The difference between men and bonds?
Bonds mature. But it doesn’t stop there. Bonds get more valuable as they grow older. Hell, bonds even pay you to own them. Try pulling that off with the typical dude.
Bonds also bite. And they just chomped a small chunk out of real estate affordability.
OK, so I understand most people have no idea what a bond is, where to buy one, why they’d even bother, or how come the bond market is vastly more important that the stock market. It’s also bigger – by more than a dozen times – and without it we’d all be cooking caribou meat over hot rocks at the edge of a cave.
But let’s leave that for another day. Today’s topic is mortgage rates, which went up in the last few hours, and will be rising over the months to come. This will make real estate less affordable, knock out squads of house-horny little HGTV addicts, bring down prices and bitterly disappoint realtors and sellers who thought Spring would save them.
As you know, the banks are increasing five-year home loans by a quarter point, taking the posted rate to 5.44%. By the end of 2011, it looks like 5-year mortgages will be lots higher, and VRMs will be up by at least one full point. This will happen at the same time as 35-year amortizations end – an event that had the equivalent impact on first-time buyers as raising mortgages by more than a half point.
What does this mean to a real estate market that has bloated on cheap money? You have to ask?
Now, comments to this pathetic, morose, oversexed blog lead me to believe most people think mortgage rates are set by fairies. But gender has nothing to do with it. The cost of your home loan is determined in one of two places.
Variable-rate mortgages move with the prime rate at the big banks, which is determined by the Bank of Canada overnight rate, which comes from the byzantine mind of Governor Mark Carney. Let me remind you that this guy has been obsessed for months with warning us that we are debt bunnies and must change our ways. He will raise rates as soon as the economy can stand it, in order to choke off the binge of borrowing which just put the average Van SFH at $1.1 mil.
Prediction: At least four quarter-point increases in 2011, taking VRMs higher by a third. Ouch.
Fixed-rate mortgages, however, are set by that massive bond market, since banks borrow money there to fund home loans. Lately you may have heard that the bond market is ‘selling off’ – which means bond prices are coming down and bond yields are going higher.
Why would this happen?
Lots of reasons. For example, with all the government stimulus money flying around, stock markets have jumped along with commodity prices, and investors are dumping bonds to buy equities. Also, with US economic growth rustling back (as I explained on the weekend), we’ll probably start breeding inflation – which means investors demand higher yields to protect their money. So bonds swell. There’s also risk. With governments massively in debt, Egypt in turmoil, Europe in hock and America printing more money than Allah, investors demand greater returns for holding debt – pushing yields up.
So, for example, the yield on a five-year Government of Canada bond jumped about a quarter point just last week – triggering this mortgage jump. And there’s lots more to come.
Prediction: At least three-quarters of a point added to five-year money by Boxing Day, shooting it well above 6%. Crunch.
So to those who say, ‘the government would never raise rates because it will hurt the economy,’ or ‘it won’t happen because it will shoot the dollar higher’ or ‘why would they want to hurt real estate?’, I say you’d best prepare. This is a done deal. Those who thought cheap money would last long enough to cover their no-money-down real estate mistake are in for a ride. For families with mortgages to renew over the next few years, this is stark news. For the legions of 5/35ers out there, with no equity and acres of debt, well, I told ya. And for the crusty Boomers with their wealth in a single pile of bricks, what the heck were you thinking?
I spoke with a woman in a ritzy neighbourhood of Vancouver today. We mentioned this. On her street, she said, two houses had been for sale for months and months, “until the price went so low the owners could no longer afford to sell.” So they came off the market, waiting for the spring renaissance.
This year, though, no spring. Just melt.
164 comments ↓
I saw that bond thingy coming. Been reading this for months now, and it’s finally starting to happen. Pretty sad that 1/2 point makes all the difference, but it will.
One other thing. You’re a dick.
That`s Hon. dick to you. — Garth
Garth:
Is this a good time for real return bonds or the XRB?
I`m buying them. — Garth
First!!
If posted rates are 5.44%, what is the best rate a new homeowner can negotiate on a 30 year, $300,000 mortage these days? Assuming that the applicant has a strong credit rating. Just curious.
Thanks,
Credit/Mortgage Mountain
I really miss yesterday’s picture!
I read a saying in “The Wall Street Journal” years ago.
I have never forgotten it. It goes like this….
“If The Crowd Was Right, The Crowd Would Be Rich…”
Last time I checked the crowded wasn’t rich.
Seems to me they are all chasing R.E. to make easy money.
Oh yeah – I always thought money was hard to make and even harder to KEEP…
Someone explain to me why now is a good time to buy bonds if interest rates are expected to rise.
About time. I was beginning to think BCers would cheer on inflation till they can no longer afford to feed their children.
Someone should really try to explain the meaning of the word usury to them.
which bonds are you buying Garth?
Our main problem is that we are no longer competitive on many areas … in order to compete with the rest of the world, we must either
1. work better (innovation and productivity improvements from capital investments)
or,
2. work cheaper
It seems many people don’t want to recognize that high housing costs is hitting us hard from both ends, it’s a curse rather than a blessing, to all.
In order for our economy to compete and prosper in the long term, the government MUST be ready to bite the bullet and allow RE to be “hurt”.
After all, selling land to each other and to rich foreigners is not a viable long term economic strategy.
someone explain to me why bonds are a good buy now if interest rates are expected to rise.
Hi Garth,
Our 5 yr fixed @ 4.5% matures June, 2014. Should we blend and extend now for another 5 or 10 yrs?
No. — Garth
“most people think mortgage rates are set by faeries. But gender has nothing to do with it.”
lol!
Carrik’s doomsday scenario is a 5% drop in home prices over 12 months and 4.9% 5-year money. Oh my:
http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/rising-mortgage-rates-are-worse-than-you-think/article1897959/
All kneel before the mighty Bond Market!!
Garth, what’s your ball park forecast for interest rates 4 years from now?
Ask me in 40 months. — Garth
@ Sid – Real Return Bonds are indexed to inflation… this is one type of bond that won’t get completely destroyed as yields head back towards “normal” levels.
Hey Professor,
Garth may be a dick; but he’s got way more balls than you!
Moron.
Compared to yesterday’s photo, today’s rude geezers have left me completely limp ;-)
I was starting to expect more from you Garth.
Oh – and the ultimate sign that we’re nearing the peak of this crazy market: there was an 8-offer bidding war for a semi-detached house in my neighbourhood this week!
When people are fighting over who can pay more for half a house, things are absolutely insane.
I am convinced that prices will peak in the spring — the lack of listings and rush to beat new mortgage rules is actually create one final bubble rush!
finally some wrinkly halitosic folks..
#1 Proffesor
I saw that bond thingy coming. Been reading this for months now, and it’s finally starting to happen. Pretty sad that 1/2 point makes all the difference, but it will.
One other thing. You’re a dick.
That`s Hon. dick to you. — Garth
LOL, Are you two related?
And were the heck is that new book.
At least a couple of hot babes usually accompany Bond.
5-year money will be 007 (%) by the end of 2011.
Hey Guy in Virgigi,
Explain why Garth being a dick makes me a moron. You’re the one who lives in Regina.
With an income of $70,000 and 5% down, a buyer can get a mortgage for $280,000 at a qualifying rate of 5.19% over 35 years. Change the qualifying rate to 6.19% and an amortization to 30 years and the amount that can be borrowed is $237,000.
A drop of 16% in what people can borrow for a house.
Rising interest rates and new mortgage rules: Double whammy to housing
Regarding inflation-linked bonds, do these not tend to be long term – 10 years or more – investments? And as such they would have very high sensitivity to rate changes as measured by their “duration”?
https://www.phn.com/Portals/0/PDFs/DownloadFundProfiles/Series%20A/download_ILBF.pdf
If a rise in long-term rates stifles inflation, this would be
a double whammy against them. Of course other scenarios may occur, so they may be a good idea as a portion of a diversified portfolio. Garth – any suggestion as to a percentage of holdings? Thanks.
talking about bonds: Gary and the US bonds:
http://www.youtube.com/watch?v=28S3B0pgqsY
great voice! great tenor sax!
The question is whether these adjustments will take place through a process that weighs priorities and gives people adequate time to adjust, or whether there will be a rapid and painful response to a looming or actual fiscal crisis.
Ben Bernanke!
http://globaleconomicanalysis.blogspot.com/
Just saw that BMO & RY also received funds from the US Fed bailout. And they said it’s different in Canada.
http://seekingalpha.com/article/247358-you-don-t-know-one-fifth-of-it-the-latest-behind-the-bailouts?source=yahoo
btw, why the picture of 2 old guys?!
Show me the economic statistics on the BC drug production and distribution trades and I’ll show you how this place can comfortably tolerate the required 13 times income statistic on RE prices.
First!
But in reality probably 15th haha.
Your not a true GF blog dog without going though this rite of passage at least once ;)
See!
