America

Marg’s house gets listed Monday. Smart. The last sales frenzy for quite some time will then have 11 days to run.

“I’m thinking of buying in Vegas.” She tells me. “Houses there have lost all their appreciation since 2010 and now sell for 6x their rent for a 12% return on investment, never mind any possible appreciation. What’s wrong with this picture?

Yesterday I began a discussion on selling Canada and buying America. As an investment strategy over the next five years or so, is it a no-brainer? Canadian houses, in large part, are grossly overinflated. US houses are, on average, steals. Homeowners and buyers here think they’re invincible. Americans feel vulnerable.

Over the coming half-decade, Canadians will discover they bought at the top with money at the bottom. There are only losses ahead. Americans will gain confidence and jobs, snapping houses cheaper than a decade earlier. Prices will only rise.

Interesting, this week’s numbers show Toronto sales down once again on a yearly basis. That’s an eight month pattern, now going into an era of rising interest rates and tighter mortgage rules. Meanwhile prices continue to rise in the GTA, and vault higher in Vancouver. These are markets with poor demos and plunging affordability. How is this not obvious?

Even a major bank has noticed, with BMO warning yesterday, “Canada’s housing market is reaching the limits of sustainability and could tumble if there is no moderation.” Topping its list of wobbly places to live where price shock awaits: Saskatchewan.

Contrast this with America, where as I mentioned, prices are off 30% on average and 80% in some area codes. Hardest hit have been the sun and the rust belts. Foreclosures and short sales are rampant in Florida while Detroit is paying cops $150,000 if they’ll move into an abandoned home.

So, for some, harvesting gains here before the storm and investing them there, in a drought, is a play. It could yield huge gains. It could be a nightmare. All depends on where, what and how you buy. Here are a few thoughts which I will develop in future posts.

Real estate is local, massively influenced by the region, city, hood and street. So before even considering a US investment, do your homework. The three most basic tools:

  • Realtor.com. The US equivalent of mls.ca. It will quickly throw up the thousands of listings available by city. It’s run by the National Association of Realtors, so it’s an ugly brute, but current.
  • Zillow. An amazing site providing a visual on all areas, the location of current sales, rentals and solds, and endless market and house data. Once you select a city and neighbourhood, this allows house-by-house comparisons along most streets, tracking sales histories, rolling valuations and other data that, if available, might turn Canadians from suckers into investors.
  • Google Earth. Of course. Download it and make Streetview work for you, giving the ability to walk neighbourhoods, peak into backyards and assess the kinds of vehicles the neighbours drive. Saves a bundle on airfare.

Next, get a local agent working for you. There’s nothing like boots on the ground, and they just love Canadians all coked up on house porn. You’ll need a local lawyer, too. Bring cash.

Then, get your financing arranged. In Canada. Obtaining a mortgage Stateside can be done, but then I could learn to be politically correct, too. And why make the effort? It’s actually far easier to (like Marg) sell a home here, or set up a secured HELOC against your Vancouver crack shack, or just arrange for a personal loan or line of credit. It you use the money to buy an investment property, F will even let you write off the interest. Naturally, having cash to close a deal will impress those Yanks, avoid irritating upfront mortgage fees and maybe drop the price.

Okay, that was the easy part. You can also be handed your ass.

For starters, don’t buy property just because it’s cheap. You might secure a one-bedroom condo in Florida for $50,000, for example, just to discover later the building is 80% empty and maintenance fees are a timebomb. And don’t be so sure you can pick up a bargain and then rent it out for positive cash flow. If it were that easy, everyone would be Hoovering America.

In some Arizona cities, for example, vacancy rates are 20% and landlords are going broke. In some condo buildings and low-rise communities, values have fallen so much nobody can get a mortgage, which has prices and rents in a  downward spiral.

Truth is, finding good tenants who actually pay rent to some dude in Lethbridge and don’t spend evenings hurling floor tiles from the balcony at passing cars while breeding German shepherds in the laundry room may be harder than you imagine. But you can try. A property management company’s a good idea, but then you can kiss that cash flow goodbye.

So a rule of thumb is this: If you wouldn’t live in it, don’t buy it. Either use it or flip it.

Now, taxes. If you do buy and lease out, you’ll have to file an annual US non-resident return. If you make money, you pay tax. When you sell, you’ll likely also have to file a state tax return, as well as suffering a federal withholding tax on the proceeds. The good news: if you were a greater fool and lost money on the deal, you’ll probably avoid being taxed – but there are more forms to fill out and file in that case. And if you die with US property, there could be estate taxes. Also watch out for property taxes – in Florida, for example, you will not be eligible for a rebate all the locals can claim. Oh yeah, don’t get sick.

On the plus side, property tax rates are vastly lower in most of the US than in most of Canada. But then, many cities are laying off cops and firefighters, so remember to bring your Glock. Happily, insurance costs are also far lower in the States. Except in Florida (hurricane insurance), California (earthquake insurance) or Hawaii (tsunami insurance).

And what happens if America goes bankrupt, houses there go to zero, every city’s like Detroit and Eminem is president?

Well, won’t happen. But prices could fall another 10% or more, not bottom for a year, then flatline until 2015. That should be just about the time Canadian house values are in the midst of a multi-year retreat. And you should never, ever, bet against America.

Big easy strategy? Hardly. It can wipe you out.

Just like staying here.

Losing in Vegas - Active foreclosures:

195 comments ↓

#1 adam on 03.03.11 at 10:37 pm

First

#2 Steve from Calgary on 03.03.11 at 10:37 pm

Garth, here’s CBC Calgary clip talking about illegal suites in Calgary. I was surprised at the presentation as it presents it mostly like you describe housing here–hormonal–something to be ashamed about if you are renting.
http://www.cbc.ca/homestretch/episode/2011/03/03/illegal-suites/

#3 Ayn Rand on 03.03.11 at 10:40 pm

Gross picture! Surely you can do better for the ladies!!

Too many clothes? — Garth

#4 tonguestump on 03.03.11 at 10:42 pm

ROFLMAO, read a bit of Richard Russell Dow Theory Letters.

#5 librarykaren on 03.03.11 at 10:45 pm

I’d rather live here, and rent, than be part of the fascist and rapidly collapsing territory to the south.

#6 rosie on 03.03.11 at 10:49 pm

Most excellent picture of male stud muffin. Borat lives in all true blog dawgs. Women included.

#7 S.B. on 03.03.11 at 10:53 pm

*Ducks and runs for cover.

http://www.foxnews.com/politics/2011/03/03/utah-considers-return-gold-silver-coins/

Utah Considers Return to Gold, Silver Coins
By Stephen Clark

Published March 03, 2011
| FoxNews.com
Print Email Share Comments (889) Text Size

AP2008

The Utah House was to vote as early as Thursday on legislation that would recognize gold and silver coins issued by the federal government as legal currency in the state. (AP)
It’s been nearly 80 years since the U.S. stopped using gold coins as legal currency, and nearly 40 since the world abandoned the gold standard, but the precious metal could be making a comeback in the United States — beginning in Utah.

The Utah House was to vote as early as Thursday on legislation that would recognize gold and silver coins issued by the federal government as legal currency in the state. The coins would not replace the current paper currency but would be used and accepted voluntarily as an alternative.

#8 Coho on 03.03.11 at 10:54 pm

“…Truth is, finding good tenants who actually pay rent to some dude in Lethbridge and don’t spend evenings hurling floor tiles from the balcony at passing cars while breeding German shepherds in the laundry room may be harder than you imagine….”

Sooo funny! Thanks for the laugh…

And I can picture Borat hurling the tiles, drunk and half naked gleefully yelling “What a good country, America!”

#9 CalgaryRocks on 03.03.11 at 10:59 pm

#3 Ayn Rand on 03.03.11 at 10:40 pm
Gross picture! Surely you can do better for the ladies!!

Too many clothes? — Garth

The shoes don’t match.

#10 JO on 03.03.11 at 11:00 pm

Borat like US houses..yes, much less money than Canada houses, yes..

Oh say can you see..if i were living in the US i would buy in a good area…Garth, are there any areas within one hour of TO that offer a good deal for long term buyers in a year or two..keep thinking about staying is Mississauga and also looking to Oakville..Mississauga is apprently debt free or almost debt free..which is very important to me..I keep hearing about the better parts of Hamilton being good value (Waterdown/Dundas)..but it is a little far…with high long term oil.. think urban, downtown spots close to public transit are the better bets..

Boy I wish i lived in a good warm area in the US….
JO

#11 Hoof-Hearted on 03.03.11 at 11:01 pm

Truth is, finding good tenants who actually pay rent to some dude in Lethbridge and don’t spend evenings hurling floor tiles from the balcony at passing cars while breeding German shepherds in the laundry room may be harder than you imagine.

=========

At least it pays the rent…
Better than breeding floor tiles and hurling sheperds

PS is that Ron Jeremy or NBA coach Stan Van Gundy ?

#12 Hoof-Hearted on 03.03.11 at 11:08 pm

Houses left vacant too long can be a disaster..

Mice and rats can quickly find their way in….chew wiring.

Pipes can freeze and burst.

Unheated, walls go black with mold….

At the end of the day, will the current generations even want to be homeowners ?

#13 Just_a_normal_guy on 03.03.11 at 11:13 pm

How to invest in US real estate via stock market (or any other form) that way you don’t have to go thru’ much of the hassles in being a owner of a property?

#14 DJH on 03.03.11 at 11:14 pm

A Garth quote from the previous blog: “And it’s not about me being negative on real estate. Actually I love the stuff, and own a whack of it.” If you’re talking about Canadian properties, I’m intrigued. Why sit on a whack of real-estate when you believe there’s going to be a significant drop in its value? Even if this real estate constitutes only 40% of your investments, you’ll still take an unnecessary, avoidable loss. I don’t get it.

I do lots of things that are bad for me. In any case, assets that pay me to them are tolerable. — Garth

#15 JB on 03.03.11 at 11:16 pm

Sometimea my realtor, she show her house In Canada to a JB and say “You will never get this you will never get this la la la la la la.” He a behind his cage a crazy crazy, everybaddy laugh. She goes “You never get this.” But one time he break cage and he… “get this” house in the US and then we all laugh. High five!

#16 Joe on 03.03.11 at 11:17 pm

Oh, my eyes! My eyes! It burns! LOL!

Thanks for the practical advice this evening.

#17 Jason on 03.03.11 at 11:21 pm

Imagine two areas: Gotham and Pleasantville. Say the demand to live in Pleasantville increases a little, while the demand to live in Gotham soars. And say that due to differences in land use restrictions, housing supply responds dramatically in Pleasantville and very little in Gotham. Then what we’ll observe in Pleasantville is a rapid increase in population and slower growth in prices, and what we’ll observe in Gotham is rapid growth in prices and slower growth in population.

And this is exactly what we have observed in the real world. Suburbs have seen massive housing growth and rapid population growth, but prices in central cities have soared, even in many places where population numbers are level or falling.

If no one wanted to live in central cities, prices for homes there would not rise. And indeed, several decades ago, prices for homes in big central cities were dropping. But that trend has clearly reversed. You can’t draw conclusions about demand shifts from population numbers alone. This is a very simple point, and yet it’s repeatedly ignored.

#18 dmc on 03.03.11 at 11:22 pm

I’m offended! Garth, you’re a disgrace, why don’t you cater to upstanding citizens like me who have to avert their gaze when they undress to shower.

I once caught a glimpse of myself in the mirror when towelling off, I was so offended I wrote myself a stern letter. I received it the next day, reconsidered my behaviour. I now shower in my clothes.

#19 HouseBuster on 03.03.11 at 11:27 pm

That picture is downright sexist and offensive.

Where is the picture from yesterday?

#20 cendrine on 03.03.11 at 11:33 pm

Garth, that picture is breathtaking – and not in a good way!

A sibling is considering buying in Florida to live in part of the year. My concern for him is ensuring that he finds a clear title for the property he purchases, particularly if he selects a foreclosed property. The scandal of robo-signed mortgages would scare me off any real estate there. I hope he finds a good professional who can research this well for him….

#21 cendrine on 03.03.11 at 11:36 pm

BTW I sent your last two posts to him – with a warning about the pics, of course.

#22 moloko on 03.03.11 at 11:37 pm

Why doesn’t Canada do this?

http://www.chinadaily.com.cn/business/2011-03/02/content_12102998.htm

“In the middle of last month, the Beijing municipal government moved to prohibit home purchases by non-local registered families who have no proof of social security or income tax payments in the city for five straight years.”

#23 Chaos on 03.03.11 at 11:37 pm

“The Horror…The Horror…”

Please bring back the baby/dwarf.

#24 LJ on 03.03.11 at 11:37 pm

The tax implications are more severe than some might realize. There are rules on the books that state: when owning US property and using it as such, even for a portion of the year, you could be considered a US resident and subject to estate taxes on your entire net worth (which is a lot more severe than Canadian tax laws).

Also consider property taxes in some cities are different for US citizens and foreigners (often 2X).

There have been a lot of ads recently in local papers trying to get people to buy condo’s in the sun and sand states without disclosing the condo fees, etc…. They seem like a scam run by flippers who are trying to goad the “rich Canadians” with “cheap” property.

My uncle bought 2 rental properties in Phoenix a couple of years ago thinking that the bottom was in. He has suffered the decline, much of it without renters, and still tells me that losing 40% on the property (plus about 5% in exchange rates) and paying 3.5% yearly to the banks on the mortgages, plus higher taxes is worth it. Go figure. He could have caught the bottom of the stock market nicely and doubled his investment and bought 5 properties now.

#25 Tim on 03.03.11 at 11:38 pm

PBS had a piece on health insurance in California. A women with a young child and a husband just got their insurance bumped to over $500 per month, with a $10,000 deductible! Sure Vegas is a bargain-because it is a time bomb, and a soulless, tacky, giltzy city in the middle of the desert. Water costs will only increase. With all the hassle of finding the right property, someday unloading it, managing it, having to worry about renting it out, isn’t it easier to buy a few real estate investment trusts to get exposure to real estate? Eg. Riocan? These are a hell of a lot more liquid and a lot less hassle.

#26 TaxHaven on 03.03.11 at 11:45 pm

I think home prices here are ridiculously inflated. Home prices in the States are STILL 20% inflated.

What if Canadian prices plunge – and stay there for 15 years? U.S. prices are already four years into this scenario.

So, normally I wouldn’t buy anything, anywhere. Better for the capital-less to wait, and rent. But I confess to having just bought a Canadian house. Why? It’s a unique one-of-a-kind, a pre-World War I property, and I want to work on restoring it to original condition and live in it one day.

Would I buy a modern tract house or a condo? Would I buy with a mortgage? Not on your life.

So never say never. Each property – and each buyer – is unique.

