11.11 at 3:19 pm

David Rosenberg on commodities:

http://www.theglobeandmail.com/globe-investor/markets/markets-blog/market-view-video/david-rosenbergs-advice-on-commodities/article1865157/

“Gold and silver have emerged as currencies”.

#124 Bottoms_Up on 01.11.11 at 3:55 pm

#102 Guan-Di on 01.11.11 at 1:10 pm
—————————————
True, it’s likely a wash, but then you always have the threat of separation….and we could always debate the quality of health care….

But how in the world did you land $7/day daycare? It’s like winning the lottery (unless you know someone on the inside, that is!).

#125 David B on 01.11.11 at 3:56 pm

Here we go ……

Breaking news from G&M

The threat of higher interest rates and record levels of household debt have taken a bite out of Canada’s new home construction sector, with a sharp drop in new housing starts foreshadowing an underwhelming year of growth
—————

BUT, Fear not that guy who gave Garth the boot from the new Super Reform Party is about borrow billions to build new prisons …. not quite the same as residential housing but close eh. LOL

#126 TS on 01.11.11 at 4:04 pm

I was getting my haircut yesterday. The lady was 50ish single mother from Iran who came to Canada 20 years ago. Conversation turned to our children. She has two sons ages of 25 and 28 still living with her that bought a condo downtown that is to be completed 2012. I said to her that is nice are they moving in to it. She said no they will either sell it or rent it. She was proud of them investing there money wisely. I did not know what to say but I sure did not feel good. I think this describes pretty well the Toronto market for condominiums the last couple of years for downtown Toronto. Going to be painful times for people thinking like this. Builders are very concerned about closings. Low interest rates are going to be a curse for us all. Some more than others.

#127 Jan Etter on 01.11.11 at 4:08 pm

#9 nonplused “It’s too bad we don’t have a timely index like the Case Shiller for Canada, that compares same home sales.”

#43 Mike “What I don’t get is why we haven’t had someone in Canada properly replicate the Case-Shiller Index complete with regression analysis going back 80 years in Canada….. I mean Dr. Shiller is a pretty damn famous prof, you would think someone in academia here would want to piggyback off his name and create a Shiller-xxxx index for Canada just for the recognition?”

The repeat-sales methodology used by Case-Shiller is also used by the Teranet/National Bank Index in Canada. However, there is a limited amount of historical data for some markets so the index only tracks all 6 Cities from Feb 1999 (Van and Mtl go back to July 1990). http://www.housepriceindex.ca/

#31 rentin “C’mon Garth, you don’t want to start misleading Joe Average on assessments, mill rates and property taxes do you?
…There is no doubt what higher assessments will render. — Garth”

I think that depends on the electorate’s mood and on the actual cost of services and municipal budgets. Municipal councils are really only concerned about the % increase in taxes year-over-year because that is what the electorate cares about, not whether their assessed value has gone up and what the mill rate is – I would venture to guess that the majority of people are unaware of either value. The only number they know and remember come re-election time is the amount and year-over-year % increase in taxes.

Hazel McCallion, long, long, long-time Mayor of Mississauga built her near-invincible reputation largely on 0% tax increases over many years. That was made possible due to the rapid growth that increased the total $ available in the property tax base, also helped by being in a largely new municipality with new infrastructure primarily funded by private developers through Development Charges, with very little old infrastructure requiring costly repairs as in the City of Toronto.

The main reason for rising municipal taxes is not rising assessed values, but slower growth in the tax base. A slowdown in building permits (new construction, substantial renovations) means lower growth in terms of total dollars available to be taxed. Therefore, a slowing real estate market means the existing tax base is not subsidized as much by new properties and larger assessed values being added to the tax roll. Larger assessments and assessed values help municipal politicians look good by allowing them to have lower year-over-year increases. A slowdown means less overall tax revenue and therefore there will be upward pressure on the mill rate and year-over-year taxes collected from exisiting properties.