#2 McSteve
Can you provide reasoning for why you might choose XRB over XBB at present? Any insight appreciated.
Thanks for the informative and educational post, Garth.
Wanted: Seller looking for a greater fool to buy his current house at it’s inflated value. Even better, would love to rent it back from the buyer at current rental rates_( and have them eat the monthly loss, maintenance, taxes and depreciation). Hell, will probably even buy it back from them once the market has bottomed and they’ve taken a bath. http://www.victoriamls.ca/Matrix/Public/Portal.aspx?L=1&k=130550XGNGH&p=AE-60916-765&n=1
Garth, how was Japan able to keep rates so low for so long?
Non-stop deflation. — Garth
#10 Tiger Baby
“After all, selling land to each other and to rich foreigners is not a viable long term economic strategy”
——————————————————-
Except for those who sold at the top and got out.
I been tracking the C5YR bond and when it goes up, its mention and spunned here, yield goes down no mention here because rates are irrelevant. Come on, then the prime going up a percentage by 2012, big deal it’s still a great product especially with prime minus one.
Then it’s the deflationists’ against the inflationist’s, it has always been inflation always will be. What deflation?
Big deal, even with a two percent increase, mortgage rates are still substantially lower than the long term average. People with houses will continue to benefit, as some pay less in mortgage than people who are renting. The Fed will keep pumping money and thanks to quantitative easing, interest rates in the US will remain relatively low. The differential between the US and Canada cannot get that high or we’ll have bigger problems. So interest rates will rise a bit and put some saps who bought with 10 percent down over the edge, but it won’t wipe out the majority of homeowners. So real estate prices drop 10 percent, they’d still be 50 percent higher than they were five years ago
What do the HELOCs follow? Are they the same as a regular LOC? Do they change with VRMs?
Anyone buying bonds now is a fool. The smart money is leaving bonds for equities.
CONservative MP Maxime Bernier, remember him and buxom biker babe? He sounds like a loose cannon on Harpers deck. Much like Garth back in the day. On his own personal blog, according to Globe, he published a long note in French and English explaining his opposition to Bill 101. The 1977 legislation, which limited English on signs and access to English public schools. How long will Harper allow him to speak his own mind and not stick to message? Another castaway perhaps? Maybe he will be punished for speaking the truth as he sees it. he sounds like another thorn in Harpers side.
#5 miss yesterday’s pic.
I’m with you, how will Garth ever best that one.
Garth,
You’re a lover of truth, you despise media sell-outs hyping real estate. Well, hope you caught tonight’s Globe article, seems Canadian truth in broadcasting standards will be quite dead soon, just in time for the new faux news channel in Canada:
Plan to lift ban on false news prompts investigation
http://www.theglobeandmail.com/news/politics/crtc-plan-to-lift-ban-on-false-news-prompts-political-investigation/article1898147/
Talked to a couple other people who sol in Milton in the last week or so … Prices have definitely jumped in the last two months on starter homes … Substantially (15 – 20k). Probably due to a lack of inventory and one final last surge of greater fools trying to beat the march deadline on the end of 35 yr mortgages. And now with interest rates creeping up I fully expect that surge to grow into a crescendo of price increases and ridiculous bidding wars before the whole thing collapses in April.
It’s insane really.
¾% up by year end eh? It would seem a bit counterintuitive with the Bernanke pushing QE state side. But I won’t say it’s impossible.
Dave Rosenberg did a good job today taking apart the US job numbers. Long and short of it: Unemployment managed to fall to 9% with little net growth in payrolls. What happened was people’s jobless benefits expired and they went over to apply for food stamps. Not exactly economic growth for the rest of us.
Sure, they are partying on Wall Street like suspending accounting rules can make them solvent, but Main Street is still in a world of hurt. Next up: A squeeze in the consumer retail sector as not even grocery stores can pass on the increased commodity prices. Sure, they are raising prices and producers are reducing package sizes, but the consumer is still only spending the same amount of money, just getting less for it. Word is even Walmart is having trouble shucking inventory and has asked suppliers to give back money (so they can discount the heck out of the goods, which is logistically much easier than trying to put the goods back to the supplier.)
You have to admit it’s not your father’s economic recovery. The only companies seeing a net benefit are somewhere in the supply chain or financing of the federal government. The man on the street is seeing rising food and energy prices and stagnant wages, if he has a job.
There are sectors of the US economy in technology and biotech that probably are poised for growth, but $100 oil is a death curse for the rest of the economy. Nobody can withstand it without passing on higher costs because energy costs are a major input at every level of the supply chain. From the fertilizer, to running the tractor, to transporting the produce, to processing, to the packaging, to distribution, to keeping the lights on at the grocery store, to you burning a litre of gas in your car to buy a litre of milk, to the garbage truck that takes the milk cartoon away, every step of the way 10% of the cost is energy, when oil was a lot less. Now that oil is $100/bbl, energy costs have probably risen to around 20% of the cost at each stage.
It used to be common sense that when oil went up, the economy suffered. Now we say “look at all this wonderful 3rd world demand!” Fools. The 3rd world may be able to adapt to $100 oil because if they are middle class they have a scooter, but we can’t run suburbia that way.
On Egypt: STRATFOR had a good opinion piece a while back (but I finally got to reading today) arguing that the proper model for the revolution in Egypt might be Iran. As with Iran, the western media is only talking to liberals, because they are the only ones who speak English. So, as with the Iranian revolution, it might look like the primary driving forces are after democracy, because the only ones we talk to are English speaking liberals. But the true forces behind the revolution are not known and won’t be until after they run up the Jolly Roger. STRATFOR is, of course, hugely sympathetic to Israel, but they are also on the ground in the Middle East. In Iran the outcome was that those Iranian liberals that the media spoke to who weren’t executed ended up in the US (according to STRATFOR).
Here’s what I think is going to happen: In 2008, oil prices peaked at $140/bbl or so, but the average was only $100/bbl for the year. Now, the forward curve implies we’ll just have steady $100/bbl oil. But the financial system is much weaker, so I think maybe not in 2011, but sometime in 2012 when it becomes apparent that $100/bbl is sticking and doing a lot of damage, its wave 2 down. This time soothing words and easy money from the Bernanke will not be able to rekindle “animal spirits” unless they go so far as to cause an inflationary event, which would be counter productive as oil would run too. So the most likely scenario is a fizzle of gigantic proportion. Not the end of the world though, despite the Mayan prophecy.
If you believe what Garth has been preaching (and he is right) and want to make money off of bonds at this point buy an inverse Canadian bond ETF (long end – 10yr). They make money off of rising interest rates – otherwise known as falling bond prices.
Unless, of course, you are happy getting the current marginal return and want to wait 10 years to get your principal back (minus inflation).
Real return bonds are linked to the “officially published” CPI numbers that typically lag what you actually see as inflation, especially in our current commodity bull (say, at the grocery store or gas pump). The CPI also controls the “indexed” pensions received by our seniors so the government wants to keep these numbers low to keep the payment increases low. By the way, if you didn’t notice, they’re all broke and running huge deficits trying to keep things afloat.
As I have said here before….. Watch the bond market, that’s where the fireworks will be this year.
Even the “bond king” Bill Gross, over at PIMCO (the largest US pension fund), has declared that the bond bull market is over. Unless, he is just talking his book.
Greetings from down under! As an Australian bubble spotter I see striking similarities between the RE bubbles in Canada and over here in Australia. IMO we’ve both hit the tipping point and the only way is down, the question is just how far down will we go?
This post in particular is very relevant to a point made by the eminent David Llewellyn-Smith last December
http://housesandholes.blogspot.com/2010/12/global-bond-backup.html
Love the blog by the way. We have our own cynic covering the Australian real estate woes who is great for a laugh and stern warnings against the mirage that is instant wealth from RE http://tasmanianrealestatetrouble.blogspot.com/
–
#176 Dan on 02.07.11 at 10:26 pm — “The shift has started as housing in Canada and it’s going to fall and will continue to fall for years and years to come until you see 50% and more drop.”
— combined with —
“Bonds also bite. You have to ask? Variable-rate mortgages move with the prime rate at the big banks, and fixed-rate mortgages, however, are set by that massive bond market, since banks borrow money there to fund home loans. I say you’d best prepare. This is a done deal.”
Prediction: This demonstrates why you are an economist, I’m not and we will always be that way. Speaking of bonds, Junk Bonds are way beyond my level of intelligence.
One domino amongst all — RE, rates hikes, wars — will be the trigger being pulled and when it is, that will be The Road To Hell for many.
*
Harper – Obama Hmmm. Is this part of the NAU / SPP? Why was Mexico left out? How many here knew this deal was signed last Friday? I didn’t.
Offshoring Chindia is picking up a nice piece of business.
Denmark Bank failure. Starting there as well? Plus, to go with Garth’s bonds — Ireland threatens billionaire bondholders.
4:34 clip Inflation is real (running concurrently with this post), and Beware of silent bank runs.