#27 Shoggy on 03.03.11 at 11:57 pm

Hey Garth, you mentioned in your comments yesterday that you had about 1/3 of your net worth in real estate. Is that in actual property or in REITs? If so where is it located, in Canada, the States? Also I am curious, do you own the house you live in? If so why have you not put it on the market to capture the capital gains because if you live in one of the major metropolis in this country the value can fall between 30-80% right. SO have you sold to capture the equity and are renting as you have advised others to do?
Shoggy

You must be new here. I can still see your labels. Real estate is a juicy part of any portfolio so long as it is kept in the right weighting. Sadly most people can’t. — Garth

#28 Jeff Smith on 03.04.11 at 12:05 am

>#25 Tim on 03.03.11 at 11:38 pm
[snip]
>about renting it out, isn’t it easier to buy a few real
>estate investment trusts to get exposure to real
>estate? Eg. Riocan? These are a hell of a lot more
>liquid and a lot less hassle.

What is a trust? Is it like a sector ETF?

#29 Soylent Green is People on 03.04.11 at 12:10 am

OMG!!!!!!!!

MY EYES!!!!!!!!!!!

Make. It. Stop. Now.

.
…..____________________ , ,__
……/ `—___________—-_____] – – – – – – – – ░ ▒▓▓█D
…../_==o;;;;;;;;_______.:/
…..), —.(_(__) /
….// (..) ), —-”
…//___//
..//___//
.//___//

And that was just the reaction after reading below, never mind the blog photo of the day:

………………………………………….

Harper’s Jim Flaherty branded idiot

But was her remark the result of lazy journalism, or was she, like most Canadians, simply brainwashed by the millions and millions of dollars in taxpayer funded advertising?

Who knows, but she was dead wrong. Next to Stephen Harper, Flaherty is the most overrated politician in the country. But with our money he has created a corporate branding.

In the same way that we think of Nike as the company promoting fitness and athletic prowess, or Allstate as the all knowing father who keeps us safe in their hands, the Conservatives have successfully branded themselves as good fiscal managers, even when the facts show the opposite to be true.

http://pushedleft.blogspot.com/2011/02/its-time-to-have-serious-conversation.html

.
.
.

#30 Jeff Smith on 03.04.11 at 12:11 am

Aha! The bully of Tripoli and his henchmen have captured 3 dutch soliders. An attack on one of our NATO allies, this is an act of war against NATO! We can now send in ground troops and occupy Tripoli. Hope they do it soon and restore oil price to normal, I am hurting at the pump.
:(

http://www.thestar.com/news/canada/article/948547–more-canadians-flee-libya-as-dutch-commandos-captured?bn=1

#31 Boombust on 03.04.11 at 12:12 am

“Imagine two areas: Gotham and Pleasantville”

Did someone mention “Pleasantville”?

I was in a Pleasantville, NJ just last summer. A hole.

It was just outside Atlantic City.

Another hole.

#32 Caveman on 03.04.11 at 12:12 am

It would be nice if there were futures on the Canadian house price index from Teranet. Being short Canada and long the US would be a great bet without having to mess around with owning any property and dealing with the associated costs.

#33 Tim on 03.04.11 at 12:12 am

RE #14
Too bad our Government doesn’t have the spine to enact some similar legislation. Instead they have created an environment where Canadians cannot afford to live in a home in their own country, even if they make significantly more than the average wage. That’s our government, looking after the people…

Hardly. It’s Canadians borrowing their brains out and trading debt for granite countertops which caused this. — Garth

#34 Boombust on 03.04.11 at 12:18 am

“…Gotham and Pleasantville…”

If, by “Gotham” you’re referring to NYC, let me tell you…

Most of THAT area is a toadhole.

#35 Willy H on 03.04.11 at 12:24 am

“And you should never, ever, bet against America.”

Based on the 2008 financial meltdown*, the volatile mix of oil prices and food inflation**, consumer debt, the inevitable return of higher interest rates, endless political gridlock, and the rapid drawing down of the world’s resources driven by increased Asian demand – I see little opportunity in hedging my bets with the USA.

The United States is one of the least prepared of the western nations in terms of peak oil. They (much like us) have become energy pigs*** with a bubble-driven economy, gluttonous lifestyle, bloated auto infrastructure and a shallow consumer culture all of which are centred almost solely around the automobile. Worse yet, they believe this unsustainable way of life is a birthright with no end in sight! While China and to a lesser extent Europe plan 20 -40 – 60 years ahead Washington and Wall Street can’t see past the next fiscal quarter (or election).

The inconvenient truth lingers only a few short years away. In fact the harbingers of oil scarcity are already here! Just fill up your F150 for the 70km Barrie to Toronto commute and you will soon find out!

If I had to hedge my bets, I would go with Western Europe and China. Both of these regions developed long before oil drove the world economy and any transition will be much easier than what lies ahead for most of Canada and the US.

Don’t get me wrong, Canada will benefit greatly with all her resources in the mid to short-term but much of this economic gain will be offset by grim prospects to the south. Just like Canadians need to diversify out of housing, Canada needs to find sustainable markets beyond our southern neighbour.

America’s best years are behind her. Simply put, their is no one left for Wall Street to exploit after peddling toxic mortgages to America’s underclass. Perhaps bankers will begin to cannibalize their own!

The USA will oscillate between anemic growth and recession for decades. There is no quick fix. The Federal Reserve’s interest rate lever has become an overused fiscally-resistant antibiotic, it is no longer effective as energy inflation gathers speed.

“Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” – Winston Churchill

*largely caused by Wall Street!
**predicted by many advocates of the peak oil theory
*** Canada is a close 2nd! The average size of a North American suburban home in 1950 was 800 sq ft, in 1970 it was 1500 sq ft and in 2000 it was 2266 sq ft. Average size in Europe today is between 800 – 1300 square feet!

#36 Tim on 03.04.11 at 12:32 am

#49 Tim- San Fran and Seattle are cloudy puddles for the most part, been there, done that…. the US will NEVER stick it to the Canadians (for 2 reasons: 1) they are desperate for our assistance as real estate consumers to help stimulate their economy and 2) you and the rest of the herd are not paying attention to what Harper and Obama are working on “big picture” wise), and lastly, the real estate collapse in Spain is mostly in Costa de Sol, and unlike the past few decades you’re likely to get robbed or stabbed if you take a wrong turn.

———————-
I never had any problems in Spain, or anywhere in Europe for that matter. The violent crime rate for the US is almost four times that of Spain. Source:
http://www.nationmaster.com/graph/cri_mur_percap-crime-murders-per-capita.

We know what Harper is trying to do, and hopefully there are enough people here bright enough to prevent that right wing nutbar from getting a majority and further weakening democracy.

#37 Kevin on 03.04.11 at 12:36 am

BMO: Saskatchewan housing is 39% pricier than long term trend
http://saskatoonhousingbubble.blogspot.com/2011/03/bmo-saskatchewan-housing-is-39-pricier.html

That does not mean that Saskatchewan is 39% over valued, as one metric of housing measures is not enough to gauge a housing market. But when 8.8% of all households in Saskatchewan pay more than 40% of their income for debt service and when average buyers buying an average bungalow with 5% down have to shell out over 50% of their income towards housing, something is wrong.

#38 Love this Blog on 03.04.11 at 12:38 am

#18 DMC,

TOO FUNNY!!

#39 Boombust on 03.04.11 at 12:39 am

“PBS had a piece on health insurance in California. A women with a young child and a husband just got their insurance bumped to over $500 per month, with a $10,000 deductible…”

Weird how they can have socialized highways, police and fire departments and educational systems, etc. down there, but not health care. Very weird indeed.

#40 ALE on 03.04.11 at 12:50 am

Happily betting against America. They’re bankrupt.

#41 Carp on 03.04.11 at 12:58 am

Hi,

We went for a cruise this weekend around Ottawa West and Renfrew Country to see some farm land and enjoy the countryside… We had breakfast at a place with good reviews (Hmmm not so much) … I almost pee’d my pants when I say the Steak and Egg Breakfast being called the “Jim Flaherty”

BWAHHHHH!!!

#42 Pat on 03.04.11 at 1:04 am

@ Boombust,

Seeing holes everywhere? What would Sigmund say?

#43 Scared on 03.04.11 at 1:21 am

Harper is IMO a mentally ill person. This man scares me.

http://news.ca.msn.com/canada/cp-article.aspx?cp-documentid=27883195

#44 charles on 03.04.11 at 1:26 am

Great idea. How about all you people with more money that brains run right down there and get yourself a piece of the old red white and blue and take your reform friends with you. You deserve it. Better yet, buy two for twice the fun. That way you could watch Fox while your guests dont miss a thing on CNBC. It’s your chance to be the smatrest person on the block.
Garth has jumped the shark.

#45 NFN_NLN on 03.04.11 at 1:30 am

Flew to Vegas in the summer of last year to look at properties. It’s not like Canada at all… some of the areas are pretty bad but you wouldn’t know it by just driving by. It’s a desert so the lack of precipitation means the houses require little up keep, so even neglected houses still look nice from the outside.
If one of your neighbours has party with loud music… and he’s juice monkey with full body tats and pitbull in the yard WTF are you gonna do. That was like one of the places I looked at minus the music…

#46 Soft Duck on 03.04.11 at 1:46 am

OK,

I know you love to cite places in California and Arizona as ground zero for up to 80% value lost on homes. The problem is that you basically cite places that nobody wants to live in (and ran up to ludicrous prices). Downtown Phoenix is hideous…as is Stockton.

But regardless of the 1.0M crackshacks in East Van or the 500K McMansions in Milton, I just don’t think the coming collapse/funk in Canadian real estate is going to decimate the more desirable/”blue-chip” neighbourhoods in our cities (Rosedale, Westmount, etc) provided you didn’t get sucked in to some stupid out of control bidding war.

Take two examples of houses that show that even in the US, in the epicentre of the housing collapse, people haven’t really lost that much if they live in a half-decent city with a half-decent economy/job prospects…and the houses are in nice neighbourhoods:

1) http://www.redfin.com/CA/SAN-FRANCISCO/7760-7780-CLAYTON-ST-94117/home/1444039

2) http://www.zillow.com/homedetails/10040-E-Happy-Valley-Rd-UNIT-401-Scottsdale-AZ-85255/8040771_zpid/

House (1) was bought for 1,050,000 from the owner of a hippy/slumlord in 2005 (albeit in a nice neighbourhood of San Fran…like the Annex or Hyde Park in T.O.). The owners sunk 200K into renovations/restorations and are likely to get between 1.4-1.5M easy (it just went on the market for 1.6M).

House (2) actually sold. It is located in Scottsdale (Mississauga/Oakville equivalent of Phoenix) AZ. Bought in 1997 for 594K…sold for 950K in 2010.

#47 Nostradamus Le Mad Vlad on 03.04.11 at 1:51 am


American and Cdn. RE is outta my league, too complicated for me.
*
Brazil has raised interest rates to keep inflation in check, and March 18 Does that date ring a bell with anyone? Synchronicity is a better description.

Physical Gold (and Silver) One could store it in the latrine, beside the US$, plus Episode Two — The US$ Titanic.

Food Prices One and Weston Foods. Loblaw, Real Cdn. Superstore, Extra Foods, etc. 3:50 clip Economic reality sucks for many businesses and workers on this continent.

UK Nice to see good ol’ Blighty still has lotsa money left. The EU has passed the buck again.

China buying more of America.

Costa Mesa and Amazon may cut California ties.

Why banxters despise Islam. For one thing, their religion does not allow interest to be charged.

Union busting Over the west, outsourcing is the in word.

For Dog Lovers I have never had a dog, but this tells of how a dog truly is a man’s best friend.

#48 AxeHead on 03.04.11 at 1:59 am

I flew down to Phoenix last month to see ‘ground zero’ for myself. In a nutshell, Arizona is a big, dead, bone dry desert with cactus and snakes and spiders and ugly abandoned houses. If you don’t golf and you don’t shop, there is nothing to do but drink yourself silly on cheap booze, in the unbearable heat, while trying to keep your air conditioner under 95 to balance high utility bills vs keeping your floor tiles from peeling from the heat.

I hated it there. Won’t buy if they gave me a house. Acutally, some of the houses for sale there, some around 150k should be torn down – cockroaches, termites, heat caused roof beam rot, cracked swimming pools.

In my opinion, the price drop was justified, and still not enough. Be careful with what you invest in…and in my opinion…there is no replacement for actually being there. Look online, but if you’re serious, fly to where you are investing and see for yourself. You might, like I did, hate it.

Not for me…at least not in Arizona.

#49 Shank1848 on 03.04.11 at 2:00 am

Your “controversial” picture yesterday morn at least related to the post as usual. I’m guessing today’s picture has nothing to do with todays post and is merely a reaction to the weirdos that complained.
Anyway, loving today’s post. It’s ones like this that keeps me coming back (and buying all your books and seeing you when in town). Lots of meat on the bone today. Keep up the good work! – from a rare poster but frequent lurker.

#50 nonplused on 03.04.11 at 2:10 am

Garth on #33,

CMHC caused this, with some help from the BoC thinking cheap interest rates could have any affect on the economy let alone knowing what that affect would be.

If the banks had to have some skin in the game, none of this would have ever happened. By transferring all risk to the tax-payers, extending amortizations to 40 years, eliminating the maximum on insurance, and changing qualification rules, CMHC caused this. Mark helped by thinking that absurdly low interest rates were in anyone’s interest. All he did was impoverish savers (widows, orphans, retired people without a government pension) at the expense of borrowers.

The fact is it is the responsibility of the LENDER to do due diligence and ONLY lend to good credit risks and insure that they GET THE MONEY BACK. Borrowers cannot be trusted to keep the system safe because they have NOTHING TO LOSE. So you are bankrupt. You had no money anyway. Nothing ventured, nothing gained, and in this case nothing lost either. And they don’t know any better, or they wouldn’t be in debt. You cannot trust the 70 IQ people to make the 140 IQ decisions. Borrowers cannot keep the system safe. Only the fear of losses on the part of the lender can keep the system safe.

CMHC is 100% responsible for this. I hope that when TSHTF, they and the banks loose all their money. The lent it recklessly, and they don’t deserve to get it back. What they did was immoral. But CMHC was the driver that convinced them to do so. Government meddling in markets always leads to losses, because they don’t, and cannot, know what they are doing.

In fact CMHC was probably nothing more than a scheme to help land developers and bankers get rich and kick back money to politicians all the way along. It was never about making housing affordable, because the more mortgages they insured the less affordable housing became, all the way along.

I hope the people who created CMHC rot in hell. They caused this. And despite Garth’s soft peddling (correction followed by melt instead of a crash, which may very well be the case), the Canadian housing correction will seem every bit as painful to the overleveraged. They should walk and stick the evil CMHC with the losses.

