Guns & weenies

A few days ago I made some comments about the coward who shot US Congresswoman Gaby Giffords in Tucson. In doing so I committed a heinous crime. I dissed guns.

Not only did a posse of cowboys from Alberta shoot my metrosexual (but lovely) Eastern rump off, decrying the gun registry, but I was also fired upon from afar. “I love your funny photos, your feisty prose and, most of all, your ability to cut through propaganda and muddle-headed thinking in economics,” wrote Dave St. John, a publishing guy in Oakland, Oregon, “but your article of 9 January re firearms, unlike your iconoclastic economic views, were a recital of viewpoints approved by and  derived from current government slash media approved opinion.

“Why? Do you have as much personal experience and valid research about firearms as you have in economics? If you do, then I’m wrong. If you don’t, then ask yourself why a critical thinker like yourself in such agreement with government and media pundits on a topic about which you know little, yet in total disagreement on a topic about which you know so much? Hmmmm….”

But this post is not about guns (even though the last one wasn’t either – black swans, instead). We need a few more words today about real estate, where a growing number of Canadians are in the process of blowing their foot off.

Now Oakland, Oregon apparently has about a thousand people and sits not too far from the California border, right off the main Interstate which threads down the US west coast. So once Dave stopped to reload, I asked him for some words on the real estate market,

“I dumped all my holdings in the last 4 years. Still own a home I built and it may almost be worth what it cost me to build,” he said. “And here are a few anecdotes:

“Prices here peaked 5 years ago. One neighbor’s land is slated for auction, but he may have paid it up.  Another neighbor lost everything by borrowing on his home and other land to buy fixers and resell them.  My brother in law in Merced, California owes 250K on a home worth 150K yet he won’t walk away.

“Real estate listing prices have been unrealistic from the first fall in sales prices and the few sales are way below asking. There are no roof trusses in the truss builders’ yard here, when 5 years ago it was full. 75% of the realtors in Oregon are now working at Costco or Walmart.

“Sold my last home two years ago. Turned down 600K and later took 435K and was glad to get it.My son’s Aussi gal friend just borrowed to build a rental in Sidney despite his warnings.Yikes!

“Another neighbor just sold land and home for 194K that would have gone for 400K 5 years ago. I sold my mom’s fixer in California in 08 for 200K when a walk around the neighborhood showed me several homes for sale for twice that. Now the home is down to 149K and he lost it.”

Being a Canadian, morally superior and tinged with frost, you might think the American experience has no relevancy. But that would be foolish, and costly. You need only look around us at the moment to quickly realize we’re in the final blow-off stages of a collective housing orgy.

What else do you call it when the country’s national newspaper does a live online chat called “What are the housing trends for 2011?” which stars cult leader Don Campbell? His Real Estate Investment Network caters 100% to speculators, who are encouraged to spend $587 for a one-day seminar on how to buy stuff without money. He sells books, events, courses and even bus tickets. Campbell recently took seven bus loads of rubes to St. Albert, just outside of Edmonton – where average house prices fell $10,000 in a month, and sales are down 12% from last year.

Said a starry-eyed investor after gazing over the Save-on Foods and Ricky’s parking lot, “Three to five years from now, values are going to go up. There’s going to be more need for residential rental properties.” Yes there is, dear. We all want to live there. Now take your meds.

Then there’s BC, the epicentre of house porn. This week the BC real estate association announced the average house in 2010 sold for $505,178 – a record, even as sales fell by 12%. This is an interesting number, since the average household income in the province is $69,000 – which means families are spending 7.3 times their income for a house. Once again, I remind you that the US market collapsed when it hit the 4.6 mark.

And, as you know, home sales in Vancouver and the Lower Mainland (plus the Okanagan), declined dramatically for the last six months consecutively. But not in Cameron Muir’s nicely moss-laden mind. Said the chief comedian for the BCREA: “Low mortgage interest rates and improved economic conditions buoyed home sales in the latter half of the year.”

And then there’s the GTA, where house sales have also ground lower for half a year, where listings have fallen and prices risen as more first-time buyers get knocked out of the market. None of that’s good, in case you didn’t know. Once listings surge back in the spring, supply will likely overwhelm demand, making a weenie out of anyone who bought last year with 5% down.

But the wilful blindness carries on. Brian lives in Oakville, and says: “As somebody who has just listed their home and intends to rent, here are a few things I hear daily from friends and family.

1. What about your kids?
2. You are throwing money away
3. You will never get back in
4. The economy is fine, homes will continue to rise.”

Talk like that should make the little hairs on the back of your neck tingle, even when you’re not thinking of me. When everybody tells you something is for sure, run. It means the market’s running on emotional fumes, not economic fundamentals, and investor sentiment has trumped logic.

It’s simply irrational. Dangerous.

Kinda like pseudo cowboys who need big dangly guns.


Garth's latest podcast is here.

190 comments ↓

#1 UrbanCowboy on 01.13.11 at 11:30 pm

Garth, how will the population difference in the US compared to Canada affect the correction here? I mean more forclosures on the banks in a population of 300 million vs. 30 million no? Or does it matter?

Irrelevant. — Garth

#2 LH on 01.13.11 at 11:31 pm

I am 26 and I own a few houses in downtown TO (some in the neighborhood of Garth’s high school). The net yield is more than 6%. The average cost of funds is sub 3% (mix of fixed and floating). Loan-to-value is about 50%. What me worry?

You will. You can also get 6% as a tax-advantaged dividend, instead of fully-taxable income, investing in low-risk preferreds. Say, how much money do you owe? — Garth

#3 Soylent Green is People on 01.13.11 at 11:32 pm

Reading between the lines of Jim Flaherty’s speech
by Scott Feschuk on Wednesday, September 22, 2010

It’s a pleasure to address this well informed and distinguished group of opinion leaders.

HarperLand Translation: The Prime Minister sends his regards. [Extends middle finger.]

More than once, when they’ve thought they had a shot at seizing power, they’ve threatened to force an unnecessary election – knowing it would put Canada’s recovery in jeopardy.

HarperLand Translation: And in response we have selflessly prorogued Parliament for you, Canada. For you.

http://www2.macleans.ca/2010/09/22/reading-between-the-lines-of-jim-flahertys-speech/

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#4 LH on 01.13.11 at 11:47 pm

“You will. You can also get 6% as a tax-advantaged dividend, instead of fully-taxable income, investing in low-risk preferreds. Say, how much money do you owe? — Garth”

I am in hock for much dinero (1-2 bucks) and I don’t like it. “Debt” = “Sin” in Aramaic after all… I am prepaying as fast as I can and hoping to get out of debt slavery soon.

On the other hand, my career (bankster) gives me lots of implied equity exposure. The last thing I would want to own in the world is financial stock / preferreds! Of course, your mileage may vary. I suppose media and the publishing industry is much less correlated to financial assets than my restricted bank stock.

#5 EquityinRegina on 01.13.11 at 11:47 pm

Here is the pin prick in the bubble: http://www.theglobeandmail.com/globe-investor/xceed-turns-off-the-mortgage-taps/article1869482/

#6 Stevo on 01.13.11 at 11:54 pm

Your next book should be called, “Wilful Blindness”.

But I’m guessing that you may be thinking that way already.

If not, and you use it, I will gladly take a 5% commission. Seems I’ve done as much as a real estate agent would have done to sell it…

#7 Kilby on 01.13.11 at 11:56 pm

Had beautiful Okanagan lakeview home appraised in June at $619K, listed for $597K and got $497K after being listed for 6 months. Irony is that there were 15 lakeview homes in the high 500’s…ours is the only one sold, the rest came off market for the winter…still at their original prices or down small amounts. I expect they will all be back on in March, I’m glad I am out of the 2011 spring market flood.

#8 smartalox on 01.13.11 at 11:57 pm

Notes from the Vancouver 6 o’clock news:

Residents of a condo tower on the UBC grounds are objecting to plans for the University medical faculty to build a hospice (end of life care) facility on empty land adjacent to their property. According to the report, the owners of the milion-dollar condos are 90% Asian, and are worried that living so close to DEATH will: send ghosts to haunt their dreams, ruin their lives, cause familes to break up… to hear the complaints, and the panicked loks in their eyes, you’d think they were expecting a zombie movie!

But the kicker was this “If they build this hear, then NOBODY will buy here!”

There are lots of other (non Asian) cultures that would have little or no problem living next to a care facility – but I guess they’re not buying.

Maybe the tales of rich Asian investors buying up all the luxry real estate in Vancouver really ARE true!

#9 househunter on 01.14.11 at 12:01 am

Garth. This is making me nervous: MLS# V861766. List $1,088,000. Sold $1,611,000. I know you think there is going to be a correction but stuff like this makes me lose confidence to wait it out.

#10 Potato on 01.14.11 at 12:02 am

LH: either you’ve managed to get above-market rents for Toronto, aren’t counting a cost, ot are calculating your yield-on-cost, rather than at today’s price…

#11 Patz on 01.14.11 at 12:03 am

Interesting story today tangentially related to RE. The UBC medical school was going to develop a campus property as a hospice and research center. Right next door is a condo high rise with 7 figure apartments and a preponderance of Chinese and other Asian owners. (There’s your proof of the power of Chinese in our market–or not.)

Well, seems the residents got wind of the project and went seriously ballistic. Chinese immigrant Janet Fan took the lead saying that UBC was being culturally insensitive. She said, “We came here as new immigrants with our own belief system. And in our beliefs, it is impossible for us to have dying people in our backyard.” And here I thought the Chinese culture venerated elders. I guess until they show signs of dying, then it’s “not in my backyard, sucka!”

Incredibly, at this stage it looks like UBC’s gonna fold. They’ve decided to review the situation.

So what’s this really about? Are they really that afraid of dying people or of dying property values. Judging by some of the interviews with the residents I’d say the latter.

This just in: the medical school has decided to move the hospice away from where it’s not wanted. Instead hey’re gonna use the property for the new embalming and surgical dissection of corpses center.
Just kidding fer Xrst sake?

#12 Patz on 01.14.11 at 12:05 am

Er, that’s supposed to be an exclamation mark!

#13 Mark on 01.14.11 at 12:07 am

#2, that 26-year-olds are in the market speculating is a pretty good sign that the top is near.

#14 rg on 01.14.11 at 12:09 am

Historical house price to income level’s

-1 annual income (pre tax) = undervalued
-2 annual incomes(pre tax)= normal valuations
-3 annual incomes(pre tax)= overvalued (bubble territory)

Historical rent to price ratio’s

-15% – 20% = undervalued
-10% – 12% = normal
-6% – 8% = overvalued (bubble territory)

LH you awake?

#15 UrbanCowboy on 01.14.11 at 12:10 am

Hey does this count as securitizing real estate – I bought an RRSP investment backed by Stoneset Equities, a year and a half later they moved these to the CNSX a low profile unknown stock exchange. I need .90 to break even, and the shares continue to sit at .20ish with no volume and hope of moving up. With an inevitable house correction/collapse I don’t see these gaining value. Is this not something like what happend in the US. Oh and the broker who sold them to me has recently been charged by the securities commission for selling without a license to boot. Anyone else in this?

#16 BC Bring Cash on 01.14.11 at 12:19 am

Garth re your comments on yesterdays blog. Why is calling the TFSA a savings account a mistake? I have a feeling the bank lobby chose the name and convinced F it was the way to go. By calling it a savings account it is a much more convincing sales pitch for the nice lady at the bank to sell savings accounts and GIC’s. Of course to the benefit of the Banks. They get to recapitilize on real wages and savings the old fashioned way.

Did you not just answer your own question? — Garth

#17 ferryworker on 01.14.11 at 12:24 am

Don’t know if you caught it Garth, but Gary Mason of the Globe and Mail appears to be drinking your Kool-Aid, albeit with blinders on.

Here’s the link to his column “Pop goes the housing bubble”

http://www.theglobeandmail.com/news/opinions/opinion/pop-goes-the-housing-bubble/article1867849/

#18 Western Canadian on 01.14.11 at 12:31 am

Question for you Garth… In your book Greater Fool, there is the part where you talk about the big power outage that happened a few years ago.

You said it took you hours to get home to your wife, you were relieved you had a generator, and I specifically remember when you wrote that you went down to “lock the gate of the driveway to your property”…

Are you telling me you do not see value in keeping a few rifles and other guns on your rural property?

For someone who is constantly talking about being prepared, for someone who feels the need to have a generator, for someone who can lock the gate to their property, you DON’T have a gun or two?? Honestly?

WHY DID YOU GO AND LOCK THE GATE TO YOUR DRIVEWAY??

I can only assume it was because you anticipated someone trying to drive up your driveway, and you wanted to prevent that from happening correct? So if they had bolt cutters and drove up then what??

Who let you in? — Garth

#19 nonplused on 01.14.11 at 12:34 am

I’m with Dave in Portland. Frankly, I find it disgraceful and disingenuous the way that politicians, former politicians, and media punters misconstrue every tragic news event however random to support their poorly thought out views no matter how unrelated.

The only question for Canadians that arises from the shooting in Arizona is maybe “are we doing enough to help the mentally insane”. We already don’t let crazy people buy Glocks or 30 round clips in Canada, and that predates the gun registry by a long time.

The gun registry is another example of the political class in their fatal conceit misunderstanding the situation, misdiagnosing the problem, imposing a non-solution, and pandering to fearful voters, at great expense. All it does is keep the honest people honest. It’s totally redundant sitting alongside of the pre-existing legislation.

Fact is, hassling farmers, hunters, and collectors does nothing to dissuade those with criminal intent.

And I would be shocked to hear Garth does not own at least one long gun himself. How else is he planning to catch squirrels?

We can leave the Americas to reflect on their own gun control laws. They neither want nor need our pathetic advice. And it is not lost on them that the 2 people who stopped and restrained the shooter were able to do so because they were also armed, and that the police did not arrive until after the crime had already taken place and the assailant restrained by civilians. They never do, and nor can they be expected to. They can’t predict such things any more so than the next guy, so short of having cops everywhere all the time they will always be 10 minutes too late to do anything but arrest people, launch an investigation, and mop up. Police do not prevent crime, they deter and prosecute it.

OK, back to housing. I think we are actually farther along than we realise, as the peak was back in 2008 for most cities. Many of the problems Dave in Portland described are already present here. The unrealistic listing price comes foremost to mind. Almost nothing sells without relisting a couple of times and almost always for less than the last list price these days. So that to me would indicate the panic is over. And I wouldn’t trust the stats on average sales price when the volume is so low. It’s not a normal market. Eventually someone is going to want to sell, volumes will go back up, and buyers will come back (once prices drop). It’s econ 101.

#20 Garth Fans=Small Hands on 01.14.11 at 12:35 am

Metrosexual? Ya Ok.

#21 goldenfox on 01.14.11 at 12:36 am

Why interest rates may stay down for a long time.

http://news.goldseek.com/GoldSeek/1294927971.php

Not in Canada. — Garth

#22 squidly77 on 01.14.11 at 12:36 am

The first of many sub-prime lenders bit the dust today.
http://www.newswire.ca/en/releases/archive/January2011/13/c2251.html

#23 Jeff on 01.14.11 at 12:39 am

Garth,

You waste three paragraphs about guns. Who gives a shit about guns, we live in Canada? What about bombs, more specifically RSP bombs? Expand on your negative comments about RSPs. What about us common folk who plan to live on RSP (RIF) cash and won’t have any money invested outside them…

#24 Anotherlowlyrenter on 01.14.11 at 12:40 am

I thought this was interesting – data on immigrant income raises questions on the immigration’ll keep property prices rising … would be curious to see more recent data if anybody has it.

http://www.canadaimmigrants.com/earningsdata.asp

A dodgy web site with six-year-old stats. Seriously? — Garth

#25 Moneta on 01.14.11 at 12:45 am

ferryworker on 01.14.11 at 12:24 am
————-
It makes me think of the funeral home indsutry. Not long ago I read an article about how business was tough these days because less people were dying. They couldn’t figure out why until someone looked at the demographics and realized that the age group that should be dying is unusually small due to the War.