6:07 clip It’s an Arab Revolution. May stump the bond markets.
Betting Win some, lose some. It’s all in how you play the game!
Biting the Bullet Skull included.
Money of Kings and Conspiracy Theories gone sexy wild crazy.
Saw a report on the 6pm news out of Washington state this evening. A couple were featured in one of those “On Your Side” investigations, claiming that they were being ‘victimized’ by their mortgage lender. They had gotten into trouble with their mortgage, job loss, etc., but had ‘come to an agreement’ with the lendor, and felt victimized that they were being foreclosed upon.
The lendor, for their part, were satisfied with the deal they’d made to work out a payment plan with the delinquent debtors, but explicitly stated that the plan did not allow for the debtors to remain in the home.
After a telephone ‘confrontation’ with the station’s Mr. Fixit, a public relations solution was found for the short term, but the long-term solution was not resolved by the end of the report.
The long term solution is that the family is going to lose their home, and then STILL be expected to pay off the mortgage (or at least the remainder of the mortgage, after the home has been auctioned off) to the bank.
That’s a heck of a deal.
Does anyone find it odd that Benjamin Tal (an econimist of sorts) is not at all concerned by the prospect of debt-to-income ratios hitting 200 at some point in the future (20 yrs.)? Can this guy be taken seriously by anyone?
http://canadabubble.com/bubble-watch/1954-putting-household-debt-in-context.html
Seriously… this guy probably makes a VERY good living as an economist and can actually go on record with these comments. Utterly shocking.
I must have confused you with David Rosenberg. No wait I was wrong. Obviously you must be confusing the recovery in the United States employment figures with some other fictional or developing economy. If you really checked into the the BLS numbers out of the U.S. you would have also discovered that the Labor Participation Rate is at the lowest in the U.S. it has been since 1984. So a greater population base compared to 1984 but less people in the workforce, means less taxes, an already bankrupt government and manufacturing jobs on both sides of the border gone to China and Vietnam where labor costs are atrociously cheap, and the U.S. is recovering? Huh?
“Over the past 3 days America has been battered by one after another apologist explaining just how good the employment data is if one strips out all the “bad”, and how all the “bad” can and should be stripped out by all patriots, and attributed solely to bad weather. For those who are beyond sick and tired of listening to this tripe, here is David Rosenberg once again telling it how it is. In summary: “The data from the Household survey are truly insane. The labour force has plunged an epic 764k in the past two months. The level of unemployment has collapsed 1.2 million, which has never happened before. People not counted in the labour force soared 753k in the past two months. These numbers are simply off the charts and likely reflect the throngs of unemployed people starting to lose their extended benefits and no longer continuing their job search (for the two-thirds of them not finding a new job). These folks either go on welfare or they rely on their spouse or other family members or friends for support.”
http://www.zerohedge.com/article/just-how-ugly-truth-americas-unemployment-david-rosenberg-explains
#13 Guy_in_Regina: “Carrik’s doomsday scenario is a 5% drop in home prices over 12 months…”
That’s how it begins, but a 5% drop will be a harpoon through the heart of investor sentiment, precipitating a lemming-like rush for the fire exits. (Or am I mixing my metaphors?) Stick a fork in it, this dog won’t hunt.
#10 Utopia: “Except for those who sold at the top and got out.”
Yah, all twelve of them.
more anecdotal ‘evidence’ from you Garth..about the proverbial house that isnt selling in vancouver where supply is lower then demand…..
who cares about a miniscule rise in interest rates? its like an additional $200 a month..yuppies dont care..
the government will not allow rates to balloon..they have the nightmare that is CMHC to worry about and they are too big to fail…Carney and F started a fire and they cannot put it out at the expense of seeing this devestating monolith fail….political suicide…
oh yes junius, i better just come clean, you are SOOOO smart, I am most certainly a real estate agent…wow you are quite a detective tiger!!! he he he!!!
#27 Jon B
There is no drug trade in Florida? or Vegas? or California?
Well, the mortgage amortization change, plus the rate increase to date, has chopped off about 10% from the top line qualification for the financially suicidal. Or increased their monthly payments 10% for same price house. How long before you have nowhere left to cut money from to feed the beast?
@ #32 Robert on 02.08.11 at 12:18 am: IIRC, this is a poster on this blog, he already posted the details on his “plan” here. p.s. website link not working
The antiquated notion of ‘ritzy neighbourhoods’ has evaporated the cache which made those neighbourhoods desirable in the first place. Those areas, once bespoke, and inhabited by the local gentry, have now become ethnic ghetto’s with a little clientele aspiring to inhabit these sub areas.
Like the other famous ethnic ghetto’s of Vancouver these once prestigious areas become value traps where market forces are limited to the flux and vagary of immigration. Historically these have proven to be areas that have shown rapid decline. They end up having no one to sell to but themselves…..and that limitation checks any further appreciation along with a general deterioration. Urban migration at it’s simplest incarnation.
In the future another generation will find Kerrisdale, Shaughnessy, Point Grey as delapitated and run down as this generation of immigrants has since the boom in immigration that began in 1986 when the communists first indicated that they would not renew the lease for Hong Kong to the Brits.
If you don’t understand this then heres a suggestion….stand in front of the Carnegie Library at Main and Hastings in Vancouvers DTES crack zombie war zone and recall that this corner was once the center of Vancouvers business district…and the center of civilization. History….like shit……..happens.
Garth, now you are admitting inflation is coming since you are recommending real return bonds. How are you going to demonize the best inflation hedge of all now?
“Show me the economic statistics on the BC drug production and distribution trades and I’ll show you how this place can comfortably tolerate the required 13 times income statistic on RE prices.”
I’m afraid that the drug trade is getting rid of overhead and consolidating just like any other business. BC may have a lot of dope money floating around but it is in fewer and fewer hands, it will not save BC housing, just like the mythical rich Chinese person won’t save BC housing. Check out
http://www.realtor.com/
look around the US and wake up to the fact that just like everything else we Canadians are retarded dupes who pay more for everything, tax me I’m Canadian, make me pay more because I’m Canadian. I got so sick of being ripped off by assholes I payed to get a US mailing address and now pay $10 for books published in Canada from Amazon.com instead of $20 for books published in Canada and sold by Amazon.ca, the piss take never stops. I’d have no problem becoming a 51st state, at least then all those gouging pricks would no longer have an excuse.
Is this the right time to be buying TBT & HTD?
#57 TheBigLebowski on 02.08.11 at 5:15 am
Garth, now you are admitting inflation is coming since you are recommending real return bonds. How are you going to demonize the best inflation hedge of all now?
In his book, Money Road, Garth recommends 5% portfolio allocated to Gold for defensive investors and 15% for aggressive investors as an inflation hedge. I see no evidence his view has changed except that he preaches folks shouldn’t over-expose themselves to this asset class.
Appears the sheeple are getting gloomier. Maybe it’s finally starting to sink in that they are in way over their heads and 2011 is the year they sail right into an iceberg.
http://www.theglobeandmail.com/globe-investor/personal-finance/canadians-gloomy-about-personal-finances/article1898349/
And Soon Canada Could be next when the bubble burst. So buy now or wait ….. your choice!
Cash Buyers Lift Housing
Bargain Hunting Boosts Prices in Depressed Cities; Broader Asset Rebound Spreads.
By S. MITRA KALITA
Buyers in markets around the U.S. are snapping up homes in all-cash deals, betting that prices are at or near bottom and breathing life into some of the nation’s most battered housing markets.
http://online.wsj.com/article/SB10001424052748704570104576124502975117950.html?mod=WSJ_hp_LEFTTopStories
China raises rates in inflation fight
Aileen Wang and Ben Blanchard, Reuters · Tuesday, Feb. 8, 2011
BEIJING — China raised interest rates on Tuesday, its second increase in just over six weeks, intensifying a battle against stubbornly high inflation that threatens to unsettle global markets.
The timing was a surprise, coming on the final day of China’s Lunar New Year holiday, but investors have long expected more monetary tightening as Beijing struggles to rein in price pressures and ward off a property bubble.
http://www.financialpost.com/news/China+raises+rates+inflation+fight/4242139/story.html
As people lose more and more equity in their homes, banks will be able to increase rates on mortgages even if the BoC does not change rates. It’s called rising credit spreads.
Why? Because homeowner bank hopping will be dead.
@ #59 Turner
Is this the right time to be buying TBT & HTD?
HTD is already up 15%-20% from Fall 2010… so you’ve missed a bit of the run up. Long-term, I believe it’s still a good place to be.
Garth, how was Japan able to keep rates so low for so long?
Non-stop deflation. — Garth
———-
And the fact they were net exporters, selling to a large group of Boomers reaching peak age in spending power.
Check out this “reporting”:
http://news.google.ca/news/more?cf=all&ned=ca&cf=all&ncl=dem-dZKlNhEDKhMYUF7c6O8P-2G4M
Hundreds of articles, copying the same “housing market shows signs of resilence” — pointing to December’s 20% rise in housing starts over November.