But on to America, by which I think that Garth means the USA (there are a lot of countries in America, both North and South, including Canada).

I wouldn’t bet against the US long term. They innovate there. More so than anywhere else. But short term, several new proposed fronts in the war against oil exporters, out of control spending, and money printing (QE) are going to cause fairly significant readjustments in the world order, and I don’t think they are going to win every battle this time.

So, tip to the uninformed, the proposed NATO “no-fly zone” over Libya is actually a proposal for an aerial assault on that country, because you have to take out the air defence systems to do it. It looks like Iraq in the 90’s all over again. My question is, from where does NATO draw the moral authority to do this? Why do we have a say in what the government and people of a far of land say or do? Shouldn’t we let them figure it out? It looks a lot like your neighbour telling you how to raise your kids, at the end of a gun.

But they have the oil and we have the guns, so the invasion will proceed as scheduled.

If you have children of military age, encourage them not to enlist.

#51 Basil Fawlty on 03.04.11 at 2:11 am

“Hardly. It’s Canadians borrowing their brains out and trading debt for granite countertops which caused this. — Garth”
Who lowered interest rates, borrowing Canadians? The government has their fingerprints all over this debacle.

#52 Peter Pan on 03.04.11 at 2:17 am

Saying “you should never, ever, bet against America” now is like saying…

“You should never bet against the United Kingdom” in 1928.

“You should never bet against Spain” in 1586.

“You should never bet against the Roman Empire” in 408.

#53 beaker on 03.04.11 at 2:24 am

“very nice, how much?” borat, such a funny movie.

now if the value of your house drops, does the property tax go down?

#54 Morry on 03.04.11 at 2:44 am

And you should never, ever, bet against America.

replace America with Rome or English Empire in that sentence.

#55 Devore on 03.04.11 at 3:06 am

#7 S.B.

The Utah House was to vote as early as Thursday on legislation that would recognize gold and silver coins issued by the federal government as legal currency in the state. The coins would not replace the current paper currency but would be used and accepted voluntarily as an alternative.

Gold and silver coins, issued by the federal mint, are legal tender already (also in Canada), however, only at face value. I don’t think there will be too many people cheering this.

#56 Smart Blonde on 03.04.11 at 3:40 am

Nice pic Garth! I’m hoping my husband and his friend will wear one just like it when we go to Hawaii in a couple of weeks. They’ll look even hotter! SZZZZ

Okay off topic!

Thanks for the information on the U.S. We have been looking there since last year. We took a trip down to Scottsdale last April and we are going again in August, I know killer heat. We want to make sure we like it before diving into the market. I can say, I watch it super closely. Obsessive Compulsively! You have to be careful where you buy for sure. My sister in law and husband bought a place a few years ago, a townhouse, for $225, and just bought another in the same complex for $80 000 a couple weeks ago. This one is a 2 bedroom and the first a 3! I think, although I may be wrong, that Scottsdale and just North up to Cave Creek if you like rural and relaxation you can’t go wrong. It is safe, clean, lots of activities from Golf, Hockey (go Canucks), Tennis, swimming, horseback riding etc. The weather is nice from September to May. (June, July, August – Too Hot) The opposite in Vancouver. There are a lot of homes that sold before the crash for 1.5 that are now selling for $500 000. They are absolutely beautiful! Once in particular is 4500 sq feet, swimming pool, and not your boring old swimming pool, but negative edge and beautiful, hot tub, Casita (which in Canada we call it a guest house), granite, stainless, solid wood doors, 3 car garage and 1 acre. *top quality! The area I would compare to the West Vancouver of Phoenix. A lot of people will tell you that you can get a place for $30 000 in Vegas or one in Phoenix for $50 000, but really consider the neighborhood. There are sites that tell you the crime stats for each suburb etc. Be super careful. Personally, I think it might go down another 10 or 15%, but even if it goes back up to $1 million in 10 or 15 years and you’ve enjoyed your time with your family and friends, then what a great investment. Also there are realtors that charge as low as $50 per month to check in on properties for insurance purposes when they aren’t occupied.

There are a few sites that offer information on tax implications for Canadians, and in Arizona if you go to sell, they do hold back I believe 10%, although you might get some of this back. The property taxes compare to Vancouver, and the HOA’s range from $75/month to $250/month for a gated community that has full facilities. We thought it was really cheap compared to Vancouver.

Don’t get me wrong, I Love Canada, but our bubble is so close to bursting, I can feel the pressure! I still don’t know what the Asian’s see in Vancouver honestly! The best place on earth???? Really! If you buy in Scottsdale you have fantastic weather, all the activities you could ever want, the customer service kicks butt, everything and I mean everything is way cheaper! I just don’t get it? I know they prefer our schools and it only takes on average 3 years for their papers for immigration vs. 8 in the U.S.

Good luck to everyone that is considering a 2nd home in the sun!

Thanks for all your information Garth!

#57 The Original Dave on 03.04.11 at 3:41 am

Thanks to those that posted in the last blog in regards to the broker that is avoiding me because he took his lumps in U.S real estate. I’m going to seriously consider the lawsuit.

#58 Potato on 03.04.11 at 3:59 am

@#32 Caveman:
There are, but you have to be an accredited investor to play.

#59 realpaul on 03.04.11 at 3:59 am

A great guy who is uber knowledgable regarding buying , renting and generally everything a Canadian needs to know about dealing with US issues is David Ingram at Centa. Probably the very best as he has been at it for decades. He certainly cured me of any thought of buying in the states…….I guess I’m not a time share kind of fool.

#60 Aussie Roy on 03.04.11 at 5:29 am

Garth read yesterdays and todays articles together. What amused me were the negative comments from yesterday about why buy US when prices wont rise for years. I think this confirms the capital growth only speculation that dominates in both our countries. The greater fools have never heard of yield. A friend of mine bought 2 houses in NJ these both where easy to find tentants for and rental yield is 14% (average for each). This kind of investment pays you to own it and pays for itself. Why anyone in their right mind would buy an investment property in either Australia or parts of Canada where rental yield doesnt cover anymore than 50% of holding costs is beyond me. I would say to those who think the currently overpriced houses in our countries are an investment to think again and look up the meaning of speculation.

Aussie Update

http://www.barefootinvestor.com/first-home-buyer-hit-wall/

http://finance.ninemsn.com.au/newsbusiness/aap/8219722/australian-homes-most-overvalued-survey

Bricks and slaughter
Property is widely seen as a safe asset. It is arguably the most dangerous of all, says Andrew Palmer
http://www.economist.com/node/18250385?story_id=18250385&fsrc=nlw|hig|03-03-2011|editors_highlights

#61 Calgary Hat on 03.04.11 at 5:56 am

Breaking news from the Cairo Stock Exchange —

“Yesterday, we told you that Egyptian officials had once again postponed the reopening of the Cairo Stock exchange, closed since January 27, until March 6. But on Thursday it was announced that the stock exchange would be closed indefinitely. Investors are demanding that it stay closed, so that they can continue to claim that their stock assets are worth more than they really are. This is the same kind of scam that American banks have been using by refusing to mark their toxic assets to market. AFP ”

Now, could it happen to the TSX or DOW? Sure, either could be closed temporarily or trading could be halted. You would think “fat chance” but so did the Egyptians. Is it really different here?

#62 tkid on 03.04.11 at 6:56 am

Blind I’m bliiiiiiiiiiiiind.

#63 Brian1 on 03.04.11 at 7:01 am

My concerns have been addressed and more. You really are a hard worker.
Concerning gold as a currency: it will never happen because each ounce would have to be equivalent to $13,000.

#64 Brian1 on 03.04.11 at 7:23 am

Even if you are not ready to buy U.S. it doesn’t hurt to practice.

#65 Brian1 on 03.04.11 at 7:25 am

The American dollar will regain most of it’s glory. Any who say different are dumb and lazy.

#66 Cow Man on 03.04.11 at 8:28 am

# 53 Beaker

Assessment goes down the mill rate goes up. No reduction in taxes.

#67 Cow Man on 03.04.11 at 8:31 am

# 50 nonplused

So perfectly put. F and H are in a long term war against the retired folks. What is amazing is that the retired folks will nearly always vote Tory. When Garth was kicked out by Harper and ran for the Liberals, the old Tories in our riding called him a turn-coat, at the same time Harper killed income trusts. Go figure!

#68 The American on 03.04.11 at 8:41 am

Garth, I’d like to say yet again you write another excellent post. Can I also suggest to your readers they consider the site http://www.trulia.com This site is even more powerful than Zillow (that pains me to say that because Zillow is based in Seattle). Yet trulia provides even more market data and trending maps, while covering a broader area of market. It effectively merges the power of http://www.realtor.com and Zillow.

Also, for anyone considering to purchase state side, there are several states with no state income tax. The great news is the primary markets Canadians have been focusing on, Florida and Nevada (god only knows why… Honestly, Americans don’t even want it and really never did), have no state income tax. Other states include Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington State, and Wyoming.

Property taxes in Florida run roughly 1% of assessed value each year, depending on county you own property. Same goes for Washington State. Texas, on the other hand, is roughly 3% of the assessed value, and that is huge.

At #5: Librarykaren, what an ignorant comment to make… Not surprised, though.

At #10: I’m unaware of anything within one hour of Toronto that will provide you the warmth you’re seeking. Additionally, most property stateside within an hour of Toronto will cost about the same as property in Toronto.

At #15: JB, WTF?!?

At #20: Cendrine, I understand your concern about clear title. However, in the U.S. title insurance is provided on the purchase of homes, guaranteeing clear title. If a discrepancy ever were to arise (about a 1 in 1,000,000 chance), the existing homeowner would be made whole at no cost.

At #24: LJ, can I ask where you got your information? Property taxes are NEVER more for one party over another party. Your nationality has absolutely nothing to do with your property taxes and there is absolutely no consideration to the milliage rate whether you are a U.S. citizen or not. Also, Americans never have viewed Canadians as “rich.” Condo fees are rarely, if ever published in an ad (come to think of it, I don’t recall ever seeing condo fees listed in an ad). The only time the condo dues must be published in in the listing itself through the MLS.

At #35: Willy H, good luck with that hedging strategy of yours. Let us know how that works out for you.

At #46: Soft Duck, you have some good points. Sure, there have been some severely compressed home values in certain areas of the U.S. Most of these are within areas in which most Americans wouldn’t even consider living. Most other areas in desirable cities haven’t lost nearly the value. Make no mistake though, NO market has been kept safe from the downturn, and it will not be any different in Canada. The NAR and many senior economists now believe the CREA has been cooking the books for over four years with respect to Canadian real estate numbers. This would be incredibly easy to do, considering the lack of transparency within the Canadian RE system to the consumers. I have no doubt the CREA has absolutely presented severely skewed data to the public for a long time now.

At #48: Axe Head, that’s funny. I’m not a fan of Phoenix/Scottsdale myself. However, I was down there all last month as well, the same time as you, visiting friends of mine. It never got over 82 degrees the entire time, nearly three weeks. In fact, it was in the friggin’ 50s for nearly a week last month while it rained several days in a row, which is uncommon. Are you sure you were really there, or are you spreading b.s. propaganda? I’m only asking because in the month of February, hardly any of the critters you referred to are out and about, if any at all. Or, was this just another Canadian stereotype? Just asking… Phoenix bores me to tears, but Scottsdale is quite beautiful and pristine, especially if you like golf, restaurants, five-star resorts, spas, and shopping. Still, not my cup of tea as I am not a retired person. I’m 35 years old.

At #65: Brian1, you’re absolutely correct. The U.S. Dollar will regain its strength. Global economies are betting on it too, or the dollar wouldn’t still be the global reserve currency. I’m not saying it isn’t without its challenges, but when you consider the shit storm brewing for the other countries out there, the U.S. will look like a cake walk in the end. And, I’m not saying that because I’m American. I’m saying that because I am a very good investor.

And on a funny note and the sheer fun of it…. The Honey Badger:
http://www.youtube.com/watch?v=4r7wHMg5Yjg

#69 C on 03.04.11 at 8:43 am

#35 Willy H

Well said my friend!

#70 GenXer on 03.04.11 at 8:54 am

LOL – did anyone read the excerpts published from the BMO report? Housing has no downside risk provided incomes go up by 8% in the next year and a half:

http://www.moneyville.ca/article/948110–canadian-housing-market-moderately-overvalued-bmo

Guatieri says the relatively solid economy in Canada means that incomes are expected to rise over the next year and a half, catching up to prices.

“If incomes climb 8 per cent and prices stabilize as we expect, the current overvaluation would fall to 6 per cent, hardly the stuff of corrections,” said the economist.

I am completely astounded by how the industry positions inflation as price moderation. The reality is – if incomes and prices rise by 8% and house prices stay flat, prices have in fact declined by 8%. Why doesn’t the joe public understand that?

#71 Moneta on 03.04.11 at 8:59 am

Happily, insurance costs are also far lower in the States.
———-
Not for long unless they get subsidized. Then you have to pray these subsidies include foreigners.

With yields between 0 and 3.5% and no cap gains in sight, insurance cos will have to start pricing insurance properly and generate underwriting profits to genrate future proftos. Just one more reason on my long list of why inflation is a sure thing.

Keeping rates low = more printing which leads to inflation.

Rising rates means more printing to pay for rising interest payments which also leads to inflation.

#72 Mikey the Realtor on 03.04.11 at 9:04 am

“You must be new here. I can still see your labels. Real estate is a juicy part of any portfolio so long as it is kept in the right weighting. Sadly most people can’t. — Garth”

Yeah and everyone is a millionaire where they can own a whack of RE and still be only worth 40% of their assets. What was the average income in Canada? The average folk is barely making it, so majority choose RE to spend their money on as they can’t live in their preferreds and they can’t afford both, so it becomes an easy decision. I think the problem with you vision Garth is that you are from the other side of the tracks and forgot what it is to live like ‘average’

A house is not an entitlement. Those who buy what they cannot afford take on a dangerous burden. — Garth

#73 GenXer on 03.04.11 at 9:05 am

Correction – if incomes and goods rise by 8% and house prices stay flat, houses have in fact declined in value by 8%. Why doesn’t the public understand that?

#74 Moneta on 03.04.11 at 9:10 am

Yesterday I got another confirmation of why homeowners are in for a tough time.

I drove to Montreal for a meeting using the 20 for the first time in more than 2 years as I usually I go by Via Rail.

I lost a hubcap trying to avert the potholes and it has become pretty obvious when I got to the 1950s elevated segment of the highway that it was pretty much condemned.

They have screwed in a metal net in all areas where the highway could fall on your head and in the other in between places, chunks have pretty much fallen off. Now the net/fencing is rusting. Hmmm…

We know that our global system keeps on growing and this will create increasing demand on our resources. We also know that the last 30 years has been about consumption and larger homes to the detriment of our infrastructure.

