Unhealthy

Well, it’s time for another wee contest. Finally. This pedantic and morose blog needs some serious sunshine up its butt, and who better to provide it than the strange people who come here? At last count, there are half a million visits a month, which must mean something. I have no idea what. But I’m impressed.

Anyway, our topic today is unhealthy relationships, like Bono and Spiderman, or Vancouver and sharp sticks. These days Canadians have an increasingly unhealthy relationship with their houses. In some parts of the country we’re infatuated with the blown-up, cash-sucking beasts homes have become. Meanwhile across great swaths of the land, real estate is turning into an illiquid wealth trap, where buyers are few and far between.

Clearly it’s a time of change and volatility. So will real estate values crumble as they did in the States, Spain, Britain and Japan? Or will they continue on an ever-higher trajectory as they have in, er, Canada? And with prices in places like Toronto and Vancouver already perverted, what does a correction even mean any more?

Graham wonders just that.

I only started reading your blog in the last month. We’ve stayed out of real estate for a long time because we’ve felt that housing prices was insane. (Sort of like your latest blog on “Flip This”)

My question for you is this — how much of a crash do you see? The technical definition is 30%, but look at this: $100K house goes up 20% each year for four years == that makes the house $207K. I crash of 50% still puts it at $103K

And as you know, housing in Vancouver has gone up more than 100% in the last 7 years. We thought $800K houses back in 2004 were ridiculous… now, in 2011, they are 1.7m.

Ultimately, how much of a crash do you see? 30% 50% 80%? And it matters as to when… if it goes up another 25.7% and then crashes 50%… that’s no crash at all (in my opinion).

Graham, that Van real estate will plow isn’t in doubt. The market defines unsustainability, as do some significant neighbourhoods in the GTA, and almost all of poor Saskatoon. In the near future couples will stare at each other over bran flakes and wonder what the hell they were thinking when they bought. After all, it’s impossible to have an eternally higher housing market when it’s being supported by increases in debt, not income.

I’ve given my opinion that these markets will be hit with a correction, then a sucker’s rally, followed by a multi-year melt. The depth and length could shock many people, and have dire consequences for the at-risk groups: deflowered property virgins with scant equity; wrinkly Boomers who think their houses are retirement plans; families with a mortgage bigger than twice what they earn in a year; and anyone with the bulk of their net worth in one address. If that happens to be a suburban address, I am so sorry.

OK, but what do you think? How would you answer Graham? Will housing lose a fifth of its value, or two-thirds? Or nothing at all, since we’re idiots?

Contest question: What magnitude of a correction do you expect this year? Or will there be one at all?

I’ll randomly pick five brilliant answers and send them a fabulously autographed copy of my current book. As soon as the damn post office works again.

 

349 comments ↓

#1 1milcrackshacksonfire on 06.17.11 at 10:05 pm

where are the people who say vancouver is a world class city now ?

#2 Northern_dirt on 06.17.11 at 10:13 pm

As I’ve just inherited half a house, located an hour north of Toronto, I’m going to say (and this is wishful thinking) that prices will stabilize in the hotter areas of the GTA, mild gains in the rest, with moderate increases outside the city (though in the rural non suburban areas) hopefully with a rise that lasts as long as it takes to close probate.

#3 pearl on 06.17.11 at 10:14 pm

the correction will be minor.. maybe 10 to 15%. People are not ready to believe that their homes are not worth insane amounts. By fall of 2012 they will be forced to realize that it’s not going to happen, and even though I will be frothing at the mouth to jump and buy I will continue to visit this blog ( hopefully still up and running). I need this blog like a heroin addict needs methadone. It keeps me from doing anything stupid.. like buy a house.

#4 Ben on 06.17.11 at 10:16 pm

_________
| |
| 0
| /|\
| / \
|
|

#5 b on 06.17.11 at 10:16 pm

i expect the magnitude of the correction to be equivalent to the magnitude of the correction when it arrives. The only certainty is that it will arrive in due time. stop timing markets or your financial migraine will be equivalent to the magnitude of your error in timing. repeat mantra over and over again.

#6 Uno on 06.17.11 at 10:16 pm

Loze Weight fat Bastards

Nô dépréciation!! Its all fixed

Scammmmmerz

#7 MikeT on 06.17.11 at 10:17 pm

when whole land sinks, the peaks are the last ones to go under.
first, the non-metropolitan Canada, then the suburbs, then cities other than Van and TO, and finally these 2 will be the last ones to fall.
Look at the US – NYC, LA, Seattle didn’t fall as much. TO and Van are quite popular with HAM (I presume we don’t shun this away as “anecdotal evidence” anymore), so don’t expect much of a fall there, especially in SFHs.
Cheers.

#8 Maxamillion on 06.17.11 at 10:19 pm

Maybe this could possibly explain everything.

http://www.theonion.com/articles/god-diagnosed-with-bipolar-disorder,348/

#9 i.am.1st on 06.17.11 at 10:20 pm

..again

#10 your not first on 06.17.11 at 10:21 pm

Took first from the idiot that really wanted it.

#11 confused on 06.17.11 at 10:22 pm

first!?

#12 Harry on 06.17.11 at 10:22 pm

Saskatoon?
– low unemployment rate
– jobs
– income gains when all other places stalled
– people moving here
– sales are 20% higher than 2010
-low inventory
– prices way up
– housing starts way up
– way cheaper than Canadian average
– no Asian buyers here, just confident Saskatchewans and other Canadians buyers with cash buying within their means
– oh yeah, no 1 economy in the nation.

No bust here, maybe next year, or the year after that, or the year after that….

I don’t expect to win anything, just telling it as it is.

#13 rsen on 06.17.11 at 10:23 pm

I don’t suspect our economy and banking system differs far from the states. So I would expect a housing correction to be similar to the states, but less dramatic because of foreign money.

An initial drop of 10%-15%, and a slight rally of greater fools who think the bottom has been reached.

Just like in the US, I expect another 5-6 years of a housing market slump where prices stagnant.

Why wouldn’t an economy with a government so aligned to the policies of the US, differ in consequences.

#14 TurnerNation on 06.17.11 at 10:23 pm

This weblog: Hmmm I would not say tawdry, but instead maybe a tad déclassé. :-D

#15 B on 06.17.11 at 10:24 pm

as to a correction in Canada this year, I would say the number one factor is interest rates. If Carney raises them this year, as you put it: slow melt, roughly 5% depending on where you are in the country for the rest of the year

if he doesn’t raise them: flatline for the remainder of the year

of course, it will also depend on those nagging external factors being ‘resolved’ of course.

Greece (PIIGS)
USA debt ceiling circus
Fed: QE 3 (Bill Gross expects interest rate caps on 2-3 year bonds)
Oil Food/Commodity Prices
Wars (Libya)
Arab Spring (Syria, Yemen)
China (trying to delicately transfer the economy from investment driven to consumer driven)
Derivatives regulation (lol)
More Vancouver Riots (the big question among homeowners out here now is: will this impact our HAM impression?)

#16 Bob on 06.17.11 at 10:24 pm

This year there will be a 10% correction, within 10 years there will be a 50% correction, and there will not be a ‘suckers’ rally’ because the suckers are already all-in.

#17 Thom on 06.17.11 at 10:24 pm

I predict there will be no correction this calendar year. Likely next year. That’s as brilliant an answer as you’re going to get.

#18 Kim on 06.17.11 at 10:25 pm

Graham rent for the next four to five years and do some serious saving. Then you can scoop up a few cheap housing like Canadians are doing in Pheonix but better … because you’ll be doing it in Canada. And if the interest rates are up… it won’t hurt Graham, because you’ll have a huge healthy down payment (or no mortgage a pure cash) to put down on his cheap ‘was once a million dollar’ home.
I mean really whats five years and sound like he has a two income family. Easy.

#19 bsallergy on 06.17.11 at 10:26 pm

Was in a meeting today at a local hotel. The local realtors association was meeting there too. There but for the grace of low interest rates a bigger bunch of losers I’ve never seen.