#128 Moneta on 01.11.11 at 4:15 pm

65 Moneta on 01.11.11 at 9:55 am
————————————–
Those are good numbers, but you’re forgetting that lots of people bought years ago, and thus have significant equity in their current homes that they can use to ‘move up’. Thus a 600k home isn’t all that bad if one carries over 200k equity plus 50k savings for a final mortgage of 350k.
———–

That’s the problem. Mover uppers are usually over 40. 350K in debt at that age despite 150K annual income is still huge. Sounds to me like borrowing a lifestyle. Unsustainable.

#129 The InvestorsFriend (Shawn Allen) on 01.11.11 at 4:17 pm

Number 123 Nonplused quotes David Rosenburg

“Gold and silver have emerged as currencies”.

Okay, as soon as I see the U.S. dollar quoted in so many grains or micro grams of Gold, I will believe that Gold is currency.

i.e when I read The U.S. dollar has fallen to XX.X micrograms of Gold today…

I am just reading a book called Millionaire about John Las and how the lack of Gold and Silver totally stunded trade back in the late 1600’s early 1700s until paper money (albeit backed by Gold) started to become popular around then

#130 Moneta on 01.11.11 at 4:17 pm

That’s the problem. Mover uppers are usually over 40. 350K in debt at that age despite 150K annual income is still huge. Sounds to me like borrowing a lifestyle. Unsustainable
———
Nearly every boomer I know has been bumped out of his/her job around 50-55.

I wouldn’t want a mortgage if that happened to me.

#131 JT on 01.11.11 at 4:56 pm

Jeez Garth, Lower Methland? I already feel bad enough living here, don’t make it worse! ;)

#132 GregW, Oakville on 01.11.11 at 5:21 pm

Hi #110 BDG-YYC, re: using Thorium in Reactors

Our CANDU reactors can use Thorium!
http://www.aecl.ca/Page89.aspx?PageMode=View&ContainerPageDefID=356&PageletZone=0

The EC6 has many interesting features!
http://www.aecl.ca/Reactors/EC6.htm

Wasn’t PM H going to sell this Canadian technology company AECL? Is AECL at least being allowed to submit bids for new work while H figures out what is going on, or are there hands still tied until there sold? Maybe it along with the technical knowlege should stay a Canadian owned asset after all?

#133 Tiffa on 01.11.11 at 5:28 pm

#118 Devore

Thank you! Even better.

#134 R1200C on 01.11.11 at 5:32 pm

Another way to speculate why prices are going higher while sales volumes are down is that the owners of mid to high end properties usually have a better grasp of (and education on) what’s about to happen…

These folks are unloading because they know what’s coming up…

Just looking at MLS in prime areas that used to only have one or two listings… these now have 10 to 12!!!

The only way to have real data (instead of averaged) would be to run historical on each property and factor in reno’s…

#135 OttawaMike on 01.11.11 at 5:32 pm

#127 Jan Etter
On municipal tax increases.
Act one is the wage & benefit austerity that is in the pipeline for the Canadian municipal workforce as their current contracts expire.
The big ground shift that has yet to occur is the expectations of the rate payers for program delivery.
An example of this is here in Ottawa this week as homeowners flood the politicians email and phones protesting the proposed biweekly garbage pickup.

City council has been trying to implement this change, to no avail, for a couple of years now to fall in line with other jurisdictions. People really need to start asking themselves what services should the city be delivering?

The mandates of the local govts. and all govts. for that matter, has gone way off track. How much recreational programming should they provide? Do the roads need to be salted dry at the first hint of snow? Do we need full sized empty diesel buses roaring through suburban streets constantly empty? Crime is going down yet every major city is on a yearly hiring spree of more cops. Should we building more libraries in the internet era?
And on.

I think it will be a good while before ratepayers start to question the nanny municipal govts. we have but extraordinary property tax hikes should encourage debate. Remember the mayors and councillors want to get elected and will do whatever the constituents tell them but low taxes and comprehensive Cadillac services also don’t go hand in hand.

#136 GregW, Oakville on 01.11.11 at 5:39 pm

Hi #111 boomer62,

Seems there are a few more option now out at the Detroit auto show for plug-in transport. Up front cost a bit more maybe, but hopefully coming down as competition increases even more. Do people give much thought to the possible cost of gas in the near future? A few people have enough money now and don’t think much about spending x$ more on leather seating and high end stereos. Maybe spending a bit more for plug-in option is something to consider too?