I hope your house is well insulated and will need little maintenance over the next 30 years because you’re going to feel the pain when our governments have to choose between selling our resources for mucho dinero to developing countries or using them up to support our own inflated, mismanaged and energy intensive system.

#75 dd on 03.04.11 at 9:13 am

“And you should never, ever, bet against America”

From a person who never runs the debt numbers. It is all blind faith.

Wee, sleekit, cowrin, tim’rous beastie,
O, what a panic’s in thy breastie! — Garth

#76 dd on 03.04.11 at 9:34 am

#75 dd

…Wee, sleekit, cowrin, tim’rous beastie,
O, what a panic’s in thy breastie! — Garth…

I love your analysis. Giving financial advise without running the numbers. Scary.

#77 Pr on 03.04.11 at 9:56 am

The USA housing industry is still a complete and total disaster. In fact, new home sales in the U.S. in January were 11.2% lower than they were in December. Not only that, the number of new home sales in January was 18.6% lower than the number of new home sales in January 2010. Real interest rate going higher! GAZ price to the roof, That is not a sign of improvement for any time soon.

#78 Macrath on 03.04.11 at 10:04 am

I`m waiting for the “Free Glock and Green Card with every Condo Offer”.
Meanwhile my own backyard is rife with foreclosures and the Canadian banks are artificially holding up prices.
They are taking these foreclosures off the market
when they can`t get what they want. Then re-listing them as a fresh new offerings for the greaterfools.

I used to wonder why there were so few house rentals
available, when the sea of red dots from Windsor to Niagara Falls is saturated with empty buildings.

“The game is rigged, Its a big club and we ain`t in it.”

#79 Renting in Rosedale on 03.04.11 at 10:12 am

Seems to be two basic types of Canadians represented on this blog today…

1. The timid, complacent, ignorant ones, happily clinging to baseless stereotypes about the USA (guns everywhere, fascist government, real estate is dead etc).

2. The open, curious, courageous ones, who recognize that US Real estate is second-to-none (California, Washington, Colorado, Carolinas etc) and has been so hammered that it must recover.

I’m betting on the second group!

We’re looking (California) right now, have made a couple of offers. We figure that SOCAL real estate is about 50% cheaper in C$ equivalent since 2006. This won’t continue indefinitely. We hope to close a deal before end of year 2011.

Don’t be afraid of the taxes, just do your homework. Robert Keats book “The border guide” is a great resources, available here:

http://www.keatsconnelly.com

P.S., I challenge anyone on this blog to drive down the Pacific Coast Highway, stop in to Newport Beach, Laguna, Huntington Beach, San Diego, and then tell me with a straight face they’d rather be in Mississauga or Burnaby!

#80 Nemesis on 03.04.11 at 10:13 am

“… and Eminem is president?” – Hon. GT

Would electing an authentic American iconoclast/populist poet to high public office really be so bad?… Regardless, it would certainly be interesting…

In that spirit – some of you may enjoy the following -(Eminem’s musical tribute to/social critique of America’s peculiar political economy – parental advisory, but nothing egregiously rude/offensive)

Eminem – ‘White America’

http://tinyurl.com/ye44c3r

#81 Renting in Rosedale on 03.04.11 at 10:15 am

P.S. we use Redfin.com its probably been mentioned here before. They’re all good. (and improving steadily) I just happen to prefer Redfin for California.

#82 Oasis on 03.04.11 at 10:15 am

“And you should never, ever, bet against America.”

_____________________________________

wow. clearly backward thinking. the age of america is over. they are bankrupt. finished. dollar is collapsing and going to be replaced. i can think of a dozen better places to invest in than America.

#83 Moneta on 03.04.11 at 10:16 am

Energy is a country’s #1 asset. No energy = no people.

Over the last century, oil has been the one to offer the best bang for our buck. It is oil that has permitted us to go from an agrarian economy to an urban one and has allowed us to get to 7 billion people. It is also our over consumption of energy that has contributed to overpopulation in the Middle East. Had the Sheiks shared the wealth, population grow could have been more limited but then our standard of living would have suffered as we’d have had to share with their middle class.

We could protect our energy and keep it for posterity but that would generate higher energy prices and we’d get taken over. With a population of 31 million and a lack of investment in defense, we’d have to choose between the US and China. So it’s no wonder we’ve decided to consume and enjoy our energy while we still have it as Canada is the highest consumer of energy per capita in the world.

In the beginning of the 1900s, finding oil was a joke. It took nearly no energy at all. Today, it takes a good percentage of a barrel to find and extract a barrel.

Our current system was built on that easy oil. However, since our system has grown exponentially over the last century, it takes much more oil now than it took then to grow it, plus we also have to maintain it. We have set ourselves up for a reset. Every single element in our structure will have to be reconfigured. Our problems are so incredibly complex that no single person can be blamed.

The 70s oil embargo panicked governments into finding oil. For the last 30 years, we’ve been living off the glut that it generated, but this cheap oil has been burned. Most businesses today were built on a 15% IRR projection using higher interest rates and much lower oil prices than we have today. This means we have not yet truly felt the impact of the discrepancy between our projections and reality.

Over the next few years, interest rates will be climbing again and models will get readjusted with a higher oil price. Over time energy production will take a larger % of our workforce and will squeeze out many energy consuming discretionary sectors.

Our lives will change.

#84 Moneta on 03.04.11 at 10:26 am

A house is not an entitlement. Those who buy what they cannot afford take on a dangerous burden. — Garth
—–
I partly agree.

This phenomenon has not been confined to just a few, it’s widespread. It demonstrates a systemic structural flaw. Everyone will suffer.

#85 MikeT on 03.04.11 at 10:30 am

Yesterday, I did my usual weekly grocery shopping and although all food expenses (including expensive cheeses) are about 15% of my after-tax pay – for a family of 4 living on one income for now – I felt the pinch when buying chicken and beef. The cashier acknowledged that prices have gone up on pretty much all products. And gas is up too, of course.
Having no debt and enough money for our family to live on for a year without income, I feel… umm.. uneasy. What do those deep in debt and with little room for other things do?… I would panic.

#86 Nemesis on 03.04.11 at 10:31 am

Afterthought, although ‘Nemesis’ is not currently prepared to ‘bet on America’, he does at least respect and love the ‘idea’/popular conception of America (as a unending struggle towards egalitarian meritocracy)…

As regards Americans, I’ve always said, ‘If they don’t kill you first, they’ll show you the best time on the planet.’

;)

#87 Matthew on 03.04.11 at 10:36 am

Dear Garth,

I agree with you not to “bet against America”. Many of her corporations are earnings powerhouses that are somewhat insulated from the questionable dealings of the government and Federal Reserve run by my friend Zimbabwe Ben :)

Cheers,
Matthew

#88 Basil Fawlty on 03.04.11 at 10:40 am

#65 “The American dollar will regain most of it’s glory. Any who say different are dumb and lazy.”
I would suggest the exact opposite is true, as the dumb and lazy simply watch TV and thereby, miss what is really happening to all currencies. One has to scratch a little below the surface to understand the ongoing competing currency devaluations worldwide, as countries “beggar thy neighbours” to maintain exports. The US dollar is the fiat script of a bankrupt nation. Those betting against it have been amply rewarded, while most people just ignore the obvious. Good luck!

#89 45north on 03.04.11 at 10:43 am

Moneta: I drove to Montreal

Why do the workers in Montréal working on the highway take off two weeks in the height of summer?

The Obama administration’s multibillion-dollar programs aimed at keeping struggling borrowers in their homes are facing elimination with a congressional committee expected to vote today on whether they should be cut from the budget.

http://thehousingbubbleblog.com/?p=6379#comments

original link

http://mcaf.ee/2bcdf

the problem is trying to keep struggling borrowers in their homes in the first place. As the full force of the over leveraged housing market hits Canada, my plan is to give the home owner $1000/month and to pay the bank for its loses

after the bank forecloses

#90 Utopia on 03.04.11 at 10:44 am

There are really only two major reasons that US real estate will soon stop dropping in value and both of them essentially reflect a lack of confidence in other markets or measures.

First, bond yields are threatened and second, the Consumer Price Index (CPI) core inflation number is not giving investors a true reading of the economy as it has stripped out food and energy. The data is useless for most and I personally give it very little weight without looking elsewhere for better information first.

When you combine these factors with fears of a further erosion in the value of US dollars you are left with few alternatives in which to invest over the long term to protect wealth.

This is obviously a big problem.

Bondholders will naturally be asking themselves how they can justify accepting tiny interest returns over long periods of time when inflation is clearly on the rise all over the globe. There are serious doubts expressed by many that the original amount invested will be returned as reflected by its loss in real buying power over time.

That buying power is now being eroded daily by holding debt instruments that are paying less than real adjusted inflation and there is a looming threat that this situation could quickly accelerate to the downside with energy on the rise.

The combination of artificially created inflation that has resulted from QE’s here, there and everywhere (yes, they do it in Europe and China too) when added to the very real inflationary impacts of rising energy prices has set us on a course that is quite different than what was imagined even 8 months ago.

So what do you do?

Holding cash that pays even less than bonds seems like a mugs game in an environment of rising inflation concerns and it is one that is certain to cost you dearly over time as real returns could be as little as half the real impacts of inflation.

The prospects for rising interest rates are not moving quickly enough to make a material difference at this point in the game. So with virtually zero returns and less on cash and many other investments at a time when real inflation is closer to 4% than 3% it just feels like we are getting robbed by doing nothing but sit on our hands and wait for the smoke to clear.

You can see why many investors seek emerging markets for real growth opportunities despite the higher risks. Even junk bonds are a rage again at a time when many traditional investments like treasuries look like death as long term investmens.

What a gamble. So we have US muni’s threatening to fail imminently, Euro bonds that may end up as worthless scraps of paper, doubts about treasuries and the solvency of the US Government itself as demands for a new world reserve currency are floated around and a flood of money chasing yields in the riskiest of asset classes of all.

Does this not look like a recipe for trouble to anyone else out there?

Naturally, equities have been boosted by all this mayhem and have hit some pretty out of balance P/E ratios. Another set-up for trouble? I think so.

At some point along the way, hard assets look to be the vehicle of choice. Gold prices are telling us that investor interest in long term traditional safe bets is waning. Precious metals is a tiny market though and one that can be both fickle and volatile.

Many will not touch it despite the very, very strong likelihood of significant price appreciation still ahead. (did I use enough “very’s” there for everyone?)

The bond market on the other hand (which is absolutely gigantic by dollar values) is looking for a safer bets, a better home and more consistent guaranteed returns.

Suddenly, the beaten down US real estate market has a little appeal again if only to shelter some capital from all the unknowns. With true inflation still much argued about except by a few folks who closely follow a larger basket of prices there is a growing awareness that money may need to be shifted to where it has a better chance of returning gains above the yields now being returned by bonds.

(The yields are in fact already negative in some cases depending on how you read the data but that is an argument for another day).

Capital will, in my opinion, therefore begin returning to real estate as good opportunities and entry points arise. This is an inevitability. Given the level of concerns over inflation driven by rising energy costs, potential defaults of states and municipalities (even soveriegns), the prospect of rising interest rates hurting equity values and therefore a recovery and the damage that might inflict on other investments and you can see that there are really very few places left to run.

The over riding concern though seems to be about the impacts of inflation right now and that will generally drive money into hard assets which includes property by any definition.

REITS and other vehicles will likely make up a growing share of portfolios to hedge some of the risk of currency devaluation. It is not that this is the preferred place to put money either but rather that few other good alternatives now exist.

From my perspective though, almost everyone is going to take it on the chin for awhile. The long, long overdue correction in equity prices is almost here and that suggests some really challenging times ahead as capital flees from one asset class to another.

As always, this will continue to distort markets and drive fears everywhere. You can see why at a certain point there will be a class of investors who will simply opt for property holdings and relative safety in exasperation.

It’s a jungle out there.

Chasing yield will tire anyone out. Stability and consistency are always preferred and if R/E can again offer that while returning an acceptable profit in tumultuous times while simultaneously protecting the nest egg itself from loss then it will always be preferred to investments that offer the opportunity of high returns and theoretically total loss (eg junk bonds).

That is why I believe US property prices are about to start stabilizing and why all the talk about the overhang of unsolds is not really all that meaningful at all anymore. Americans may not be ready to buy homes again in large numbers but the changes will start to take shape on the margins as property is consumed as an investment class again and this is what will stabilize the markets there.

The big turkey in the picture though is that sustained high oil prices could potentially derail any possibility of a real recovery and set us back significantly.

Not a good time to lose your head. In the big investing pond out there the sharks are circling and the guppies are running for their sorry lives. Shelter suddenly starts looking good again in times like these. Just be selective, it is not all created equal.

#91 Sid on 03.04.11 at 10:46 am

Garth so when you say only 30% of assets should be in real estate, does this mean that a person with 1 million net worth should only live in a home worth 300K. Thanks

#92 AxeHead on 03.04.11 at 11:03 am

#68 American.

Yes, I was there. The heat ‘stories’ are from talking to people down there (condo owners, home owners, realtors – yes realtors). One told me that his car thermometer, in the summer, read over 120 degrees once and boiled his battery over.

Don’t bet me wrong – I am pro American, it’s just that here in Alberta, we have deserts, badlands, cactus’, snakes and dry heat in the summer and really – I don’t care for a nice clean city (I was in Scottsdale) stuck in the middle of a desert with only a damned (no curse intended) river for water sports (i.e. fishing). Honesly – I couldn’t wait to get out.

I’m going to the US west coast somewhere – near water. If you have suggestions for an ignorant (in terms of west coast locations that are reasonable in price, clean, safe)…I’ll be listening.

#93 Utopia on 03.04.11 at 11:17 am

#46 Soft Duck wrote…..

“I know you love to cite places in California and Arizona as ground zero for up to 80% value lost on homes. The problem is that you basically cite places that nobody wants to live in (and ran up to ludicrous prices). Downtown Phoenix is hideous…as is Stockton”.

———————————————————-

Where the hell do live Daffy?

Even a run-down trailer park in any zip code in California starts to look like a blessing and a paradise after enduring a winter of minus 35 degree temps on the Canadian prairies.

Personally I love Hawaii. And the deals look pretty damn good from this side of the border. It’s all perspective I guess.

(sorry about the “Daffy” jab)

#94 Robert Dudek on 03.04.11 at 11:36 am

“Aha! The bully of Tripoli and his henchmen have captured 3 dutch soliders. An attack on one of our NATO allies, this is an act of war against NATO! We can now send in ground troops and occupy Tripoli. Hope they do it soon and restore oil price to normal, I am hurting at the pump.”