Vive l’immobilier! Vive la fin de bulle!

#20 LJ on 06.17.11 at 10:26 pm

The housing market will probably loose about half its value. At that point the government will probably start giving away “interest free loans” if you pay your taxes (which will be increasing to support the geriatric boomers and the interest on the ever expanding national, provincial and municipal debts).

However, the cost of living (food and fuel in particular) will increase to the point that, to most people, it will seem like the mortgage debt and housing maintenance costs, especially taxes, eats up a majority of their incomes that could be used for better purposes.

You can also tell Graham that, in the worst case scenario, houses are really worth nothing since in the end you can’t take it with you anyhow….. If you look at the constitution of each province, the land that you think that you own is actually “crown land” and you are just a “freeholder.” And, whatever it is “worth” will still have a liability for taxes (rent) on it each and every year, or the government reclaims the said land.

In the end, once sentiment turns, it will be worth a heck of a lot less than people are willing or able to pay now. But a 50% correction is a good start. If we actually get that, all bets are off. Look at our neighbours down south.

#21 bsallergy on 06.17.11 at 10:27 pm

Sorry forgot to add “Vive le Vancouver libre!”

#22 Cameron on 06.17.11 at 10:29 pm

Prices go down faster then they go up. If we took ten years to get where we are today I say in three years we’ll be back to where 2% compounded annually from 2001 average housing prices to today would take us. IE 10 years of inflationary gains. I figure this puts us in 2-3 years in the 20% decline territory.

Houses across the country on average without factoring for specific location increase with inflation only.

Everything returns to the mean or goes bankrupt … we’ll experience both.

Then all the kids that got condos and felt the wealth effect, will understand the difference between “paper wealth” and real wealth.

You haven’t made $100,000 on your home until someone else is living in it.

#23 Bolo on 06.17.11 at 10:30 pm

Depends on when the Feds start jacking up the rates. I say it starts this fall with a modest 5% drop in prices with things to get worse by next spring. Next year is going to be THE year things start going from bad to worse.

#24 rightiswrong on 06.17.11 at 10:31 pm

The land of the fee and the home of the knave is 5 years into their housing meltdown and heading for dip #2… We haven’t even gotten into dip #1. There is no way this can end well.

#25 Controller on 06.17.11 at 10:32 pm

In my humble opinion the Bank of Canada will set rates this year as follows:
July19…+0.25%
Sep7…..No Change
Oct25….No Change
Dec 6…..+0.25%
The July hike will stall the price climb in ALL markets.
The December hike will drop prices across the board.
By December 31, average price across Canada will be same as beginning of 2011. Then the bigger fall comes next year, down 10% by end of 2012. Another 10-15% by end of 2013. It’s just my opinion, don’t start a riot.

#26 Sid on 06.17.11 at 10:33 pm

We are already half way through this year, so if things do start to slow down through the summer then there will be about a 5% drop in the last quarter followed by much faster drops in 2012 (another 25%).

#27 Diffrent on 06.17.11 at 10:33 pm

Is that Bernanke on the end looking at his “stimulus package?”

#28 Toon Town Boomer on 06.17.11 at 10:35 pm

I say a correction of about 12% for this year and then down down dowm she goes, until pop.

#29 Steve on 06.17.11 at 10:37 pm

I am doubtful there will be any correction this year unless the BoC starts to raise interest rates. If he does, I am doubtful it will be more than an increase of 0.25%. Will this translate into a 5% ‘slowdown’ or correction? I really cannot say. All I will state is that I cannot foresee a correction at this point in time unless China also starts to have their Ponzi scheme start to unravel, which I expect will happen sooner or later as much as they are manipulating their economic situation as it is being done in North America and Europe and also Japan.

#30 2deep on 06.17.11 at 10:37 pm

2011: no general overall correction. Overall property values will hold (maybe a 3-5% erosion in certain markets that are already cooling).
Greece will default but the European crisis won’t start kicking in until Q4. That will scare Chinese investors enough that they pull back their investments (which will stop the climb in Vancouver but no crash yet).
Bottom line, in the next six months all the cards will come out on the table. People will be paralyzed temporarily.
2012: The frenzy will start by the end of Q1.

#31 garrulous squirrel on 06.17.11 at 10:39 pm

Graham………it just may be different this time….in Canada at least.

1)There are hundreds of thousands of Chinese bureaucrats and outright criminals being let into Canada with cash aplenty to launder. They don’t care what they have to pay as long as they get their cash out of China before the bullets start flying. Those bullets are still in storage as everyone from the ground up is still stealing and no one will stop it while everyone is getting rich from the national graft. Count on hundreds of thousands of new ‘millionaires’ coming to Canada as a safe haven from persecution.

2) The promise of QE3 is fading….stalling the comodity inflation that QE2 has brought with it. This has given the government time to pull more tax miracles out of it’s butt and rates won’t be moving up anytime soon. The banks and the CMHC are filling orders for new mortgages faster than a crack head can score on East Hastings.

3)The demographics of the last three to five years of FTB’s don’t bode well for the hormone driven horn toads that have moved into cat box condo’s with no room for the ‘baby’s room’. The ‘equity ‘ these sassy fat newbies have wrought will reincarnate as ‘move up cash’ and these urban twits will become suburban bumpkins in a very short time. Dr. Foote ( boom bust echo) confirmed this when he looked at the condo stock and pronounced that it was ‘functionally obsolete’ for the buying demographic.

ERGO…As long as monthly payments are low…prices will continue to escalate. As long as money floods in unchecked and untaxed there will be no restraint. As long as women want kids and realize the nest is too small they’ll bitch at their husbands to upgrade….naturally. Its a recipe for disaster…at some point………………but the end…however inevitable may be a long way off.

Sorry G-Man.

#32 Kim on 06.17.11 at 10:41 pm

The correction has already begun .. with all the ‘price reduced’ signs in Vancouver, homes listed for months, and listings increasing … by fall, hell winter this year the media ‘might’ start advertising the truth… but don’t keep your fingers crossed Graham…. just open you eyes and ears and take a look-see …make like a wolf in sheepskin… (and not the latex kind).

#33 B_rent on 06.17.11 at 10:43 pm

How much of a correction? Who the hell cares?

I rent a well appointed condo in Vancouver for $800/month less than what I’d pay to share it with the bank. I can move to a better school catchment if I feel inclined for no more than the cost of two men and a truck for 6 hours. I’ve had the dishwasher and dryer replaced at no cost to me, and I don’t have to worry about the special assessment that’s coming up for this building.

“What special assessment,” my neighbours might ask? When you power wash a wood frame and stucco building and 20 minutes later find the lower floor covered in wood bugs, you can bet your next 12 mortgage payments you’ll be hearing about a special assessment soon enough.

Oh, and good luck finding renters to live under those blue tarps.

#34 Kilt on 06.17.11 at 10:44 pm

Hey Garth.

Can you clarify the question a bit. Are we talking all of Canada? And by this year, do you mean 2011 January prices relative 2011 December prices?

Kilt

#35 not 1st on 06.17.11 at 10:45 pm

There won’t be a correction for a few years yet because the U.S. is about to enter a deep soft patch and the U.S. fed has no choice but to keep rates artificially low for some time. And since we set our economic policy in tandem with the U.S., interest rates will not rise substantially here. Also factor in the U.S. election cycle.

Since most things return to their mean value following a bubble, that means a 40-50% correction, I say in 2013.

#36 Mark on 06.17.11 at 10:45 pm

Canadian housing down 50% nominally.

The TSX Composite Index up to 50,000.

CMHC’s losses of approximately $500B will be covered off by the federal government taking in approximately $500B of capital gains taxes on a newly inflated TSX.

Canada is intrinsically a productive country with net economic output and a trade surplus with the rest of the world. A reshuffling of the cards will merely have much of the former housing ‘wealth’ transferred to the hands of bank and mining company stockholders.

Remember that nearly all at risk mortgages at Canadian banks are fully guaranteed by the CMHC for repayment at 100 cents on the dollar.