#137 Traveler on 01.11.11 at 5:56 pm

I agree.

I’m waiting for the meltdown, so I can pickup cheap homes, and Nortel stocks.

Thanks for the advice Garth,

I’ll let my new born know they are already too late, and there is no purpose to life because real estate is too expensive.

Nice sarcasm. Are you an ESL student? — Garth

#138 GregW, Oakville on 01.11.11 at 5:57 pm

Seem the Thorium link I gave @132 didn’t work that well, you’ll need to insert ‘Thorium’ in the search box at the link, to find the info.

#139 UrbanCowboy on 01.11.11 at 5:59 pm

#84 Justin on 01.11.11 at 11:34 amWell, this is very interesting.

Toronto’s (Canadas?) most expensive home is up for sale. It’s owned by Lee Ka (one of the founders of ATI Technologies) and Margaret Lau.

For a mere 26 Million dollars you can rub shoulders with Canada’s rich and other worldly famous people. Annual property taxes…only $115,000.00

http://www.moneyville.ca/article/919482–toronto-s-priciest-home-is-going-for-27m?bn=1

Photos here:
http://www.thestar.com/fplarge/photo/919594
———————————————————
Unless you have 30 kids I never understood why someone would want a place like that, so uncozy and impersonal. I guess its for bragging rights and flauting ones worth

#140 Mr. Plow on 01.11.11 at 6:00 pm

#51 Roial1

No not sign of the times. Just Courtenay BC.

#141 canali on 01.11.11 at 6:16 pm

#51..urban cowboy…suburban cowboy…ONLY $26million…come out here to west van where the most expensive home exist…all yours for a cool $39 MILLION:
(first pic in the series @ 2190 Camelot Rd in West Van)
http://www.vancouversun.com/business/4091219/story.html

#142 dark sad person on 01.11.11 at 6:23 pm

1. inflation– lowest interest rates in history have pushed priced higher, much higher then historical averages. For inflation to work this time, rates would have to hit 6-7-8% as they did in the past in inflationary times.

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

I don’t understand how you see rates of 6-8% causing inflation to work-

High rates will dampen peoples enthusiasm for taking on debt/borrowing = deflationary

High rates will suck money from the broad economy into one area ie: servicing debt = deflationary

High rates will force foreclosures/defaults = deflationary

High rates will give people incentive to save instead of spending = deflationary

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

#129 The InvestorsFriend (Shawn Allen) on 01.11.11 at 4:17 pm

Number 123 Nonplused quotes David Rosenburg

“Gold and silver have emerged as currencies”.

Okay, as soon as I see the U.S. dollar quoted in so many grains or micro grams of Gold, I will believe that Gold is currency.

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

Open your eyes if you can’t see it-

Divide 1 oz of gold into 1380 separate pieces then weigh each piece and today-each of those 1380 pieces (in weight) is worth 1 USD-

There ya go–

#143 mab on 01.11.11 at 6:24 pm

Worrying Trend in Commercial Real Estate
December 16, 2010

A report in yesterday’s Los Angeles Times should start the alarm bells ringing for those who expect commercial real estate to come roaring back with an improving economy.

Businesses used to provide 500 to 700 square feet of work space per employee, but the average is down to 200 square feet — and shrinking. The recession and an emphasis on teamwork accelerated the trend, and younger staffers prefer less.

I’m not sure about the “younger staff preferring less” part, but companies are trying to squeeze costs wherever they can, so it’s no surprise that office space is a big target.

Still, the size of the cutbacks are staggering. This represents a drop in square footage demand – per employee – of 50 to 75 percent. No prizes for guessing what this means for developers of highly leveraged office projects – or the lenders who funded them.

#144 boomer62 on 01.11.11 at 6:48 pm

#136 GregW, Oakville on 01.11.11 at 5:39 pm

I’m hitch’n a ride with you to the cottage….giddy-up. Make sure you have a trailer hitch on that bad-boy for my ATV and Sea Doo.