– You want to see $200 a barrel? Starting a ground war in Libya is a good way to get there.

#95 Adventures in Sea-Tac with Moneta on 03.04.11 at 11:42 am

68 American – good points about US taxes. Do you detect a general pattern where higher income tax states may
have lower property taxes? One would seem to be
preferable if you want to work in the US, the other if you
wish to retire there.

Not sure about taxes on foreign owners as I’ve heard that Arizona is better than Florida in this regard.

Moneta – still using this moniker. Hope you dont mind. I’ll change if you dont like it.

#96 Mr. D - Ottawa on 03.04.11 at 11:47 am

#35 Willy H,

Well said. Unfortunately most people really don’t know what’s happening or why. Peak oil will have a very major impact in the U.S. and the world. Even those in complete denial will be affected significantly.

#97 brett on 03.04.11 at 11:57 am

all the foreign buyers buying american “bargains” the last few years will be bailing as another down leg in the US real estate market comes…and then another, all the bottom callers are astounded as prices go far below their predictions, and housing does not see new highs till twenty or thirty years from now. Sir john templeton said US housing would fall 90% from the top…YES 90%!!! -He was an (criminal) insider, he will be right.

#98 Moneta on 03.04.11 at 11:59 am

As the full force of the over leveraged housing market hits Canada, my plan is to give the home owner $1000/month and to pay the bank for its loses
——

I don’t think giving 1000$ is the solution because chances are it will get taken away somewhere else.

At the end of the day, it all comes down to how we want our national wealth to be distributed. The ones at the top don’t want to share and the ones at the bottom don’t fully grasp what they are about to lose. How could they, they don’t know how the system works.

#99 The American on 03.04.11 at 12:00 pm

At #79: Renting in Rosedale, AMEN to every word you wrote. Thank you. I too am looking in Souther California right now for a downtown condo in San Diego. Prices have come off about 50% from peak, and they haven’t been pushing lower for the past six months. I think they’re at or near their bottom. Even if prices went down another 10%, WHO CARES!!!! While rate push upward, purchasing power goes down. I say buy as soon as possible and lock in a 30-year fixed rate mortgage TODAY. Another 10% drop will be negligible in the long term. Prices WILL go back up, without a doubt.

#100 Moneta on 03.04.11 at 12:03 pm

Why do the workers in Montréal working on the highway take off two weeks in the height of summer?

———-
If you only have a few weeks of summer and have no idea of the structural mess why would you want to let go of 2 weeks of vacation in the summer?

They are well paid with good benefits. Only destitutes would accept to lose their summer.

#101 UnagiDon on 03.04.11 at 12:08 pm

Some reasons not to bet against the US:
– Strongest military in the world, by far
– Best universities in the world, by far
– Their highly-educated people are much smarter than Canada’s highly-educated people. (And most of Canada’s highly-educated people leave and go to the US anyways.)
– Microsoft. Google. Facebook. Oracle. Intel.

#102 Moneta on 03.04.11 at 12:09 pm

We’ve created a population that does not understand our political and financial realities very well. Now we’re supposed to run a country democratically with that constraint.

What probability would you put on a good outcome?

#103 The American on 03.04.11 at 12:15 pm

At #93: Axehead, if I were planning a trip to the West Coast, I would start in Seattle and drive South on I-5 to Portland, down through to Eugene, OR. Then I would head over the coastal mountains and hit the Coastal Highway, Highway 1. The drive is U N B E L I E V A B L E. The Oregon Coast is so striking, there is nothing quite like it. Head south on Highway 1 through the small and charming towns that pepper the entire coast (stop in Newport, Oregon for the best seafood you’ve EVER had) and then on into Northern California into the Redwood Forrest. Drive on South into Napa and Sanoma Valleys for a day or two of wine tastings. Head on over toward San Francisco for a couple days, and then drive on South through Monterey (have to see the aquarium there), and down the coast toward L.A. Continue on to San Diego.

That’s what I would do with 10-12 days of time. I’m not sure what you have in way of time. Otherwise, focus on the Oregon Coast if you want beautiful property in cute towns with amazing views. California is very nice too, but better deals to be had in Oregon right now.

#104 Moneta on 03.04.11 at 12:17 pm

Moneta – still using this moniker. Hope you dont mind. I’ll change if you dont like it.
——–
Aren’t you the one who said that sometimes I seemed to lose some marbles?

Be careful… you might not want to be associed with my moniker!

;)

#105 Steady Eddie on 03.04.11 at 12:21 pm

Only a moron would invest in the United States at this point.

Who invests in a company with $14 trillion in debt?

I would for the next Reconstruction of the USA, hahahaha….

The USSR could never collapse and berlin was going to stay up forever right…

this endgame…

Learn some history – read the fourth turning
http://en.wikipedia.org/wiki/Strauss_and_Howe

#106 borrowedcarbon on 03.04.11 at 12:22 pm

Search mls.ca for “toronto” select “condo” >show results and region W1. Near the water at Humber you should see a button with 44 never-lived in condos for sale (and steadily increasing) in a new building. I’m watching to see how high that number goes to get an idea of how many flippers own these new condo developments. I suspect it is extremely high.

#107 NP on 03.04.11 at 12:25 pm

#36 Tim on 03.04.11 at 12:32 am
I never had any problems in Spain, or anywhere in Europe for that matter. The violent crime rate for the US is almost four times that of Spain. Source:
http://www.nationmaster.com/graph/cri_mur_percap-crime-murders-per-capita.

We know what Harper is trying to do, and hopefully there are enough people here bright enough to prevent that right wing nutbar from getting a majority and further weakening democracy.
————————

I’ll try to make this short. :-) About 26+ years ago, just outside of Seville, I, while driving with a sis and friend, was robbed. We were just merging onto a freeway. I had a habit of putting my purse on the handbrake. It was really hot so windows were down. Before we knew it, 2 guys on a moped pulled along side on the shoulder. Passenger on moped reached in and grabbed my purse and took off to next exit. We stopped on the shoulder for composure. Rolled our windows up and then proceeded. Sis was in the backseat. They knew it was a rental vehicle and that there were 2 more potential purses. Same guys got back on the freeway, threw a rock into the back right window, narrowly missing my sis, who wore glasses. I tried to catch up to them, but they exited again. Couple behind us on their way home saw what happened and stopped. He was a lawyer and both spoke French so we could communicate. They took us to their home. He took our car to a local garage to have it repaired. We and his wife went to a Police station & filed a report and then were made to wait outside for over 2 hours. During that time we learned a lot about crime in Spain from the wife and later from her husband. Unfortunately, my passport was in my purse. Luckily I had little cash, mostly American Ex travellers. Our trip was cut short, as we had to return to Madrid to get another passport at our Cdn Embassy. While there we spoke to various Canadians and Spanish business people who said crime was rampant. Criminals would cut off a finger to get a gold band. Changed our flights. Cost us. But, while my sis and friend were in the hotel, I walked and finally found a shop that sold those glass tubes of Saffron for paella. Was determined I wouldn’t leave without them. :-)

BTW, we originally flew into Madrid and then days later headed to northern Portugal then back into Spain. Night and day how we were treated by locals in the 2 countries back then. May have changed now, but back then I much preferred the Portuguese.

#108 AG Sage on 03.04.11 at 12:26 pm

>#17 Jason on 03.03.11 at 11:21 pm
>If no one wanted to live in central cities, prices for homes there would not rise. And indeed, several decades ago, prices for homes in big central cities were dropping. But that trend has clearly reversed. You can’t draw conclusions about demand shifts from population numbers alone. This is a very simple point, and yet it’s repeatedly ignored.

Those old rust belt cities that were built before the car, and didn’t get around to paving over the original city layout because they were busy making money, then they were busy surviving after the downturn hammered them, and still have neighborhood centric living will do better the more fuel prices rise. Transportation used to be expensive. Some cities were built around that notion. New ones thumb their nose at the very thought. Transportation will again be expensive. Pheonix, all of Nevada, et al, are unsustainable if gas is $10 a gallon.

#109 Calgary Hat on 03.04.11 at 12:27 pm

#55 Devore on 03.04.11 at 3:06 am
#7 S.B. “The Utah House was to vote as early as Thursday on legislation that would recognize gold and silver coins issued by the federal government as legal currency in the state.” …”Gold and silver coins, issued by the federal mint, are legal tender already (also in Canada), however, only at face value. I don’t think there will be too many people cheering this.”

Funny enough I have been saying this same point for the past 2 years. Take a look at the Canadian 1oz gold coin:

1oz gold = $50 Canadian dollars

http://ocgold.com/blog/wp-content/uploads/2010/09/1_oz_Canadian_Maple_Leaf_Gold_Coin1.jpg

Goldbuggers can say all they want about that because if they say it’s worth $1400, then they also have to agree to:

1 cent = 2.5 cents in copper (1999 and under)
5 cents = 10 cents in nickel and copper (2006 and under)
etc..

#110 Moneta on 03.04.11 at 12:31 pm

You can see why at a certain point there will be a class of investors who will simply opt for property holdings and relative safety in exasperation.
——–
The problem is that alot of real estate has been built on the cheap oil paradigm.

Real estate associated with high maintenance costs will see limited growth. That’s probably a large % of what is out there.

#111 debtified on 03.04.11 at 12:39 pm

Here’s what I hope will end the dispute about the photos in the last couple of days: http://media.economist.com/images/images-magazine/2011/02/26/wb/20110226_wbp004.jpg

Here’s something about the perils of property: http://www.economist.com/node/18281764?story_id=18281764&fsrc=rss

#112 Live Within Your Means on 03.04.11 at 12:45 pm

#36 Tim on 03.04.11 at 12:32 am

First time I met my PILs in France I was told not to leave anything visible in a car. Instead, put it in the coffre. I do the same here. And, I’d never leave my car unlocked even at a corner store.

#113 debtified on 03.04.11 at 12:49 pm

Further to the link to the Economist article I provided above… Don’t miss the Global Interactive Chart:

http://www.economist.com/blogs/freeexchange/2010/10/global_house_prices

Relative to other major countries in the world, Canada’s “Price vs Rent” and “Price vs Avg. Income” are way up there. However, the rest of the statistics do not seem to be that bad. If someone smarter can make a more informed and balanced interpretation, I’d appreciate it.

#114 Dude on 03.04.11 at 12:52 pm

Here’s what is unfortunately missing from yesterday’s post: http://www.greaterfool.ca/wp-content/uploads/2011/03/gift.jpg

#115 fancy_pants on 03.04.11 at 1:00 pm

#65 Brian1 on 03.04.11 at 7:25 am
The American dollar will regain most of it’s glory.

Since when is glory defined as the prettiest piece of $hit in the outhouse? As long as Big Ben continues having quantitative diarrhea, there will be no glory. Glory has left the outhouse.

#116 BrianT on 03.04.11 at 1:05 pm

IMO there might be a widespread misconception in Canada re the median standard of living in the USA. Any stat you read shows it to be shockingly low, the lowest in 60 yrs. Some USA real estate could eventually rebound, but the median house cannot unless the economic situation changes dramatically and the odds of this happening are very slim. The old saying is location location location and it holds true here definitely-some towns won’t be making it.

#117 Timing is Everything on 03.04.11 at 1:07 pm

#5 librarykaren

Oh really….’Government of Canada’ out ‘Harper Government’ in….

http://www.cbc.ca/news/politics/story/2011/03/04/pol-harper-govt-brand.html

Garth, Is harper’s Ego really that big? and is stockwell for real? Aren’t these guys from Alberta? ;)

The USA ain’t lookin’ too bad at the moment!

#118 BrianT on 03.04.11 at 1:12 pm

#82Oasis-The thing is, the most powerful and wealthy Americans have been betting against America for the last 30 years. It isn’t personal-this is why the top 1% has done so well. If they ever turn bullish on America, it might be time for the average investor to be bullish on America.

#119 45north on 03.04.11 at 1:16 pm

Utopia: Not a good time to lose your head.

thanks for the post

#120 BrianT on 03.04.11 at 1:17 pm

#79Rent-Yes, the USA has some of the greatest RE on the planet but that is still a very small % of the number of homes for sale. Look-the top 15% of the population has been getting pretty well all the economic gains-if this continues the top 15% of the RE has a future.

#121 fancy_pants on 03.04.11 at 1:31 pm

#65 Brian1 on 03.04.11 at 7:25 am
The American dollar will regain most of it’s glory.

Since when is glory defined as the prettiest piece of $hit in the outhouse?
As long a Big Ben continues to have quantitative diarrhea, there will be no glory.
Glory has left the outhouse but the king is there to stay.

#122 SAD on 03.04.11 at 1:39 pm

The States is not out of the weeds quite yet. You can read a headline about employment like this
http://www.cbc.ca/news/world/story/2011/03/04/us-jobs-february.html

Or you can read David Rosenberg and get the facts such as this. I was taught do not believe everything you read. I somehow trust Rosenberg a lot more than the bought and paid for main street media.

unemployment rate dipped again to a 22-month low of 8.9% from 9.0% in January and the nearby high of 9.8% in November. This reflected a 250k rise in Household employment — the third increase in a row — and a flat participation rate. A couple of behind-the-scene facts: from October to February, an epic 700k people have left the work force. If you actually adjust for the fact that the labour force participation rate has plunged this cycle to a 27-year low the unemployment would be sitting at 12% today. Moreover the employment-to population ratio — the so-called “employment rate” — stagnated in February at 58.4% and is actually lower now than it was last fall when “double dip” was the flavour du jour.
All that matters in these employment reports is what the jobs environment means for income, because workers generally spend in the real economy. With
credit harder to come by, and with fiscal policy soon to become more focussed on austerity, it is the income that the labour delivers that will prove to be the
critical determinant of the economic outlook. So while the “spin” may be over near-200k headline payroll gains, another dip in the headline unemployment
rate, the organic income backdrop can really only be described as tentative, at best, especially in real terms as gasoline prices make their way to $4 a gallon by
the time Memorial Day rolls around.

#123 Jarry Steet on 03.04.11 at 1:42 pm

Actually I am quite bearish on oil prices. The last peak was 147 dollars a barrel and we saw the crash to 30 dollars. West Texas intermediate has an almost 20 dollar spread with Brent. There is a Glut of oil in Cushing Oklahoma. they are already starting construction on giant storage terminals and of extending the Alberta Clipper network to the Gulf refineries, if approved it would take until 2013 to construct, but there is already a pipeline that flows from the Gulf coast to Cushing, if they reversed the flow Canadian and US prairie shale oil could be distributed to all the gulf coast refineries. In addition there is a pipeline that runs from Alberta to Sarnia, then to Montreal, where it is connected to Portland Maine(port terminal for imported oil). The flow currently is east to west, if they reverse the flow west to east, Canadian prairie oil could be sent to the east coast. With production ramping up. The united states would not need to import OPEC oil. IF it wasn’t for the current instablitity oil prices were going to steadily head downwards.