Low official policy interest rates are here to stay, as in the USA. Doesn’t mean that homeowners will be able to enjoy them though as lending shifts away from housing and towards other sectors and asset classes.

The Canadian housing market will topple simply due to lack of additional demand and more attractive investment opportunities elsewhere.

#37 Bench Warmer on 06.17.11 at 10:46 pm

I’m with Bob, I think the suckers rally has already happened in most cities . I say 12% drop by November.

#38 Bottoms_Up on 06.17.11 at 10:47 pm

No correction this year. I say 3-4% increase over 2010.

But, I do think average prices in 2012 will be lower than 2011 (the start of the ‘melt’ as Garth says).

And Graham alludes to an excellent question: what should real estate cost, on average, in Canada? I think nationally we are sitting around 5:1 ratio (price-to-family income)…should we be at 4:1? 3:1? 2:1?

#39 chris on 06.17.11 at 10:49 pm

Chris is first today.
With all this price increase insanity, why the fu#$ are the rates etill at emergency levels?
If housing costs as well fuel and grocerys are not a part of a real inflation than why not??
I think the fed wants to keep this giant bubble going because if the market implodes than people stop spending and the whole circus falls apart.
In other words, therich will get richer and the poor will get poorer,the end.

Canada therefore is not a true democracy. Chis the foreighner!!!

#40 Jon B on 06.17.11 at 10:51 pm

I say real estate prices will continue to escalate nationwide as long as interest rates stay rock bottom low. Then in about 5 years from now we’ll have another federal election. The NDP will form a majority government and adopt all sorts of protectionist laws that keep out foreign investment while raising taxes on Canadians like crazy. This will start an asset sell-off that results in RE prices dropping 75% off their highs of 2016.

#41 dutch4505 on 06.17.11 at 10:52 pm

Hello Garth

greetings from bellingham, wa We are 20 miles from the Canadian border. It is amazing how the attitude of real estate can change when crossing the imaginary 49th line. Why buy now when prices will only go down is the main attitude here. The exact opposite in Vancouver.

The correction can not be calculated using a percentage. For the USA prices have gone from 10% to 80%. A better calculation is time. Find out what your place was worth in 2002 or 2003. That will be the value of your real estate “investment” when the correction is upon Canada.

Time…not a percentage calculation. Hope this helps.

#42 brent on 06.17.11 at 10:53 pm

What magnitude of a correction do you expect this year? Or will there be one at all?

How are we going to measure it? In Canadian dollars, USA dollars, or gold?

In Canadian dollars, I expect similar to the USA crash of 2006 – 2011, about 10% per year, with the shills constantly spouting in the media that the worst is over and you should buy again. After that, there may be temporary lulls, but the price of houses will drop until our government copies the Americans and starts printing money. Then the price of houses will stabilize as the dollars you are buying them with become worth less.

If we measure in American dollars, the worlds reserve currency (for a few more years) the prices will fall a few percent this summer, and then bottom out and rise over the next few years as QEx is implemented and the American dollar continues its trend towards its intrinsic value of zero.

If we measure in gold, house prices have been dropping already, and the relative rate of increase will continue for the next 5 years (as gold continues to increase in value). Eventually the average house should be affordable with a “mere” 10 to 20 ounces (depending on your city) of the metal.

I look forward to my free copy of your book ;)

#43 Dan in Victoria on 06.17.11 at 10:56 pm

I’ve been watching the Victoria market for some time.
There are lots of small price reductions, anything that has a goofy price tag is sitting.
The quality homes that are properly priced are selling, no doubt about that.
I’ve seen that in my area.
As to a percentage by year end, very minor correction
for now.
The herd hasn’t spooked just yet, its close.
We are getting trades from up island and Vancouver down here now. Trade prices are tightening up considerably.
Just need something to spook the herd and away we go.
I’m still wondering if we are in the suckers rally right now.
I’ve never seen this before, correction should have happened, but gooseing those interest rates really knocked everything sideways.

#44 OnlyTheBankersLaugh on 06.17.11 at 10:56 pm

I agree that there will be a bubble struggle and there will be at least a couple of dips with the concentration and lack of widespread opinion in published media in Canada. I once thought that USA was sheltered but we have far more limited opinions to choose from within this fair country.

I think that we will see a significant drop initially in Van and GTA will be equally sloped on way up as the way down. Thus, 30% initial kick in nether region for Riot City Van and probably 20% in Toronto by end of 2012. Mini recovery in 2013 by realtor media blitz. However, once sentiment changes and it becomes clear that “we’re not different” and the Canadian inferiority psyche kicks in, this thing will not be so much as a melt as the USA as a nuclear situation where it drops twice as fast once they realize that Canada has similar characteristics to USA situation. That’s what I have but I should probably have drank another bottle of red like Smokin Man before responding. Can’t wait to see his prediction!

#45 Kim on 06.17.11 at 10:58 pm

I`ll go out on a limb … since everyone is talking about the interest rates increasing when my friends husband lost his job five months ago and they want to sell yesterday. So I would say .. job loss .. gas price…retirment funds mmmmmmmmm screw it!!! 20% down in december! … then 50% in 2012!! … another 30% in 2013 and on…and on …

Look at Pheonix. No water and too hot in comparison to Vancouver: Tons of water and Never Too HOT. LOL!!!! YVR and PHX sister cities … sister bomb`shells.
So there!(:
Only one thing left to say… Garth will you please personalize the autograph part. Thanks!! Your the best! xxo

#46 Lisa on 06.17.11 at 10:58 pm

I believe this summer things will get very weird; small, yet building, shock waves of global bad news and the global financial picture will finally start to nauseate in denial Canadians. By the cooler weather of October, the real rumbling will have started; Europe currency crisis and the U.S. talking the big “D” word. Harper will throw us under the bus by then too with some unpleasant Surprise! which will set the tone for Canada’s near future. As winter begins, Canadians start popping Gravol like crazy…the writing is on the wall, hard to ignore. Many will hang on for as long as possible but people will be nervous. Prices for homes will correct by 5-8%.
Spring of 2012 will be very strange, will begin hopeful as usual but be eerily quiet. Mid-Spring, prices notch down another 3-5% but still low activity. Dead summer. By fall 2012, we’re off the cliff, sailing down. Not a free fall, but a steady sinking in prices and activity as the new atmosphere reaches critical mass. By 2013, we’ll see 25-30% off home prices.
P.S. One final note: I really don’t get Vancouverites…plastering sticky love notes all over cop cars? Last year’s G20 in Toronto barely saw any trouble compared to their hockey tantrum and we got beat up and falsely arrested by the cops. Just so ironic.

#47 B on 06.17.11 at 10:59 pm

best headline in news ever: Boehner says Weiner should step down lol

#48 xyz on 06.17.11 at 11:00 pm

I’m going for around 75% short term (by 2015) 45% long-term (lets say by 2025) and here is why:

Based on the ‘avg’ sfh in Greater Vancouver going for approx 800K-900K you would have to pull in $144324 a year just to qualify for a mortgage, and that is if you managed to save 20% for a down payment, never mind all the other fees and taxes.

The majority of the population does not make that kind of money, period. The avg household income is said to be in the 56K or so neighborhood which with 20% down you could buy a 250K home… still just under 5 times your income.

This 75% in my opinion will be an over correction after 70% of the city is wiped out, it will eventually climb back up to the $350-450K range as people manage to repair credit and the government immigrates greater fools into to the city. How long that will take is anyones guess.

#49 Devore on 06.17.11 at 11:00 pm

#7 MikeT

Look at the US – NYC, LA, Seattle didn’t fall as much.

Seattle most certainly fell off its pedestal. Seattle is down more than the national average. Check your Case Shiller graphs.

#50 TM on 06.17.11 at 11:01 pm

I am reading this fourm since last on and half year. It is being said that reale estate market is in buble and hence one shoud avoid buying a house at the moment. Hence, I did not. But the house prices are still going higher and higher. I do not who is a greater fool.