#145 The InvestorsFriend (Shawn Allen) on 01.11.11 at 6:51 pm

Dense Sad Person at 142

Notes that i said

Okay, as soon as I see the U.S. dollar quoted in so many grains or micro grams of Gold, I will believe that Gold is currency.

Then tells me that a U.S. dollar is currently worth 1/1380 of an ounce of Gold.

That is true, Dense my friend, but it’s not the way it is quoted is is?

Dollars are not quoted as /1380 ouce of Gold.

Instead Gold is quoted as 1380 dollars proving it is dollars and not Gold that is the currency…

You buy Gold with dollars, not the other way around you see.

If ‘twer true that Gold was currency we would price oil in ounces of Gold… ‘taint the case… ‘twont be…

#146 Justin on 01.11.11 at 7:01 pm

Well, also very interesting. Canada’s second most expensive home is also up for sale at $24,000,000.00 and has been since…2007.

Background information:
http://www.insidecaledon.com/caledon/200908443-hawkridge-farm-eaton-family-mansionestate-still-for-sale-in-caledon/

Photos:
http://www.homesandland.com/Real_Estate/ON/City/Caledon/ListingId/15383317.html

#147 dark sad person on 01.11.11 at 7:04 pm

#145 The InvestorsFriend (Shawn Allen) on 01.11.11 at

You buy Gold with dollars, not the other way around you see.

If ‘twer true that Gold was currency we would price oil in ounces of Gold… ‘taint the case… ‘twont be…

********************
Oh really?

If i take an ounce of gold into the coin shop and trade it for 1380 USD’s and go spend the dollars-
What did i just do?
Did i not just buy dollars with gold?

You can also trade a piece of paper representing stock in the Royal Bank for dollars. That doesn’t make it currency. Give it up. Gold is not money. — Garth

#148 dark sad person on 01.11.11 at 7:21 pm

#145 The InvestorsFriend (Shawn Allen) on 01.11.11 at

If ‘twer true that Gold was currency we would price oil in ounces of Gold… ‘taint the case… ‘twont be…

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

NEW DELHI: India is determined to ensure steady crude oil supplies from Iran and is even considering settling payments with gold in the short term before the two countries agree on a mutually accepted currency and a bank to clear the transactions.

“We have written a letter to NIOC ( National Iranian Oil Company )) asking it to suggest a bank where US sanctions are not applicable,” a government official involved in the matter said requesting anonymity.

Another official said India could settle crude oil import transaction using gold in the short term, while efforts to resolve the deadlock continue. An Indian delegation, including officials from ministries of external affairs, finance and petroleum, will visit Tehran next week to thrash out the payment issue, officials said

http://economictimes.indiatimes.com/news/news-by-industry/energy/oil–gas/india-iran-mull-over-gold-for-oil-for-now/articleshow/7238760.cms

Swapping one commodity for another is called barter. — Garth

#149 dark sad person on 01.11.11 at 7:39 pm

Swapping one commodity for another is called barter. — Garth

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

Come on G-that’s lame-

“Money” is a commodity and of course-it’s all barter-

Been that way since Pontius was a pilot

Money is currency, a medium of exchange. Pontius was discontinued by GM, wasn’t it? — Garth

#150 Another Albertan on 01.11.11 at 7:48 pm

Re: Thorium

Can we please try to stay focused on the principal areas of Garth’s blog? These digressions are occurring more and more often and take away from the value of the stream of comments.

I’m sitting in my office, looking at a proposed electric system map for the Fort McMurray area for 2017 tacked to the wall not 10 feet away from me. On the other wall, I have an ANSI E map of all the oil sands leaseholders. There’s really only about 25 companies. When I say “we” are aware of the possibilities of nuclear and the limitations of supporting infrastructure, small through big, please trust me on that. Yes, “we” know about the smaller options, like Hyperion and its ilk. Yes, a bunch of “us” have analyzed the situation.

Everyone else’s mileage may vary.

#151 dark sad person on 01.11.11 at 8:13 pm

Money is currency, a medium of exchange.