You’d think they’d know these tables by heart. But I guess it’s too much work and M&A is easier.

It’s not as if this thing started yesterday, it’s been decades in the making!

#26 LH on 01.14.11 at 12:48 am

@ #10

I’m not counting the cost of our time (it is a huge hassle, definitely not for everybody)

#27 Hovering on 01.14.11 at 12:52 am

dear gary mason,

sell you idiot.

sell now

love the tsur qoute in that g&M piece. “despite the thoery that abby boomers are sellign and causing the market to nose dive I am going to ignore it and cash my cheque from the realtors and say “it’s different here””

why is tsur employed at UBC anyhoo?

#28 Hovering on 01.14.11 at 12:52 am

f&^^%%ing spell check

#29 nonplused on 01.14.11 at 1:07 am

I should add Vancouver excepted. They are in their own little world. But volumes are off considerably there too. Montreal and Toronto are also close to the highs, but they never got as crazy as Vancouver, so the correction when it comes will be less drastic. Recent buyers in the west could be devastated in the next few years. Out east it will be painful, but not the end of the world. After all, when Carney sets rates, he sets them for the Canada that is east of Winnipeg, not for the Canadian western colonies.

#30 UrbanCowboy on 01.14.11 at 1:07 am

Here’s an interesting story from an American on how the banks help people out with forclosures. How did they ever spend all that bail out money, definitely not to help the middle class:

My house has lost 30% of its value , we offered to give the property back in a chapter 7 bankruptcy. Chase mortgage insisted we stay in the home and that they would modify our mortgage for us. 13 months later and hundreds of faxes we were finally told we don’t qualify for a modification. The reason , they cant verify my income , which is my paycheck drawn from a national payroll company.And my employer was never called. But we signed a document so they could get paid by the government for attempting to modify us. We tried to plan the bankruptcy and the forfeiture of the property so we can move our children in between the school year to try and lend a little normalcy to the situation for their sake. Instead now we find ourselves probably having to move in the middle of a school year. Thanks to chase wanting to collect some measly fee from the HAMP program.

#31 MaxP on 01.14.11 at 1:11 am

I can’t believe some people have the nerve to say the things quoted in this news story. I hope nobody gives in to their concerns about property values –

http://www.globaltvbc.com/money/Angry+Asian+condo+owners+protest+luck+hospice/4100504/story.html

#32 Kevin on 01.14.11 at 1:21 am

Subprime in Canada, the cracks are appearing
http://saskatoonhousingbubble.blogspot.com/2011/01/subprime-in-canada.html

“Xceed Mortgage Corp. said it would no longer accept new mortgage applications after posting an annual loss of $17.6-million, focusing instead on managing the $1.6-billion of loans already on its books.
A quarter of the loans on its portfolio, about $400-million, is from the company’s foray into subprime lending from 2002 through 2008.”

Here in Saskatoon, there is a program called the Mortgage Flexibility Support Program to promote home ownership. In the US, they called this subprime lending.

Parts of Canada had housing bubbles burst in the 80’s, and that was a time of stricter lending.

#33 kitchener1 on 01.14.11 at 1:22 am

I love the US examples. They are totally mindblowing.

Houses selling for 50% off peak values

Condos selling for less then it costs to build

Canadians are blind, like sheep. I travelled a lot to the US during 05-06-07 time frame and actually know quite a few people at the personal level who lost everything.

Yet people here are blind to what happened down south.

For the GTA, plug in incomes X 3.0 at best case scenerio and see were we get.

#34 john m on 01.14.11 at 1:35 am

I lived in B.C. (lower mainland) for 20 years and left 8 years ago and moved to Southern Ontario..the average wage earner in B.C. was priced out of home ownership for several years before i left. ……… H.F.C. and company changed that with relaxed or little qualifications and propaganda promoting themselves..the end result is inevitable. …………But lets consider for a minute what these high prices for residential real estate are doing to the small business owner with a commercial property(the value of which escalated along with residential prices) trying to make a living……how can a business handle the overhead of high real estate prices,taxes etc with a populace of customers making an average of $69,000 (most who are indebted to the hilt)…….to start or survive with a small business in that environment is impossible……$20 hamburger anyone??

#35 nonplused on 01.14.11 at 1:35 am

#11 Patz

I think you and the other posters on this subject must have fallen for something. Maybe a hospice lowers property values, but did it cross your mind that people die at the end of their lives in all cultures all over the world, including China? So far as I know, most Chinese die at home since they do not have a “let the government handle it” philosophy such as we do. Maybe they object to the cruel way we pool up our dying in one place out of the sight and care of their loved ones and let the government handle it. Just a thought.

And just another thought on that line. Folks, the government handles almost nothing at a passing grade, very few things even at a C+ grade. Maybe we should be caring for our parents and incorporating them into our regular lives like the Chinese do, and doing it ourselves, without the government. Now that I have forced myself to think about it, I don’t want either of them reliant on the state, which is a near useless entity outside of law and order and defence. And even there I think they aren’t all that good at it. I think my mom is a bit of a nitwit but not meaning bad, but my dad has been golden since I was about 14. I don’t want either of them dying alone or in the care of the state. You’ve got me thinking. But it’s still some time off.

#36 Tim on 01.14.11 at 1:39 am

Garth,

You said you avoided mentioning precious metals because you didn’t want your blog inundated by the insane ranting of gold bugs (I may be paraphrasing here), yet you brought up guns in a negative light . . .

Dude, you’ve attracted the attention of folks who can’t get an erection unless they’re clutching a firearm. It’s like poking an anthill–if the ants were pudgy self-aggrandizers, the anthill was a fetid basement, and all of the ants were clutching cheap surplus SKS rifles sticky with body fluids and feverish dreams of potency.

#37 nonplused on 01.14.11 at 1:42 am

#18 Western Canadian

I’m with Garth on this one. Guns are for shooting animals, excepting a hostile invasion. They are not for shooting at people, and I agree with Garth, despite the fact he is way wrong on the gun registry but has to talk how he voted, guns intended for shooting people are wrong.

Society may fall to the point where we again need guns to defend our very lives. But if that happens, Dog help us all.

Guns are for hunting and pest control. When used as a means of force, they are wrong, whether individually or by a government. War is wrong too. The only exception is defence against someone who does not understand that moral.

#38 Nostradamus Le Mad Vlad on 01.14.11 at 1:46 am


“. . . where a growing number of Canadians are in the process of blowing their foot off. But the wilful blindness carries on.”

Who will be helping them out of the mess they created for themselves? Taxpayers (via the fed. and prov. govts.)? Thanks to the sheer incompetence shown by C-H-F, Canada and the provinces are well on their way to duplicating the US, but we voted them in so I guess we get what we deserve.
*
Hard Times at Illinois High.

Into The Sun Not Grand Funk Railroad’s number from their Live Album of 1970, just UFOs.

Idaho Has the Chinese invasion already begun? Plus — Patriot Act Renewal Done on the sly, it removes more civil liberties from citizens. Soros and Obama are loving it.

Credit Does the western hemisphere have any left?

Drug-resistant malaria could spread quickly.

Two leaders who are incapable of finding their way out of a paper bag.

Add worldwide social / civil unrest, riots and this is gonna be one helluva year. Just go into 2012 when poles shift and planets align!

China – US Differences in spending.

Homeless A new and different solution. Vancouver, BC.

#39 Junius on 01.14.11 at 1:50 am

“75% of the realtors in Oregon are now working at Costco or Walmart.”

Are they qualified to do that here?

#40 RoninBC on 01.14.11 at 1:51 am

The majority of buyers on the west side of Vancouver are from China and I would venture to say are all buying with CASH money. They don’t care about mortgage rates. It’s all about prestige, status and location. They will even pay 100K more if the address (house numbers) ends in an “8”, a good luck number.

Don’t expect prices in that area to ever drop much if at all. Sorry Garth, you don’t agree but it IS different there, the most desireable sought after real estate in Canada, bar none.

The rest of Canada may crash and burn but the west side of Vancouver will hold it’s own, I really believe it.

I still pity the guy that panicked and sold his west side home for $800,000 (I can’t recall the exact date but I think during the last RE “crash”), and started to rent a home, as per your advice. He was a bit nervous about doing this and whether he was making a mistake or not.

He’s out well over 200K. Guess how he’s feeling now?

You sound like a dot-com investor circa 1999. Additionally, you have totally forgotten housing is shelter, not the futures market. Enjoy your fate. — Garth

#41 Dan on 01.14.11 at 1:54 am

The median price is down 8k YOY for sfd’s in stalbert. Which month/year are you referring to? Double check your facts, dude.

#42 Azza on 01.14.11 at 1:55 am

There is difference between dividends and mortgage debt. It is quite easy to describe. Dividends are much like being old ugly man yourself and have beautiful young blondie in your bed. Mortgage debt is quite opposite. It’s like being beautiful young blondie in the bed of old ugly man.

#43 45north on 01.14.11 at 1:56 am

funeral homes: ten years ago Tubman planned a new funeral home on Riverside Drive. Fiercely opposed by asian homeowners (Chinese) in nearby Quintera. The community association took the case to the Ontario Municipal Board and lost and then it appealed and lost there too.

http://mcaf.ee/675ef

#44 Pr on 01.14.11 at 1:57 am

the sales of the last 6 months compare to last year are still not enough its just -10 to -30% . At -60 to -70% of sales, the people will have finally understand that the prices where to high, and it was a Real estate BUBBLE. It will come. You , future buyer, Please stop, its crazy out their. Before you buy, go ask a person who bought in 1987-1989 at the top, WHEN the price drop,it took them 14 years just to break EVEN. Some have been wipe-out. Dont you dare, to tell me a house is a place to stay, MONEY will be need for the rest of your life, so wait, keep your money and rent until you can buy. and you buy, to take a expression from some one famous: “Buy when there’s blood in the streets, even if the blood is your own.”

#45 Fade To Black on 01.14.11 at 2:02 am

Here’s our “real estate and guns” solution from the newly formed political action committee:

The ‘Canuck Librarytarian Party”

If your gonna use a gun for damn sakes learn to read first. Then shoot. Hell you might learn something.Like the law.

Here is our recently formed election planks:

1) We will provide a new guviment program to give a free Canukistan-built gun to anyone who wants one, twelve years or older of course. We are after all a responsible political party.

2) We’ll change the hated “Canada gun registry” to the “canada real-estate-agent registry. It will cost a lot less than a billion dollars on account we only have to white-out three little words and change “guns” to “real estate agents on each form.” In fairness, when you consider it, its the same consequential collateral violence for your average nitwit Canadian, just from a different source. Just like in the old program your gonna have to keep ’em under ‘lock and key’ and only be able to pull out a ‘realtator’ when your are in mortal fiduciary danger or profound mortgage default. No exceptions other than these occasions as the only permissible use of a “lock-up-weapon” like a real estate agent. Sounds mighty reasonable to us given the past damages caused by the action of these’ life’ and even worse ‘income destroying’ instruments.

3) We’ll require any customer/citizen/or frost-back (you know those line-jumpers that entered illegally on account we can’t discriminate) and charge $10,000.00 for each bullet. That’s would be cash, no funny plastic. Each bullet will have a serial number. It will require you to fill out the same number of forms as now occurs at closing of your home title and the same death defying obligations that your lender now imposes on a typical mortgage. Oh, and you can only buy bullets at a Canadian chartered bank. You cannot use them to shoot your banker, no matter how you feel about him or her. despite the sentiment we do have long Canadian traditions about this after all.

4) This sober and self balancing plan should stop the current house porn bubble and arrest our enduring national intoxication of unsustainable Mc Mansion wealth; while reducing the excessive emission of high velocity lead into otherwise decent if even unfortunately at times vector receptive Canadians.

Folks, spend your lead carefully. Like real estate there is only so much to go around. Or was that aground? Never mind.

The Shadow Minister for “Gun Freedom and the Real Estate Parole Board”

#46 Barrie Real Estate on 01.14.11 at 2:22 am

We know that the real estate industry will rebound in the future thus if we can hold on to our houses, that will be great. Whereas, it is time for those people who would like to invest in real estate, time to buy houses that are good but cheap at this time.

#47 Crash Callaway on 01.14.11 at 2:24 am

Own a gun
Own a home
Which is safer?
Which will cause less harm?
stick with the gun
At least the finger on the trigger will be your own and not a banksters.

A fellow poster suggested Garth’s next book should be called “Willful Blindness”
Maybe Garth’s future talks to the willful should be in braille.

#48 Devore on 01.14.11 at 2:25 am

#9 househunter

Garth. This is making me nervous: MLS# V861766. List $1,088,000. Sold $1,611,000. I know you think there is going to be a correction but stuff like this makes me lose confidence to wait it out.

Would you feel differently if it was listed for $1 and sold for $1.6mm instead? You’ve posted this before, your lame attempts at trolling are getting embarrassing.

#49 Jeff Smith on 01.14.11 at 2:30 am

And you thought it was free money when your buddy Harpie & friends decided to print massive billions to bail the banks. Remeber what grandpa said? “there are no free lunch”. So it’s time to start paying up. Starting now.

http://www.theglobeandmail.com/news/national/toronto/toronto-poised-to-hike-recreation-fees-to-find-23-million/article1868996/

#50 Jeff Smith on 01.14.11 at 2:34 am

>#9 househunter on 01.14.11 at 12:01 am
>Garth. This is making me nervous: MLS# V861766. List
>$1,088,000. Sold $1,611,000. I know you think there is
>going to be a correction but stuff like this makes me lose
>confidence to wait it out.

Money from china proper. Don’t worry, it’s a probably friend of Lai Changsing’s pocket change.
Lai Chang Xing

#51 Signpost in the bushes on 01.14.11 at 2:54 am

“Pity the poor fellow who inherits the farm and all its implements, for these things are more easily acquired than gotten rid of.”
Thoreau

#52 funny on 01.14.11 at 3:02 am

1 Home in Vancouver = 34 Homes in Newfoundland! You simply can’t make this stuff up….

http://www.vancouversun.com/business/4097300/story.html

Below the big picture of the Vancouver home, you can see the 34 smaller pics of the Newfoundland homes. Bubble? What bubble? LOL

#53 Julie on 01.14.11 at 3:13 am

Say, Garth, what’s your advice for somebody just starting out? There’s lots of advice on here for old fogies with assets, but little for us poors ;)

We’re a two-person family, nk, grossing $60k now, which will be $75 within three years. We’ve just gotten out of debt – zero! woohoo! – and are now looking to save.

Living in Vancouver we’re paying ~1400 in rent (and looking to reduce that amount soon), but otherwise the rest is “gravy.” We have university/gvmt pension plans going back 7 years (10-year average 7% and 3% respectively) which will hopefully continue for the forseeable – we’ve both got very secure, if boring, jobs – but they certainly won’t pay for our ripe old age.

What now? Obviously buying a home is out. We’re under no illusions about that. Hell, by Van standards and all our friends, we’re POOR. (I know we’re not, but anyway.) We may start a business some day, but not in the next 5 years. The banks aren’t terribly interested in us because we don’t want to buy a home. We can manage to save $12,000 in the next year, however, to give us a starting fund.