#51 phinny on 06.17.11 at 11:02 pm

In Edmonton, the heart of all that Oil Sands hulla-ballooh, we’re watching housing prices fall quite a few hundred dollars a month.

My oil-y colleagues, we late-twenty somethings and early-thiry-somethings are just watching prices fall. We’re split- between those who bought and are kicking themselves at not having bought last month, or this month, or two months from now- and those that honestly don’t care.

Really, what the hell is wrong with renting. An undisclosed amount of disposal can build a helluva diversified portfolio.

I’m thinking that, given Canadian median household arond 55000, then sustainably the housing market should average 165000, which is approximately 44% of the 370000 average household. Which means, over the next few years, given incomes will rise somewhat, housing should decline about 50-ish percent.

Ouch.

Now as insane as that sounds, is it anymore insane than Pets.com, Nortel, LinkedIn, the bloody dutch tulips or the American Housing Market, the future of gold, the past of silver, Tickle-me-elmos and Cabbage Patch Kids.

Je pense not.

#52 westopia on 06.17.11 at 11:02 pm

New images of China’s ‘ghost cities’. There’s something missing in these photos:

http://www.businessinsider.com/chinese-ghost-cities-2011-5

This can’t end well.

#53 Johnny Mac on 06.17.11 at 11:03 pm

I predict a 15-20% decline in the Vancouver area and about a 10% drop in the GTA (some areas more) by the end of next year. This will be followed by several years of stagnancy caused by the onset of a higher interest rate environment (both short term and long term rates but for different reasons). The resiliency of the Canadian real estate market has surprised me but I suspect we’re at the very late stages of a prolonged bull-run. That being said a reversal in prices still needs a catalyst, with a wildcard x-factor being a slowdown in the Chinese economy. An interesting time to be on the sidelines….

#54 nich'a covayu on 06.17.11 at 11:04 pm

Vancouver – no more bidding contests, prices stationary, ready to tilt a little after the riot. Fraser Valley- going down some this year following the interior
of bc. The further away from Vancouver the greater the dip in BC except far north in Fort ST. John will be more stable. No clue what is happening in the rest of Canada.

#55 Raincouver on 06.17.11 at 11:04 pm

I think we are going to slowly burn down kinda like the riots, you will see smoke then fire then utter chaos. IF people in China want a safe place full of burning cars and broken glass a perfect place to come. When Spec houses come onto the market and since most likely within the same neighbourhood competition could get fierce, the more houses one person has the more likely he is going to try to get rid of it to try to realize the profit. Kinda like two gas stations across the street from each other, competing for the same customers. This economy is going to die. There used to be real jobs here in Vancouver, manufacturing ones paid 25 plus an hour. Our future will be Michigan’s , take away manufacturing add in walmart, mcdonalds, wendy’s ,and some strip malls. Service industry can not support this level. There is no such thing as profit, your profit is really someone elses debt. If you added every persons yearly income in the lowermainland, and compared it against the mortgages per year can anyone actually afford 600k houses or really want to? HAM buys a property, and doesn’t live here, what does it really contribute. For ex if a someone won the lottery, in your town, didn’t build a business and saves it or buys a tv, toys, car etc, that doesn’t help anybody here because we don’t make the cars, toys or TVs, they are made somewhere else so they are helping the areas they are actually made. The only way to support this level , is to export products that we produce at insanely high prices and pay workers a really high like LSD tripping balls high wage and hope other people are willing to buy it. Considering we are building 2 condos/apt/or houses for each person i say we are in for a 60 percent olympic sized torching.

#56 cendrine on 06.17.11 at 11:05 pm

I’d like to give this a try. I have no financial background whatsoever.

There might be a flattening of RE sales this winter and next spring brought about by another financial crisis this autumn (see GEAB June 16, 2011). Financial uncertainty will be exacerbated by rising food and fuel prices, tanking economies around the world, increasing unemployment and spreading violence in the Middle East. We may be witnessing the prodromal symptoms of another world war (see Generational Dynamics June 17, 2011).

To avoid deflation (caused by decreasing money supply, diminished credit and deleveraging), the BOC may be required to raise interest rates by the winter and then again in spring which will dampen demand for housing. Rising commodities may support RE in some markets for a while and a suckers rally may come about in late spring if the stock markets appear to improve from their nadir in fall 2011 and governments appear helpful in the form of new bailouts. The question is…will they have any more capacity to supply the money needed given the level of debt they find themselves holding?

The most sensitive groups to these changes will be the over extended (perhaps first time) homebuyers who bought in the last 4-5 years and bought lower end RE. They will be the first to capitulate. See increased listings and falling prices summer 2012 to 2014 in this group.

The wrinkly Boomers, the first wave turning 65 in 2012, will not automatically bail on their birthdays. Reasons for moving into all on floor/no maintenance type residences would include increasing disability, widowhood, desire to be closer to family and expense. The savvier Boomers may have already sold and invested their profits but others, as they become aware of the depressant effect of a double dip recession, will list over the next four years. They will find slowing sales for their McMansions and reduce prices to attract buyers.
Expect 5 – 10% reductions over the next 3 years. Eventually see total 30 – 35% over the next 8 years.
Add 10% reduction in price in the event of war…families tend to consolidate in wartime, reducing the demand for housing.

What do you think? I probably just made a case for really, really NEEDING your book!

#57 vyw on 06.17.11 at 11:05 pm

In Vancouver: another 30% to the upside; followed by 30% correction. Avg price $900K => $1.2 mil => $800K.
The timeline is another 9 months of rising avg prices followed by 2 years to bottom out. Prices may decline further if BoC raises rates beyond 5% prime (to curb inflation).

#58 bluenoser on 06.17.11 at 11:06 pm

I think the correction will be different across the country, with the larger centers falling the furthest. Could hit 30% over the next few years in places like TO and perhaps more in Vancouver.

I live in a rural area, and real estate values are different here. We have steady employment and a strong rental market. Real estate values have peaked about 2006-07 (after rising about 30-40% between 2004 to 2006). Housing got to a point where most families could not afford it, and never recovered. Housing values have declined about 10% over the last three years, and not much is currently selling.

So, expect a number of years of falling prices (probably about 10% over a couple years) followed by sharper decreases three to five years from now as those who can hold out, do so for a few years before they have to sell. Doesn’t look good.

#59 American Werewolf on 06.17.11 at 11:07 pm

Garth,

Frankly, thats a complicated question. The answer really is: it depends. And then, it depends even more so. Not only will the fair market value of housing slowly deride 25-50% in various locales, bank-owned bargains will be able to be picked up at 25 cents on the dollar occasionally. There will be two distinct sets of inventory, with the clearance inventory tugging down the normal listings and offering inconsistent “steals” (thereby, undermining confidence in the sector for a long term by any buyers who hold out for the “steals”).

There is no easy answer that can be summed up by a finite number. In many places, it will be a slaughter that facilitates the largest transfer of wealth Canada has seen in decades. On average, I would put the number far north of 30%, and that’s just a number that cannot hope to quantify the pain it will accompany.

Plunging price alone isn’t the darkest shadow that will hang over the land, but also long-term stagflation from a gutted housing/construction/resale/remodel/improvement/lumber/etc industry. Paired with China’s eventually slip in momentum and the next tech-bubble crash (forming as we speak), we could see two fairly depressing decades ahead where no one can buy and no one can retire (due to tight credit, no jobs, austerity, and an uncertain economy). No, we may not be eating canned beans every night and moving our Okie trucks up to the oil patches, but we will be eating whatever Ma prefers when we emerge from her basement.

I can’t put a number on it Garth–but I can guarantee its going to suck and its going to bring a whole lotta pain

#60 NFN_NLN on 06.17.11 at 11:09 pm

It’s the source of HAM wealth:

Chinese officials stole $120 billion, fled mainly to US

It said the officials smuggled about 800 billion yuan into the US, Australia, Canada and Holland through offshore bank accounts or investments, like property or collectables.

http://www.bbc.co.uk/news/world-asia-pacific-13813688

#61 john on 06.17.11 at 11:09 pm

House prices may experience a sustained correction, unevenly across Canada for the next 8-10 years starting end of this year.