However, November was a horrible month:
http://www.statcan.gc.ca/daily-quotidien/110110/dq110110a-eng.htm
Housing starts were down 11.2% in November, and that was compared to October (which was also down from September).
So – a trick question – where are you when you drop about 16% and gain back about 20%?
That’s right, exactly even!
Also – keep in mind that all of these stats are *seasonally adjusted*. So, it doesn’t mean that permits are actually up, it just means that compared to other Decembers, December 2010 was ok.
Brynn on 02.08.11 at 3:06 am
————–
The whole thing is a game of relativity.
When a large group of countries has surrendered, they will let the loose knit unravel. They just don’t want to be first.
Which is why “Helicopter Ben” Bernanke is hell bent and determined to print as many fiat notes and dropping from the sky as he feels necessary to fight deflation. Inflation is relatively easily controlled. Deflation?Well…ask Japan how their doing on that one and how long that battle has been fought by them thus far.
Hello Garth
“Hell, bonds even pay you to own them.”
Possibly but only if the issuer doesn’t go bankrupt and providing that the income from the bond exceeds the real inflation rate and not the fairy tales the government and banks tell about inflation.
Otherwise you are paying your debtor to borrow your cash and losing out to inflation at the same time.
Steven
Long awaited ‘train wreck’ – – it has begun.
I’m no bond expert, but it was easy enough to pick up some real return bonds through my online discount broker. Decided to go the ETF route to keep things simple so bought iShares XRB.TO.
Garth, if these type of bonds do well this year as you’ve suggested I’ll owe you big time (irrespective thanks for the advice!)
My pal from Vancouver said that RE market is very hot in the city and RE prices went up pretty much in January of 2011.
I detect a level of satisfaction in that statement. Might not “long feared ‘train wreck'” be a more thoughtful way of saying it? Believe it or not you too are a passenger on that train.
High housing valuations do not serve society well. — Garth
vote me up… http://sitelife.theglobeandmail.com/ver1.0/gocomm?ck=CommentKey%3a12a37548-fe7f-4b9c-aaf2-544ca1c43eb5
Predictions…. Whatever. All I know is what I see. Prices in Vancouver are still going thru the roof. Lets see if the BoC raises rates. Then we can revisit the predictions set on this blog today.
Everyone relax…the CREA says that we’re gonna be just fine…
http://creanews.ca/2011/02/08/crea-boosts-annual-resale-housing-forecast/
There is a good book about how the bond market came to be and how important it is today by Niall Ferguson called “The Ascent of Money”. Also there is a documentary of the same name hosted by Niall if you can find it that is good to watch as well.
CREA and any Bank economist can SMD!
It’s all a bunch of B.S.
CREA are home owners~!
So are the economists~!
Seriously, would you talk bad about the vacation you just took?
Or any investment you currently haven’t sold.
So tired of this…
Run on run on run on…
ZZZZz.z……….zzzzzzzzzzzzzzz…ZZ..zZ.zzZ.zz………….
$
#52 Brynn,
I see you are not only a realtor but a slow learner. Not mutually exclusive, clearly.
You said, “the government will not allow rates to balloon..they have the nightmare that is CMHC to worry about and they are too big to fail.”
You missed the seminar on where the interest rates are set in the bond market. BoC only sets the overnight. Or how else to you explain yesterday’s rate hike.
Welcome to the global economy. You better get a parachute and fast.
Guys crack me up here with the
Govt will not let rates rise….ok, sure worked out well for the PIGS.
Bond market decides if the rates go up or not.
BoC sets target inflation rate, that will have to up to at least 2% by end of 2011. Inflation is way past 2% annual basis on almost everything.
So, take you ave rage toronto home of say 450k, even assuming a 20k downpayment of 90k– thats a mortgage of 360k. Assume a 35 year term
variable
360k at 2.2% = $1227.95
360k at 3.2%= $1421.65
diff of 193.7/month or $2324.40/year. That a 1% diff in variable over one year.
Prime
360K at 4.5%= $1694.46
360k at 5.5%= $1918.66
360k at 6.5%= $2153.65
Look at that from 4.5 to 5.5 = $224/month or $2690/Y
from 5.5 to 6.5 = $235/month or $2820/Y
and the kicker from from 4.5 to 6.5 = $459.19 a month or a whopping $5510.28 a year. WOW, thats going to leave a mark.
No big deal right, the homeowner will just cough up the extra $200-$450 a month. Add in increases in Hydro/Natural gas/fuel/auto insurance/ property taxes/water-garbage rate increases/ home repair and maintenance/ internet-phone-cable rates. Its nothing right, with all of the other increases add another $150, no biggie, whats $350-800 a month?
Now remeber that a lot of these homeowners are to the max already when they qualified.
What happens if the rates go to 7.5-8.5% 4-5 years out? if that happens, then what happened in the US will be pale compared whats going to happen here.
#78 doctore,
I liked Ferguson’s book as well. A great primer on the history of the money system.
I just want to remind a few people that to expect a “crash” is likely wishful thinking.
I remember making this same comment last summer, that the loses were just eroding previous gains from earlier in the year; only to be told by a few of you (Junius I remember being particularly condescending) that I needed to wake up that we were already in the “crash”.
Well I have not changed my tune, if you expect to wake up tomorrow to see house prices have dropped 20% because of some rate hikes, that is not how it works.
For those of you who pine for lower prices you will likely have to wait a year or more to see the prices drop 20% or whatever it is you need. And we all know that in a year’s time things can change for better or worse.
So to keep applauding every little event as the next sign of “a crash” is likely futile. We would likely have to look back when it is over to see what the catalyst was.
Who knows, maybe this time Junius at al. are right maybe we are already in it with however many months of declining sales we have had. Or maybe those declining sales are from previous highs…
Wish I could predict the future like the rest of you.
#48 Irrational Exuberance,
I saw that article as well. I can’t believe that Tal is trying to rationalize a 200% debt to income ratio. He has been steadily losing credibility for me over the past years. This article moves him from the “watch” list to “highly suspect”.
Garth – What is up with your old pal Benny? He appears to have lost his mind.
#71 Paolo…
“it has begun”
Another great example relating to my post above.
For the grammer police it should have read “Junius ET al.” not “Junius AT al.”
Typo.
Didn’t the 40 year mortgages start being offered at the at the very end of 2006?
Time to renew!
There are some people I know who’s behaviour is changing a little….
The once calm, happy, the world is beautiful with my rose (debt) coloured glasses on; kind of folks are now becoming callous, angry and distraught people.
They were once the envy of the social group; and would have no part in conversations regarding debt management as long as those debts could be serviced.
These same folks who ridiculed those ‘beneath’ them for lack of home ownership, new automobile purchases etc..etc.. will NOT be able to manage financially or emotionally over the coming months/year.
Don’t be so sure that QE2 is going to continue – The FED has some internal dissent – (http://www.zerohedge.com/article/dallas-feds-fisher-says-will-dissent-any-further-quantitative-easing-decisions) yesterday I heard FOREX analysts suggesting QE2 may be ending early.
How credible is the dissent? Given they haven’t said anything up now? An open question.
I wouldn’t hang may hat on QE2 continuing. Not to mention the appalling state of Provincial finances, oh, which are financed by bonds too.
#73 Marina,
As has been said on this Blog before (many times) “the plural of anecdote is not evidence.”
Listings in Vancouver are on pace to be the highest start to the year ever. January was second highest behind last year however obviously the Olympics had an impact on timing for February. Right now February is on a tear.
And yes, Brynn. These are year over year comparisons in case you didn’t learn that in your 3 week course.
Meanwhile sales are lagging far behind even with the coming rule changes. Yesterday’s rate hikes will also put pressure on pre-qualified sellers to complete deals.
Spring is going to be ugly in Vancouver. Go thing we will have flowers and bees.
The lesson for today, boys and girls, is that if you think that taking your money and running with the herd into equities is the way to go, you may as well go buy yourself a Vancouver special. If you want to buy low instead of high, buy bonds when yields are way, way up in a couple more months. For now, the stock market is done, over, missed the boat.
Here is video everyone should watch…. I know it wont happen here blah blah blah….guess what….it will…
ENJOY
http://www.youtube.com/watch?v=Pgbj7znznHw
I think you are right.
BUT how many read your blog, and how many will read this.
http://www.bnn.ca/News/2011/2/8/A-golden-decade-for-home-prices-survey.aspx
Hard to blame folks!
#60 Victor
5% in gold would hardly protect a person from anything when there other 95% is exposed to paper assets or real estate. Thats like Garth suggesting you put on one of his speedoz because it will protect you when you dive into his shark tank. As 2011 unfolds you will see what I mean. The only reason gold is still below $2000 is because most people have no idea what we face in the next 12 months. Its still not too late to drink upstream from the herd.