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

Moreover, Mises revived the critical monetary insight of Ricardo and the British Currency School of the first half of the nineteenth century: that while money is a commodity subject to the supply-and-demand determination of value of any other commodity, it differs in one crucial aspect. Other things being equal, an increase in the supply of consumer goods confers a social benefit by raising living standards. But money, in contrast, has only one function: to exchange, now or at some time in the future, for capital or consumer goods.

Mises’s conclusion, then, is that, once there is enough of a supply of a commodity to be established on the market as money, there is no need ever to increase the supply of money. This means that any supply of money whatever is “optimal”; and every change in the supply of money stimulated by government can only be pernicious.

http://mises.org/daily/2339

***************
Take a walk on the wild side G-

#152 ballingsford on 01.11.11 at 8:27 pm

Let’s donate a bit more to Haiti. I donated a large sum a while ago, but it’s probably been eaten up by bribes by the port authorities in Haiti. Oh well, let’s try again and donate some more, another $93 million.

http://www.theglobeandmail.com/news/politics/ottawa-notebook/canada-unveils-another-93-million-for-haiti-quake-reconstruction/article1865975/

Our tax dollars should make more of a difference this time. I’m paying about $20,000 in Income Tax this year and some or all of this is going to cover some of the bribes. Phuck, I wish I could reverse time!!! I probably wouldn’t have donated a nickle.

Now the feds want to give them another $93 million??? I give up!

How many taxpayers would it take to cover that amount? Seems lile my $20,000 in taxes this year is pocket change, but it’s not to me!!!

What the hell is going on???

My $20,000 tax bill would probably get one ship of relief supplies unloaded.

#153 ballingsford on 01.11.11 at 8:34 pm

I just went to a number of sites I visited earlier today speaking about the decline of housing starts and they are all gone.

Strange things are a happening.

#154 Paolo on 01.11.11 at 8:44 pm

Hot off the press: Everything is wonderful!

“Toronto housing starts up for 2010”

http://www.moneyville.ca/article/919564–toronto-housing-starts-up-for-2010

My favourite line: “The problem, he says, is finding lots he can build on.”

Everything will be OK.

#155 Bottoms_Up on 01.11.11 at 8:48 pm

You can also trade a piece of paper representing stock in the Royal Bank for dollars. That doesn’t make it currency. Give it up. Gold is not money. — Garth
————————————————
Garth, the problem is, all these gold bugs are dudes that play video games wherein gold IS money….gotta know your clientelle! ; )

#156 a prairie dawg on 01.11.11 at 9:00 pm

@ #149 dsp

“Come on G-that’s lame-

“Money” is a commodity and of course-it’s all barter-

Been that way since Pontius was a pilot”

Money is only a medium of exchange. It has no intrinsic value beyond the cost of the paper and the ink. Whereas real commodities have always had an intrinsic value. The pulp that made the paper that made the money is a commodity, but that’s as close as it gets.

If you don’t believe me try auctioning $1000 cash on eBay. Then get back to us and tell us how much profit you made.

#157 Tim on 01.11.11 at 9:20 pm

Re #57
The average is 2 1/2 to 3 times – Garth’s right.

And remember if average incomes fall (not unthinkable), houses will fall further.

Furthermore, after a bubble bursts, prices tend to over correct. It’s conceivable that the ratio could go as low as two.
———————————
Given that the avg income for a family according to Stats Can was $74K in 2008, then the median house price would have to be $225K? So we’d need a 70% correction before it made sense to buy?

#158 office space comment on 01.11.11 at 9:33 pm

re #143 mab

Quick reply concerning office space per person. I’ve worked in an office environment since 1995, and in all that time the rule of thumb has consistently been 200-225 s.f. per FTE (full time employee). This includes individual work stations (offices or cubicles), hallways, meeting rooms etc. There would be some variance based on the cubicle to office ratio etc.

I worked in a lot of different environments before entering the office world, and was surprised to learn that there was such a tight metric concerning floor space. But in all these years it seems to work out this way. I can’t comment on whether it was ever as high as 500-700 s.f. but that is not my experience.

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

“Businesses used to provide 500 to 700 square feet of work space per employee, but the average is down to 200 square feet — and shrinking. The recession and an emphasis on teamwork accelerated the trend, and younger staffers prefer less.”