Canada – 20%-30%
Vancouver – 25%-40%
Toronto – 15%-25%
Rest of the major cities – 15%-20%

But prices may go down an additional 5%-10%, if US house prices experience a further correction of 10%-15%.

No growth = no jobs. Inflation or deflation…does not matter.

#62 nonplused on 06.17.11 at 11:13 pm

Are we supposed to call the crash part or the total correction?

I like this chart for thinking about prices.

http://www.chpc.biz/Major_Cities_Chart.htm

Of course technical analysis can’t tell you much about timing or the ultimate price on the way up, but it can tell you something about price targets especially on the way down. So let me get out my ruler and draw some lines….

The price run in Vancouver has been almost as inexplicable as the riots, but it will leave some strength in the correction target. There is initial support at $800,000. It’s never been tested, but I think it will hold for a bit making the initial correction about 10%. After a brief rise, that will fall and we will test $650,000, which has good support. That’s about 25-30% down from today. If that doesn’t hold, $500,000 is my call, about 40% down, and there should be good fundamental support at that level too (people can afford to buy).

Calgary has been floating along for a couple years in a bounded range, so an upside breakout is unlikely. The Ottawa line is actually pretty close to where my ruler lands so $325,000 might be a good estimate, or about 20%.

Toronto should drop down to about where Calgary is now, and that would be around 15%.

Edmonton has been range trading lower and when that breaks it should drop down to about where Montreal is now, but that’s a stunning 33% drop in an already weak market.

Ottawa and Montreal haven’t had a bubble. In Montreal it’s hard to make a case from the graph that there will be a decline at all. In Ottawa, prices are at the high end of the trend, so 5-10% might come off, but not more.

How this all works out to a national average I am not sure. A house that sells in Vancouver, burnt out by the riots or not, means a lot more to the average than one that sells in Ottawa.

I’ll take an e-version of your book Garth. We are all digital here now and don’t know what Canada Post is for besides distributing flyers, which we use to start fires. We don’t read them. Not riot fires by the way, but in the 2 fireplaces and the pit in the back yard of my rental, and when camping. Lighter’s fluid alone won’t get a wet pit going, so thank doG for all the Canada Post this year!

#63 Debtfree on 06.17.11 at 11:18 pm

I’d love to win the book but this question is loaded and you can not generalize . The country is as diversified as my portfolio .
I’m no rein head but Don has a very good point and that is the goldmine score card . The main point is increases in employment and changes in transportation . It’s about being at the right place at the right time. If you want to win .
I agree that van ,vanisle are toast as we are awash in them running for the north . Many of the sitting in holiday trailers on freshly cleared lots with brand new equipment bragging about how much they got for their crackshacks .
Picking a % forget about it .. I’ll just buy your next book . Thanks for all the info Garth and dogs

#64 LS on 06.17.11 at 11:18 pm

I can only speak to Vancouver.

I think a minimum 30% correction. Most likely closer to 40%. I don’t think that getting to 50% or close is out of the realm.

It can’t be normal for decent houses, even on the West side, to be selling for $3 million. I am not talking water views, or particularly special, I am talking about brand new, 3,600 sq feet homes on 50 by 122 foot lots.

http://tinyurl.com/3c5vv48

Actually this house is 26 years old and not too pretty. A few months ago the brand new ones were $3 million. A year or two ago they were $2 million. How can anywhere near this hold?

Even two well paid professionals making $500,000 a year between the two of them, at $2 million and up, that’s too expensive. I know many well paid executives; for the most part they only live on the west side if they bought a long while back. 2002 – 2006 time frame.

Seattle’s dropped about 30% so far, and I think San Fran is approximately the same. I don’t know if either city went up as much as Vancouver did, definitely Seattle did not. I base part of my prediction on how those two cities held, or, more aptly, did not. And they aren’t done either.

Vancouver will never be cheap, it’s never been… but there is going to be some serious pain here. Even on the West side and other desirable areas.

I also think you have to give it a couple more good years to see where things are heading. At least. In 5 years we’ll know exactly where the price should be.

Don’t forget early 2009, nothing in my ‘hood, Arbutus was selling. And the prices took a good nose dive. I’ve heard it was 15% in 6 months. The correction party was just getting started when it all took back off again, to infinity and beyond.

Lately I see the press comparing the US to Japan. This is what I have been thinking will happen in North America and Europe. The general public wiped out, they are suffering, still loads of bad assets on balance sheets of companies that they don’t know what to do with, as they melt away. This does not correct itself overnight, low interest rates or not. These economies will be volatile for years to come and I don’t know if they will ever return to steady growth. How do you have a consumer led recovery with no consumer?

Cdn banks are having problems writing mortgages and giving credit. I wonder why? Because everyone who remotely qualifies already has one.

Why are banks selling their credit card businesses? Writing is on the wall there as well, there is not much more business to originate and worry about what’s sitting on the books…

How anyone thinks that Canada and esp Vancouver can escape the same fate is really not paying any attention whatsoever. I think this is astonishing as we have a virtual road map right below us as to what awaits in some fashion or another. And… that would be most of the general public that has no clue. Because, heh, somehow Canada is special.

The only thing Canada has going for it now, is its natural resources. Of course there will be less demand for them, but here will always be demand. We have something the rest of the world needs.

#65 UVZ on 06.17.11 at 11:23 pm

Here is an idea:

P2 = 2011 rational average price, comparable assets
P1 = 2001 historical average price, comparable assets

P2 = P1 x (1 + adjusted inflation rate)^10

According to the BoC the official annual inflation rate from 2001 to 2011 is around 2%. Let’s go with that since incomes are generally based on this number, whether or not the rate makes sense in realistic experience. Add 1% for conservatism, increased demand for finite land, new immigration — granted that new construction somewhat offsets these factors.

For a $1 property in 2001:

P2 = $1 x (1 + 3%)^10 = $1.34 in 2011.

Now if your current market pricing is $2 (meaning that properties have doubled in price since 2001) the adjustment would be 33%. That’s one-third shaved off the current market price.

I don’t think it would happen immediately as the sellers would resist. Prices would drop over a couple of years and then languish for many years, possibly a decade. Also there could be ‘bear trap’ types of rallies as prices slide.

This doesn’t mean once the dive starts there wouldn’t be deals at 30%+ off the asking price. You just have to find them and stand your ground. Don’t give in to virgin impulses.

#66 JohnnyBGood on 06.17.11 at 11:24 pm

My Predictions:

Just as Vancouver becomes internationally recognized as a world-crass city, houses will suddenly decline by 90 feet (thanks to the “big one” that hits the west coast on October 1, 2011).

Houses in Saskatoon will relentlessly appreciate 50% in six months, then suddenly crash once the population collectively declares, “Why the heck are we even here anyway?”

The GTA will be over run by HIM (Hot Indian Money). Home prices in the 416 will not change much, but houses in Brampton and Mississauga will triple by year’s end.

Trailer homes in Nova Scotia will increase in value by at least a 2-4.

Montreal will decline by another 10%. Not the houses, just life in general.

#67 CAMERON MUIR on 06.17.11 at 11:26 pm

When the Vancouver real estate bubble pops prices will actually, surprisingly, rise 2.1%.
Ask your Realtor (TM) if now is a good time to buy.

#68 Brad in Cowtown on 06.17.11 at 11:27 pm

Perception is everything. And the majority of people still perceive real estate to be an excellent investment today. Until that perception changes (and it won’t change this year) there will be no correction. Worst case scenario, the major markets go sideways for a few years with 0-2% per annum price gains.

#69 Hovering on 06.17.11 at 11:32 pm

i”ll take a stab Garth,

i predict 20 to 25 % drop in RE prices across the land. On average, of course. It will range from a massive 50% fall in Van to some increase in house prices in bizarre unpredictable out of the way locations.