If and when the situation stabalizes, after all for the oil producers if their oil is not sold, someone else will. Also despite OPEC trying to keep the prices above 80 dollars. Saudi arabia doesn’t develop many fields just to keep current prices around 80 dollar. OPEC might be happy they have 100 to 110 dollars a barrel right now, but once the current instability ends, the bubble will pop and the price might go down to 25 dollars. Remember in 2008 consumption was cut down just 6% to cause the collapse.

THE United States will not need OPEC oil for the short term. It will be even worst if cellulose ethanol from waste products can be efficiently obtained. It will cut the need for oil. Its a goal that should be worked on, to prevent the oil shocks that happen every 10 to 15 years.

#124 Mike B on 03.04.11 at 1:43 pm

Bet on America. I am not sure Americans want to bet on America. Aging population and a mega debt sends shivers up the spine of those in the know. Folks like Bridgewater Associates CIO Ray Dalio feels that the US dollar will invevitably be replaced as a reserve currency. His latest interview on CNBC laid it all out. Look at his comments on 2011 and 2012 for growth in the US. This does not sound like a great place to park cash or buy real estate IMHO. http://www.finalternatives.com/node/15750

#125 wetcoaster on 03.04.11 at 1:48 pm

A house is not an entitlement. Those who buy what they cannot afford take on a dangerous burden. — Garth

Miley the fake realtor wasn’t even a genetic formation the last time the market corrected and hasn’t the slightest clue what it looks like. Give it up junior, ponzi schemes have sunk many a fool like you and this Made-in- Canada crash is coming to your cozy four walls very soon.

Best you wrap your little mind around what you’re gonna tell all those suckers when they come bangin on your door asking for their money back ? Wouldn’t want to be ya.

#126 Robert Dudek on 03.04.11 at 1:51 pm

A wonderful summation of the current situation by Jesse:

http://jessescrossroadscafe.blogspot.com/

“Adding liquidity and stimulus at this point is like pouring enormous quantities of gasoline into a car that has just been towed out of a ditch, with four flat tires, a seized transmission, and a crushed radiator, and saying, “We’ll be back on the road anytime now once we fill ‘er up.” And austerity is like making the passengers get out and push. The Congress, who failed to properly maintain the vehicle by taking kickbacks from dishonest mechanics, the Banks, sits in the front seat eating doughnuts, urging the middle class to stop whining and push harder. And Bernanke is bouncing up and down on his seat saying ‘vrooom, vrooom,’ and the corporate media and economists marvel at his accomplishments. It is less a recovery than a tragedy.”

#127 Mike B on 03.04.11 at 2:05 pm

Based on guava.ca the numbers reflecting GTA sales YoY indicate sales are slightly lower than the previous boom years but not 2009 or 2008. BUt it looks like 1000 less than 2010 for the month of Feb. which I think around 12-15% less …. significant. Oddly enough prices are 5-7% higher YoY feb to feb. Inventory is at the lowest ever from 2004. Stats don’t lie.

#128 SK on 03.04.11 at 2:10 pm

Around noon here in Skatch and no news articles on the BMO’s comments. Usually if a report comes out that house prices increase it is updated every 15 minutes. Guess the Leader Post and Star Phoenix don’t want to upset their advertisers.

That’s alright, no one expects those media outlets to be objective anyways.

#129 USSA on 03.04.11 at 2:22 pm

Why put funds into America The Dying
when you can put it into the raging metals bull.
DUH!

#130 Pat on 03.04.11 at 2:32 pm

@ #99 The American,

Your comments on the US RE market today are not very thoughtful. I don’t have time to elaborate now, but 2 points are: (1) decline from peak is not the best factor to consider (price/rent and price/income are); and (2) look at the Japanese RE.

#131 Timing is Everything on 03.04.11 at 2:40 pm

#35 Willy H – said “Just fill up your F150 for the 70km Barrie to Toronto commute and you will soon find out!”

Ha! F150, Child’s play….Livin’ large…In N. Amerika.

http://www.youtube.com/watch?v=QtX8AUiaWX4&feature=related

http://www.youtube.com/watch?v=fr-y5pifUfs

#132 45north on 03.04.11 at 2:50 pm

Moneta: I don’t think giving 1000$ is the solution because chances are it will get taken away somewhere else.

well it isn’t the solution but it does give some help to the people who need it, it also keeps the housing market honest, it discourages people from squatting in their houses ( you don’t get the $1000 until you’re out) and it does discourage the banks from refusing to recognize their losses (they don’t get the insurance money until they foreclose)

the various US programs to help people with their mortgages has served only to help the US banks

who could have imagined?

#133 jgg123 on 03.04.11 at 2:57 pm

So…you buy a house in USD.

Is it possible to get a mortgage, in Canada, payable in USD?

Where I’m going with this:

Say you find a nice place in AZ for 120k. Mortgage for 103 USD, converted to CAD = 100K CAD owing.

5 years later, that house is sold for 150k net USD. 90k owing on the mortgage (CAD) BUT CAD is now worth $1.40 USD.

So, 150K/1.40 = 107K net which equals a substantial loss.

I’m just pointing out the currency risk…

Say you can sell for

Not possible. — Garth

#134 Guan-Di on 03.04.11 at 3:01 pm

#76 dd.

Maybe read the whole poem:

But Mousie, thou art no thy lane,
In proving foresight may be vain:
The best laid schemes o’ mice an’ men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!

#135 new_era on 03.04.11 at 3:13 pm

Hey Garth what happened to that picture yesterday

I wanted to save it onto my computer and gross out my wife.

#136 JJ on 03.04.11 at 3:18 pm

This is a question for Garth. How on earth can we be an “ownership society” if there is always a bubble and a crash around the corner? Are we supposed to be renters forever work like a dog our whole life and never build any long lasting wealth? I hate being in debt as much as the next guy, but at least at the end of it I have some asset even if it falls in value. If its on land, it always has some intrinsic value no matter what.

That didn’t work out too well in Detroit, did it. Autoworkers would have been better off buying company stock than a house near the plant. Just an example of where real estate had no intrinsic value. — Garth

#137 Timing is Everything on 03.04.11 at 3:20 pm

#35 Willy H – said “Just fill up your F150 for the 70km Barrie to Toronto commute and you will soon find out!”

‘You’ll find out’ just how good the gas mileage is on your F150 ;)

Livin’ large in N. Amerika…

http://www.youtube.com/watch?v=fr-y5pifUfs&feature=related

http://www.youtube.com/watch?v=QtX8AUiaWX4&feature=related

#138 Telepod on 03.04.11 at 3:21 pm

#91 Sid, NET WORTH MATH: (if you get these fundamentals cool, some people don’t so I’ll do the whole thing, and at the end you’ll understand “NET” worth)

I’ll try to keep this as succinct as possible so everyone can do this and get a visual of their financial health. It’s really easy, but people don’t do it enough.

Get a piece of paper and make 2 columns. Label the left one ASSETS, right one LIABILITIES.

For ASSETS make a list with items & amounts, eg: (left column)

House (today’s value, be real) – $600,000
Honda (check Craigslist for a reality check) – $13,000
Stocks (check them for today’s worth) – $24,763
Etc (other toys, expensive household items) – $12500
(forgot to add so lept back up here, RRSP’s, GIC’s, etc)
———————-
Total Assets : $650,263

For LIABILITIES do the same thing inside the right column, eg:

Mortgage (call your lender and ask for the “Payout” figure), they MUST give it to you and DO NOT have any right to ask you why you are asking for it so just tell them you’re curious and ignore their nosy questions or their new pitches of the day: – $745,337 (penalties for early pmt don’t apply)

Car loan (that Honda) – $16,324 (again, call for a “Payout” figure, same attitude applies)
Toy balances (that snowmobile, motorcycle, whatever, ie. list your DEBT balances one by one, yes, call all creditors for payout figures) – $5402 (be sure to list items separately so you can face your monkeys in quasicolour)
Credit Card balances (call for statement balances, list all separately, etc) – $4829
Other debts (could be anything, list them separately, get current balances) – $845
—————————–
Total Liabilities : $ 772,737

NET WORTH = (this is to show what being in the hole looks like, and it will be common when the market recedes)

SO, in this case you are in the red, ie. you have NO NET WORTH, well, technically you do, it is just “negative net worth”. Not a good thing but most people’s situation, especially if they don’t own real estate now, before the crash. For those who do own real estate, this minute, they’re probably in the black and the house value will be larger than the mortgage. BUT, that will likely reverse so then all people, except savers who don’t spend unless they can pay cash, will be in a negative position. (p.s. small eg of what’s coming > this will crash the consumer/retail markets, stores will close, jobs lost, more mortgage defaults, yes, for those who were unclear, the domino effect will be catastrophic over the next few years so SELL NOW and rent).

INCOME & EXPENSES are different. That simply determines cashflow. Negative cashflow is the worst/craziest position to be in, ever. Same kind of columns, INCOME/EXPENSES, different items, be specific, do it for a monthly basis, and be exact. You can use the item “Miscellaneous” for smaller stuff lumped into one category after the main items are listed and average out the figure. If you come out with Positive Cashflow you should be saving it, investing it, paying down the Liabilities with it faster ! (ie. bang down the principal on those debts, or get as close to it as fast as you can). If you come out with negative cashflow you already know that. ; ) Monthly stress abounds.

Hope this helps some people. For anyone who wasn’t used to doing this you should really try it, then do it every year (or more often actually) for the rest of your life. It’s very simple and forces you to SEE these 4 very important markers of your financial life. You will have more ownership over how you conduct your spending if you have this visual. Plus, it’s fun to work on making the ASSETS bigger, LIABILITIES smaller, INCOME bigger (hey, go for it), and EXPENSES more conservative if you can.

Cheers.

#139 City Slicker on 03.04.11 at 3:23 pm

#126 Robert Dudek on 03.04.11 at 1:51 pmA wonderful summation of the current situation by Jesse:

http://jessescrossroadscafe.blogspot.com/

“Adding liquidity and stimulus at this point is like pouring enormous quantities of gasoline into a car that has just been towed out of a ditch, with four flat tires, a seized transmission, and a crushed radiator, and saying, “We’ll be back on the road anytime now once we fill ‘er up.” And austerity is like making the passengers get out and push. The Congress, who failed to properly maintain the vehicle by taking kickbacks from dishonest mechanics, the Banks, sits in the front seat eating doughnuts, urging the middle class to stop whining and push harder. And Bernanke is bouncing up and down on his seat saying ‘vrooom, vrooom,’ and the corporate media and economists marvel at his accomplishments. It is less a recovery than a tragedy.”
———————————————————-
Thanks for the chuckle!

#140 Telepod on 03.04.11 at 3:25 pm

OOPS ! ( I must have hit the backspace there, sorry)

NET WORTH = <$122,474)

#141 poco on 03.04.11 at 3:28 pm

#103 Expand Your Means—quite the rant for a blind man–you should change your name to Expand Your Mind –you certainly do need it–i take it you’re just another troll trying to get the dawgs excited
i don’t see many rebuttals to your posts but because you’re so RICH i thought you should be the first to have a chance at these two properties that just reduced their asking price

it’s a 9 unit townhouse compex (new) in the tri-cities area–Wellington/Laurier in poco–went to see them last oct–not bad–overpriced of course–well they (7 of them)sold for asking price and now these two sit empty
mls#v865054–listed for 509k–fire sale price 439k–70kdiscount
mls#v865061–listed for 479.9k–fire sale price 419k–60k discount
i guess the developer sees what’s coming and decided to unload them–i doubt he took a loss

so if you think re only goes up or we’re only going to have a mild correction, you’ld better jump on these –hold them for a year or so and make a killing—you know expand your mind
but the sad part of the whole thing is the poor fools who bought the other units and now find their properties worth 15% less in a matter of 5months–do you think this market will turn around soon –not a chance–we’re cooked

#142 Still waiting on 03.04.11 at 3:31 pm

Sorry, I’m betting against the Americans. Their time has come and gone. I’m giving the place a year before we see Libyan style action on the streets of America. Maybe they’ll end up better at the end of it, but I’m not counting on it.

#143 Telepod on 03.04.11 at 3:32 pm

Ok, so the 30% thing:

When you do your ASSET & LIABILITIES columns the figure that comes out in the end should not be more than 30% of that figure.

IE., if you are in the black (above zero), no more than 30% of that figure should be Real Estate. This is because Real Estate is the largest item so the exposure must be relative. It’s called having a “diversified portfolio”, ie. lots of different stuff. It just makes sense that the most expensive item would be a smaller percentage. You must manage your risk for financial hiccups, or disaster.

#144 Telepod on 03.04.11 at 3:38 pm

Sorry Sid, your fundamental question answered:

If you have a NET WORTH of a million dollars you should only live in a home with a debtload (mortgage) of $333K or less.

#145 Nostradamus Le Mad Vlad on 03.04.11 at 3:44 pm


#35 Willy H — “There is no quick fix.” — Soon to be WW3 is a great start, which is one of the reasons for the instability thruout the world is happening, along with a few other things.

#43 Scared and #51 Basil Fawlty — “The government has their fingerprints all over this debacle.”

Carney (ex GS), Steve “You won’t even recognize Canada when I’m through with it” Harper and F (less said the better) are on the line for this hook, line and sinker.

Taxpayers are not responsible for govts.’ unnecessary debts / deficits.

#52 Peter Pan and #54 Morry — “replace America with Rome or English Empire in that sentence.

Well pointed out. Nothing lasts forever.

#72 Mikey the Realtor — Hi Mikey. You undoubtedly heard this morning on the radio (EZ Rock 101.5 FM, formerly SILK-FM), that due to the diabolical weather we have in the Brokenagain, RE slid by nearly 19% and the average price dropped 2% to $430K.

As the weather cannot vocificerously defend itself, all I can say is the weather doesn’t care one way or the other. Strangely, folks have been known to adapt to rain or snow, thunder and lightning yet continue on with their lives.

Shit happens. Better get used to it!

#146 Timing is Everything on 03.04.11 at 4:00 pm

#48 AxeHead

Gotta agree. Too hot. I like hot climes for about 2-4 weeks…then back to good ol’ Victoria, BC
(Home Base…aka bunker)

And where’s the ocean? A landlocked desert is not for me.

I probably won’t buy America, but I’ll rent it when I want.

#147 r u serious on 03.04.11 at 4:06 pm

@# 79, Renting Rosedale…I didn’t say it wasn’t a nice place to visit. I just don’t want to live there…and I certainly don’t want to invest in it.