#159 T.O. Bubble Boy on 01.11.11 at 9:39 pm

Another columnist asking for the Government to exit the CMHC scam:

http://opinion.financialpost.com/2011/01/11/cmhc-hazard/

Imagine that – someone saying that the banks should have to measure the risk of their loans instead of just assuming the borrower is ok because of a few checkboxes on an CHMC application form.

#160 OttawaMike on 01.11.11 at 9:42 pm

I would like to extend my sincerest apologies to all of our gold hoarding leprechauns here for my comments yesterday putting you all in the same class as the deranged gold buff, shooter in Arizona.
Our precious metal buffs would never contemplate such a horrific deed.

What I could see them doing is loading the bullets in the chamber backwards while dropping them all over the ground and ultimately shoot themselves in the foot.

#161 HouseBuster on 01.11.11 at 9:52 pm

#157 Tim – Given that the avg income for a family according to Stats Can was $74K in 2008, then the median house price would have to be $225K? So we’d need a 70% correction before it made sense to buy?
—————————————————-
yeah, sounds about right

#162 BDG-YYC - on 01.11.11 at 9:53 pm

#132 GregW, Oakville on 01.11.11 at 5:21 pm

Right. My comment was related to Oil Sands application of nucular.

#163 Mikey the Realtor on 01.11.11 at 9:53 pm

“Given that the avg income for a family according to Stats Can was $74K in 2008, then the median house price would have to be $225K? So we’d need a 70% correction before it made sense to buy?”

fugetaboutit!! thats a pipe dream.

#164 InvestorsFriend (Shawn Allen) on 01.11.11 at 9:54 pm

Dark Sad at 147 said:

If i take an ounce of gold into the coin shop and trade it for 1380 USD’s and go spend the dollars-
What did i just do?
Did i not just buy dollars with gold?

Ummm.. Duh… No

No, you did not buy dollars with Gold, you sold Gold to obtain dollars (currency).

#165 Devore on 01.11.11 at 10:15 pm

#156 a prairie dawg

Money is only a medium of exchange. It has no intrinsic value beyond the cost of the paper and the ink.

Money is also a store of value, and thus represents the result of someone’s productive effort.

This is the kind of thinking about money that leads people to believe we can create wealth and prosperity just by printing more of it (through central banks or fractional bank reserves), and that there is no harm in doing so.

#166 vomitingdog on 01.11.11 at 10:25 pm

Mortgage rates over at Invis are 3.84%/5 years fixed. I don’t know about that rear view mirror stuff, Garth.

#167 Mark on 01.11.11 at 10:43 pm

#157, probably even more than a 70% correction, because the income of most Canadians is dependant on either consumer spending, or government spending. There are very few Canadians who are truly productive outside of those contexts.

#168 cellar dweller on 01.11.11 at 10:43 pm

Garth . Was #58 (luketheduke) speaking English?
I didnt understand WHAT that babbling idiot was trying to say.

#169 Patz on 01.11.11 at 10:44 pm

@ # 134 R1200C

Another way to speculate why prices are going higher while sales volumes are down is that the owners of mid to high end properties usually have a better grasp of (and education on) what’s about to happen…

These folks are unloading because they know what’s coming up…

An interesting idea… but why would the sellers have a better idea or education than their prospective buyers? I suspect that other factors are much more significant. Life changes are important in the decision to sell. So is the change in expectations. As prices go up people want to hold on to properties or trade up. When the market turns—which also means that attitudes turn—then people want to get out to prevent losses. Usually though they are going to take some kind of hit as sellers will then increasingly outnumber buyers.

#170 Aizlynne on 01.11.11 at 10:55 pm

I live in a northwest Calgary neighbourhood with a mean housing price of about $345,000. House sales have slowed, but winter listings are going with one across the street from me finally selling after 4 listing tries (and 3 seasons of trying). Another down the street from me sold in about a month.

Garth – my assessment just came in and I was assessed higher house value but my taxes dropped slightly (revenue neutral I would say). Where I see the biggest change in pricing is out of the city in the Foothills (not so much Rocky View). Calgary has remained pretty steady on pricing, at least for the time being.