Sadly, it will be a long slow melt a la japan \usa.

this may take 10 years

#70 Professor on 06.17.11 at 11:32 pm

My prediction for Vancouver is to lose 70% of today’s 1.2million over the next 15 years, but it could take another 1-2 years to begin.

#71 Canada housing ponzi on 06.17.11 at 11:32 pm

sorry garrulous squirrel

As the stockmarket crashes and people start to lose their jobs ie RIM the snowball effect will happen. Canadians are maxed out on credit and they have stopped spending. Well not exactly they just have NO MORE CREDIT left. As people spend less more and more lay-offs will happen. The excess needs to be flushed out of the system. In Canada’s case you have HUNDREDS of THOUSANDS of excess homes and condo’s with “owners” who should never have gotten a mortgage JUST LIKE THE AMERICANS. In fact Canada’s housing bubble is BIGGER and much WORSE then the US housing bubble. CHMC will be bankrupt and Canada will have to sell it’s assets to private interest. Much like what they want to do to Greece. The CON government has sold Canada out(wait and see when they change the rules). Housing will fall 60-80% when all is said and done JUST LIKE THE US. You think it’s can’t happen? If I said Nortel would be worthless in 2000 how many would laugh and call me crazy? think about that you dreamer soon to be out of work realtors who helped distory Canada. 2008 is back in 2011 only this time the government have to let the FREE MARKETS do it’s thing. Look out below its going to get ugly.

#72 Cookie Monster on 06.17.11 at 11:34 pm

Real estate today is like game seven in Vancouver. It’s the end of the third with 2 minutes left, real estate’s down 3 nothing and looking to pull their goalie, the fans are awestruck and speechless. This can’t be happening.

By the end of 2011 Canadians will realize their houses are bleeding them dry, between their mortgage payments, rising interest rates, day to day costs going through the roof due to inflation, more bad news from the US and EU, the Bernanke announces QE3 even though it never really stopped…. the game is over. Bond markets erupt and interest rates spick, the crowd exits the Rogers center to find cars in flames and a night of mayhem. What a nightmare, is it real? Oh Yeah. What’s happening?

Utterly Stunned! October hits and the Ontario conservatives win. Home prices are flat lined while some markets lose 10%. The end is nigh.

2012, unemployment is rising and the conservative governments are cutting, private sector jobs are fading as the rust belt grows and the cancer from Niagara to London to Windsor spreads East. Stelco succumbs as GM Oshawa loses the Impala. Canadian home prices drop by an average of 10%, while Vancouver and the GTA drop 25% and 15% respectively.

2013-2020 slow melt for 7 years, no dead cat bounce. US debt defaults ensue and the great depression part deux is on. Nuclear war breaks out in 2021-2025 and we all end up dying of cancer by 2050 when the human race is finally extinct.

So buy when ever you want and live for today!
Que Sera Sera.

#73 Calgaryillusion on 06.17.11 at 11:38 pm

No, I’m not Asian but housing will descend “8” percent this year

#74 Jay on 06.17.11 at 11:39 pm

Hello Harry in Saskatoon.
– incomes went up? …50%??
– I know many recent buyers with very little cash down(myself included back in 2008)
– I know many buyers who will not be able to afford any increase when they renew their mortgage in 3 to 5 years ( me again 3 years ago)
– I know the average family income will not allow that family to comfortably purchase the average priced home (me again)
…by the way I rent now and will offer you far below the asking price when you try to liquidate in 3 years.
“Let’s not get carried away in Saskatoon,” o wait it’s too late

#75 Thirty something on 06.17.11 at 11:39 pm

No idea! I have been wrong for so long now it barely matters to me any more.

But I would say that the Self Entitlement Disorder seems to be reaching epic proportions, say 99.9% of Canadians.

#76 God on 06.17.11 at 11:40 pm

I know..but I’m not telling

PS I do have a short position though re: Satan and Goldman Sachs.

#77 Priced Out in Toronto on 06.17.11 at 11:42 pm

You want to know when the correction begins in earnest? None of this 1 to 10% initial slow decline stuff?
Keep your eyes on China.
Commodities and houses are all in bubble territory due to their influence. They’re a huge crutch to all industries in Canada.
When their bubbles are allowed to deflate (or burst as the case may be), so will ours.
Borrowing there to invest here is very common from what I understand. However, their government is already starting their interest rate hikes.
The icing on the cake will be our interest rate hikes. Then watch the fireworks.

#78 nuke on 06.17.11 at 11:43 pm

I expect that Garth will keep sending us clues not only as to when the overall correction will begin, but also where, and by how much.

Judging by his frequency of posts, and those specific posts on this precise subject, it’s soon (i.e 12 months from now), it’s nearby (cottages for ON, Okanagan for BC), and it’s a mild 4-6% decline YoY nationally (at first, then we’re in the unknown 2013 onward).

PS this contest is a setup! The whole nature of it is pure speculation, and we all know Garth hates the S word.

#79 Joseph [original] on 06.17.11 at 11:43 pm

Brilliant Answer #1: Nobody really knows.

#80 itanic on 06.17.11 at 11:46 pm

It goes without saying that any answer will be purely speculative, but I’ll bite. Firstly, as Graham is specifically interested in Vancouver, which is also where I happen to live and be from, I’ll limit the scope to that city. Now, in the very worst case scenario (or best depending on how you look at it), I could see property value in Vancouver i dropping to 2.5x average income as the absolute floor. I’d presume this would approximately be the point where the cost of owning, after taking into account the opportunity cost of a down payment, would equal the cost of renting.

Now, there are some mitigating factors that need to be accounted for.
1) Historically, I believe Vancouver house prices have been a bit stronger than the historical average of 3.0-3.5x income.
2) Although the effects on house prices have been greatly exaggerated, there have always been a fair number of wealthy foreign owners, speculative bubble of mainland Chinese aside.
3) Vancouver may not be the ‘best place on earth’, but it sure beats the socks off of most other places in Western Canada. Few people I meet are actually born and raised here. As such, there is some degree of talent draw from other places. Sooner or later, the results of this additional talent should result in some growth of industry, which would eventually lead to higher average income.
4) As the drop or melt in housing prices will be over a long period of time, there will be some noticeable effects of inflation before we reach the lowest point.

On the other hand, there are some factors that will exacerbate the drop in prices.
1) As Garth has mentioned many times, the retiring baby boomer population will result in a glut of supply in housing, as they are forced to cash in for retirement income.
2) With the effects of globalization, and a looming potential global recession, we may see lower employment levels in the coming years
3) The price of oil can only really go up in the long term, which means increased transportation costs, and therefore higher cost foods as well. As such, the historical recommended 1/3rd of incoming going towards housing costs may drop somewhat, possibly to ¼ or even perhaps less.

Presuming all the mitigating factors come into play with none of the exacerbating factors having an effect, I’d guesstimate the best case scenario would be housing prices dropping to 7x average income, as the absolute ceiling.

Thus, for some lazy math, the median puts us at about 4.75x income, which results in about a 58% reduction of today’s housing prices.

#81 Jed on 06.17.11 at 11:46 pm

Like waterlogged land on ahillside in the monsoon season, once land prices start to slide they build momentum. I predict a 20 to 30% correction from early 2012 through late 2013. After this, prices will continue to slide slowly for the foreseeable future. Everyone will be then thinking real estate is a bad investment and the bubble will move elsewhere. In total, by 2015 to 2017 I see at least a 50% correction; more in some areas. Once real estate starts to tank, the huge portion of Canada’s economy tied to real estate also starts to tank and the land-slide momentum increases. I think China is another thing to watch–once the Chinese government decides that 120 billion is worth more that lax enforcement and they go after all their escapees siphoning money into homes in other countries, Vancouver and the GT0 will have a different myth to tell. On top of this China’s real estate bubble and whole shadowy economic house of cards could correct, changing the myth about resources and oil could begin a retreat, also affecting Canada. Hang on to your shorts; it’s going to be a wild ride. Canada, as a holdout, may be more severe than the US as the US starts some recovery we will head downhill.