But then… Where should we put it? And where should we put it while we’re saving it? And will buying a home ever be in the cards? (I’ve basically been working under the assumption “no, not ever.”)

(ya, just ordered your book. But it never hurts to ask =)

#54 Not Wondering Anymore on 01.14.11 at 3:22 am

Good that you are standing your ground Garth and aren’t being bullied by the pro-gun crowd making loud noises here, including Dave St. John of Oregon, who fails to consider that it is HE who requires more personal experience and research into other countries who DO have more successful and stricter gun control laws and who, in not condoning the “right” of every citizen to bear arms,more effectively mitigates the overall risk to their societies, which is not the case in the US. Critical thinking works both ways.

Having said that, the overriding issue in this particular incident in Tucson, is one of recognizing mental health as a legitimate priority globally,and highlights the urgency in redirecting resources to it.

#55 Aussie Roy on 01.14.11 at 4:04 am

Aussie Update

EVER-RISING Australian house prices have caused immense disquiet in recent times. Last year US investment guru Jeremy Grantham described our property market as a “time bomb”, a bubble ready to burst, with housing prices at about twice their value.

In December, Canada’s Scotiabank added fuel to the debate. The firm’s research into a dozen advanced countries found that Australia led the world in housing price increases over the past year.

The fact that investors dominate the property market is largely due to negative gearing, a popular tax concession that has been available to investors since the 1980s, and which allows the investor to claim losses caused by the annual costs of an investment against income earned elsewhere.

The Australian version of negative gearing, unlike that in other countries, has very few restrictions and encourages investors to make a loss. The Australian Property Investor Planning website describes its advantages this way: “The tax man and the rental income pays for your investment property.” Last financial year investors used negative gearing concessions to claim $8.6 billion in losses.

Comments are worth reading.

http://www.smh.com.au/opinion/society-and-culture/gearings-a-negative-way-to-keep-potential-home-owners-down-20110113-19pr2.html?comments=21#comments

#56 SmartBlonde on 01.14.11 at 4:14 am

#9 House Hunter
Not to worry! We have been watching the market closely since 2008. I know the mls for West and North Vancouver like the back of my hand, along with the Craigslist. I don’t know anything about the listing you submitted, but I do know it has been happening just as Garth predicted. In North and West Vancouver we get a list of houses up to 1.5 million from our Realtor and I can tell you the listings were slow through out the fall and the sales were definitely terrible. Tonight I just received a sold from our realtor and here are the details: MLS# V846232 – West Vancouver, Eagle Harbour – 5647 WESTPORT RD, V7W 1V2 – List Price: $1,088,000 Sold Price: $995,000 142 Days on the Market (probably longer as they skew this often) And to top it off it was built in 1968! Definitely a greater fool. The market is definitely going down. Seriously who can afford houses that expensive, and most of them are absolute garbage. We sold our house and will rent. We loved owning our own home and love house porn like granite and stainless, but just think of the amount of stainless and granite you can buy with even a 20% correction in this crazy market! Good Luck.

And Garth I have to agree with Dave from Oregon regarding Guns, it doesn’t matter what regulations you put on them, the nut jobs will still get them!

#57 Julie on 01.14.11 at 4:17 am

(and can save 12k a year every year after that, at least, hopefully more, natch. Can’t just STOP saving. But yeah. :)

#58 Munch on 01.14.11 at 4:18 am

The world is filled with bad news and people still ask, in the face of all this, whether they should sell or (even) buy more property?

Sad!

Happy New Year, BTW!

Munch, South Africa

#59 Burnaby Boy on 01.14.11 at 4:30 am

Strange that the Chinese would object to a hospice since they seem to enjoy death judging by the you tube http://www.youtube.com/watch?v=6fGOjZjM0xQ going the rounds of the animal rights people. You would think a hospice nearby would have them paying more.
Fried Fish Eaten Alive! SICK! Chinese chefs have come up with a way to keep a fish alive while deep frying it! It even keeps trying to breathe while waiting to be eaten and people pick at it! Deep fried carp eaten alive Video of a shocking new craze which involves eating a live fish that is part

#60 Canuck Abroad on 01.14.11 at 4:38 am

Whistler BC housing bubble has already popped but this gets little news coverage. Prices have come way down over the last several years, so for those thinking it can’t happen in Canada just look at the sales history there. Prices have been grinding down since probably 2008 or so.

The reasons given for Whistler’s rise were Chinese buyers and the Olympics (sounds familiar?). Curiously, I never thought the mountain was overrun with Chinese skiers, so maybe these were just “investment” purchases. As a previous owner, I can tell you these properties produce a negative yield, so unless your “investment” is going up in price, you are not going to make money there. Maybe if you manage the rentals yourself you can make money on Whistler rentals; I would be interested to hear others observations.

The price I got for my two bed and loft a few years ago would now buy a three bed and loft in the same complex. On top of condo fees you get to pay property taxes and “Tourism Whistler” fees. The condo fees went up every year (by a lot). Property taxes went up with property values, and I overheard in the Home Hardware one summer a couple of long term locals complaining they would have to sell up and move because they could not longer afford the taxes. Personally, the last straw for me was the endless demands for money to repair the common areas (the lift, the pool, the this, the that..).

Anyway, that was just a local anecdote.

Garth, I found this story in one of the UK papers and thought of this blog:
http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/8253567/Hitachi-to-offer-50000-loans-to-parents-of-home-buyers.html

To attempt to breath life back into the UK housing market, Hitachi is offering loans to parents, so they can help junior (now age 37+) “get on the housing ladder”. Bound to end well…

#61 Tim on 01.14.11 at 4:56 am

Re #3
“Iggy Says Canadians are worse off after 5 Years of Harper”
http://www.680news.com/news/national/article/168425–ignatieff-says-canadians-worse-off-after-five-years-of-harper

He’s managed to rack up a deficit of 56 billion, prorouge parliament to avoid discussing the Afghan detainee issue, eroded democracy, eroded Canada’s international reputation, degraded the environment, cut funding for the arts…

http://www.liberal.ca/blog/?utm_source=lbst&utm_medium=e_blast_en&utm_content=link1&utm_campaign=5yearsharper

#62 Aussie Roy on 01.14.11 at 7:44 am

For the Austrian Economics followers, Eric Janzen, iTulip.

The Next Ten Years: Three Drivers of the Political Economy

http://www.youtube.com/watch?v=qc31myYO4eQ&feature=player_embedded#!

#63 Worldwide on 01.14.11 at 8:08 am

“75% of the realtors in Oregon are now working at Costco or Walmart.”

Ouch. Hopefully that means the remaining 25% are good realtors who are honest, open and are not in a sales job for commish only but to actually help people make the largest financial decision of their lives (and tell them the pros and cons of it all).

#14 rg “Historical rent to price ratio’s”
-15% – 20% = undervalued
-10% – 12% = normal
-6% – 8% = overvalued (bubble territory)”

Do I assume that’s yearly rent / home worth? Can you provide examples?

#64 Victor on 01.14.11 at 8:52 am

Brad Lamb, a real estate broker and developer, said the practice would discriminate against condominium owners. “When you buy a house you don’t put any future maintenance costs [in your debt calculation],” says Mr. Lamb. “All it is a knee jerk reaction by idiot bankers pressuring idiot politicians that don’t understand the nature of the condominium market in Canada. What is driving the condominium market in Ottawa, Vancouver, Toronto and Montreal is alternatives is investors. This won’t affect them. This just attacks the lowly first-time buyer.”

http://www.financialpost.com/Tougher+condo+mortgage+laws/4105580/story.html

===============

Brad Lamb getting his knickers in a knot…bearish sign for the condo biz.

#65 Moneta on 01.14.11 at 9:03 am

I’m always amazed by the amount of people who think there is no subprime in Canada.

On top of CMHC, you have at least a couple more such as Home Capital (HCG), Xceed (XMC)…

If you want a good look at what can happen when you take a subprime mortgage and make all your payments:

http://www.theglobeandmail.com/globe-investor/xceed-turns-off-the-mortgage-taps/article1869482/

This is happening in Canada.

Canadian loans are bullet loans which need to be refied every few years. Fannie and Freddie were created to deal with the issues of bullet loans and they’ve shown us that you can’t take aways the risk of a bullet loan unless you have the full amount ot pay it off.

#66 Moneta on 01.14.11 at 9:13 am

Montreal and Toronto are also close to the highs, but they never got as crazy as Vancouver, so the correction when it comes will be less drastic.
———–
Detroit home prices never shot up like in California but everyone did HELOCs so when the rates on the ARMs reset, this city was crushed.

You don’t need exorbitant prices for a crash… all you need is too much debt.

A quick look at the cars on the 20 and the 40 going downtown will tell you that home equity has been used. In 1995, all you saw were rusty clunkers. I remember a meeting in the board room. The rates had been cut, car sales were dismal and the portfolio managers were scratching tbeir heads wondering what it would take for people to change their cars. Now we know. The 20 and 40 are a parking lot of Beemers, Lexus, Saab, Mercedes…

#67 fancy_pants on 01.14.11 at 9:32 am

Me smells them there brains a cookin’…

http://www.nationalpost.com/Tougher+condo+mortgage+laws/4105580/story.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NP_Top_Stories+%28National+Post+-+Top+Stories%29&utm_content=My+Yahoo

#68 Kevin on 01.14.11 at 9:47 am

Tougher condo mortgage laws may be on the way

Read more: http://www.financialpost.com/personal-finance/Tougher+condo+mortgage+laws/4105580/story.html#ixzz1B13cOhYB

#69 Smoking Man on 01.14.11 at 9:48 am

What if the big crash does not happen……

The logic that everyone uses look what happend in the USA..
Look at the stats, income debt and so on…….

As a long time risk taker and gambler, who has made and lost many times, I can tell you one thing.

Pocket Aces do not mean its a slam dunk even when an ace hits the flop….

#70 Renting in Rosedale on 01.14.11 at 10:20 am

#167 Got a Watch from yesterday…

“#146 – sounds good, but do the rules allow you to have 2 TFSA and 2 RRSP accounts at the same time for 1 taxpayer, is there a grace period while you do the asset transfers? If it’s legal, just remember to close the old accounts once you have transferred the assets out. I ask because I am contemplating moving my accounts to other Brokers, and I wondered exactly how that would work, from a CRA perspective.”

Hi G.A.W., yes, no problem having multiple accounts, provided in total, you comply with the rules that apply to you (i.e. RSP contribution limit, TFSA accumulated limit etc)

On the transfers, you fill out about 4 pages of legal text and the funds are deemed not to have been withdrawn, just transfered. So its all perfectly legal.

I have 4 RSP funds, so I have experience with that one. (whether a smart idea or not, I can’t say!) I haven’t expanded my TFSA into multiple accounts as yet, but I assume as it grows in future, the need may arise

cheers

#71 Moneta on 01.14.11 at 10:39 am

What if the big crash does not happen……

———–
It will happen because millions took out equity using 35 year mortgage to buy stuff that depreciates in 5 years.

#72 Gord In Vancouver on 01.14.11 at 10:40 am

#67 fancy_pants

The truth is revealed : )

“The Canadian Association of Accredited Mortgage Professionals says 30% of new mortgages last year were for amortizations of 35 years, so a considerable percentage of Canadians are taking advantage of the current rules.”

All evidence points to a number far higher. — Garth

#73 AACI-Okanagan on 01.14.11 at 10:41 am

“You sound like a dot-com investor circa 1999. Additionally, you have totally forgotten housing is shelter, not the futures market. Enjoy your fate. — Garth”

Well said Garth, people should be buying homes as a shelter just like our parents their parents did. Real estate should be treated as a long term investment.

#74 45north on 01.14.11 at 10:44 am

Barrie Real Estate: We know that the real estate industry will rebound in the future

my feeling is that Barrie Real Estate will not do well, as gas prices rise, Barrie Real Estate will fall

#75 False Facade on 01.14.11 at 10:50 am

There is an article in the Global and Mail:
http://www.theglobeandmail.com/news/opinions/opinion/pop-goes-the-housing-bubble/article1867849/

It talks about a looming bubble caused by the retiring boomers. Who will buy their houses? Not the Gen Ys because most of them have bought within the last little while with 5/35 mortgages. Not the immigrants because eventually they will find out Canada is not a good deal – they will have to support all our entitlement programs like CCP, OAS and OHIP. We lured immigrants to build this country. History is repeating itself. We are now luring immigrants to keep it afloat. Many of them are not coming (or are going back) as standards of living are rising in their “old countries.” So good luck, Vancouver.

#76 Herb on 01.14.11 at 10:58 am

#61 Tim,

what the leader of the Liberal Party might say about the Harper reign hardly is above suspicion.

Here is an observation by Jeffrey Simpson that is more general – and more damning:

http://www.theglobeandmail.com/news/opinions/opinion/whistlin-past-the-graveyard-of-conservative-vows/article1869229/

#77 Young Old Fart on 01.14.11 at 11:03 am

They don’t care about mortgage rates. It’s all about prestige, status and location. They will even pay 100K more if the address (house numbers) ends in an “8″, a good luck number.

Seriously??? I have my house back in Canada ends with more than one “8”…..ends with a few of them….

First 1.2M takes it…..

#78 Devil's Advocate on 01.14.11 at 11:04 am

On the real cost of housing consider this:

I remember in Kelowna in 2002 when the cost of framing a 3,000 square foot home over a basement to lock-up was approximately $12,000.00. By 2004 it had shot up to $24,000.00. Now a framing contract is practically nothing but labour as the lumber package is in addition to that. The framer provides little more than the nails and often those are at additional cost.

What caused the price of housing to rise so much in 2003? Labour costs. Material costs changed little in that time. Yes I get it that a loose money supply was the catalyst which fueled demand but where did it hit the streets? It hit the streets in new housing as everyone wanted granite stainless and hardwood and the foundation of that market is the framer. I don’t mean to single out framers although they do tend to be the “Gypsies” of the sub trade crew.

When the market took off the battle cry of the sub trades was “This is our time to reap the rewards. Make hay!” Granted not all as the larger more established subs who have been through it before maintained a consistency through those “good times” which carried them before and after through the bad times. Today those trades which typically tend to be small time operators running their business out of the box of their truck are desperately looking for work and lowering their rates in order to compete for the little work there is. Subsequently the cost of new housing is being driven down. Labour accounts for roughly 50% of the cost of new construction. Knock 25% off those rates as they might well have been considered overpriced and you get an approximate 12.5% reduction in the end cost of the new construction.

You can actually buy a brand new never lived in home in Kelowna for less than its resale counterpart. Why? Because the seller of the resale home paid a lofty price for it and is unwilling to take a loss – even though they could replace it for less. This is how prices are sticky on the way down.

Eventually the cost of resale housing does drop to compete with new which subsequently puts even more framers out of work. New housing then soon drops even further as trades are less “sticky” on their prices as they desperately look for work. Eventually resale surpasses but slowly so as homeowners are “sticky” on price as they remember only too clearly what they paid and what their even stickier neighbour is asking.

The moral of this story is; there are far more to blame for rising prices and there are farther reaching consequences of falling prices as that framer can no longer make his mortgage payment let alone buy a new truck from Bob at the Dodge dealership or replace his worn out tools from Mike at The Tool Place.

On the other hand those well established trades who didn’t rack up prices when jobs were plenty and trades few maintained a consistent workload and gainfully employed workforce throughout the whole Boom Bust cycle and will be there when we next need them – dependable reasonable and reliable. That is how they became “well established”.