#148 Daniel on 03.04.11 at 4:12 pm

SOLD

Well, sold my property in Calgary.

Originally was going to list for about 300k (needed a lot of work). Put about 14k into it, and the market really increased in Jan and Feb, listed it for $359 and sold in 12 days for $350k.

Now the market can drop!

I have a condo in Malaysia and am looking for one in Phoenix, actually Buck Eye, 30 min outside Phoenix. 2200sqft, 4/3 for 55 – 75k. Ready to ride out the Canadian storm in comfort and heat … I’ll be back in 5 – 10 years to buy a place at a very discounted price!

#149 poco on 03.04.11 at 4:19 pm

#59RealPaul–just to let you know if it wasn’t posted before–David Ingram passed away feb 21 2011 (cancer)

#150 jess on 03.04.11 at 4:21 pm

In and Out ?

February 27, 2011
Abstract:
“The Madoff Ponzi scheme was sitting on a cash hoard in excess of a billion dollars by the 1990s. Yet, much of that money did not stay in the Ponzi account, account 703 at JPMorgan Chase, or make it into the hands of other Madoff investors. For many years, in excess of a billion dollars was missing from the 703 account as money drained out of the eleven other accounts, which received transfers from the Ponzi account. The author uses previously unanalyzed data from the Security Investor Protection Corporation (SIPC) to estimate that the balances in the JPMorgan Chase account were so large that JPMorgan Chase earned in $907 million pre-tax from the Madoff deposits at the bank from 1986 to 2008. ”

Suggested Citation

Wilson, Linus, Madoff’s Dirty Money (February 27, 2011). Available at SSRN: http://ssrn.com/abstract=1772266
http://thefundamentalview.blogspot.com/2011/03/jpmorgan-profited-handsomely-from.html

Form 8300 and Reporting Cash Payments of Over $10,000
http://www.irs.gov/businesses/small/article/0,,id=148857,00.html

#151 Northern Dirt on 03.04.11 at 4:27 pm

#49 Shank1848 on 03.04.11 at 2:00 am

Your “controversial” picture yesterday morn at least related to the post as usual. I’m guessing today’s picture has nothing to do with todays post and is merely a reaction to the weirdos that complained.
…………………………………………………………………………….

The picture is from the movie Borat, which is about a foreigner traveling to the USA.. so it is sorta related..

#152 VICTORIA TEA PARTY on 03.04.11 at 4:39 pm

JOB REALITY IN THE USA

The MSM was all agog with the latest job stats out of the USA today. The stock market went up, in response, but suddenly and convincingly turned south after oil prices jacked up because of massacres reported in Libya.

But blogger Karl Denninger’s Market Ticker had some bleak conclusions about those job numbers; they were a wash at best. And very troubling is that there is only a 57 percent “participation” rate in America’s labour force, he said.

Here is Denninger’s summation of the latest stats:

“No joy here.

Summary: The report did not show any material amount of acceleration; it is, for all intents and purposes, flat. The Household Survey showed some people going back to work, but in terms of percentage of the working-age population the needle did not move to any material degree. The problem continues to be people we don’t count as unemployed but in fact are, and as such the statistical gerrymandering of the results will give both the left and right something to spin, but in point of fact there’s no evidence of an economy that is recovering it’s ability to generate both private income and tax revenues.”

PERSONS AT WORK IN MICHIGAN’S AUTO INDUSTRY

Market Ticker’s blog included this posting from an auto worker in today’s USA:

“Working in the automotive industry I have noticed a large increase in personnel in both assembly plants and engineering departments.

These positions were filled in October through January.

Here is the rub. Plants are hiring at substantially lower costs. Plant unskilled labor is starting at $14 with any benefits being offered. Benefits will be offered after one year of employment but hourly rates will bump to $16.

This is a huge difference from the $27 hourly rate and $76 with benefits. Also most of the union cronyism is gone and along with the unecessary labor positions. Skilled labor, electricians, tool makers, millrights, etc are working for $18 per hour.

No benefits for new hires.

Before the bankrupcies the skilled rate was $39 on average. Now for the professional rates. Engineers were making $65K starting to $140K for 20 year employee.

Now even though the 20 year employee is common there are much fewer of them, also they must contribute to their health care costs so burden is down substantially.

In addition new hires are only receiving offers of $38 to $55k annually. No bennies until after one year of employment.

Basically the auto industry has gone the way of steel industry.

Asians have replaced many US professionals due to the fact they accept much lower pay and are very mobile…

Auto industry will be able to absorb the cost push because of lower labor costs but if raw materials keep climbing profits will eventually be impacted.

GREENSPAN SPEAKS (DOUBLE SPEAK)!

Denninger also commented on former Fed Head Alan Greenspan’s current view of the ongoing economic catastrophe:

‘I woke this morning to one of the most-disgusting displays I’ve seen in years on CNBS: Alan Greenspan.

The rough paraphrase of what I woke to was this:

“If you disregard the currency dislocation we’ve created, the commodity price spike we’ve created (with our money printing and this the currency dislocation) and the worldwide currency problems (particularly in the Euro) then the economy is very strong.”…You can’t make stuff like this up – it’s like shooting yourself in the gut and then commenting “My health and prospects for the future are exceptionally bright…. except for this little flesh wound (which I just inflicted on myself.)”

So, wilful blindness by Greenspan and a gutted labour market from a wages and benefits stand-point. And this is a recovery in the US? Are you kidding?

MORE ON THE MARKETS: YIELDING TO AN ADDITIONAL VIEW

So, how about our imminent salvation through the US stock market, instead?

FYI, the dividend yield on the S&P 500 is a paltry 1.8 per cent. The dividend yield on a US 10-year T-Bond is about 3.4 per cent.

Yanks, and the rest of us in the West, are yield-hungry types, especially those enjoying their so- called “retirement” Freedom 105 years.

The question, therefore; how to get those yields up. For the stock market there are two ways; a crash, or an increase in dividends from corporations. The latter won’t be happening in the US anytime soon. So, a crash it is.

As for low bond yields. You need lower bond prices! Hmm!

WORD TO THE WISE

Real estate mavens everywhere: the real signs of a healthy “property” market is the presence of successful underpinnings within the economy: a growing, productive, well-paid work force, low taxes, low debt (public and private), and whatever else I can’t think of at this moment.

In other words real estate remains a casino industry in Canada and the US.

A reckoning is needed.

However, until Bernanke, Greenspan’s unsuccessful successor, can find some way of bringing things back from the brink, then economic brinkmanship it isnow and will remain…

#153 Mark on 03.04.11 at 4:56 pm

I find it rather disturbing how many of us Canadians are slamming the US because of an economic hiccup. The problem really only resulted because of a shortage of money, and not because of any downturn in business. By slamming the US, and ridiculing them, we are merely deflecting what will probably happen here in Canada in a short while as well. We would be much better off helping our neighbours to the south, rather than turning our backs on them, or taking advantage of their situation. This anti-American attitude to what is probably the most generous nation on the planet is somewhat in poor taste I find. Because our economy is tied so closely to theirs we will only feel the pain of their economic downturn more if we show our poor Canadian attitudes toward them during their time of need. Remember, a prosperous America = a prosperous Canada…and the opposite is true as well.

We can certainly disagree with their foreign policy, and even some of their complacency toward other nations, but I find that Canada can be guilty of such complacency too (both home and abroad – child poverty, First Nations neglect, the plight of the homeless, the starving in Africa etc), so we should not be so hasty to critcise anyone.

I, for one, will be cutting our US neighburs some slack, and helping them through encouragement, rather than kicking them while they’re down.

#154 TheBigLebowski on 03.04.11 at 5:00 pm

Even with a safe haven bid seen in the markets today on account of a roaring crude oil price, the US Dollar cannot get any sort of decent bid – This fact, more than anything else, is telling us that the Dollar is very close to crashing through major chart support just north of 75. After all, if it cannot rally on the payrolls number in combination with a safe haven bid, what is it going to take to rally it??
Garth’s call on a renaissance in the U.S might be a little premature, lets say by about a decade

#155 Throwstone on 03.04.11 at 5:23 pm

Garth …Garth..GARTH!…

RE #14
Too bad our Government doesn’t have the spine to enact some similar legislation. Instead they have created an environment where Canadians cannot afford to live in a home in their own country, even if they make significantly more than the average wage. That’s our government, looking after the people…

Hardly. It’s Canadians borrowing their brains out and trading debt for granite countertops which caused this. — Garth

I am not denying the lack of self-restraint by canadian’s…but you must admit the Government’s relentless economic action plan commercials, everything is fine in the economy mantra, our banks are the best in the world, 0-40 mortgages etc. etc. have misled the public into thinking things are just fine.

Carney’s little debt warnings were idle threats, as they were not followed up with any serious interest rate increases…so we have massive DEBT!

The government has been irresponsible and complacent in its lending policies. You have pointed that out repeatedly.

The onus of blame should be balanced. The peasants can hardly be held wholly accountable for spending they were encouraged to engage in whether it be houses, cars, vacations, etc. DEBT.

The government could have stopped the DEBT PARADE at any time. Yet they did not, for fear of shaking the economic cage and triggering an election and thus losing power.

You know this just as well as everyone else, so its only fair to balance the blame.

#156 Timing is Everything on 03.04.11 at 5:23 pm

“Hardly. It’s Canadians borrowing their brains out and trading debt for granite countertops which caused this.” — Garth

Well, I think there is plenty of ‘blame’ to go around.
At the end of the day, we’re all in this together. We’re all gonna pay in the end, one way or another…to one degree or another. Sigh.

#157 Timing is Everything on 03.04.11 at 5:30 pm

Is this the USA? or Libya?… :) Do they have sno-cones in Wisconsin…

http://www.cnn.com/2011/POLITICS/03/04/wisconsin.budget/index.html?hpt=T1

#158 Timing is Everything on 03.04.11 at 5:37 pm

#128 SK

My brother lives in Estevan…House prices only go up in Estevan, he says….How ’bout Weyburn? Now there’s a ‘destination’ investment in RE. Oil will save the day, they say.

It’s different everywhere. — Garth

#159 Moneta on 03.04.11 at 5:54 pm

45north on 03.04.11 at 2:50 pm
——
I still don’t think that giving 1000$ to anyone who has not created any product or service for that money solves the problem.

You are transfering wealth. It will only work if the wealth transfer is accepted by all those controlling national wealth and the money supply.

#160 Dan in Victoria on 03.04.11 at 5:56 pm

Timing is everything @ 136

Gas mileage? Gas mileage?
My new truck eats one Smart Car a week.

#161 Moneta on 03.04.11 at 6:02 pm

It will only work if the wealth transfer is accepted by all those controlling national wealth and the money supply.
——
I think we are a long way from there.

In France, the King was told by his treasurer that the rich would have to mke concessions or the people would revolt. The Nobility refused to budge and the people revolted.

In the end, the poor got even poorer. It took France a long time to get to the social system they have now… and it’s probably also going to go through the wringer.

#162 Form Man on 03.04.11 at 6:05 pm

#155 throwstone

exactly…….

#163 poco on 03.04.11 at 6:10 pm

#227 Hoof-Hearted–from last post–sorry missed your question about the new Onni highrise–no where near the Evergreen Line –actually no where near anything–building on Shaughnessy and Lougheed Hwy.–right near the underpass on Shaughnessy St–right on the edge of Lions’ Park–right next to one of the largest railway yards in Canada –super location
the city of poco (taxpayers)built an overpass over the railyard to “supposedly” relieve traffic congestion on Shaughnessy St (2 lanes) at the underpass
it’s funny that the underpass was completed just before Onni started building –the property sat vacant for the last 8 to 10 years–it will still be a disaster for all concerned

#164 BrianT on 03.04.11 at 6:40 pm

#153Mark-CLASSIC-an economic “hiccup”. Wow-talk about a dead on impersonation of Marie Antoinette. Actual unemployment at 22.5%-one hell of a “hiccup”.

#165 realpaul on 03.04.11 at 6:44 pm

American analysts ( Schiller etc) discover ‘double dip’ in US prices is happening and inevitable. Schiller forecasts another 25% loss of prices this year.

http://money.cnn.com/2011/03/03/real_estate/housing_buy_or_not/index.htm

Banks are still foreclosing on millions of Alt-A mortgages, holding millions of REO inventory and still foreclosing on the run of the mill sub prime where terms are coming due.

Oh Oh

Shiller said: “There’s a substantial risk of home prices falling another 15%, 20% or 25%.” He did not say it would happen this year. And that is a decrease off the current discounted value. Details help more than hyperbole. — Garth

#166 OttawaMike on 03.04.11 at 6:54 pm

Love the outdated American stereotypes presented here by some of my fellow Canajins.

Keep them coming so we can maintain our reputation as a provincial backwater nation of insecure uptights.

#167 john m on 03.04.11 at 6:59 pm

America is looking better every day…..Integrity,accountability and democracy are becoming a disappearing commodity in our daily lives while a dictatorship is festering in political circles……>>>Integrity watchdog left with $534,000

Integrity watchdog left with $534,000

Canada’s former public sector integrity commissioner is walking away with more than half a million dollars in salary and benefits, newly released documents show.

Christiane Ouimet, who quit last fall in the middle of an audit of her office by Auditor General Sheila Fraser, is getting a package worth 25 months salary, plus benefits and whatever remaining holiday time she had.

Ouimet’s Oct. 14, 2010, departure agreement shows she got a separation allowance of $354,000, equal to 18 months salary, $53,100 in foregone benefits, pension and other claims, and another 28 weeks of salary, worth $127,000, plus her remaining vacation leave.

That works out to about $534,100……pretty sweet “eh” ah yes things are different here!

#168 Devil's Advocate on 03.04.11 at 7:10 pm

Hi People, I just wanted to let you know that I’m still here. It’s just that now I’m posting under a few different aliases such as: Devore, Morry, and fancy_pants.

Yours truly

#169 45north on 03.04.11 at 7:17 pm

Moneta: talking about my plan to pay people who are foreclosed: It will only work if the wealth transfer is accepted by all those controlling national wealth and the money supply.

you mean it will only be accepted if the banks accept it. Which of course they will not.

#170 ballingsford on 03.04.11 at 7:19 pm

Does anyone have a link to this morning’s picture? Garth, you aren’t being fair, some of us don’t read this blog until after work.

BTW, I liked the early bump pictures on yesterday’s blog.

#171 Moneta on 03.04.11 at 7:21 pm

Hi People, I just wanted to let you know that I’m still here. It’s just that now I’m posting under a few different aliases such as: Devore, Morry, and fancy_pants.

Yours truly
—-
Sybil?

#172 Moneta on 03.04.11 at 7:22 pm

you mean it will only be accepted if the banks accept it. Which of course they will not.
——
Yup.