#82 Desi on 06.17.11 at 11:47 pm

The Amazingly Accurate Predictions of Ron Paul

http://www.youtube.com/watch?v=8jCOQYVaxwE

#83 Nostradamus Le Mad Vlad on 06.17.11 at 11:48 pm


Across the country, any figure between 33 1/3% and 67 2/3% over the next 48 – 72 months, with a full complement of washed-up, has-been Not-So Full Monty Muppets thrown in for good measure :-D !
*
Another plant, 360 miles south of Fukushima is playing around; Fort Calhoun Rising water. Where is the bout, paid-for and controlled m$m in all this? Monsanto GMOs in wildlife refuges, and 0:41 clip Earless rabbits.

Tug of War Between the Euro and the US$; The Tipping Point was Bilderberg 2011; China bailed out Greece but is concerned about the Eurozone; DSK — Euro infighting without him; chances are good this was deliberate take-out, not a crime; Spain One and Spain Two; UK Peasants; UK Dictatorship Just like NAmerica; Ireland’s snazzy but empty cottages.

The Toilet Are these the same xpurtz who said Bre-X and Nortel were good buys at the top of their cycle? China Boosting coastal forces. Sounds reasonable; New clip of Mercury (1:51), but sound doesn’t seem to work; Dry Spring? In Europe, maybe but not here — there is an over-abundance of rain and cool temps; Psy-ops and Cyber Ops NAmerica’s govts. run on secrecy.

Invasion May have something to do with the 34 US warships that set sail last fall; Three clips While everyone’s attention is focused on PIIGS and other countries, the US hopes we don’t notice the invasion of Libya, and that WW3 may commence; Derivatives Alan Greenspan and Ayn Rand; Links in. It’s gonna get ugly, and not only in RE.

#84 Jesse on 06.17.11 at 11:50 pm

It’s impossible to know exactly where the bottom will be, but there are a lot of reasons to believe it could be very low, especially if we end up in a serious depression. And of course the severity will depend on your location. But expect to see perhaps 50, 70, maybe 80% or worse.

With that sort of risk, you really shouldn’t own anything you won’t want to keep for a very long time.

#85 Siddelly on 06.17.11 at 11:57 pm

After giving it a little bit of Deep Thought , I am thinking the answer has to be 42. The only problem is that it may take 7.5 million years to compute and check this answer so be patient fellow bloggers… Garth….Garth….

DON’T PANIC !

#86 Chris on 06.18.11 at 12:01 am

I predict that the correction will vary from market to market, but that in most cases it will bring prices back to the mean that you see when you look at a site like the Terranet housing index.

The time of the correction will vary too, as will the segment (single family home, condo, etc).

In Calgary, the correction has already started and prices are back to 2006 levels for condos. In Vancouver and Toronto, the magnitude of the correction will be determined by how much prices have over shot the mean (and how much they need to go down to get back to the mean).

I also think that prices will overcorrect in the short term in most markets, but then go back to the mean…

#87 Mr. Reality on 06.18.11 at 12:09 am

If you think things are going to be fine you are a fool.

If you have not reallocated your investments into low risk diversified portfolio and put some gamble money into shorts you are a greater fool.

If you think housing prices are going to go up you are the greatest fool!

Garth – 5% correction this year forward in housing prices

30% tanking next year when we are in a full blown recession. Little financial crisis in between and renters will be fingering the specas.

It never pays to be horny, you get too many babies daddies.

Mr. R.

#88 The InvestorsFriend (Shawn Allen) on 06.18.11 at 12:12 am

Well the debacle will be proportional to the bacle that got us here.

Houses will likely lose say half of the gains they made in the last seven years. That probably works out to a 25% to 40% decline over the next five years as interest rates rise.

#89 Thetruth on 06.18.11 at 12:16 am

Perfect storm created by vested interests caused this.

Psychology+CMHC Policies+Low rates+Land Use Policies+Immigration!

1. Psychology: herd mentality, buy now or never, afraid of getting ridiculed by friends, urban myths on how someone got rich flipping, nesting syndrome forcing buyers, renters frowned upon…mainstream media!

2. CMHC Policies: 1998 no more minimum 20% down payment needed. Nine eleven. Lower rates and ‘pushing’ of variable rate mortages. Insurance valid for prices till infinity. Liar loans. Zero down. 40 year Amortz…banksters!

3. Low rates: After 2008 crisis. Purposely underestimating inflation. Look at Money supply.

4. Land Use Policies: ALR in Vancouver, encouraging multiple suites in homes via non-enforcing bylaws.

5. Immigration: 280,000 permanent residents admitted in 2010 plus equal amount of temporary workers/students whose intent is to eventually get permanent resident status. Plus 2,000,000 overseas residents that have Canadian citizenship. You can buy it, or vacation here and have your baby born here, work in a relatives business for 2 years, go to school. If you fail, just get another identification and start again.

Prediction: Vancouver and Toronto will not see a drop this year. In 2012, when US starts significantly raising rates, we will not follow. We will let our currency suffer. Gasoline and food prices will skyrocket in Canadian dollars…(THIS will be the Black Swan trigger). If C Raises rates, he will cause a slowdown that will lead to recession. If he doesn’t, prices for fuel and food will go higher…all while the government says no inflation. People will be poorer. Middle class will shrink. meaner society ahead. Don’t believe me…should have been in downtown vancouver on wednesday.

#90 Mr Buyer on 06.18.11 at 12:16 am

The Japanese bubble resulted in what some say was a 40% drop from peak values (on average, but I know of some individual cases with 70% drops which continue with small loses in value annually). The Japanese example is ‘different’ in comparison to Canada in that being a nation of savers and with a huge manufacturing base and real limits on the amount of available land there was still a large number of solvent people around able to catch the falling real estate when it reached values they thought were attractive. Some people are now saying that the sixteen year long bursting of the real estate bubble is now at an end but such is not the case in our neck of the woods. The US housing bubble burst is still in the earlier stages of the process so an average decline of 40% may be low. The US decline is ‘different’ compared to Japan in that their economy is much larger but they are not a nation of savers so there are fewer people around to catch the properties as they fall to attractive values. So we in Canada have insane housing prices across the country with a huge number of people with massive debt, high unemployment and decreasing numbers of low paying new jobs. I have no idea what the magnitude of the decrease will in fact be but if the rules of the game had not been changed and they were as I understood them to be when I was younger I would reasonably expect a decrease of much much more than 40%. I would go so far as to guess that house values return to levels lower than before the bubble but that is just a guess. I have no intention of purchasing a house at this point even though we could. Our ability to earn a living wage is in question now, never mind paying crazy prices for houses. We are a resource rich country but very few Canadians profit from our resources. Holding on to cash seems to make good sense right now. Extraordinary measures are in order presently.

#91 wes_coast on 06.18.11 at 12:21 am

I think the correction will be market dependant and the depth will be magnified by both micro and macro factors. Living in Vancouver I will tailor my response to my region. The micro-economic situation is obvious – its the frothiest market in the nation and puts the lunacy of almost any pre cash US city to shame. Multiply this with the macro-economic factors: Asia and China in specific. China fears the politcal consequences of a correction – so it has foolishly followed Japan’s example of stimulating their way out of depression with mass amounts of liquidity. China is driving our commodity boom and western Canada (like Australia) is riding high. Add to this China pushing excess liquidity out of their own housing market to stave of catastrophe and you know why Vancouver’s froth is like no other. When China pops the perfect storm will hit Vancouver. Commodity prices dropping in western Canada – foreign money pulling out – the true price of risk taking its place in the markets in the form of much higher rates – and likely higher unemployement rates. Add the chain reaction of falling prices and defaults and these factors will be greater than the sum of their parts (as were other factors on the way up). The one caveat is that we all think that a huge correction will be what we need to finally jump into the market. But by the time these things play themselves out we’ll want nothing to do with housing. It will be a whole new paradigm just as it is in the US. We all come to this blog because we are all secretly house horny but are refusing to pay the current market price to get our pleasure on. By the time this plays out – you’ll be looking at housing like you would Whoopy Goldberg naked. Value traps are repulsive even if they come with granite and stainless.