The real moral of this story is; Whatsoever a man soweth, that shall he also reap.

#79 Signal Loss on 01.14.11 at 11:23 am

The failure of Americans to drop their romantic obsession with guns and to enact proper gun control legislation like other civilized societies will mean that these sort of tragedies continue. It’s sad to watch otherwise intelligent people try to rationalize gun culture in urban environments where nobody should have any legitimate need of a firearm. I guess the US makes too much money out of the small arms business.

As for Oakville, I swear it seems to reside inside an economic force field or something. The laws of physics don’t seem to apply here. It does seem kind of dumb to let one of those single family homes go if it doesn’t amount to much of a dent in your finances to carry anyway – they seem to be sought after by HGTV pr0n addicts. (‘course, the property taxes are insane, but the Town has to maintain the shield generators somehow).

#80 Junius on 01.14.11 at 11:32 am

#60 Canuck Abroad,

You are correct about Whistler. I had a meeting this week with a person very familiar with that market. He said that the Americans are leaving in droves. Most of the investors over the past 25 years were from the US. They bought when the CDN dollar was 65 cents to the US. Now they are taking the money back for investment in the US.

Whistler is massively over built and in big trouble. He has a business there and is very concerned.

#81 Cowboy_aka_My_View on 01.14.11 at 11:33 am

The guy is 26 and has investment properties. You said don’t own and invest for a 6% return. With what? His $$$$$$ is coming from rentals. So is he supposed to borrow funds to purchase preferreds? At least he’s got a couple of houses with a positive cash flow. The advice on this site is mind boggling; actually I find it geared towards old foggies, but never-the-less I’m intrigued to read this site day in & day out!

2011 will be an ok year for real-estate. People are going to be anticipating higher interest rates and new mortgage rules-which will be mute. This spring/summer will be a rush to buy IMO>

#82 David B on 01.14.11 at 11:36 am

In U.S. economic news, the tide of home foreclosures may peak this year. The listing firm RealtyTrac estimated today that lenders will repossess 1.2 million homes during 2011. That’s up from just over a million foreclosures last year, the most ever recorded. About five million borrowers currently are at least two months behind on their mortgages.

Fr. PBS
——————

Here in Canada the King and his court says all is well.

#83 X on 01.14.11 at 11:52 am

re # 67 / 72 – If the number really only is 30% for 35 year mortgages, then there really should be no ripple or issue if F reduces mortgage amortizations to a maximum of 30 years…..

Sadly too many do not see the forest for the trees. So proud of their big new homes. A remarkable amount of debt. If the financial awareness of their future does not change soon, many are destined to retire poor and be a further drain on tax dollars. Too many worry too much about the value of their home, but this is the least of their issues.

#84 Moneta on 01.14.11 at 11:53 am

You’re a boomer couple, both 65 and about to retire. Your assets are 300K in RRSPs and a 600K home with a 100K mortgage left (2/3 of boomers are retiring with debt). Wow! You’ve got it made, you’re in the top 10% of the popuation by net worth.

You always worked so CPP will give you 8K per year but your wife only gets 5K because she stayed home while the 2 kids were young. With your OAS you will be getting 25K per year. Your portfolio might be generating 5% but you want it to grow with inflation so you only take out 10K per year.

So you’re netting 32K. Your mortgage needs 8K and muni taxes are 6K. Now you have 18K left. You’re getting a little nervous because the windows will soon need to be redone as well as the roof and you were also thinking of replacing that car. But your portfolio tanked in 2008 and you don’t want to take money out. They’re giving money away so it’s probably better to lease one.

Since you live in a 600K home, it shows you’re a successful person so a Yaris would do the job but it just does not reflect the person you are. Your driveway calls for a Camry. So your annual cost of a car takes another 8K out of your net, leaving you with 10K. Electricity and heating are taking another 2K out of that CF, leaving you with 8K. You’ve been having trouble with your digestion for the last decade, so you don’t eat very much and food only takes 3K. You now have 5K. But how are you going to fit that annual 2-month stay in Florida? And you really don’t want to work anymore, everyone is getting on your nerves. You’re so sick of driving West with the sun setting in your eyes every single night. You don’t want to reverse mortgage because you are only 65 and want to keep the equity for LTC if you ever need it.

You know, you can sell and downsize or work at Wal-Mart or Target. But you really want to shop at Target in Miami… and you really don’t want to renovate. Anyway today’s kids are so impatient, they don’t care about debt and they’ll redo everything you’ve done anyway so why bother?

Now let’s look at this couple’s situation if houses dropped from 600K to 400K:

The smaller house would probably be cheaper also so instead of buying at 350K, they could buy at 250K, eliminating the debt and making sure they don’t have to renovate for the next 10 years. And even with the drop, their CF is better.

Now, you try and tell me there aren’t thousands of boomers in this situation.

#85 refinow on 01.14.11 at 11:57 am

For anyone thinking Xceed’s announcement is going to be the “Prick” that will burst the bubble.

Xceed has been having issues since 2008. In 2008 Xceed’s position in mortgage lender was as a “C” lender approving the worst of the worst with as little as 5% done. Do the deals that the banks would not, They were self insuring their own mortgages. So any one taking an xceed mtg, would have to pay one insurance premium to xceed and then have to pay a CMHC premium when they want to leave for a traditional lender.

Well Back in 2008 they lost their funding for this style of lending, and then re-opened their doors trying to compete on the “A” side. The problem with competing with the big banks on fully discounted mortgage rates is the margins are narrow and unless you are doing a high volume of busines with low margins there is no profit to be made.

So for the last last 2 years their business has been floundering. They were also in the procees of applying for Bank status in Canada, and it now appears there is cold feet from the investors backing Xceed.

So bottom line the Mortgage Brokers have not been using Xceed for quite some time, so them closing their doors is not going to have any effect on anything what so ever.

Ask most Brokers and they thought Xceed closed in 2008 and never re opened…

#86 Got A Watch on 01.14.11 at 12:09 pm

# 46 – “We know that the real estate industry will rebound in the future thus if we can hold on to our houses, that will be great. Whereas, it is time for those people who would like to invest in real estate, time to buy houses that are good but cheap at this time.”

LOL dude I live near Barrie. The market has fallen a bit, but not much. Since the AVERAGE duration of the time period real estate prices fall during a ‘normal’ recession is 4 1/2 years, you are about 4 years too early with that thought, if this were a ‘normal’ recession, which it isn’t. Get back to us in 5-7 years, maybe.

Not to mention ” if we can hold on to our houses” simply won’t work if you have a large mortgage. The Bank will call you one day out of the blue and say, to your shock, “Your house is worth less than the mortgage, we need more ca$h by 5 PM, or we’re pulling the plug”. At that point, throwing more good money after bad won’t be the right decision. Think it “can’t/won’t/this time it’s different/here”? Good luck with that. When the whole area goes underwater, as it is in many parts of the US as real estate values fall, the Banks aren’t going to wait around to see if you can continue to pay the mortgage or not.

The US real estate market will likely bottom around 2014-2015 (exactly as I predicted on Mish’s Blog years ago) and after that it will be flat for a few years, before any price rises are seen. The economy will eventually recover, and so will real estate – key word “eventually”, which is probably a lot longer than almost everyone thought possible. That bottom in the us would be about 8-9 years down from the peak in ’06, which tells you how severe this Depression really is, when the ‘average” declining period should be 4 1/2 years.

Real estate pumpers can continue to pump BS through firehoses, it won’t change the facts. The exact same thing was seen in Ontario after the ’90 bust – it took over 12 years for prices to recover (’03) to those earlier price levels. Many people in Ontario jingle-mailed the keys, I recall an 80 unit townhouse complex in Brampton that had about 10 residents still living there, and 75 ‘For Sale’ signs. But of course, “it can’t/won’t/will never/ it’s different/here/this time/ in Canada” – sure it will. Uh-huh. Yeah. Keep swilling the kool-aid, and smoking the killer buds.

The more wasted you get, the better “investing” in real estate looks, right now. Timing is everything, unless you like to buy high and sell low. If you’re OK with that, it doesn’t bother me. The world needs ‘The Greater Fools’, bagholders are always in demand.

#49 – Huh? Toronto’s Budget problems are entirely due to wild overspending by socialist idiots for many years, the lost “Miller” era. Not much to do with the Federal Government at all. You could argue Toronto sends much more to Ottawa than they get back, no argument there. But that’s political – everyone outside of Toronto hates the place, so giving more money to the nation’s largest city is politically impossible. Example: transit in Toronto get’s no help from the Federals, unlike almost every other big city on the planet, and won’t be getting any. Almost nothing to do with ‘F”s Budget decisions there.

#62 – Aussie Roy – iTulip are strongly inflationista biased, they’ve always been that way. Just remember that, I’ve found they try to make all facts fit their theory, and their outcome is predetermined, no other is possible. Which makes me tend to ignore them, as it looks like “comfirmation bias” in action. Not exactly the best economics Blog out there, more like entertainment. Let the facts dictate the call, not the other way around, be flexible. Whatever the outcome, plan for all, then you won’t be surprised. Eric from iTulip once attempted to “debate” Karl at Market Ticker, and left without his head or limbs, because he had only 1 tune to sing. Hope for the best, plan for the worst, don’t “assume” anything.

#66 Moneta – great comment as always. ’95 was the end of a recession, so people driving rusty cars makes sense. What doesn’t make sense is how people buy cars today, with “loans” over 100% of the price, so they can clean up the loss on their old car – now that is crazy. I often wonder when I drive around and see so many shiny new expensive cars. It’s all ego, “I have to keep up with my friends, they bought a Lexus, so I have to get a Mercedes” but the finance company owns it, not them. I drive an old car, long paid for, and if someone remarks on it I just laugh at them. Fools.

#70 thanks. I was wondering how that would work, you don’t want to get caught on the wrong side of the rules. I was talking about the transfer process though, from one old account to a new account, and assuming the old one would then be closed. Are you sure you can have multiple registered TFSA and/or RRSP accounts open at the same time, and keep them open? I had though you were only allowed 1 at a time per SIN? I guess I could just call my accountant, LOL, I’m lazy.

#87 Moneta on 01.14.11 at 12:24 pm

It’s all ego, “I have to keep up with my friends, they bought a Lexus, so I have to get a Mercedes” but the finance company owns it, not them
———–
My husband is obsessed with cars. I guess it’s the guy macho thing. A few years back, when the bonuses were flooding in, I let him buy an entry level Saab (good trade-in value for my Saturn) but as soon as we got it, all our friends (30-35 in age) quickly moved up to 60-80K cars.

That really hit him. From then on he became a saver and stopped playing the game.

#88 Moneta on 01.14.11 at 12:29 pm

refinow on 01.14.11 at 11:57 am
—–
I don,t care about Xceed.

The point, refinow, is that there IS SUPBRIME out there.

#89 BAD on 01.14.11 at 12:36 pm


#78 Devil’s Advocate on 01.14.11 at 11:04 am wrote:

What caused the price of housing to rise so much in 2003? Labour costs. Material costs changed little in that time.

You forgot to mention the land cost. Now, I don’t know about Kelowna but the replacement cost of my house has increased by about 50% in 14 years, yet the property “value” increased by about 200%. So the house is worth now 3 times its purchase price (14 years ago) yet to build the same house on the same lot costs only 50% more that it did then. My land “value” has increased eightfold in that period! Not to even mention thet the bulk of the increase happened between 2004 and 2007. And no, there’s been no discovery of any kind of natural (or other) resource on my residential lot.

Again, what caused the price of housing to go up so much? I suppose we are running out of land. As Mark Twain said: “Buy land, they are not making it anymore.”

“Get your facts first, then you can distort them as you please.”
— Mark Twain

#90 BAD on 01.14.11 at 12:36 pm


#78 Devil’s Advocate on 01.14.11 at 11:04 am wrote:

What caused the price of housing to rise so much in 2003? Labour costs. Material costs changed little in that time.

You forgot to mention the land cost. Now, I don’t know about Kelowna but the replacement cost of my house has increased by about 50% in 14 years, yet the property “value” increased by about 200%. So the house is worth now 3 times its purchase price (14 years ago) yet to build the same house on the same lot costs only 50% more that it did then. My land “value” has increased eightfold in that period! Not to even mention thet the bulk of the increase happened between 2004 and 2007. And no, there’s been no discovery of any kind of natural (or other) resource on my residential lot.

Again, what caused the price of housing to go up so much? I suppose we are running out of land. As Mark Twain said: “Buy land, they are not making it anymore.”

“Get your facts first, then you can distort them as you please.”
— Mark Twain

#91 bridgepigeon on 01.14.11 at 12:38 pm

#4LH Debt = Sin in Aramaic
Should be the mantra for today.
One of the commandments also was to owe no man any thing but to love one another. The only time (in the Bible) when Jesus lost his cool was on the money changers.
The big three desert religions have a permeating theme of living simple and debt free. Allah will deprive usury of all blessings.
Same with native and eastern philosophies.
No matter what your religious baggage ;-) might be, or perhaps, one’s self expression of the universal divine, whatever, owing your ass to the bank isn’t in the equation. You can’t sit and stare into the abyss if you are living cheque to cheque.
(I swear I didn’t spark one up incase anyone’s wondering…)

#92 Devil's Advocate on 01.14.11 at 12:41 pm

Wait For Prices to Drop!!!

This is probably the answer many realtors are receiving from potential homebuyers and there is nothing saying they cannot be correct on their prediction. The problem with their concept lies with the current mortgage rates. Sure, buyers can potentially save thousands by waiting, however, where are interest rates going to be when it comes time to buy. For example, a $400,000 mortgage right now on our best 5 year fixed rate of 3.75% , requires monthly payments in the amount of $1705.00 and at the end of the 5 year term the amount owing will be $369,500 on the mortgage. If buyers were to wait 12 months and now buy the same property for $385,000 on a 5 year fixed rate mortgage at 4.75%, which is not unrealistic the way bond rates are heading, their monthly mortgage would be $1870.00 and the balance at the end of the term would be $360,500. When you calculate the difference in mortgage payments there is no deal as it is pretty much break even (i.e. $165/mth extra X 60 payments = $9900). However, in the 12 months of waiting they will have been paying rent or basically paying someone else’s mortgage payment. *All figures are based on a 35 year amortization.

The preceeding was contained within an email solicitation I received from a mortgage broker encouraging me to refer their services. There is some truth in it regardless of your arguement to the contrary.

#93 Mr. Plow on 01.14.11 at 12:45 pm

#85 refinow …

You put it perfectly. I just laughed when I saw all those posts commenting on Xceed like it was some earth shattering, hold the presses newsflash.

I was going to post about how them closing their doors is so small time, calling it the prick to the bubble is like saying some mom and pop coffee shop at the mall closing down could affect Tim Horton’s business.

#94 Renting in Rosedale on 01.14.11 at 12:47 pm

#2 LH

“I am 26 and I own a few houses in downtown TO (some in the neighborhood of Garth’s high school)”

Sorry LH, but no, you don’t. Maybe one day when you grow up.

As everybody here knows, a single house, purchased in the last couple of years, in what you call “downtown” — perhaps you mean the Annex, or Cabbagetown not sure — would cost $1M+. A few, therefore would cost a few million+.

The only ways a 26 yr old controls a few million+ in real estate:

1. Mommy & Daddy
2. Drug money
3. Your imagination

#95 Alex on 01.14.11 at 1:00 pm

Devils Advocate, I am an electrician and I wired countless number of custom built houses among others. I can tell you that amount on electrical labour didn’t increase ( at least since 2005). Look at commodities, copper, alluminum and others went up. That is what driving prices up. In fact it is quite opposite. Labour costs down (very modestly), materials up (considerably), so contratcs are up
modestly. I bet the same goes for framers. So please rewrite your essay.
P.S. I work in GTA.