I have been watching the price of XRB for the last couple weeks and continues to drop as predicted. I have been using the moving average as described in your book as well. Would it be prudent to wait and buy bonds after the longer term moving averages cross back over the market price line? Does it not tell us that the prices will continue to drop and to wait? Comment #2 has me curious. Thanks.
INFLATION, AYE THAT’S WHAT WE NEED! MORE PROSPERITY ON THE WAY? RIGHT.
The always interesting thoughts of Steve Saville (The Speculative Investor — Posted Tuesday, 8 February 2011 Source: GoldSeek.com) explain why we’re seeing the upward creep of interest rates, in China, and soon in Canada. This does not look good.
Already in Canada mortgage rates are rising; in the US homes are selling for deep discounts in Florida and other states (see WSJ this date), with the result that housing prices are going up.
Asset inflation, in other words, fairly late to the commodities inflation party, is now pounding on the Central Banks’ frat-house door, carrying lots of baggage from past economic blunders.
The result will be more tears, in the US, Canada and everywhere for that matter, as central bank money printing policies start to come home to roost.
I can’t predict when this will occur. But it seems to be pretty much cooked already in the upcoming ample servings of steaming hot crow for all of those Debt-Jockies out there in 5/35//HELOC La-La Land..
Here’s the highly literate Mr. Saville’s take on the incoming inflation tsunami and its effects:
“While an economy-wide inflation-fueled investment bubble is in full swing, policy-makers will look smart. At least, they will look smart to the economically illiterate.
But when the bubble bursts, the policy-makers that looked ingenious will quickly begin to look decidedly less so…
In Japan, the process via which policy-makers go from being widely perceived as ingenious to being widely perceived as incompetent has run its full course, whereas the process is probably about half complete in the US and is yet to begin in China.
There’s no doubt that the aforementioned process will eventually occur in China, because China’s central planners have made similar mistakes to their counterparts in Japan and the US.
In particular, they’ve fomented a massive investment bubble and have attempted to use inflation to cover-over the problems caused by earlier inflation…
…(F)or some strange reason the Chinese government gets a free pass from many Western analysts who should know better. It seems that these analysts apply one set of standards to the US and a completely different set to China…
(J)ust imagine what the typical ‘China-hugging’ pundit would be saying about Bernanke and his Federal Reserve cohorts if: a) the US money supply had risen by more than 50% over the past two years, b) the cost of housing and food had risen by more than 20% in most large US cities over the past 12 months, and c) the Fed had just announced that it was targeting a 16% increase in the US money supply during the current year.
Don’t you think they’d be screaming “blue murder”?
…And yet, when this exact set of circumstances occurs in China these pundits gloss over it. Heaven forbid that they should stop their anti-US tirades for even a minute to acknowledge that central banks and governments outside the US are doing substantial economic damage…
The extent of the problem caused by the deliberate inflation policy of China’s government isn’t yet apparent, because the bubble hasn’t yet burst.
When it does, the evidence of many years of bad policy-making will be too blatant to ignore. At least, we hope it will be, but perhaps we are too optimistic…”
The effects of all of this money and market manipulation will be most interesting. Those with little or no debts who also have a handle on their expenses should be able to ride out this catastrophe in fairly fine fettle.
#52 Brynn “… The government won’t allow interest rate to rise … ”
Hello. Can Brynn not read? The government DOESN’T controll interest rates – the bond market does.
Why did the Federal reserve in the US not ‘save’ housing there – like they didn’t have Fanny Mae and Freddie Mac (US versions of the CMHC) to worry about?
If you want to post a comment contrary to Garth’s opinions great, but please don’t make yourself look stupid by posting half baked remarks. Do your research. Go to your local library and take out ‘economics for dummies’.
One again we are reminded that in every opportunity there is difficulty, and opportunity in every difficulty. I have some cash sitting in a pathetic return money market fund (or the orange guy’s shorts) but have been reluctant to commit much of it to equities for fear they are over priced and due for a correction. Now looks like a good time to move some money into bonds or bond funds (not all but some money as there may be better opportunities ahead in the form of even higher interest rates or a stock market correction) but at least some. You are supposed to buy low and sell high, aren’t you?
Accounting question, i have been given a business credit card with a very low interest rate. I would like to use it to pay off some personal debts. If I use this to pay off much higher personal debts loans then I need to state the amount loaned as salary? and then have to claim that on my personal taxes, but is there a way to realize the loss in the company on my personal taxes without selling the shares? All i want to do is pay down debt that is at a high interest rate.
I would not be so fast as to think that inflation is coming and bond prices will rise. Infaltion is here in the form of commodaties, these are input cost killers and margin squeeze to the bottom line for corps.
Corps will not invest to a great extent, in this type of enviroment that means real business inflation, inflation were bonds require better returns for a greater demand for money, is a low probabilty.
We are in a balance sheet reccesion or the states is and Europe is. Consumers have terrible balance sheets with higher input costs to their daily lifes. So were will the inflation come from?
China raised rates last night again, now they really do have inflation and that is what will effect Canada and the Canadian central bank knows they are in tough spot. They are not in control now, their consumers are debt ridden and their customer China has a very big inflation problem and may slow very very fast. Then watch your home values fall and rates will still be low, but there will be no money circulating the economy any more. It’s not high rates that will take the home market down 1st, it’s China.
some you tube links for
Niall Ferguson
I found his ”war of the world” doc very interesting.
‘ascent of money’ is a good read for sure.
#93 TheBigLebowski on 02.08.11 at 1:11 pm
Personally, for now, I have more than 15% in precious metals (with an emphasis on major mining stocks as opposed to bullion; ie: ABX) but I can understand the apprehensions of others on this subject. To each his own as the “gold” debate has gone on ad nauseum.
That said, I also have a decent basket of very solid dividend paying blue chips, and today grabbed some XRB to round things out a little with fixed income.
#36 Tim on 02.08.11 at 12:26 am
So interest rates will rise a bit and put some saps who bought with 10 percent down over the edge, but it won’t wipe out the majority of homeowners.
Timmy boy, you have no idea where that rate hike and amortization change can take things. Things could be changing real fast. The consumer led recovery is about to take a significant turn. Those high values were an illusion. When fear moves into society a lot of reactions and consequences follow. It is not just those saps that are affected. Those saps happen to be our sisters, brothers or children and probably contributed more to the internal economy than you did lately or perhaps ever will.
I am so tempted to buy a house in Texas (~200K) or California (~300K) right now, where we would eventually settle in a few years, but those markets have not bottomed out yet (maybe in 2 years?). on the plus side mortgage would be much smaller (~25%) and interest paid would be tax deductible. on the minus side I will have over 50% in one asset, will have to pay upkeep until I move and the community may suffer from possible government expense cuts. here in Canada I am guessing it will take years (5 or more?) for the house to meet my valuation. Renter for now…
City of Saskatoon spending $3M for home down payments
http://www.cbc.ca/canada/saskatchewan/story/2011/02/08/sk-down-payments-1101.html#socialcomments
#22 Professor,
“Hey Guy in Virgigi,
Explain why Garth being a dick makes me a moron. You’re the one who lives in Regina.”
Well, by taking a swipe at Garth via an elementary penis joke you opened yourself up to being the butt of a much better balls joke. Understand? Also, you resorted to personal attack rather than rational argument. I would have hoped a ‘professor’ would be above that.
“Virgigi”? WTF? The word “Regina” is usually snickered at because of its similarity to the word “vagina”, which is a part of the female anatomy that you are probably not very familiar with. But just for your future reference, it’s spelled V-A-G-I-N-A; and NOT “V-I-R-G-I-N-A”.
“Regina” is actually the latin word for queen and is the formal title bestowed on a reigning queen, as in “Victoria Regina”. It is the feminie version of “Rex” which is the official title of a reigning king, as in “George Rex.” I believe both are derived from the latin “regalis”.
Yes, I live in Regina? Why? One reason…
It’s the employment stupid!
http://www.leaderpost.com/business/Sask+unemployment+rate+second+lowest+Canada+Statistics+Canada/4227037/story.html
Where do you live? Not somewhere that rhymes with fun I bet.
I will not argue with you on that point Garth but put to you for your consideration; is it “high housing valuations” or the debasement of our fiat currencies buying power?
Further, in keeping with your own charges against “all time high home ownership numbers” one of the only ways that could have happened is through low housing valuations (granted it be the monthly aggregate cost). High housing valuations is the markets natural corrective measure toward returning itself from that unnatural state of affording home ownership to those who have not earned it. But we must ask, what allowed it to go there in the first place?
Now we are headed toward some degree of value surrender. How much the market will surrender is the greatest matter of debate on these blogs. But you and I at least know that too much will again fuel the urge to buy and that “too much” is not so much as many believe it will take for that to happen.
Again though what is the primary force which caused the market to inflate in the first place? Take that out of the equation in hopes that housing prices will fall so much that those wanna-be home owners can join the party and they will, no doubt, find some other obstacle has taken it’s place. That is what happened – someone took an obstacle to home ownership out of the way and not long after low and behold some other obstacle moved into its place. That other obstacle is current high housing valuations.