#173 Abitibidoug on 03.04.11 at 7:26 pm

In response to Garth’s comments of what Shiller said in posting #165 by realpaul:
Well how do you like that folks, in the American market where prices have fallen significantly someone makes the prediction prices will fall more, and in an overpriced market like Canada many people think the market will go higher. Shouldn’t the opposite be true, where a cheap market has more upside potential and an expensive market has more downside potential?

#174 john m on 03.04.11 at 7:39 pm

Hmmmmm i wonder what the reaction would be in America if the “Government of the United States” was now called “The Obama Government”……….well folks we now have “The Harper Government” previously called “The Government Of Canada”…….sure explains the management of our tax dollars………. It sure as hell would not happen in America i’d bet

#175 john m on 03.04.11 at 7:44 pm

We have the “looney” and the “tooney” here in Canada perhaps we could call our penny a “Harper”…it costs more than its worth,it’s a burden in your pocket and hopefully it’s soon to be eliminated………..sorry Garth i’m just really pissed off today

#176 Devore on 03.04.11 at 8:00 pm

#152 VICTORIA TEA PARTY

Yanks, and the rest of us in the West, are yield-hungry types, especially those enjoying their so- called “retirement” Freedom 105 years.

Ha! Those “Freedom 55” ads seem like such a distant memory. Wait! They are a distant memory!

#177 Macrath on 03.04.11 at 8:03 pm

Morning Blog Pictures

Today
http://www.greaterfool.ca/wp-content/uploads/2011/03/america.jpg

Yesterday
http://www.greaterfool.ca/wp-content/uploads/2011/03/gift.jpg

#178 ballingsford on 03.04.11 at 8:27 pm

Life Lesson for my 3 yr old munchkin today so he won’t grow up spoiled like all these 20’s something kids today buying homes they shouldn’t be buying.

Over the last few days after arriving home from daycare, a big plate of fresh sliced strawberries, raspberries, and blackberries was prepared for him. He likes putting the raspberries on his finger and then eating them.

Today, we get home from daycare and he says “Daddy, I want some fruit.” I check the fridge, and there are no raspberries or blackberries left, only strawberries, apples, and oranges.

I say to him, “Son, there are no raspberries or blackberries left, only strawberries.” He whines for a moment then goes back to playing.

I wash him a bowlfull of strawberries, slice him some apple, and he doesn’t complain. In fact, he’s delighted!

Life Lesson: You can’t wrap everyone around your finger every day!

So, you youngsters who are manipulating your parents everyday for your new homes before the March 18th deadline, stop it! After acquiring the new home, you’ll one day realize that you can’t afford the raspberries and blackberries in life! And stop asking your parents to buy them for you!

#179 thx Utopia on 03.04.11 at 8:29 pm

#90 Utopia…thanks for a great post. I generally enjoy your stuff and today’s was really stellar. Much appreciated!

#180 Utopia on 03.04.11 at 8:41 pm

.#170 ballingsford

“Does anyone have a link to this morning’s picture”?
———————————————————

Just click on the facebook link at the top of this page. The original photo is usually there. It is horrible though. You have been warned.

On the other hand, for a more cheery picture, go to yesterdays blog post “The Gift” and there, in all her glory, is the original picture that got all the prudes knickers twisted in a knot yesterday.

There you go prudes. She is not gone after all.

#181 R on 03.04.11 at 8:44 pm

Also to be considered about US real estate is that there are huge problems with the securitization of mortgages, where fraud after fraud has been uncovered. A judge in the US recently found the entire MERS process to be illegal. Caviat Emptor.

You’d hate to sink money into a so-called deal in the US only to find out that the party that sold it to you never had the authority to forclose on the house previously and therefore the chain of title is broken.

That and I’ve read that they haven’t even truly found the real bottom of the market down there.

Simple solution: title insurance. — Garth

#182 Willy H on 03.04.11 at 9:00 pm

Mike B

Bet on America. I am not sure Americans want to bet on America. … reserve currency. His latest interview on CNBC laid it all out. … does not sound like a great place to park cash or buy real estate IMHO.

http://www.finalternatives.com/node/15750
_ _ _ _ _ _

Excellent post. Certainly doesn’t help when Wall Street bankers are “shorting” the American people and their own financial reputations for short-term profits extracted from shady financial transactions pressed into toxic paper assets.

Not a single person has been charged to my knowledge!

Corporate America has shown little concern for the well-being of the domestic US economy for decades. Apart from a few wealthy progressive billionaires, most of the plutocracy are far too busy harvesting wealth from lower offshore operating costs and developing market revenues. These folks are far more comfortable in the southern France than they are on American soil.

Some posters have mistaken my views as knee-jerk anti-Americanism, Canuck-style. I am only calling it like I see it. For far too long our business elites and to some extent government officials have been unabashed sychophants of US politics and economic policy. I can remember a time when they referred to Canada as an “indebted-third-world-banana republic-in-the-making”. 1980’s American neo-cons lectured us on pitfalls of the welfare state and bloated national debts. Our inferiority complex ballooned wildly out of control. Since then we have made “marginally” better choices than our neighbour to the south. Only marginally better! My criticisms and bearish sentiment on America are fuelled out of deep concern for what lies ahead – not some sort of smug new found Canuck self-assurance.

#183 Nostradamus Le Mad Vlad on 03.04.11 at 9:04 pm


Yuan New world reserve currency and Dying Dollar.

Food and Fuel set to explode, and ECB Rate Hikes.

Hmmm — Welfare Cheats? “So we gotta slap down the teachers good and hard!” — Governor Greed”. wrh.com.

Libya Not just oil.

Pakistan “With Davis’ cell phone connecting him to the Bhutto and Pearl cases, this might turn into another bay of Pigs fiasco.” wrh.com.

Surviving and Living Well Growing one’s own food, and More Food.

Vaccinations Better to take a multi-vitamin, plus any other natural goodies along with a healthy dose of fresh air.

Make-believe “I guess it is cheaper to hire lawyers to fend off lawsuits than to spend the money creating really safe drugs.” wrh.com.

Good Question for Cdn. military top brass and m$m. Osama bin deadforseveralyears is buried somewhere in Pakistan. His obit is on the ‘net. What’s the problem? Pull the troops out. There is no War on Terror — the only terrorists are in govts.

1:46 clip China is doing modestly well.

Stuxnet Virus The guilty party has been discovered, and now it will be swept under the rug.

Reclaiming the ‘net.

#184 Pat on 03.04.11 at 9:38 pm

@ #180 ballingsford,

In a similar situation my son would have learnt that strawberries can also be made to stick on one’s finger. The lesson would have been – think out of the box and you might get what you want.

#185 Daisy Mae on 03.04.11 at 9:59 pm

“Hi People, I just wanted to let you know that I’m still here. It’s just that now I’m posting under a few different aliases such as: Devore, Morry, and fancy_pants.

Yours truly”

That’s really cool….(sigh)

#186 ballingsford on 03.04.11 at 10:09 pm

.#186 Pat on 03.04.11 at 9:38 pm
@ #180 ballingsford,

In a similar situation my son would have learnt that strawberries can also be made to stick on one’s finger. The lesson would have been – think out of the box and you might get what you want.
.

***********
I guess I should hull strawberries deeper to stick on the finger. Raspberries naturally do this after you remove the stem.

The real point I was trying to make though is not to take advantage of anyone for your own personal gains.

There is too much of this going on! It’s creepy and I don’t like it. I just hope nobody gets thrown under the bus for one’s personal agenda!

#187 Utopia on 03.04.11 at 10:13 pm

#110 Moneta `

The problem is that alot of [US] real estate has been built on the cheap oil paradigm. Real estate associated with high maintenance costs will see limited growth. That’s probably a large % of what is out there.
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That is a great point Moneta. High energy costs will only serve to depress certain real estate even further as the expenses of commuting becomes more and more prohibitive due to rising fuel. I was just noticing incidentally, the map that Garth has put up today of properties in foreclosure in Vegas (see above).

You probably also noticed how the concentration of “red dots” representing foreclosures are clustered around the rim of the city, on the outskirts of town and in the new subdivisions.

This would also confirm your observation. First, that living far from city cores where the work and the jobs are usually found has tended to impact commuters and stressed budgets and second that the newer expansive (even palatial) homes are impossibly expensive to heat and cool.

Last, that those who bought in the outlying districts are the same group that were late to the R/E mania party (bought at the peak) and so were hit hardest when the economy slowed, jobs were lost and prices began to plummet.
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To #119 45north and #181 thx Utopia………..your comments were appreciated. Thank you!

#188 HouseBuster on 03.04.11 at 10:31 pm

High gas prices can’t be good for real estate in Milton or Hamilton.

#189 The American on 03.04.11 at 10:55 pm

At #130: Pat, you have a fair statement. I should have provided supporting detail surrounding WHY it is a good deal respective to rent rates, mortgage interest expense write off, claimed depreciation, and write off on most all maintenance expenses.

First, I need to say the condo I am looking at in San Diego is for PERSONAL use only, so I am not looking to rent it out, and it would be a personal decision to use the property as I need. However, if I were to decide to rent it out, here are the details I have already taken into consideration as rent rates are certainly pushing UP quite a bit in most major U.S. markets:

*Purchase at $410,000 CASH OFFER – 2 bed 1.75 bath in a nice building in downtown @ 1,300 sq. ft.
*HOA Dues/month are $563/month
*Insurance is covered in monthly HOA Dues for building and earthquake, and contents is ALWAYS covered by the renter. I would have, however, my own policy for wall-to-wall coverage in case the renter fails. This policy will cost $380/year, or about $32/month
*Property Taxes are $4,218/year, or $351.50/month
Rent rates within the building for a 2 bed/2 bath are running from $4,200/month to $6,300/month. This particular condo would rent for $5,100/month on the light side

After initial monthly “fixed” expenses, my gross income would be $4,153.50/month, or $49,842/year.

However, I would also plan on having one month not leased per year, and I would plan on incidentals, such as broken dish washer or dryer, etc. Incidentals are covered in the home warranty policy you would purchase for $300/year. Of course, there is a charge for a service call within the home warranty plan (I’ll plan on four/year on average to be safe at $70/call). All items, including HVAC are covered after service call premium is made.

After all things are considered, the net would be $45,108.50/year, or $3,759/month

Overall, that’s a respectable return on investment of about 11% on initial investment. That’s not GREAT, but it is respectable, especially in this economy.

If I chose to use a management company, they typically take 10% of gross yearly rent, or $6,120 each year in this case. So, that $45,108/year now becomes a net of $39,988/year. The ROI on initial investment is now 9.7% bringing a property management company into the mix. Still respectable.

In this case, I wouldn’t have mortgage interest expense write off as I am paying cash. However, I can claim depreciation on the property, as well as all HOA dues, insurances, home warranty and incidentals. This makes the deal even sweeter.

HOWEVER, if I were to take a mortgage out on the $410,000 property, and put 20% down of my own money, here’s how it would change things. I would buy the loan with an easily-obtainable 4.8% rate, fixed for 30 years, paying 0 points at closing. Closing costs would total about $8,500. Therefore the following has happened:

I am using only $82,000 of my money to put down, plus $8,500 in closing costs, totaling $90,500 initial investment. But, I now have a mortgage of $1,721/month, plus all additional costs as indicated above, including the property management company. This brings my net income to $20,652/year. The ROI on initial investment now becomes 22.8%. See, its always more fun to play with the Bank’s money, contingent they will loan it to you and you have the capacity to manage the process. I also now have the advantage of the mortgage interest expense deduction each year, including all other write offs as listed above.

So, I guess you’re now asking yourself WHY wouldn’t EVERYONE be doing this, right? Well, its complicated. People in general do not have the understanding and willingness to manage the process. They aren’t willing to spend the time to find deals that “pencil out,” as the market seems saturated in many areas. Believe me, though, there are significant deals to be had and we won’t see this again in my lifetime I am certain. Additionally, many people do not have the liquidity to put down a minimum of 20%. And those who do have the liquidity are afraid to do so because they fear they may need the liquidity for a “rainy day” fund. This leaves only a few people in the market place with the willingness to manage it, patience to find it, finances to feel comfortable doing it, and credit history to be approved for the loan from the bank. Lending standards have sharpened immensely in the U.S., almost to a fault to be perfectly honest. And for Americans, FNMA will only take the loan on up to four properties for a single person. Some people who are already into the renting game as a landlord have exceeded this number, and therefore wouldn’t be approved.

#190 The American on 03.04.11 at 11:09 pm

Garth, I continually keep reading within the blog concerning clean/clear title upon purchase of a home. Title insurance is MANDATORY on all home purchases in the U.S. As I’ve said before, the likelihood of a discrepancy happening is so incredibly remote that title insurance in its own right has been deemed by many analysts as a “suction.” Regardless, in the 1 in 1,000,000 chance there is a problem, the new homeowner would be made WHOLE, 100%, at no cost to the homeowner. Yes, there have been issues with the robo signers, but even still the title discrepancies have been less than 1/10th of 1% of all the foreclosed and short-sale homes.

What I am saying is “get over it, people.” YOU ARE COVERED. Buy or don’t buy. It makes no difference to me. But, please, stop beating a dead horse around the clear title of the property. You are more likely to be hit by a car walking out of your house.

#191 The American on 03.04.11 at 11:12 pm

One last thing… Title insurance is a ONE-TIME minimal charge, purchased by the buyer at the time of closing. You will see the charge on the HUD1 statement at the time of closing. The fee is collected at closing in the same check you write for the closing costs, points, etc. This is collected by Escrow and is distributed to the entity that is insuring the property. You cannot ask not to have it. No lender would permit it whatsoever.

#192 Financial Uproar » Saturday Morning Dump- Linky McLink on 03.05.11 at 3:35 am

[…] Turner has a good post about buying real estate in the U.S. His advice includes not buying something unless you intend on living in it or using it as a […]

#193 WINNIPEGER on 03.05.11 at 11:06 am

DOUBLE RED ALERT!!!

Winnipeg to lead the Nation in RealEstate!!! double wow!

http://www.winnipegrealtors.ca/Editorials.aspx?id=1220

#194 prairie gal on 03.05.11 at 5:35 pm

Are Canadians so deluded to say, in one breath, that America is circling the drain and then proclaim that Canada’s economy has nowhere to go but up? If it weren’t for the Americans buying our resources, we’d be fooked.

Betting against America is betting against Canada IMHO.

#195 Ret on 03.05.11 at 6:48 pm

Maybe US health care isn’t that expensive after all. If I saved $100-150000 on a house, I can afford a $16,000 by-pass. How much does OHIP pay for the same by-pass in Ontario?

Link form the Globe & Mail today.

http://www.theglobeandmail.com/news/national/canadians-buy-us-health-care-as-weak-economy-pushes-down-prices/article1931073/