#96 BDG-YYC - Sub-Primacy on 01.14.11 at 1:06 pm

Taking out the chainsaw again.

About 9,000,000 households
Roughly a third don’t own homes.
A third of homes are paid for – no mortgage.
That leaves about 4,000,000 households splitting about $1Trillion in mortgages for an average of about $250,000 per mortgage.
But …
Half of the mortgages are likely more than half paid off so … of these the average should be nearer $125,000 so that would mean that about 2/3 of the outstanding mortgage value is shared by 2,000,000 households. If this is the case then these households would have an average mortgage of about $325,000.

Now … using an average home value of $400,000 this would mean that the average home equity for this group of 2,000,000 is $75,000 with about half or 1,000,000 mortgages (25%) with home equity of LESS THAN 19%. And … about 500,000 with less than 10%.

Man that chainsaw is noisy eh?

But there’s more … yup … we have home equity lines of credit (Basically 2nd mortgages) to consider. Now as best as I could quickly get some numbers on this I found that Personal Lines of Credit total something around $200Billion – you know to buy cars, appliances, boats, motor homes, renovations etc.

Now rather than go crazy and apply the same rationalle to allocating this debt as I did for mortgages I’ll assume a softer approach and wildly speculate that the more equity one has the higher the associated home equity line might be … so … let’s only take say 1/3 of this and add it to the bottom half of more unpaid mortgages.

So we have 66 billion to add in. So let’s be cautious and just take a third of that to apply against the 1,000,000 mortgages that have less than $75K in equity. That works out to about $22,000 per … which brings that $75k number down to … $53,000.

Now let’s rework the numbers a bit … to give us …

2,000,000 mortgages with an average of $53,000 in equity … which is 13%. Which means we likely have 1,000,000 mortgaged households with less than 13% equity and 500,000 with less than half that – before taking selling costs into consideration.

Now … a few related tidbits to consider …
The average canadian household moves about every 5 years historically.
About 1 in 10 Canadians will find themselves out of work at some time in the coming year.
About 20%/yr. of all mortgages – about 65,000 per month are up for renewal.

Hmmm … ??? Can’t be … ???

#97 haha on 01.14.11 at 1:17 pm

i enjoy firearms, and in particular, hand guns and target shooting at a range.
now, taking that into consideration:
why do pro gun people post their pathetic defensive replys to this blog, thinking that the original posting is attacking anyones right to firearms and ownership ?
this is a blog about economics, and sometimes political dribble.
safe your guns, put away your ammo, pro whatever you are, and post something relevant to the purpose behind this blog.
oh, and yes, please don’t point your guns at me for making this remark. unless of course, you are that INSECURE…

#98 thanks Moneta!! on 01.14.11 at 1:29 pm

#84 Moneta on 01.14.11 at 11:53 am with your hypothetical retiring boomer scenario.

I agree that it is likely to play out like that for many folks. Not sure about how successful they look or feel in a 600K house though :) $600K doesn’t get you much these days…..

But your points are relevant and it is scary to think that these are the lucky boomers.

I’m still renting even though I’m a boomer….had a house for a while but it went with the marriage….hope to buy back in someday but it will take a significant correction to get me off the fence.

Garth may laugh at me, but I miss owning a house and fixing it up, personalizing it etc. Otherwise renting is fine.

Peace out

#99 Devil's Advocate on 01.14.11 at 1:43 pm

Real estate pumpers can continue to pump BS through firehoses, it won’t change the facts. The exact same thing was seen in Ontario after the ’90 bust – it took over 12 years for prices to recover (’03) to those earlier price levels. Many people in Ontario jingle-mailed the keys, I recall an 80 unit townhouse complex in Brampton that had about 10 residents still living there, and 75 ‘For Sale’ signs. But of course, “it can’t/won’t/will never/ it’s different/here/this time/ in Canada” – sure it will. Uh-huh. Yeah. Keep swilling the kool-aid, and smoking the killer buds. #86 Got A Watch

But of course you are correct Got A Watch. History, if not repeats itself, certainly does rhyme. Which is why all those of us who bought a “home” rather than a “speculative investment” fear not the fluctuations in the value of it as replacement cost equates to disposal cost in the same market and long term rent or own the roof over your head comes at opportunity cost to other of lifes pleasures. But that roof over our heads we do need… here in Canada anyway.

#100 dark sad person on 01.14.11 at 1:46 pm

Here’s an antidote for all you gun registry-please protect me advocates-
All of this is and will continue to come back and bite you in the ass-
If not you-then perhaps your mother or grandmother-

Be careful what you scream and whine for-you might just get it-good and hard-
***************

Woman, 82, ‘humiliated’ by airport security

An 82-year-old woman says she was humiliated by airport security who forced her to reveal her gel prosthesis during a recent public pat-down at Calgary’s airport.

Elizabeth Strecker, who was flying to British Columbia after visiting her children last week, says that she will never fly again following the incident.

“It was terribly humiliating and embarrassing for me,” she told CTV British Columbia in an interview.

http://news.sympatico.ctv.ca/home/woman_82_humiliated_by_airport_security/a6e10365

#101 Al on 01.14.11 at 1:49 pm

Only the gangsters and cops carry guns – the rest of us a target practice for them. We should all be allowed to defend ourselves with guns

#102 Al on 01.14.11 at 1:50 pm

Only the gangsters and cops carry guns – the rest of us are target practice for them. We should all be allowed to defend ourselves with guns

#103 Junius on 01.14.11 at 2:00 pm

#92 DA,

Yes, we can all agree that interest rates are going up and that this will impact mortgage payments.

What the mortgage broker doesn’t deal with is that this is why prices are dropping and also why they could be dropping a signficant amount. Love the comment about paying someone else’s mortgage.

Show me the line where he discusses how they could end up with a mortage larger than the value of the home. Negative equity is like renting except with debt.

#104 Coho on 01.14.11 at 2:08 pm

The failure of Americans to drop their romantic obsession with guns and to enact proper gun control legislation like other civilized societies will mean that these sort of tragedies continue. It’s sad to watch otherwise intelligent people try to rationalize gun culture in urban environments where nobody should have any legitimate need of a firearm. I guess the US makes too much money out of the small arms business.

The progression of a government moves in a way to disempower its people while increasing its own powers. It is the same with wealth. It takes more and more in taxes, but provides the same or less services to its people. Why? Because it apportions more and more of taxpayers money to grow itself. Soon it is in every intersection (cameras), on your phone line, on your internet connection, on your credit card (chip) and in your bank transactions (debit cards) etc. Of course for good reason, such as convenience and to catch the bad guys. At least that is how it is sold to us.

The American founding fathers gave their citizens the right to protect themselves from tyranny should their own government become despotic. The American government would like nothing more than to find a way to take the guns way from its people, not to protect against kooks, because you can’t protect against that, but to further disempower its people. And that is why we are hearing the predictable anti-gun chatter on the MSM because it would be a shame if a horrific act couldn’t be used to take away peoples’ liberties.

In light of the way things are unravelling economically, politically, geo-politically, extreme weather, etc, and the exposure of fraudulent exploitative ruling class behaviour, it is at the same time smart and stupid to worry about our financial future when the game is rigged. This is like (to use Garth’s term) sucking and blowing at the same time.

#105 Mister (really) Obvious on 01.14.11 at 2:09 pm

#35 nonplused

Maybe they object to the cruel way we pool up our dying in one place out of the sight and care of their loved ones and let the government handle it. Just a thought.

Think again.

The owners of the condos in question are speculators. There is no other reason why they would pay well over a million dollars for a box in a high-rise that happens to be located on the UBC campus. In any normal market they could simply pull up stakes and move elsewhere if they didn’t like the developmental changes occurring in their neighbourhood.

These owners are not even trying to mask their true concern. They freely admit their property values will plummet if the hospice development goes forward. They know full well the only future potential buyers of their overpriced units would be other Asians and that pool of buyers will dry up faster than the Aral Sea.

But, that’s just how it sometimes goes in speculative markets. It’s called ‘unforeseen circumstances’. It’s interesting to note that UBC hospital is located only blocks further away. It’s a fully-fledged urban facility where people also die occasionally. This seems to be of no concern.

#106 Genghis on 01.14.11 at 2:17 pm

Commentary and chart from Japan’s Nomura financial group on Canada’s household debt.

The chart compares household debt to disposable income, between Canada and the US.

http://www.businessinsider.com/canada-debt-bubble-2011-1

#107 boomer62 on 01.14.11 at 2:25 pm

#78 Devil’s Advocate on 01.14.11 at 11:04 am

Do you have a learning disability or are you blinded by your trade?

#108 Worldwide on 01.14.11 at 2:54 pm

#94 Renting in Rosedale “Sorry LH, but no, you don’t. Maybe one day when you grow up. The only ways a 26 yr old controls a few million+ in real estate”

I’ll join you Renting in Rosedale in calling LH’s (the 26 year old) bluff as well.

#109 kitchener1 on 01.14.11 at 2:56 pm

#64 Victor, thanks for the link.

http://www.financialpost.com/Tougher+condo+mortgage+laws/4105580/story.html

The Govt always foreshadows its policy moves in advance to gauge public reaction. check out some choice quotes from that article.

“It is almost a guarantee……….. down to 30 years from 35.” wow, weeks ago it was just rumors now its almost a done deal.

Min downpayment going from 5% to 6 or 7%– thats going to be 10% down. Just wait and see

Article goes on to state condo clown Brad Lamb as saying what a bad move it is and how it will only effect first time buyers and not investors.

Crackhead stuff right there, umm, investors sell their condo’s to first time buyers so yes it will effect entire condo market

#110 Devore on 01.14.11 at 3:02 pm

#64 Victor

For once I agree with Brad. Non-condo/non-strata home owners should be setting aside a similar amount of money monthly to have a fund to cover all manner of emergency repairs and wear and tear replacements. Most home owners aren’t even doing regular inspections and maintenance. A house is a depreciating asset, chew on that one.

A detached house is easier and cheaper to maintain (no elevators, pools, concierges, elaborate parkades and security systems), but it still costs lots of money every month to keep them in good shape.

#111 Timing is Everything on 01.14.11 at 3:02 pm

#36 Tim

Holy crap!…Another word guy…Garth, watch out.
Good post. Ha!

#112 kitchener1 on 01.14.11 at 3:07 pm

Regarding the possible change in condo rules, requiring the entire condo fee to be accounted for in the mortgage qualifying process.

Its a no brainer- i think its long overdue.

When you purchase a house you have many options– ie. new homes do not come with paved driveways, you can leave it gravel for 20 years. A condo cannot because it assumes the liability for all residents and their guests. A homeowner only assumes liability for themselves.

Furthermore condo/strata fees have to take into account future maint to maintain resale value.

Its one of those deals were its the greater good that wins.

If I own my house, I do not need to replace my entire roof if it leaks, I can just patch the leak.

If my furnance blows, I can use electric heaters, my AC blows, no problem, i can choose to live without it.

I do not need to replace my windows or replace my front steps(balconey)

I do not need to maintain landscaping beyond keeping it reasonable cut- no flowers etc.. like a condo does

I do not need to shovel my driveway if I choose not too, only the sidewalk if I have one. Unlike a condo that does.

the above is not ideal but the option remains that I can defer maint. costs for a buyer down the road– of course it will effect my resale, but I have the option to defer that loss where as a condo owners has to take that cost on a monthly basis. No option to defer that maint.

Condo fees have to paid like property tax, no choice in the matter so of course they should be calculated into mortgage approvals.

If this happens it will put a dent into the older condo market in the GTA. Lots of 10-20-30 year old condos that have condo fees of $600-$800/month, add that to a mortgage and property takes ($2000 plus) and someone will need to make $6000k to buy a condo.

#113 Devore on 01.14.11 at 3:09 pm

#73 AACI-Okanagan

Well said Garth, people should be buying homes as a shelter just like our parents their parents did. Real estate should be treated as a long term investment.

Still missing the point. Shelter, not investment. Housing is a basic need. We all need it. Do you invest in carrots? Clean water? No, only to the extent that you eat well for your body’s and health’s sake, an investment in yourself. To the same extent, you want a safe, clean house.

Housing is a consumable. Like a garden, it needs to be refreshed periodically, otherwise it will get old, stale, worthless, and possibly even unsafe and toxic.

#114 Devil's Advocate on 01.14.11 at 3:09 pm

#95 Alex on 01.14.11 at 1:00 pm

Yes THAT must be what it is that caused housing prices to go up so. Copper and aluminum prices. And how much copper and aluminum is there in a house again? In any event I think you missed my point. Do me a favour and reread my post before I rewrite it for you.

——————————————————

#89 BAD on 01.14.11 at 12:36 pm

Ahhhh, I see you have found the hidden immunity idol. ;-)

#115 Moneta on 01.14.11 at 3:11 pm

Regarding Xceed and subprime in Canada…

I just went to get a quick look at Home Capital Group…

5 billion of loans on their books. 75% in Ontario. So we know that Ontario has at least 4 billion $ worth of suprpime. But that does not include those that were securitized. And neither does it include those from other competitors.

Interestingly, there’s a line in their annual report that shows guarantees from CMHC. I thought CMHC did not make subprime loans? LOL!

#116 Timing is Everything on 01.14.11 at 3:17 pm

Ha. Rules? What Rules? The ‘Official Community Plan’ (OCP) means nothing. Councillor Ron Kubek is a realtor and all for the sub-divsion, of course. Ya can’t stop ‘progress’…. ;)

http://www.timescolonist.com/news/Vantreight+housing+opponents+court/4107373/story.html

http://www.ronkubek.com/

#117 poco on 01.14.11 at 3:23 pm

#56 SmartBlonde
you’re right–that house was first listed in April 10 for 1.088m–taken off the market and then relisted sometime in August for the same price
you can double that 142 days on market
i see this all the time from the e-mails i get from my realtors-
just another way to spin the numbers
a quick phone call to your realtor(if he’s a good one) should give you any info you need on a listing

#118 Devore on 01.14.11 at 3:23 pm

#81 Cowboy_aka_My_View

The guy is 26 and has investment properties. You said don’t own and invest for a 6% return. With what? His $$$$$$ is coming from rentals. So is he supposed to borrow funds to purchase preferreds?

No one would lend him money to buy stocks like that. You know why? Risk. To the lender. With a mortgage, there is none. If government guaranteed loans to buy preferred shares, then banks would loan to people who want to leverage themselves 20:1 in preferreds.

To the borrower, whether they borrow 20:1 to buy a house or to buy a whack of preferreds, the risk is the same: potential for capital loss and being unable to sell an underwater asset. Without taxpayer guarantees, it’s called a margin call, and the brokerage just takes what’s theirs.

If the properties are really cashflow positive and yielding 6%, after ALL costs (property taxes, maintenance budget(!!!), vacancy allowance, management, income taxes, insurance, financing), and will still be cashflow positive even if rates go up 1.5-2%, sounds like a potentially good deal. But the devil is still in the details.

#119 Nostradamus Le Mad Vlad on 01.14.11 at 3:25 pm

#53 Julie — FWIW, suggest starting two TFSAs, going with what a poster suggested before: Rare earths, uranium, junior mining companies with proven reserves, utilities, valladium / gold / silver, copper, etc.

E.G., penny (or thereabout) stocks, use monthly DRIPs (dividend re-investment plans) to increase the net overall worth.