Right now interest rates are low which makes housing more affordable. But buy today at the “perceived peak of the market” and when that rate adjusts you will find yourself facing a larger mortgage payment. On the other hand, wait to buy and while you “might” get a better price on the home, interest rates might cause that payment to be just as were you to have bought today.
My point is, we can not have our cake and eat it too. None of us can be so sure what tomorrow will bring and most certainly the market tends to move against the masses as the masses tend to distort the market and the market is forever and always seeking equilibrium. Rented, mortgaged or clear title everyone needs a roof over their head and is likely to for some time. Real estate speculation is not something you do with your primary residence and that is what has been wrong with the markets of late.
People have been speculating with their primary residence and/or treating it like a bank. And it is that which causes me to I agree with you Garth that “high housing valuations do not serve society well.” But again, in a bid to cause your readers to think about who or what the real culprit is;” what was it that caused housing valuations to rise so in the first place?”
“So to those who say, ‘the government would never raise rates because it will hurt the economy,’ or ‘it won’t happen because it will shoot the dollar higher’ or ‘why would they want to hurt real estate?’”
Garth, why are you always so melodramatic?
I read this board every day and I am one of the people who posted on rates and how I don’t see major moves in the near future…
We NEVER said rates would never ever go up. I implore you to find ONE comment by anyone who said “rates will never go up”, what I and many others said is that the rate increases we are going to see will be relatively modest because of the fragile state of the recovery and the CAD-US exchange rate.
Garth, you just look like your jumping at any chance to say “see, I told you so”..
Its like WOW, you told us that rates would come off the historical unprecedented 1%! You’re a freakin genius.
#36Tim–so RE prices drop10%,they’ed still be 50% higher than they were 5years ago.
dumbest comment for some time-give us some numbers to prove your statement–what area or location are you talking about— maybe you should do a little research into the real numbers and not be taken in by CREA numbers
mls#v867645 bought may08-252k—listed242k
mls#v862972 bought july08-451k—sold 424k
mls#v867904 bought july 08-669.9k–listed 659k
ya 50% higher my ass
#76 househunter– you too are not looking very hard –maybe watching the pumpers on BNN and good old Global tv for your info–don’t believe a word of it
prices going thru the roof as you say
mls#v867919-listed aug10–489.9k–now 449k
mls#867939-listed jan10-438k disappeared in Mar10-now relisted 348k
i think a better statement might be falling off a cliff!!!
#83 Mr Plow–Junius is right– we are well into the downturn–started in the tri-cities last spring–properties i watched last mar -apr -may –still listed numerous price drops –many listed below what owners paid
DA #74
I detect a level of satisfaction in that statement. Might not “long feared ‘train wreck’” be a more thoughtful way of saying it? Believe it or not you too are a passenger on that train.
+++++++++++++++++++++++++++++
Sorry, we got off two stations ago. Started planning two years ago to miss the whole wreck, and it looks like we will.
oops no links
lets see if it works this time….
http://www.youtube.com/results?search_query=niall+ferguson&aq=f
Chinese government raise rates as a direct response to food cost inflation. In Bananada the BOC/F are oblivious to the needs of the citizen and have let food costs spiral upwards to the point where food lines have grown hundreds of meters deep on any given day. Young families and seniors are starving yet no response.
Is the Chinese government actually more responsive and caring the government of Bananada? You decide.
http://www.bloomberg.com/news/2011-02-08/china-raises-benchmark-one-year-deposit-lending-rates-by-25-basis-points.html
Is there a bubble forming in the stock market? I know that upping dividends and stock buy backs are good for the price, but if I take a step back and look at the big picture, all it tells me is that management has no clue on how to grow the businesses, so they’re calling it a day and cashing out.
Someone please explain to me what I’m missing?
I will not argue any more because I admit it, I’m a clueless idiot.
#44 LJ
What inverse 10 yr bond etf are you referring to? Is this a canadian ETF? Whats the symbol?
And with all due respect to Abitibidoug who I know is just trying to do his best, looking out for himself as is everyone… What is wrong these days is it’s all about speculation not just in real estate but the financial markets too.
We are all seeking higher returns than the markets are prepared to give without additional risk. We are all living on the edge willing to take on more risk in the hopes of wining the speculative gamble.
More need to be satisfied with typical returns given the state of the market, what ever market it is and when ever that market is. If it promises you more than all others there is a reason, for why would it do so if it need not. An investment offers the investor a rate of return based on the risk involved. That, at the very core, is what interest is – payment to you by a borrower of your opportunity cost and the associated risk of doing so to you.
Get a good financial advisor you have a comfortable confidence in and trust them to manage your investments for you. Not only are you not capable as they in that field you are neglecting the one you are capable in and THAT is a huge opportunity cost to you for which you are not being paid.
If we would all do that which we are best at and in all things seek a reasonable return our economy would be a reflection of it – growing at a moderate but stable rate. And there ain’t nothin’ wrong with that.
Jax
I’m not surprised the City of Saskatoon is doing that. They have had their hand in a handful of affordable housing programs by giving out free down payments to buyers who have no business being in the market. If they can not save for a down payment, what are they going to do if they have a major repair to pay? Subprime or reckless programs of lending needs to stop. The people who spearhead this may have good intentions, but this will have disastrous results. Subprime in the US pushed home owner ship rates to 69%, programs like this will push Canadian home ownership rates past 71%.
#1 Professor
If you are so F#cking smart….how come you couldn’t get Gilligan, Skipper and the rest off the Island ?
That’s the problem with experts…head up ass and can’t see the bigger picture ” hey….its dark in here “.
Gentlemen prefer bonds. I guess most people don’t know what gentlemen is?
I hope you’ll someday write about bonds. The market is vastly enormous, yet not many people know much about it.
Are you sitting down?
Good?
BC URBAN home prices are about to take off.
The BC Gov’t has drafted a policy to establish home sizes in the Agricultural Land Reserve(ALR).
Aren’t home sizes part of the duties of Local Gov’ts via zoning bylaws?
Of course.
However….ill advised poorly informed parties had issues with parties following existing Local Gov’t bylaws
, many of which allowed large homes due to the large property sizes.(Floor Area ratios proportional to lot sizes)
However, under the documents tabled by the BC Gov’t for Councils to review, (and not vote on)….they are looking at a Province wide residential house floor area restriction of 3970 sq.ft. ….and only allowed to use a total of 8800 sq ft for all other residential requirements including landscaping etc. …..whether you own 1/4 acre, 1/2 acre or 19 acres
(if its greater than 19 acres other rules apply)
The BC Gov’t document even states that its intent is to drive the prices of ALR property d-o-w-n…. limit any/all residential impact so that “farmers” can afford to buy the land…even though thousands of acres sit unused growing weeds, because economics show farming is dying with very few exceptions.
Thus, parties that bought ALR parcels , say 2 acres and often built a 6000 sq.ft home on 2 floors…and paid approx. $1 Million will see that they can only build a 3970 sq.ft home….so they will then bid up Non ALR land….say 8000 sq.ft Urban Lot….and put up their 6000 sq.ft home there.
This document had an input deadline of Feb 28.2011, but has been extended to end of March 2011.
Why?
This is so politically TOXIC I can almost guarantee that various ETHNIC groups will turn Metro Vancouver into a Cairo like riot…..
The delay is non coincidental, it is to minimize any controversy during Provincial liberals leadership convention at end of Feb…so when a leader is chosen….this will be driven home to buy votes and cater to vested interests.
To the person posting as me;
Oh yes, I’m so sorry I forgot… the reason house prices rose so has nothing to do with anything other than the selfish manipulation of the markets by REALTOR® members of CREA. How silly of me to have forgotten that simple influence as they point a gun to your heads and tell them what and what not to do. And that makes ME a clueless idiot?
STOP!!! the insanity
The finance minister comes out and says expect interest rates to rise even more
http://www.winnipegfreepress.com/business/breakingnews/flaherty-warns-of-even-higher-mortgage-rates-after-this-weeks-jump-115575429.html
Then you get the National and CBC spilling out advertisements for the real estate industry as actual news items
http://www.nationalpost.com/news/canada/Homes+sales+expected+rise/4243071/story.html
Its basic Math Grade 7. I guess people didn’t live thru the 80’s when interest rates went into double digits. In a matter of a few months.
From what I can see, Canada will fall into Darwinism.
The US has already fallen same with the UK, but Canada is way up into the strata sphere and has a long ways to fall.
Question is, the Canadian dollar, is it safe to keep your money in canadian dollars when the probability of a breakdown is great and there is no rate of return for keeping your money in such a risky investment.
Especially if inflation ugly head is right around the corner
Garth you were preaching deflation just a month ago, and now inflation. There was never deflation it was always inflation, real things matter like food, gas and so on, not some mumbo jumbo from the economic playbook. $100 buys less today then it did 4 weeks ago period.