What many fail to understand is that with a higher assessment comes the constant risk that an increased mill rate (necessitated by cities’ inevitable inability to contain costs) automatically means higher taxes. Why do you think such a system has been crafted? — Garth

#171 boomer62 on 01.11.11 at 11:22 pm

#147 dark sad person on 01.11.11 at 7:04 pm

What you did was get a visit from Canada Revenue Agency whom will be only to happy to take your gains from last year (and what ever else they can get). Never mind haggling over price, service charges, hiring the body guard for the day, bank safe deposit box rental, taking time off work for this transaction, transportation and parking.

#172 Dark Sad Monster Bunny on 01.11.11 at 11:28 pm

165 Devore – I’ve also heard of it described as a store of
labour. I like this definition as it removes the implication
of a paper currency. You simply store the extra labour
you have produced as “credits”, which, along with the inverse of borrowing other peoples labour (ex for building a home), essentially describes the banking system.

“Credits will do” my young Jedi.

#173 45north on 01.11.11 at 11:30 pm

thorium: I got through the two links

http://www.aecl.ca/Reactors/EC6.htm

http://gordonmcdowell.com/tag/liquid-fluoride-thorium-reactor/

I’m not ready to replace my natural-gas furnace with liquid-fluoride-thorium but I am interested

nuclear reactors are pretty simple compared with the money versus gold stuff

#174 boomer62 on 01.11.11 at 11:38 pm

#170 Aizlynne on 01.11.11 at 10:55 pm

I heard that new mayor of yours is a spender, unlike Toronto’s new top guy. Maybe the guy across the street knew something you didn’t. Best wishes with the assessment.

#175 dark sad person on 01.11.11 at 11:59 pm

#171 boomer62 on 01.11.11 at 11:22 pm

#147 dark sad person on 01.11.11 at 7:04 pm

What you did was get a visit from Canada Revenue Agency whom will be only to happy to take your gains from last year (and what ever else they can get). Never mind haggling over price, service charges, hiring the body guard for the day, bank safe deposit box rental, taking time off work for this transaction, transportation and parking.

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

What i did was kicked your ass on an open economics forum and you can’t swallow it-

Paying capital gains means you made money??

btw–i get paid to sit here and kick your dumb ass around and yes-i happily pay capital gains on that too-

#176 AG Sage on 01.12.11 at 1:55 am

#119 wetcoaster on 01.11.11 at 3:05 pm

Give a year and these same realtors will be bitching up a storm about sellers and their totally unreasonable price expectations that leave them working for months with no sale in sight. And they will definitely not be to blame for these delusions among homesellers. Not a chance.

#177 a prairie dawg on 01.12.11 at 10:03 am

@ #165 Devore
“Money is also a store of value, and thus represents the result of someone’s productive effort.

This is the kind of thinking about money that leads people to believe we can create wealth and prosperity just by printing more of it (through central banks or fractional bank reserves), and that there is no harm in doing so.”

I’m not advocating money vs. another choice though. Nor am I saying that another choice is better than money.

Money is only a store of value in the short term. Thank Keynesianism for that, but if you want your money to retain any value long term, you have to have it invested in a way to outpace inflation or you’re actually losing money.

I also never mentioned anything about increasing the money supply. Obviously that devalues it as the US has shown us recently.

There have been 5 secular bull markets in commodities since 1900. The last one was over by the early 1980’s. This one started in approximately 2000. Cheap credit fuels growth. Excess growth feeds the commodity bull. Eventually monetary policy is tightened and rates are increased. Increasing rates slows borrowing. Slowed borrowing affects growth. Eventually growth drops off to the point that commodity demand drops. When demand drops enough, commodity prices will fall. Again. Same as before.

Now having said all that, I do have some money in the commodity sector. And some of these stocks have done very very well. I’ve made money on gold, copper, aluminum, sugar, etc. But nothing lasts forever (except death and taxes), so I know there will be a point to exit these positions even though I’ve taken profits on most of them already. When I do, I don’t plan to hold it in cash for too long. Other opportunities will present themselves though. They always do.