On Dec. 31 or each year, withdraw $5K from profits then Jan. 2 contribute that $5K. Let the compounding continue!

Avoid GICs / CSBs and other deadbeat investments like the plague.

#120 triplenet on 01.14.11 at 3:30 pm

#78 Devils Advocate

Again you demonstrate your stupidity. You truly do not understand fundamental real estate principles, whether it’s cost or value – this time.

#121 David B on 01.14.11 at 3:41 pm

The Bedford Nova Scotia Saga continues

http://www.youtube.com/watch?v=cB0ecGTXrgQ

Cool eh?

#122 Devore on 01.14.11 at 3:42 pm

#119 Nostradamus Le Mad Vlad

On Dec. 31 or each year, withdraw $5K from profits then Jan. 2 contribute that $5K. Let the compounding continue!

Sorry, but you’re gonna have to explain that one very slowly.

#123 Devil's Advocate on 01.14.11 at 3:44 pm

Show me the line where he discusses how they could end up with a mortage larger than the value of the home. Negative equity is like renting except with debt.
Junius

But eventually Junius the market does come back always has and always will just as it will tank again after the next bubble. But in the long run the cost of “shelter” will continue to rise with the increasing demand due to an increasing population. What has world population done in the last short 100 years? Gone from 1 billion to 7 billion. Plot it out and think it through.

#124 GregW, Oakville on 01.14.11 at 3:46 pm

Hi #97 haha,

About a year ago my parents sold they home of 40+ years. They wanted to get the most they could of course. Believed asking for the most they could was the way to go. While on the market they looked around the hood at other comparable home to see what they were asking and looked like. Due to this blog I pointed out they should lower there asking to below the others so there would look like the better deal, since they hadn’t gotten an offer yet. They did and they were much relieved it was sold. My dad had been religiously throwing out accumulated stuff weekly for over a year in preparation for the sail.

There next door neighbor of 40+ years was thoughtful enough to wait until it sold before having a large dumpster place on his drive way to clean out his home in order to sell it, it took 2 dumpsters!

While cleaning the basement they came across a long forgotten pistol.
They had an o-my-G_d moment, thankful the grand kids had never accidently found it.

He had gotten it before you need to take a safety course, have it registered and locked up.

Like you I enjoyed trying out my friends firearms, at the range. I even took the course. I don’t have any. I’m happy I can enjoy my friends at the range from time to time. Glade we have a few sensible rules to avoid very unpleasant accidents.

#125 jess on 01.14.11 at 3:47 pm

Ten years !!!!!!!!!sounding alarms
“soul searcher” insider to teach the attorney general how it all worked.

MR. F and Mr. C talk should be speaking more about CONSUMER PROTECTION.

Cox, Prentiss, “The Importance of Deceptive Practice Enforcement in Financial Institution Regulation” (2009). Pace Law Review.
Paper 629.
http://digitalcommons.pace.edu/lawrev/629

Government agencies and public interest
entities primarily focused on consumer protection were
sounding the alarm about the practices that caused the
mortgage collapse for almost a decade before financial system regulators began to take the problem seriously.(3 )Consumer protection concerns should be at the core of the regulatory system mission, partly to ensure that lending institutions are financially sound in the long-­term.

#126 Devil's Advocate on 01.14.11 at 3:47 pm

#120 triplenet on 01.14.11 at 3:30 pm

#78 Devils Advocate

Again you demonstrate your stupidity. You truly do not understand fundamental real estate principles, whether it’s cost or value – this time.

WTF are you talking about. I reviewed my comment at #78 and an certainly missing your point. Or could you be missing mine?

Enlighten me.

#127 Devil's Advocate on 01.14.11 at 3:54 pm

#114 Devore on 01.14.11 at 3:09 pm

#73

Well said Garth, people should be buying homes as a shelter just like our parents their parents did. Real estate should be treated as a long term investment.

Still missing the point. Shelter, not investment. Housing is a basic need. We all need it. Do you invest in carrots? Clean water? No, only to the extent that you eat well for your body’s and health’s sake, an investment in yourself. To the same extent, you want a safe, clean house.

Devore that you do not understand the point AACI-Okanagan is making does not mean he/she is wrong. What you fail to understand it you are more aligned with AACI than you know.

AACI, it’s frustrating isn’t it?

#128 Chris in Langley on 01.14.11 at 3:54 pm

To #95 Alex on 01.14.11 at 1:00 pm

How dare you use logic like that? Don’t you know who you were addressing? This is the man who claimed there would be no correction and that his fifty something wife still looks 22.

To #104 boomer62 on 01.14.11 at 2:25 pm

It’s a learning disability. Have you not read any of his other posts? Lucid thinking is not something that comes in large supply. By his own admission he was voted the 2010 greatest fool. I made a general reference to him in a post as the “villiage idiot from Kelowna” and he ascribed the comment to himself. How’s that for learning disability? I wasn’t even addressing him, I was addressing the other posters, yet he took it upon himself to adopt the label!
Brilliant.

#129 Devil's Advocate on 01.14.11 at 3:57 pm

#114 Devore on 01.14.11 at 3:09 pm

#73 AACI-Okanagan

Well said Garth, people should be buying homes as a shelter just like our parents their parents did. Real estate should be treated as a long term investment.

Still missing the point. Shelter, not investment. Housing is a basic need. We all need it. Do you invest in carrots? Clean water? No, only to the extent that you eat well for your body’s and health’s sake, an investment in yourself. To the same extent, you want a safe, clean house.

Devore that you do not understand the point AACI-Okanagan is making does not mean he/she is wrong. What you fail to understand it you are more aligned with AACI than you know.

AACI, frustrating isn’t it?

#130 Devil's Advocate on 01.14.11 at 4:25 pm

#128 Chris in Langley

I made a general reference to him in a post as the “villiage idiot from Kelowna” and he ascribed the comment to himself. How’s that for learning disability? I wasn’t even addressing him, I was addressing the other posters, yet he took it upon himself to adopt the label!

I’m must be slower than I think for I am not following your logic.

First you say “I made a general reference to him in a post as the “villiage idiot from Kelowna””

and then right after you say, “I wasn’t even addressing him.”

And as far as claiming there would be no correction that is complete BS. Show me where I seriously made any such comment on these blogs. “Correction”? Correction is my word man. I love “correction”. I can prove with documented evidence dating back as far as 2004 that I never denied there would be a correction and that a “correction” was long over due and well warranted. I have newsletters from 2004 which I created and sent to clients that would prove you wrong in a heartbeat.

As far as my wife looking 22 goes… I can prove that too. ;-)

#131 Devore on 01.14.11 at 4:31 pm

#129 Devil’s Advocate

I understand just fine. You do not need to buy to have access to perfectly good housing, and it will be vastly cheaper to rent too, leaving you more money to buy good food and stay healthy. You don’t need to own the farm to feed yourself. When buying a house is cheaper than renting, then you would buy, because that lowers your housing costs. Why would you needlessly inflate it?

So tell me what it is I do not understand?

#132 Chris on 01.14.11 at 4:32 pm


113 Devil’s Advocate on 01.14.11 at 3:09 pm

You Wrote ….

Yes THAT must be what it is that caused housing prices to go up so. Copper and aluminum prices. And how much copper and aluminum is there in a house again? In any event I think you missed my point. Do me a favour and reread my post before I rewrite it for you.

Hmmm … I think there is a little ignorance going on here!

Increased materials costs have had a significant impact on house prices. Copper and aluminum have indeed gone up significantly compared to a decade ago. Despite there not being a huge volume of copper or aluminum wire in any house I would definitely agree that these materials have increased overall home affordability.

Framing lumber is actually a pretty poor indicator of materials costs for a house package. Most of the cost comes from finishing materials; roofing, plumbing, electrical, appliances, septic … all of these costs have gone up. I think it is fairly ignorant to say that wages paid to construction trades (which have also gone up) explains the massive housing price increases.

Oh right … and let’s not forget the price increase of raw land.

My opinion may have limited value in this … I am not a realtor … but I am an engineer who owned and operated a house construction business for over a decade.

Chris

#133 US Investor on 01.14.11 at 4:39 pm

Interesting drop in BC building permits last month. With prices near all time highs, one would reasonably expect that builders would be anxious to start projects. Unless of course they either know they can’t sell the product, or they can’t finance the construction becasue the banks suspect they will not be able to sell the product. Funny, the same thing happened in California in the summer of 2006, all the sudden all development projects were pulled or terminated. Other market fundamentals still looked good on paper (high prices, healthey sales activity). Kind of a Road Runner moment, you know when the coyote ran off the cliff and hung in air for a moment.

But my Canadian brethren tell me things are different there so I am sure things will be fine. In any case I am going to keep buying Canadian Mortgage Backed securities by the thruckload because I know that the government stands behind them, and all the non-house owning taxpayers are assuring me that they will pay them off, so as an investor, the housing market does not really concern me and I will keep pumping liquidity in as long as the Canadian governent lets me!

#134 Alberta Boy on 01.14.11 at 4:40 pm

Mike Fotiou hits the nail on the head in his latest blog posting. The markets in Calgary in particular, and Canada in general, are on easy credit life support. Will the powers that be decide to pull the plug?

http://calgaryrealestatereview.com/2011/01/14/the-catalyst-noose/

#135 TS on 01.14.11 at 4:56 pm

To: #89 BAD on 01.14.11 at 12:36 pm
Your land value up thanks to Smart Growth (not so smart)and development charges. Benefited existing homeowners and property owners. Both policies have caused other consequences like transportation and employment issues. Commuting way up thanks to expensive housing. These two combined along with the white wash speculators (investors) are probably the biggest contributers to rising real estate values combined with low interest rates. Most of these policies are known to cause this. The municipalities and Provincial big wigs just did not care. Most of the big thinkers on Smart Growth have gone in hiding.

#136 Timing is Everything on 01.14.11 at 5:05 pm

“…you have totally forgotten housing is shelter, not the futures market. Enjoy your fate.” – Garth

Well agreed, housing is shelter, but it WAS like a futures market for 10 years also…but that train is long gone. Housing is still and will always be shelter. 2000-2010…Crazy…RE flippers R.I.P.

People forget.

http://www.youtube.com/watch?v=-u0GJdNu1Ds

#137 Victoria on 01.14.11 at 5:28 pm

Signal Loss: As for Oakville, I swear it seems to reside inside an economic force field or something. The laws of physics don’t seem to apply here. It does seem kind of dumb to let one of those single family homes go if it doesn’t amount to much of a dent in your finances to carry anyway.

I think that this is Victoria.

#138 Alister on 01.14.11 at 5:36 pm

#84 Moneta

You are describing the well off boomers. I know lots who don’t have 300k in RRSPS, no pension, no benefits, etc.

do you know where there are some accurate statistics on the state of the 55 to 65 age group?

#139 dark sad person on 01.14.11 at 5:44 pm

Coolest people in the world-

Too bad they’re all in Iceland–

**************
Iceland’s Landsbanki chiefs arrested: prosecutor

(AFP) – 3 hours ago

REYKJAVIK — Two former heads of collapsed Icelandic bank Landsbanki, including a former chief executive, have been arrested in connection with a market manipulation probe, the prosecutor on the case said Friday.

Sigurjon Arnason, the former head of the failed bank, and Ivar Gudjonsson, its former investment chief, were arrested Thursday and went before a judge Friday afternoon, special prosecutor Olafur Thor Hauksson told AFP.

http://bit.ly/h5iJxc

#140 Dattaman on 01.14.11 at 5:45 pm

Garth,

Out of curiousity I was taking a look at a new condo project “BackStage” going up in downtown Toronto near The Esplanade and Yonge. Some of the pre-public “VIP” early bird pricing and floorplans can be found here:

http://dl.dropbox.com/u/11598063/Floorplans.pdf

Looking at a 2 bedroom unit on the 8th floor with 894 square feet at $525,900 (and that’s early bird pricing), $1000 premium per floor, so $8000 floor premium, parking at $35,000 and locker at $4,000 plus maintenance at $0.55/sqft. At 10% down, 25 year mortgage, insurance, tax, and condo fees, this would carry for $4,036.35/month. Similar 2 bedroom units in that corner of Toronto currently rent for between $2000 to $3000/month, making this early bird deal a cash flow loser of about $1000 to $2000 a month.

It boggles the mind that this is early bird pricing on a new condo project in Toronto that won’t be move in ready until 2013 at the earliest.

I know the early bird catches the worm, but hopefully a lot of people are figuring out that new condo buyers are the worms in this story, and that the early worm gets eaten alive!!!

#141 Timing is Everything on 01.14.11 at 5:49 pm

#90 BAD

Agreed…Welcome to DA’s world. Good post.

#142 Live Within Your Means on 01.14.11 at 6:12 pm

#89 BAD on 01.14.11 at 12:36 pm

Re land. Strange where I live. We’ve a fairly large lot – 70 X 190+ but one side has a bank, 30 yr old home. Half of the street is fairly new – 4-5 yrs with large homes but small lots. On our older end of the street all of the lots are assessed at the same value, regardless of size. One neighbour has a double lot, but her extended family owned most of the land in our area and developed it. They have a lot of clout with the municipality.

#143 Jan Etter on 01.14.11 at 6:13 pm

#123 DA
“But eventually Junius the market does come back always has and always will just as it will tank again after the next bubble. But in the long run the cost of “shelter” will continue to rise with the increasing demand due to an increasing population. What has world population done in the last short 100 years? Gone from 1 billion to 7 billion. Plot it out and think it through.”

It’s fallacious logic to suggest the cost of shelter must rise with an increasing population. Costs of land/shelter depend on numerous variables such as efficiencies in production methods, material costs, market value of labour, location of land, efficiencies in delivery, quality and cost of services supplied to that land (sanitary/water/hydro), development charges and costs associated with development of land and the cost and availability of credit supplied to finance the purchase of land and shelter.

#144 Jim on 01.14.11 at 6:15 pm

Looking for some advise for my Mom. 69 with RRSP’s of about 1.2 million. How to take out at a lower tax rate? She said she could take all out and pay 25% tax if she declared non residency but she doesn’t want to do that. After 72 she says government tells her how much she must take out. What is the best tax effecient way to handle the bulk of her wealth in RRSP’s.

Obviously she should pay her taxes. RRSPs are for tax deferral until a later time in life – which is now. They are not for tax elimination. However she could borrow a large sum to set up a non-registered account, then use the RRSP withdrawals to pay the loan interest. The withdrawals would be taxable and the interest tax-deductible, allowing for zero tax and, in effect, a wealth transfer into a non-sheltered investment pool. I strongly recommend this be done with an advisor who could craft a lower-risk and appropriate portfolio. — Garth

#145 Bobby Singh on 01.14.11 at 6:36 pm

Garth,
Great post and great book- even though we have not seen the correction yet I have put our money where our mouth is. We are renting having sold our principle residence for $600,000 and now am sitting on a lot of cash- what type of investments would you suggest in gerneral that are safe place to park money yet pay more than 1.25% currently being paid by banks.

My most recent book should give you the basics on the asset classes to consider. If you need help finding an advisor, contact me at [email protected]. — Garth

#146 Devil's Advocate on 01.14.11 at 6:53 pm

My opinion may have limited value in this … I am not a realtor … but I am an engineer who owned and operated a house construction business for over a decade.

Chris

Many materials have actually fallen in price Chris. Check out hardwoods which due to their more popular demand have enjoyed significant economies of scale bringing them to market.