Asset deflation, price inflation, concurrently. — Garth
#83 Mr. Plow,
You said, “I just want to remind a few people that to expect a “crash” is likely wishful thinking.
I remember making this same comment last summer, that the loses were just eroding previous gains from earlier in the year; only to be told by a few of you (Junius I remember being particularly condescending) that I needed to wake up that we were already in the “crash”.
Well I have not changed my tune, if you expect to wake up tomorrow to see house prices have dropped 20% because of some rate hikes, that is not how it works.”
First of all, predicting a crash and wishing for a crash are too seperate things. I believe humans are contributing to climate change but I wish it were not so. I don’t believe Garth or many others are “wishing” for a crash. For the record, I fear a crash and its after effects as I have said before.
Secondly, I readily admit that I underestimated the pace at which the market would change. If I was condescending I do apologize although the fundamentals that will bring about the “crash” or whatever we call it remain the long term trend.
Finally, I agree that prices will not change over night although it could happen quickly. The first stage is the drop in sales that we saw through the latter part of last year. The only question now is the pace of the melt.
Where is the motivation for change that would lower the standards of truth and fairness in broadcast journalism?”
#41 Barb the proofreader
look back :
http://www.aarclibrary.org/publib/contents/church/contents_church_reports.htm
http://www.pbs.org/moyers/journal/10262007/profile2.html
Church Committee investigationsFurther details of Operation Mockingbird were revealed as a result of the Frank Church investigations (Select Committee to Study Governmental Operations with Respect to Intelligence Activities) in 1975. According to the Congress report published in 1976:
“The CIA currently maintains a network of several hundred foreign individuals around the world who provide intelligence for the CIA and at times attempt to influence opinion through the use of covert propaganda. These individuals provide the CIA with direct access to a large number of newspapers and periodicals, scores of press services and news agencies, radio and television stations, commercial book publishers, and other foreign media outlets.”
Church argued that misinforming the world cost American taxpayers an estimated $265 million a year.[23]
In February 1976, George H. W. Bush, the recently appointed Director of the CIA, announced a new policy: “Effective immediately, the CIA will not enter into any paid or contract relationship with any full-time or part-time news correspondent accredited by any U.S. news service, newspaper, periodical, radio or television network or station.” However, he added that the CIA would continue to “welcome” the voluntary, unpaid cooperation of journalists.[24
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http://www.bradblog.com/?p=8331
http://www.alternet.org/teaparty/149833/why_does_clarence_thomas_get_away_with_breaking_the_law,_as_his_wife_shills_for_wealthy_right-wingers/
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UPDATE 2/4/11: As revealed by the Boston Globe, a newly released Pentagon Report, which was mandated by a provision inserted into the Defense Authorization Act by Senator Bernie Sanders (I-VT), reflected that “more than 100 military contractors…committed civil or criminal fraud between 2007 and 2009” and that “billions of dollars continued to flow to contractors even after they were found to have committed fraud.”
http://sanders.senate.gov/
For Doctore(#78) and others pushing the “Ascent of Money”.
http://www.goldensextant.com/commentary36.html
Just remember that Mr Ferguson is the official biographer of the Rothschild clan and a shill for our current fiat credit “money” regime.
#119 Hoof-Hearted
What nonsense are you ranting about now? People who put up 6000sqft houses on acreages wouldn’t be caught dead at a rally, never mind a riot. And I don’t think too many people would be opposed to the changes, or shed too many tears over butler’s quarters being cut down by half.
Someone please explain to me what I’m missing?
———
Everyone LOVES splits, dividends and buybacks until there is no more equity left… then everyone wonders what happened. LOL.
You’re not missing anything. For less than quality companies, these practices they lead to higher earnings or income in the short term but it’s like burning the furniture to heat the house.
You’re not missing anything. For less than quality companies, these practices they lead to higher earnings or income in the short term but it’s like burning the furniture to heat the house.
——-
Just like real estate… every freaking asset class now depends on a greater fool.
Devil’s Advocate at 106 said:
is it “high housing valuations” or the debasement of our fiat currencies buying power?
sigh… no it’s not “debasement of our fiat currencies buying power” that drove house rices higher.
In fact the buying power of a dolalr has been reasonable stable in the past ten years. Check the inflation numbers.
And if fiat currency was the problem, why did U.S. house prices crash?
Stop worrying about fiat currency.
1. Make some money. 2. Invest that money in good quality stocks. 3. “rinse and repeat” until you retire (actually just repeat buy and hold will do just fine)
You will find you will do okay, although somewhere in the middle you will feel some temporary pain. Like soap in your eye that will not last too long.
…You’re Welcome!
You’re a real riot aren’t you? Do you think posting as me is going to change the facts? Spare me…the reason house prices rose so much is because of realturds ™ like me pushing crack shacks and promising infinite growth. How else do you think I make a living and pay for my wife’s expenses?
Gimme a break and next time try and be a bit more original.
To the person posting as the person posting as me: Stop it! It really bugs me, and I’m a clueless idiot.
Got off because you reached your destination or got off short of your destination? Any loved ones, co-workers or friends still along for the ride or did they all get off too? Maybe the train will switch tracks? Maybe it already has? Maybe the new track leads to an even more desolate place? Or maybe a veritable paradise from which you will get only “wish you were here” post cards.
“Life was like a box of chocolates. You never know what you’re gonna get.” – Mrs. Gump
Enjoy the show…
#108 poco…
You missed my point. I am talking about those who are cheering on or expecting a “crash”. I mentioned last summer when everyone was cheering it on then that perhaps it was just the gains from earlier in the year that were eroding.
You saying that “we are well into the downturn” basically mirrors what I am saying. It is a slow and long process, no sudden “crash” or “pop” that some people seem to be anxiously awaiting.
A year from now we could look back and see that prices have dropped another 15%, or we could still have people on here cheering on a “crash” that will likely never happen.
Prices will fluctuate based on supply and demand, and other circumstances like mortgage rules, rates, employment, net-migration, consumer confidence etc…
It took years for the U.S. to end up where they are, if it is going to happen here it is likely still at least another year or two away.
#101 Victor, ok, I like that you own some mining shares. Look at sprott or rbc pm funds, both will/have performed well and give you exposure to a basket of juniors without having to rifle shoot a single stock. The operational gearing is where the leverage is and that is to be found in the mid cap/junior space. Go long and stay long in that venue, don’t try and trade it.
I’m out. As you all know I can make enough enemies being myself without the help of some imp impersonating me. To those who felt unjustly insulted my appologies… it may or may not have been me who offended you.
Later…
Here’s an interesting story from the US about home ownership and renting.
More people choosing to rent, not buy, their home
Homeownership rates are falling as number of renters rises
http://www.marketwatch.com/story/more-people-choosing-to-rent-not-buy-their-home-2011-02-08?dist=afterbell
DA:
Enjoy the show…
++++++++++++++++++++++++++++++
We are. Life is far better and less stressful. I’m having fun for the first time in years. I’m actually able to be proactive and look forward to things rather than filling a gaping Maw….
As to friends and family, you must be one sick puppy. In your world, misery must love company. Fortunately my friends and family bulletproofed themselves long ago. You probably don’t like hearing that either…
Wish you were here (but really glad you aren’t!)
Then what, prey tell, was it? Look at the historical trends of many things pre-1971 and post. There is a marked and somewhat common change in the trend of many about that time (1971). Not sophisticated research on my part by any means but do it for yourself and come to your own conclusions. It’s not a tin hat theory… just… well dang it all maybe it is…
};-)
You misunderstand me my friend. I too am in much the same place as you, unfortunately there are many I care about who are not with us so immune. If what you think should happen and the train crashes many of them will meet a fate they don’t entirely deserve. You must have at least a shred of compassion for they who are not as immune as we?
Does anyone even read D A’s posts?
#133 Mr. Plow,
You said, “Prices will fluctuate based on supply and demand, and other circumstances like mortgage rules, rates, employment, net-migration, consumer confidence etc…”
Agreed. However isn’t the salient point that all the ducks are lined up against the future appreciation of prices and have been for sometime?
House prices change at the margins. Sales have been slow and most sellers WANT to sell but don’t NEED to sell. Yet. Only when we have a large enough group who MUST sell will we have a crash. Could be this Spring. Could be next Spring (but I doubt it). However clearly the market is melting and prices will be down this year over last.
I would really appreciate it if the DA imposter stopped it. As someone who has been impersonated before I think it is really sleazy behaviour. I wish Garth had a way to deal with it but he doesn’t. Free speech is free speech. Please respect it.
i found this interesting,
Sometime this year, we taxpayers will again receive another ‘Economic Stimulus’ payment.
This is indeed a very exciting program, and I’ll explain it by
using a Q & A format:
Q. What is an ‘Economic Stimulus’ payment ?
A. It is money that the federal government will send to taxpayers.
Q.. Where will the government get this money ?