Garth preaches diversity because it cover all eventualities. Putting everything into one sector adds a lot of risk to the equation. By doing so, you are trying to time the markets. 30 years ago, and without the benefit of hindsight, anyone who bought gold in 1979 and held onto it until 1989 lost significant money. The same will happen to those who hold it too long this time around. The game isn’t new, but with each generation the players change. And with each generation, most of them get caught up in the excitement and end up losing money. He is advocating a balanced approach. I can find no fault with that. Can you?

#178 Live Within Your Means on 01.12.11 at 1:57 pm

http://www2.macleans.ca/2011/01/12/easy-money-men/

When Mark Carney took over as governor of the Bank of Canada in early 2008, he had relatively little central banking experience under his belt. As fate would have it, the former Goldman Sachs managing director got plenty of opportunity to test his mettle later that year when the U.S. financial crisis erupted. He responded, perhaps predictably, by slashing already low interest rates until, by April 2009, they stood near zero. But he also took the unusual step of telling Canadians that rates would likely stay there until mid-2010.

It was a departure from the style of central banking popularized by former U.S. Federal Reserve chairman Alan Greenspan, who was once dubbed “maestro” for his seeming ability to orchestrate economic growth (critics would say “bubbles”) through the 1990s and early 2000s. Greenspan’s speeches and statements were often masterworks of ambiguity, forcing investors to parse their true meaning and lending the man behind them an Oz-like aura.

Carney’s straight-talking gambit worked. Canadians, reassured, took advantage of the rock-bottom borrowing costs and bought everything from big-screen TVs to new homes, with the housing market in particular helping prop up the economy. But a new problem has emerged: household balance sheets are now stretched to the limit, with Canadians’ debt to disposable income ratio sitting at 148 per cent, exceeding the U.S. level for the first time in 12 years and raising concerns about the country’s ability to withstand another economic shock.

And so Carney now finds himself wedged between a rock and a hard place: if he raises rates, he risks killing the recovery, but if he leaves them low, Canadians may be enticed to heap on even more debt—a risk that is already putting pressure on Finance Minister Jim Flaherty and Prime Minister Stephen Harper to demonstrate that Canada’s monetary policy isn’t about leading Canadian families to financial ruin. And, once again, Carney appears to be hoping he can use some blunt words to help head off another crisis.

In mid-December, he stood in front of a crowded room in a downtown Toronto hotel and gave a speech that began by outlining the fragility of the global economic recovery and ended by effectively lecturing Canadians about the perils of overextending themselves. “Cheap money is not a long-term growth strategy,” he said. “Households need to be prudent in their borrowing, recognizing that over the life of a mortgage, interest rates will often be much higher.”

That some Canadians are at risk of drowning in debt is likely obvious to anyone who has tried to buy a house in recent years. Prices have soared across the country, fuelled by bidding wars and a rush of first-time buyers armed with small down payments and big mortgages. It raises the question why Carney doesn’t simply throw a wet towel on the party, by resuming a program of gradual rate hikes that he initiated last year. “It’s like he’s brought out a fully spiked punch bowl and gave everyone in the room a cup, but told them not to have any,” says Douglas Porter, deputy chief economist at BMO Capital Markets.

……………………………………
To view the rest see the above link.

#179 Live Within Your Means on 01.12.11 at 2:37 pm

I don’t tell my siblings to visit Garth’s site as I’m sure they might recognize who I am because of what I have said about their situation. We have been naive investors’ but, hopefully that’ll change with a fee based, no commish rep.

BTW, I love all of my 5 siblings & their spouses (OK, not all :-). Half will end up living on CPP and OAS ’cause they didn’t think about their future. BTW, not saying we can guarantee our future needs, should we live to 80. Doubt we will tho.

#180 GregW, Oakville on 01.12.11 at 2:50 pm

Hi #144 boomer62, Yes a good point. I’ll need to see if that’s an option that works for me next time I’m in the market for a replacement vehicle. ;)

#181 Live Within Your Means on 01.12.11 at 5:56 pm

To all the posters from Oz, we’ve been watching the floods on our news stations for the last week. My heart goes out to all of those who are suffering and hope that it will be over soon. Now only if I had Garth’s way with words!!!