Take cultured stone at approximately $10.00 a square foot. Yet you can actually bring the real thing, real stone Chris not that light weight replica stuff, in from China for $5.00 a square foot. Can you imagine that?!? We’re talking heavy real stone shipped in containers across the Pacific Ocean landed on the jobsite for half the price the fake stuff made here in North America will cost you! Of course the labour to install it will still take a handsome toll from your wallet. What does that tell you Chris? What it tells me is the domestic labour cost component of many products has inflated the end product cost of housing not to mention the actual labour cost employed in assembling the house itself. And we wonder what’s wrong with our economy?

I agree that materials costs have gone up, but not nearly so much as labour. I am confident if you compared the aggregate of each it is the labour component which has by far contributed most to the increase in the cost of housing… next to that taxes, and development cost charges.

But what do I know Chris… I’m just talkin’ through my ass… again.

#147 Devil's Advocate on 01.14.11 at 7:11 pm

#143 Jan Etter on 01.14.11 at 6:13 pm
It’s fallacious logic to suggest the cost of shelter must rise with an increasing population. Costs of land/shelter depend on numerous variables such as efficiencies in production methods, material costs, market value of labour, location of land, efficiencies in delivery, quality and cost of services supplied to that land (sanitary/water/hydro), development charges and costs associated with development of land and the cost and availability of credit supplied to finance the purchase of land and shelter.

Are you Serious? Do you even know what you are saying?
Look at the last 100 years… it is what you speak of that has fueled the very opportunity for mankind to propagate as it has. What you are speaking of IS the very catalyst which has set the stage and made it all possible. You are not pointing to the solution so much as you are pointing to the cause.

#148 Devil's Advocate on 01.14.11 at 7:15 pm

#141 Timing is Everything

#90 BAD as much as he might believe he and I are on different pages, has found the hidden immunity idol.

You? Not so much.

#149 Live Within Your Means on 01.14.11 at 7:18 pm

#146 Devil’s Advocate on 01.14.11 at 6:53 pm

You have a point DA, but should we in NA work for $1.00 an hour? That’s what it really boils down to.

#150 Devil's Advocate on 01.14.11 at 7:18 pm

#132 Chris

Oh right … and let’s not forget the price increase of raw land.

And yet another finds a hidden immunity idol! Woo hoo!

#151 Devil's Advocate on 01.14.11 at 7:21 pm

#136 Timing is Everything on 01.14.11 at 5:05 pm

“…you have totally forgotten housing is shelter, not the futures market. Enjoy your fate.” – Garth

Well agreed, housing is shelter, but it WAS like a futures market for 10 years also…but that train is long gone. Housing is still and will always be shelter. 2000-2010…Crazy…RE flippers R.I.P.

People forget.

Ooooooo so close…. keep digging, but a little to the left. I’m sure there is another immunity idol out there somewhere.

#152 VICTORIA TEA PARTY on 01.14.11 at 7:26 pm

ROAD APPLES, PRAIRIE OYSTERS…WHAT THE HELL…

It’s just too darn bad that “they” stopped teaching the little darlings history in school, isn’t it?

Otherwise a much larger cohort of smart people amongst us would be able to give a louder fair warning of housing bubbles and other economic calamities to come. Boy do we have them in spades. Example: the Baltic Dry Index is cratering hugely, again, a la 2008.

Instead, its fantasy time all the time back here at the economy at large.

We’re saddled with the whores, and their eunuchs in the MSM, the vaunted economists and journalists. These know-it-alls, history tells, know nothing; navigators with no compasses and sextants.

If you’ve been studying your history, outside of school, you wouldn’t be surprised to know how bad things are all over. Check out the fast-cratering Baltic Dry Index. Scarey, folks.

Getting back to the economic calamity, of real estate in Canada, we are going the way of our marvellous empirical benefactor lying to the south of us. Of that there is no doubt.

Those who refuse to study their history, including boning up on the future impact of individuals’ decision-makings concerning the effects of 5/35s and so forth will have shabby futures indeed.

You’ll notice who they are, soon; the ones sitting on the sidelines of an ever-diminishing house-porn sideshow munching on sweetbreads and prairie oysters…theirs’.

Eunuchs in the court of real estate, indeed. After the ball is over, watch for those road apples!

#153 Timing is Everything on 01.14.11 at 7:26 pm

#123 Devil’s Advocate

DA, Just 4 U…Plot it out.

The United Nations forecasts that by 2300 the global population will be just under 9 billion.

“… if fertility levels remain unchanged at today’s levels, world population would rise to 244 billion persons in 2150 and 134
trillion in 2300, clearly indicating that current levels of high fertility cannot continue indefinitely.” Population Coalition, 2005

http://www.worldmapper.org/posters/worldmapper_map12_ver5.pdf

The full report….

http://www.un.org/esa/population/publications/longrange2/WorldPop2300final.pdf

#154 Nostradamus Le Mad Vlad on 01.14.11 at 7:37 pm

#122 Devore — Say a TFSA has $10K invested in three areas, booms by $6K in a year; withdraw $5K toward the end of that year and place in another investment in the new year, avoiding the use of one’s own money.

Use profits to pay for investments.

#139 dark sad person — At last the greedy are beginning to reap what they have sown.

The meltdown seemed to begin with Iceland, then swept across Europe and this continent. No doubt there are many others who are shitting bricks.

#155 OttawaMike on 01.14.11 at 7:40 pm

Here’s a touching story of a young underwater Kelowna homeowner and how low interest rates have saved him from the wolves. Or something to that effect:

http://bit.ly/htk35w

#156 Jim on 01.14.11 at 7:45 pm

Thank you very much Garth for this information

#157 Devil's Advocate on 01.14.11 at 7:53 pm

#149 Live Within Your Means on 01.14.11 at 7:18 pm

#146 Devil’s Advocate on 01.14.11 at 6:53 pm

You have a point DA, but should we in NA work for $1.00 an hour? That’s what it really boils down to.

Thank you.

Of course we shouldn’t work for $1.00 an hour in North America… no one on this continent could do that today. However be it $1.00 or $1,000.00 it is irrelavent as it is the purchasing power that counts and not just within a countries boarders but in the world marketplace by far.

Try gain some perspective though and understand that it is not the purchasing power of your dollar so much as that of your customer which counts most. Without a customer you have no revenues. Without revenues it doesn’t matter how inexpensive that house is you’re destine to live in a cardboard box.

We all have customers every single one of us… some just don’t realize it and that is where they fail. We demand higher wages not understanding that we might just price ourselves out of our customers budget.

See where I am heading? Of course not… Our dollar is above par Woooo Hooooo!!!Ya right… good luck on that one

#158 nonplused on 01.14.11 at 7:59 pm

Here is an interesting, if somewhat lengthy read on why democracies always end in bankruptcy. Once you get to the end I think it seems pretty obvious that it must be true.

http://gonzalolira.blogspot.com/2011/01/why-democracies-will-always-go-bankrupt.html

Here is the short version done by me for those who don’t want to read the whole thing:

– Democracies write legislation to appeal to the majority.

– People want multiple positive objectives. For example most people want the government to balance the budget. But they also want better education. They also want improved health care. They also want gun control registries. They want tax reduction. They vote in the positive for all of the bills enacting each government positive.

– Early on, the government cannot borrow money at reasonable rates (or on the gold standard pretty much ever), so the conflicting demands must be resolved each budget year.

– After a number of years resolving the conflicts, the government becomes viewed as a reliable credit risk in the market, and borrowing costs drop below the cost of resolving the legislative conflicts.
– Borrowing begins.

– Legislative conflicts now compound freely because there is no external force to compel the politicians to resolve legislative conflicts. We can now have both guns and butter. And everything else we might imagine would be nice to get for free.

– Eventually the government is saddled with so many conflicting legislative conflicts that spending cannot be constrained (hint, that is about where we are now).

– The government goes bankrupt. (This is still some years away, I hope.)

– Bad things happen.

Gonzalo does a much better job highlighting why all of these steps are unavoidable due to human nature so if you don’t see it intuitively read the whole thing.

So there you have it. I’ve argued before that I think lending to governments is immoral and the lenders deserve to loose every penny they lend to the government. I’ve also argued that government needs to be pay as you go because government borrowing is just a giant Ponzi scheme. Who do you think they are going to tax in the future to pay those debts they ran up while not taxing you in the past? I’ll give you a hint, it’s not going to be your kids. We were, collectively, fooling ourselves.

The collapse will happen by the time the boomers are into the retirement phase, say in 5 or 10 years. All the promises they made to themselves cannot be repaid. It’s going to be the boomers own government that collapses under the weight of their collective mistakes. It’s too bad, because nobody had any bad intentions (except the bankers, of course, who would gladly ruin 100 nations for a nice fat profit).

#159 jess on 01.14.11 at 8:12 pm

dark sad

….when a man sets himself on fire (tunisia) and how about these citizens …

An attempted kidnapping September 21 in the northern Mexican state of Chihuahua touched off a burst of mass outrage that left two suspected young kidnappers dead and a small town in open rebellion. While the details are still sketchy, the events began with the abduction of a 17-year-old female worker of a seafood restaurant in the town of Ascension by a group of young men.

Located south of the New Mexico border, Ascension is in an agricultural region known for its production of chile peppers for the US export market and other crops. The rural area has suffered numerous kidnappings and killings during the last two years.

Alerted to the kidnapping, townspeople and soldiers mobilized, freed the victim and detained five alleged kidnappers; one suspect reportedly escaped. Hundreds of angry residents beat two of the detainees, teenagers, and blocked police from rescuing the suspects, who were later pronounced dead. Reportedly, the mother of one of the suspects witnessed her son’s demise.
http://www.grass-roots-press.com/2010/09/22/is-the-fuse-lit-uprisinglynching-in-chihuahua/

And where do these flows go????hum

http://www.financialtaskforce.org/2011/01/06/mexico-as-violence-spreads-money-flees/

Mexican stability is deteriorating, billions of dollars are being sent illegally out of the economy undermining genuine efforts at reform and growth. Findings from a forthcoming Global Financial Integrity update on Illicit Financial Flows from Developing Countries show that between 2000 and 2008 cumulative illicit flows from Mexico were over US$462 billion. That is over $50 billion per annum. The illicit flow model is composed of two parts – capital leaking from the balance of payments (which captures illicit transfers of the proceeds of bribery, theft, kickbacks, and tax evasion) and capital transferred through trade mispricing. The study finds that much of the illicit flows out of Mexico from 2000-2008 were in the form of trade mispricing with huge outflows in import-overpricing offsetting illicit inflows in export-underpricing. Cumulative illicit outflows due to trade mispricing are estimated at US$385 billion. On average over the nine years, illicit financial flows were 24.5% of exports of goods (f.o.b.). Mexico ranks third in the world for largest average illicit outflows.

=

Mexico sent Treasury Secretary Tim Geithner a letter complaining about the de facto secrecy U.S. banks offer Mexicans holding accounts by not reporting to anyone the names or interest income paid on those deposits. “The exchange of information on interest paid by banks will certainly provide us with a powerful tool to detect, prevent and control tax evasion, money laundering, terrorist financing, drug trafficking and organized crime,” said the Feb. 9 letter from Mexican Finance Secretary Agustin Carstens, who also noted that the two countries do not have a “solid and reliable mechanism to verify actual residence of the foreign depositors.”

http://www.time.com/time/business/article/0,8599,1933288,00.html#ixzz1B3Vy8zD7

#160 Thetruth on 01.14.11 at 8:15 pm

Boomer 62

You consider those with learning disabilities lesser people?? Boomer mentality i guess…

#161 Nostradamus Le Mad Vlad on 01.14.11 at 8:38 pm


Silver Shortage “Distributors ran out of both gold and silver on a daily basis during the first time Europe became insolvent some time in early May 2010.” Plus this.

JPM US$10 bln. for bonuses. Easy to see why Iceland has clamped down.

Pakistan So why is the US in Pakistan? Is it because Osama bin DeadSinceDec.2001 is buried there?

6:50 clip Unemployment and food price inflation both up.

US FedCould it go under? Well, it’s private, not public so who cares?

Poisonous US Waters “Threats to our water supply are popping up like crazy throughout America.”

What’s New? Obama and Geithner do what they do best — LIE.

3:14 clip m$m wants to focus on shootings, ignoring the financial collapse.

West Is Broke “Latest column from Ambrose Evans – updates on Portugal and everyone else in bankrupt Europe, not unlike broke-ass America.” (And Kanndduh!)

MA Solar Plant Closes “$58 million vanishes into the global warming hysteria. Kind of makes me wonder where New England common sense has gone.” wrh.com.

Houston, Texas Helping the homeless. “That ended two weeks ago when the city shut down their “Feed a Friend” effort for lack of a permit. And city officials say the couple most likely will not be able to obtain one.” wrh.com. This is what Soros and Obama have aimed for, because the west is fiscally insolvent. Plus — ObamaTaxes.

Norway + Palestine “Clarification: Norway is not a member state of the European Union (EU), but is closely associated with the Union through its membership in the European Economic Area (EEA).” wrh.com. Plus Guyana

Lebanon Two further questions: Who pressured the US and what was the reason? Hint: The Litani River runs through Lebanon and has an adequate amount of water in it for their citizens.

#162 dradak1 on 01.14.11 at 8:47 pm

#9 househunter on 01.14.11 at 12:01 am

” Garth. This is making me nervous: MLS# V861766. List $1,088,000. Sold $1,611,000. I know you think there is going to be a correction but stuff like this makes me lose confidence to wait it out.”

You should be as long idiots are around. Don’t brake a mirror – that is messenger.

#163 BDG-YYC - Sub-Primacy on 01.14.11 at 8:51 pm

#138 Allister …

Your request for data re: 55 – 65

http://www.canadiancapitalist.com/wealth-of-canadians-net-worth/

#164 Junius on 01.14.11 at 8:51 pm

#143 Jan Etter,

Your argument is a good one. I didn’t bother responding to DA. Like 4 billion people are going to flood into Canada and buy houses.

The real issue is this. It is estimated that home values in Vegas are not going to reach 2006 levels until 2032. We could be in a similar situation in places in Canada where values take decades to return to the current levels.

Imagine what a disaster it would be for someone to enter into a 35 year mortage in 2011 and find that the value drops below the acquistion price for the first 20 or more years of the term! A young couple in their late 20s could spend most of their working lives with an asset they can only sell at a loss.

Do the math on that DA.

#165 tran, Calgary on 01.14.11 at 8:55 pm

U.S. home foreclosures top one million for first time

http://fwix.com/calgary/share/7c9d183a81/us_home_foreclosures_top_one_million_for_first_time

Canada is different.

#166 dradak1 on 01.14.11 at 8:59 pm

#18 Western Canadian on 01.14.11 at 12:31 am

” …
Are you telling me you do not see value in keeping a few rifles and other guns on your rural property?
…”

I read years ago that world wide research found that around 90% in burglary killing cases – victim was murder by his own weapon. Using a common sense – people who use guns on daily basses are much better with them than someone who have them locked in cabinet most of the time.

#167 Jeff Smith on 01.14.11 at 9:01 pm

>#39 Junius on 01.14.11 at 1:50 am
>“75% of the realtors in Oregon are now working at Costco or Walmart.”
>Are they qualified to do that here?

They probably can do it after taking a three weeks correspondence course.

#168 Bottoms_Up on 01.14.11 at 9:08 pm

#138 Alister on 01.14.11 at 5:36 pm
——————————————-
go nuts (state of family affairs in Canada):

http://www.vifamily.ca/pub_page/5

DA, did you get my email?

#169 Moneta on 01.14.11 at 9:11 pm

Alister on 01.14.11 at 5:36 pm
#84 Moneta

You are describing the well off boomers. I know lots who don’t have 300k in RRSPS, no pension, no benefits, etc.