A. From taxpayers.
Q. So the government is giving me back my own money ?
A. Only a smidgen of it.
Q. What is the purpose of this payment ?
A. The plan is for you to use the money to purchase a
high-definition TV set, thus stimulating the economy.
Q. But isn’t that stimulating the economy of China ?
A. Shut up.
Below is some helpful advice on how to best help the U.S. economy by spending your stimulus check wisely:
* If you spend the stimulus money at Wal-Mart, the money will go to China or Sri Lanka .
* If you spend it on gasoline, your money will go to the
Arabs.
* If you purchase a computer, it will go to India , Taiwan or China .
* If you purchase fruit and vegetables, it will go to Mexico ,
Honduras and Guatemala ..
* If you buy an efficient car, it will go to Japan or Korea .
* If you purchase useless stuff, it will go to Taiwan .
* If you pay your credit cards off, or buy stock, it will go
to management bonuses and they will hide it offshore.
Instead, keep the money in America by:
1) Spending it at yard sales, or
2) Going to ball games, or
3) Spending it on prostitutes, or
4) Beer or
5) Tattoos.
(These are the only American businesses still operating in the U.S. )
Conclusion:
Go to a ball game with a tattooed prostitute that you met at a yard
sale and drink beer all day !
No need to thank me, I’m just glad I could be of help.
There are better alternatives to RRBs.
#30 Victor:
I have only a moderate knowledge of the market, but my reasoning goes like this:
XBB is the bond index. The bonds that are already out there. The one paying almost nothing.
Since we are in a period of historical lows, the bonds that are already out there pay crap. Unless we go to deflation, rate will have to rise from 0 – 1%. Any recent bonds will be clobbered (why buy a 3% bond when I can buy a 6% bond off the self?).
XRB = a basket of bonds that pay x% over the rate of inflation (2 – 2.5%). If inflation picks up so will the rates. The anticipation of inflation may inflate these babies higher than their worth – see gold.
That’s how I see it – but I could be completely out to lunch…
richmond real estate is getting closer to becoming more liquid as in liquifaction . I wonder how many felt the earthquake today . They felt it in vikiville 3.2 .
http://earthquakescanada.nrcan.gc.ca/index-eng.php
if you look at the map you can see the frequency building .
The man that builds on sand is surely a fool (quote from the big book of jewish fairy tales )
So whats the biggest thing to watch?
For one – when a trend starts it’s likely to keep going. So bonds/mortgages can be dynamite.
Don’t believe me, just look at any market. And think that bond yields have had a 30 year fall.
30 years up anyone?
And my prior post ties in with market sentiment.
Bond vigilantes have been asleep for at least 4 years, maybe they will wake up.
#143 Jack,
Thats hilarious… But very true…
There is only one way to bring US out of all this mess by bringing all those manufacturing jobs back to the States… But those idiots dont understand until China threatens…
Good day all. I read this blog often and find it most interesting. Here is something i heard on the radio today being considered by the city of Saskatoon. The city is propossing low interest loans for downpayments on homes for people who are renting to free up rental units! Yep they will give you a low interest loan so you can get the 5% possibly more you need for the downpayment. No money needed! Scary part is they are proposing this for folks earning between 45K-70K! Correct me if i’m wrong but isn’t the average familly income about 65K? No savings required! A friend from Saskatoon was telling me last week they are expecting 15,000 new residents next year alone. That is a lot for a city of 250,000. Perhaps they should encourage developers to build rentals. Meanwhile here in the Queen city our little 1000 sq/ft bungalow could fetch 300K. It appears that the merry go round has a way to go here in Saskatchewan. There IS a new confidence in the province but small bungalows for 300K! Nuts
ooooo, I see the city of Saskatoon will loan me the 5% down payment..sweeeeet. Here I thought I screwed up blowing all my $ on booze and girlz. ;)
How long till we see other cities offering sweeter deals to attract FTBers to their city? Lets start the bidding off with the 5% loan + a case of beer dropped off at the condo every friday night.
if you currently don’t live in a residence that you own (i.e. renting now) but owned a property that has always been rental and then you sell it. Can you claim that rental as your principal residence? In other words is one untitled to at least one principal residence (regardless of living in it or not).
If not, any other legitimate way to avoid capital gains tax on sale of rental property?
#102 TS on 02.08.11 at 2:26 pm
#36 Tim on 02.08.11 at 12:26 am
So interest rates will rise a bit and put some saps who bought with 10 percent down over the edge, but it won’t wipe out the majority of homeowners.
Timmy boy, you have no idea where that rate hike and amortization change can take things.
—————–
How many homeowners have been maintaining their lifestyle and/or paying the first mortgage with a HELOC?
Given the recent rise in HELOCs I suspect more than a few. (But I certainly don’t have the numbers, sadly) The decline for those particular households will be precipitous. And once there are a few distressed sales in an area, they set the comp for the rest.
How can Mark Carney continue to raise interest rates over the next 12 months when there is no indication that Ben Bernanke will start raising rates? If he does raise rates, the dollar will shoot up even further and it will crush manufacturing. Are the previous rate increases that haven’t even been factored in yet and the new mortgage rules not enough? I think raising rates any more until we get to full employment is foolish.
No DA please don’t go!
I heard prices in the Waterscapes building are down 30% please help us!
junius
temper temper junius my friend…us “realtors” dont like that ( you really are a scream!)
sorry honey, I hate to say it more then anyone believe me, but all you will have in the the spring is your disagreable nature and the occasional dying primrose…Vancouvers benchmark will just keep soaring this year..Incidently, I am not referring to stupid speculator, dime a dozen condos, I am referring to homes where people actually want to live on the west side..they have no chance in slipping honey…
but what do i know, I’m just a “realtor” …isnt it funny how anyone who supports an opinion contrary to the status quo on here is a realtor… sorry to tell you this, cuz I know between perusing conjecture filled blogs, you likely spend your time at a real job, but realtors are uneducated pieces of garbage who are too busy polishing their dishonourably acquired bmw’s to give a flip about the musings of a bunch of misanthropes who cant afford houses….
junius’s thoughts:
( oh what a slimy cover! ..slag the realtor to give the undercover realtor credibility right?) paranoid much?
have a lovely evening, go for a walk or something..
I think today’s picture is about this.
Screw you, little know-it-all little punks, who think you are going to be able to pay off your debts with the inheritance you are going to get when we depart this earth!
We have borrowed all the equity out of our homes so we can spend our last few years partying it up.
So, suck it up you spoiled rotten brats who think you deserve everything for nothing! Get yourself out of the mess you made yourselves!!!
#104 Jax wrote:
City of Saskatoon spending $3M for home down payments
—
OMG! I just wrote the Saskatoon city council lambasting them for this bone-headed decision. Are they all a bunch of morons?
#133 Mr. Plow—i think we basically agree on a downturn and a slow melt over the next few years–no big crash or drop—-i’ve been seeing the melt in the tri- cities in many areas since last spring–first the condo market–places listed –sitting for several months– then price drops and people selling for less than they paid
not so much the price drops, it was more the fact some areas never had the big price increase after the 2008/09 downturn–prices remained flat
all the pre sales in the new highrises in Pt Moody and around Coq. center where all the flippers were going to make a killing–NOT–now they can’t get rid of them–how many refused to close –Sutter Brook alone there were 22 i think
now first time listings showing up with asking price less than they paid 2 to 3 years ago —no, not all, but lots
i can only assume that this market is melting–i don’t really follow any other markets, so hesitate to comment on them
i would like to rely on other posters for more info on their markets but when you get ” a friend told me or a co-worker said” well you get what i mean–doesn’t mean a thing to me
people still buying -places going for list or just under and once in a while one goes for over asking–why? who knows
sales to list since Jan 1 is 30% to 40%
145 McSteve – The rate of a canadian govt RRB doesnt change with inflation, the base value of the bond upon which the rate is applied does. So a 5% bond will always pay 5%.
http://www.fin.gc.ca/invest/instru-eng.asp
So I would think the reason to buy these bonds is more
for inflation protection than yield.
But maybe I’m completely OTL too.
@152 Jim
I’m no accountant but my brother is…my understanding is that yes you can declare one principal residence regardless if you live in it or not..at least that’s how we did our taxes last year
Time to get a new brother. — Garth
#145 McSteve
Appreciate your response. I did go with XRB today and picked up some shares. Also like the technicals on this ETF as the RSI is screaming oversold. Looking forward to a decent yield + potential for capital gain once it heads back north.
In response to post #115 by Devil’s Advocate:
That’s good advice, professional help never hurt anyone. As for your comments about seeking higher gains, all this speculation is the end result of extremely low interest rates which is caused mainly by quantitative easing. If not for that, more people would be happy with decent returns on more boring fixed income investments and thus less money chasing bubbles. I once read where Alan Greenspan was called Mr. Bubble. It appears Ben Bernacke is Mr. Bubble 2.
OK – I have to ask. How do some of you do that nicely formatted quoting from other posts here?