———-
I know… that’s the depressing part. Most in the top 10% will still have to eat chopped liver but they still don’t get it.

As for data, I don’t know where to start. I have played with the data so much in the last 20 years, that I nearly know it by heart. Here are some links:

http://www40.statcan.gc.ca/l01/cst01/FAMIL112A-eng.htm

http://www.federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf

http://www.bls.gov/

http://www.census.gov/ipc/www/idb/informationGateway.php

http://research.stlouisfed.org/publications/net/20110101/netpub.pdf

#170 Kurt on 01.14.11 at 9:24 pm

Garth, I know this request is asking a lot, but could we please have a separate page for Devil’s Advocate and the folks who want to spar with him? It’s true enough that I can just skip over the posts I’m not interested in, but the volume of posts is large enough that it’s making it hard to follow other threads of discussion. I think these folks have demonstrated that they can generate the volume and have the persistence to justify their own sandbox.

#171 Devil's Advocate on 01.14.11 at 9:27 pm

Looking at that X-Ray of me you have posted atop this most recent Greater Fool editorial I noticed something amiss. It’s been bothering me all day long…. “What is it… there’s something wrong . What could it be?”

It finally dawned on me what it is…

Man I didn’t realize what an overbite I have, and no dental plan D’oh!

#172 squidly77 on 01.14.11 at 9:31 pm

Our analysis of CMHC rule changes on Calgary prices indicates that for every year that insured mortgage terms were extended beyond 25 years Calgary house prices rose by between $6,000 and $10,000. Between 40% and 70% of residential price changes in Calgary between 2004 and 2009 can be attributed to CMHC amortization rule changes. http://albertabubbleblog.blogspot.com/
Gee, whocooodaaaakknnnoooowwwwn

#173 eddy on 01.14.11 at 9:32 pm

some 2011 predictions from Gerald Celente:

http://politicalvelcraft.org/2011/01/14/greatest-depression-to-be-revealed-this-year-2011-british-monarchy-running-out-of-schemes/

#174 Devil's Advocate on 01.14.11 at 9:36 pm

2010 Housing Starts in Kelowna and Southern Interior

Kelowna – January 11, 2011
Kelowna area housing starts increased to 957 homes in 2010 from 657 homes the previous year, according to Canada Mortgage and Housing Corporation (CMHC). Both detached home and multi-family stars were up from 2009 levels. Housing starts totaled 40 homes in December.

“Detached housing was the focus of new home construction last year,” noted CMHC Market Analyst Paul Fabri. “Lower lot prices and lower construction costs enabled builders to compete more effectively with the existing home market and attract more new home buyers in 2010,” explained Fabri. Favourable mortgage interst rates were also a key factor contributing to increased detatched home starts…

#175 ballingsford on 01.14.11 at 9:51 pm

December 12, 2012. Did you see the movie or hear of the propechy? Have you noticed how many quakes, eruptions, and floods the world has been experiencing lately?

What would you do differently today if you knew the world was going to end in less than 2 years?

I don’t believe the world will end then, but the thought of what would I do differently now is worth some thought.

Hopefully, for a lot of you, if doesn’t include racking up debt and letting it end with your demise!

#176 a prairie dawg on 01.14.11 at 9:57 pm

Guns AND real estate?

The double dichotomy.

Now he’s just playing with our minds. :-)

#177 VICTORIA TEA PARTY on 01.14.11 at 9:58 pm

IT’S ALL ABOUT THE OIL: OUR FUTURE THAT IS

Check out this one folks from Reuters news service of this date:

“OPEC ministers say world can handle $100 oil
Other exporters indicate that cartel may not increase crude production

Reuters

– CAIRO — The global economy can withstand an oil price of $100 a barrel, Kuwait’s oil minister said…as other exporters indicated OPEC may decide against increasing output through 2011 as the market was well supplied…
European benchmark…crude for February closed at $93.46 on Friday after hitting $94.74 a barrel, its highest level since October 2008…

Arab oil exporters meeting in Cairo…said they saw no need to supply more crude as stocks were high and prices had been inflated temporarily by cold weather in Europe.

Asked…if the world economy could stand a $100 oil price, Kuwaiti Oil Minister Sheikh Ahmad al-Abdullah al-Sabah said: ‘Yes it can.’

What will keep prices jacked up is compliance; in other words no cheating amongst these scalliwags. Cheating is what these folks have done for decades, but now second thoughts are surfacing amongst 56 per cent of the 14 or so OPECers.

Why have these guys suddenly found religion? China! It has been buying up oil fields all over the place to get rid of its huge stack of increasingly worthless Greenbacks.

Now, China is a direct production and marketing threat to OPEC, and therefore has a lot of power to influence price and, well, influence!

Bottom line forecast here: the West will get hammered this winter with high energy costs, while China will glide by our self-inflicted energy-price “traffic accident”. OPEC tends to defer to new kids on the block when it suits them. Well, it suits them! Lots of loot coming to the Persian Gulf.

FREAKED OUT U.S. CONSUMERS. IT’S THE GAS!

Meanwhile back at the ranch, in the Rest of the USA, the consumer is slackening his/her shopping spree pace partly because it costs so much more to drive to the malls (See above OPEC item)!

This interpretation, from Market Ticker, of unsettling energy-driven CPI stats from the US.

“CPI And Retail Sales: Oops

This isn’t good folks.

The Consumer Price Index…increased 0.5 percent in December…The big gains here were in energy, up 4.6%. Coming right into the cold months this is not helpful. Not only was gasoline up 9.5% but fuel oil was up 4.9, which in the Northeast is a primary fuel…

…energy and to a lesser extent food is where the action was this month. The frightening subindex is the energy commodity one, up 7.5% this month alone…what we’re seeing is a secular shift taking place as a consequence of The Fed’s (Federal Reserve) intervention.

Now for the bad news – Retail Sales.

…advance estimates of U.S. retail and food services sales for December…were…an effective zero rate of change.

…the idea that our (U.S.) economy is ‘recovering’ is a red herring. Consumers are not doing any such thing, with the alleged ‘recovery’ being eaten by price increases…
This is either going to produce an economic recession or a profit recession…”

It all fits, into a dismal 2011 looking out.

Many economic bloggers and pundits have been, since the beginning of the US housing tumble in 2006, writing lots about some kind of impending economic Armageddon.

MSM has been pouring cold water on that thought as have governments everywhere.

Today, it seems the “establishment” which has been wrong all along is running out of counter-effective ammo (propaganda and, eventually, printed money) and that the stars are finally lining up against profligate debt-accumulation and spending.

Look, also, for more misery in the Eurozone; and, China as inflation forces government, there, to cool down economic growth to 8 or so per cent this year. Big mall real estate, in the U.S. and Canada, could get clobbered here.

A most interesting next 12 months shaping up.

#178 Dark Sad Monster Bunny on 01.14.11 at 10:14 pm

132 Chris – in fact there is only one cost for anything – labour. I’ve never paid a piece of lumber, a nail, a cement
mixer – just paid people. If we all worked for free, everything would be free.

#179 Devil's Advocate on 01.14.11 at 10:14 pm

#164 Junius on 01.14.11 at 8:51 pmImagine what a disaster it would be for someone to enter into a 35 year mortage in 2011 and find that the value drops below the acquistion price for the first 20 or more years of the term! A young couple in their late 20s could spend most of their working lives with an asset they can only sell at a loss.

Do the math on that DA.

Barring some unforeseen black swan event, in which case were all screwed anyway, ain’t gonna happen Junius. So the math is just a pointless exercise in futility.

#180 InvestorsFriend (Shawn Allen) on 01.14.11 at 10:37 pm

At 144 Garth responded about how to save tax as a large ($1.2 million) RRSP is withdrawn from.

“However she could borrow a large sum to set up a non-registered account, then use the RRSP withdrawals to pay the loan interest. The withdrawals would be taxable and the interest tax-deductible, allowing for zero tax and, in effect, a wealth transfer into a non-sheltered investment pool.”

I am no tax expert, but I don’t get that. If money is borrowed and put into a non-registered account, that money should earn income. If it earns income the interest deduction would have a hard time offsetting the tax from the income let along from the RRSP withdrawal.

Let’s see $50,000 withdrawn from a $1.2 million RRSP generates say $20,000 income tax at 40%. To offset that if you borrow money at 5% (a high interest rate) you need to borrow $400,000 to generate the interest to offset that $20,000 tax. And that only works if the borrowed money earns nothing, which makes no sense.

And what of the next year remove another $50,000 from the RRSP and borrow another $400,000???

This is not making any sense to me whatsover.

Garth you started out on the right track.

Suck it up and pay the tax, lady. The fact is somewhere in the past tax refunds probably funded about 40% of that RRSP so why begrudge the tax now?

The other 60% of the RRSP has effectively grown tax-free all these years. (It’s only the refund that is being paid back at 100% plus 100% of the growth on the refund, in substance no tax at all on the other 60% even when it is withdrawn)

With an RRSP maybe try to take some out at age 60 before you collect pensions. After that once you are past 65, if you don’t need the money then withdraw the minimum starting age 71 and pay the damn taxes.

And rememnber if it weren’t for all theese tax shelter plans like RRSP and TFSA aand RESP and deductibility for pension contributions, our overall tax rate could be a lot lower.

In summary stop whining and pay your taxes and be glad you are wealthy enough to have that “problem”.

Simply remove enough from a registered plan (taxable) to pay the interest on an investment borrowing (tax-deductible). One is added to taxable income, the other deducted. They cancel. Proven strategy, done daily. How hard is that to understand? — Garth

#181 Devil's Advocate on 01.14.11 at 10:43 pm

#177 VICTORIA TEA PARTY

It will all be fine. Equilibrium can be an illusive bitch some times. Expect to encounter some scrapes and bruises along the way as she leads you though thicket and hollow in your pursuit of her. Steady the course and keep your eyes ahead of you. She likes that in a man.

#182 John on 01.14.11 at 10:47 pm

RoninBC

You are the poster boy for why real estate bubbles form, and why they pop.

#183 Hoa on 01.14.11 at 10:48 pm

All realtors and mortgage brokers as well as bankers know Canada is in the mother of all housing bubbles. They all know Canada has is a huge housing ponzi that will CRASH harder then the US. realtors are true financial terrorist would should be locked up from financial crimes against humanity. If Karma is real all these people are going to suffer for their sins. Canadas housing ponzi will ruin hundreds of thousands of lives. ALLOW THE FREE MARKETS TO WORK which the bankers , realtors like [email protected] Brad L all hate so much. If the FREE MARKETs were allow to work the housing crash would happen over night and the RE shills know it.

#184 Gonzalo Lira on 01.14.11 at 10:49 pm

Nonplused at comment 158 nails my argument—right on the money.

Thanks—especially as there are people trying to severely distort my position, in order to score points against me. Check out The Hourly G, where I discuss the situation.

GL

#185 Moneta on 01.14.11 at 11:06 pm

There’s more info on retirement stats:

http://ebri.org/pdf/briefspdf/EBRI_IB_03-2010_No340_RCS.pdf

#186 Guy_in_Regina on 01.14.11 at 11:30 pm

#38 Great Sun pics. Sneaky buggers.

15,000 dead in Mexico in 2010?!

http://english.aljazeera.net/video/americas/2011/01/2011113235020381135.html

Hey everyone move to Regina

http://www.cbc.ca/canada/saskatchewan/story/2011/01/14/sk-thorne-released-1101.html

#187 dark sad person on 01.14.11 at 11:52 pm

jess–

Where do the flows go?

“Mexico sent Treasury Secretary Tim Geithner a letter complaining about the de facto secrecy U.S. banks offer Mexicans holding accounts by not reporting to anyone the names or interest income paid on those deposits.”
*****
You only need one name to be able to start connecting the dots and it looks like you got it-

Of course these are the same names that were front and center a year ago when the US was forcing Switzerland to turn over their records of clients and size of deposits in order to put an end to drug trafficking and money laundering/terrorists and any other evil-

“Transparency” in the banking system in order to restore trust was the slogan-
I musta missed the part where it was ok only for the US banks to take on the Swiss model-

We’re doing a bang up job in Afghanistan after we took the jobs away from the Taliban funded donkey cart drivers-hell-we’re showing those tin pot drug traffickers a thing or two about how to move that stuff-
There’s constant economic phenomena in play too-
First-get control the supply flow from the farmers-
Establish a monopolization–
Then open the spigots and sell cheap-
Once the consumer base is hooked errr i mean established-
Squeeze off the outflow and POP goes the price with no lack of demand-
Good deal if ya can get it–

Ohhhh and while we’re on the subject of flows-
Dicks oil is flowing smoothly out of the Caspian now–

*********

The United Nations reports that the total farmgate value of opium production in Afghanistan rose 32% to US$1 billion dollars in 2007 on the strength of the enormous increase in production. Total export value of opiates to neighboring countries is thought to be around US$4 billion.[SOURCE]

$ 1 B farmers
$ 4 B exporters
$25 B importers
$50 B retail

In recent years, funding for US military operations in Afghanistan was about $20 billion annually but jumped by 75% to about $35 billion in FY2007, then fell to $33 billion in FY2008, with more funding included for operations and less for training Afghan security forces.

Trends in opium poppy cultivation in Afghanistan have been on an upward trajectory since the early 1990s, accelerating quickly after the fall of the Taliban government. In 2007, opium poppy cultivation reached an all-time high of 193,000 ha with the majority of cultivation (69 percent) occurring in the five southern provinces. Concomitant with the rise in opium poppy cultivation has been the rise in opium production. 2007 witnessed a substantial 34 percent increase in opium production reaching 8,200 metric tons. This increase in production in Afghanistan combined with effective efforts at limiting production in other countries has made Afghanistan virtually the sole supplier of opium, accounting for 93 percent of global production.

http://www.globalsecurity.org/military/world/afghanistan/drugs-market.htm

#188 a prairie dawg on 01.15.11 at 12:33 am

@ #53 and #57 Julie

Julie, here are some basic assumptions.

12k invested first year and the ‘beginning’ of every year thereafter for 30 years. Assume a 6% return each year. (when you say you’re just starting out, we’re going to assume an age range of 25-30 for you now)

You never mentioned kids, so this doesn’t deduct what they’d cost you over that time frame either.

This calculator puts your total at $1,074,542.02 after 30 years, using the numbers from above. (you’d be 55-60 years old by then)

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

And if you both had a decent pension from your jobs on top of it, it sounds like a heck of a grand total.

The big unknown is what inflation will be like for the next 30 years.

Also spend those same 30 years reading, studying, and acquiring financial knowledge. Even if you do hire a professional to manage it for you, you’ll still be more informed than your peers.

It all sounds so easy…

#189 Milhous Plumbers on 01.15.11 at 1:31 am

Yeppa that’s America for you – too capitalist, too many guns and too much holy bible. I know the Yen see Americans as featureless cowboys but then Tojo – as Garth would say – bet against America.

#190 pablo on 01.15.11 at 2:38 am

– which means families are spending 7.3 times their income for a house. Once again, I remind you that the US market collapsed when it hit the 4.6 mark.-GARTH.
So it really must be different in Cda eh.-PABLO

When everybody tells you something is for sure, run. It means the market’s running on emotional fumes, not economic fundamentals, and investor sentiment has trumped logic.- A R/E agent called us today to tell us about a property down the street has multiple offers going and there’s tons of buyers looking in this subdivision. He’s been after us to list since last fall when they sold our neighbors house. Well Garth do I list now and jump in before the spring market hits in March/April or do I wait a little longer?