#92 sluggo on 06.18.11 at 12:24 am

Tough to quantify linearly or in absolute terms as the problems might not be in the mortgage getting paid by the end user initially but more of an issue with the layers of derivatives associated with some of the pools and participants.

Since December 2008, non-regulated financial institutions have been allowed to issue NHA MBS under the watchful eye of the CMHC and considering the CMHC is not subject to the same accounting scrutiny as that of every other Canadian reporting company, we’ll never know the toxicity in some of those MBS pools.

Another waterfall event in the money markets might expose some of the cockroaches that made it on to the balance sheet and if there are any significant counter parties at risk to such an event, that may push the RE market over the edge.

I would expect interest rates and house prices to revert to the historical mean once the financial engineering ends. Now that we’ve reached the debt saturation point, the NHA MBS experiment should be over and we should start to see how the real estate market holds up once taken off life support.

#93 Potato on 06.18.11 at 12:24 am

For this year? Too short a timeline to make a decent guess. I’d imagine that once the corner is turned, it will go faster than in the US, since we’ve seen that movie. So maybe 10% in the next 12 months for Toronto/Vancouver, and a bigger snap the year after.

But the longer-term projection should be more accurate. Toronto’s at about 200-220X rent now, and should bottom out around 125X. Assuming the other factor, rent, doesn’t go anywhere (it probably won’t), that’s a top-to-bottom correction of about 40% that I’m looking at for Toronto, over the next 5-10 years.

#94 wes_coast on 06.18.11 at 12:27 am

If timing is a criteria of winning the book – I’ll cheat and say time is relative. As we saw in Vancouver 6 games with 100,000 people in one place went fine. On the 7th game the sh*t hit the fan and did so quick. All it takes is a trigger. Greece? The US? China? Governements will do their best to stave off debt default with more debt. Like paying a mortgage with a credit card. But once the first car flips and catches fire – the riot is on and it will move swiftly. No one can time that trigger.

#95 VicHomeOwner on 06.18.11 at 12:32 am

houses in my hood have dropped 15.125% since last year soo… my guess for the drop in this year is 18.25% but that’s Victoria… so, lets caculate that at a Van factor of 2x… I say the drop will be 32.5% in Van.

#96 @crazyfasteddy on 06.18.11 at 12:35 am

real estate will do exactly what the stock market is doing right now…. slowly chew away at prices then rally every blue moon b/c of greater fools predicting a bottom then continue to erode on small volumes… thing is homes are not stocks.. we cannot see their prices listed every 15 minutes… So hard to speculate what to do… Hence the spikes in sales and prices every few months or so…but year over year; month over month, prices will erode back to where they should be: at people’s income plus inflation; which varies from region to region… the bigger the price was inflated over and above people’s affordability levels, the further it will fall… just like any other stock or commodity. When will it start? IMHO, it already has…

#97 yogi on 06.18.11 at 12:54 am

Some good points here. All ponzi schemes collapse under their own weight. There is always a tipping point.

In the current RE market that is the balance between debt, and ability to repay that debt. Debt is increasing and interest rates will slowly increase as well (servicing costs increase). Once the lines intersect you have the right atmosphere for a correction. I think that the debt to income ratio will hit about 155% and interest rates will hit about 2.5%, incomes will be flat.

It will all be sparked by another mini crash (possibly Greece). Based on the rise rate of both debt and interest rates, I think this will happen by the fall (don’t all crashes start in the fall?). Prices will fall 10-15% initially, and will return to the mean over the next 5 years – with some allowance for overshoot, so lets say 40% nationally and in places like Vancouver 50-60%. Calgary will be ~40%, and may be sooner. Stubble Jumpers tend to be a more fickle and prudent lot.

I think this blog article is a must read.

http://www.theeconomicanalyst.com/content/have-canadian-consumers-reached-their-limit-must-read-report-year

#98 cognizant on 06.18.11 at 12:56 am

I predict that real estate prices will go down 88.8%; at which point HAM will consider it a good time to buy again.

#99 Calgary boi on 06.18.11 at 12:59 am

I predict that there will be no correction this year unless…there is a catalyst that brings it down. This catalyst will be either the crumbling of the Euro or the Dollar (doesn’t matter which one would go first because if one started failing, so would the other). This would really change prceptions in Canada. People would start to panic and real estate would start to slide. The euro, USD and Can R/E are all backed by too much debt. When either of the two currencies start showing real problems….,well, there goes the suburban neighborhood.

#100 peter hawkins on 06.18.11 at 12:59 am

As for a corection I can only comment on Vancouver area as this is where I live. My guess is it will go up not down. Common understanding and economics have no value when people with no jobs and no english are running around with a huge pocket of money. To live here and see it, the silly numbers people bid for houses that are falling down, or the bank apprasier who drives by for the apprasial. It makes no sense and it wont Until money has value, real estate will go to the highest bidder and the greatest fool. Everyone is living a dream with no thought of what may lay ahead, and why should they, they have been proven right for years. Of course until they are wrong.

#101 Calgary boi on 06.18.11 at 1:00 am

I predict that there will be no correction this year unless…there is a catalyst that brings it down. This catalyst will be either the crumbling of the Euro or the Dollar (doesn’t matter which one would go first because if one started failing, so would the other). This would really change prceptions in Canada. People would start to panic and real estate would start to slide. The euro, USD and Can R/E are all backed by too much debt. When either of the two currencies start showing real problems….,well, there goes the suburban neighborhood.

#102 JSM on 06.18.11 at 1:00 am

For Vancouver I’m willing to guess that the correction will be minor (if at all) for 2011. Interest rate hikes by the BOC will be too small to be of any significance.

Interest rate hikes from world events (PIIGS) likely will have a bigger influence on mortgage rates along with inflation in China.

Feb/March of 2012 will be the start of the price decreases. By 2015/16 I think Van could see a drop anywhere from 25% from the peak (like Seattle has) up to 55% (like Las Vegas has).

I will guess Van will be down about 35% and Canada, on average, about 15% in nominal terms and about 45%/23% ish in real, inflation adjusted, terms.

My wife will want to buy a house by then but hopefully I won’t let her talk me into it.

#103 Get Real on 06.18.11 at 1:04 am

“Contest question: What magnitude of a correction do you expect this year? Or will there be one at all?”

When?

The day after I buy a house in Vancouver. (I am the quintessential “Murphy’s Law”

How much?

Enough to ruin me

#104 JIMBO on 06.18.11 at 1:04 am

As much as Vancouver is overpriced, look at San Fran, Boston, New York, they have not fallen much relative to most other cities in the US. I know it is not a direct comparison, but how many other big cities are there in Canada with a mild climate, no winters, mountains, ocean, rich Chinese…

#105 Cato on 06.18.11 at 1:08 am

Graham.

First thing to remember, Canada is not nearly as efficient at clearing out froth as the US so the bubble up here will take longer to peak and deflate. We haven’t escaped the housing calamity facing rest of western world, we’re just following a different timeline.

You don’t need a crystal ball to calculate how far prices have to fall. Just need to crack a few history books, the answers are all there. How fast we fall will hinge on whether gov’t stands back and lets the market work, or decides to step in and interfere. I’d lay my bets they’ll interfere and stretch the pain out over a generation.

If you travelled back in time to ancient Rome you’d find most Romans understood real estate rather well. Land had value, and its value was determined by the amount of income you could earn from it. A house had no value, it was a depreciating structure, simply a tool to maximize rent of the land. The rents you could charge on the land dictated the structure you would build on the land. Land values were dictated by rents, and rents were dictated by incomes of those who paid the rent.

Look throughout history you’ll find the same pattern occurring over in over again. More importantly, you’ll find the ratios between incomes,rents & land fairly constant. As incomes rose and fell, so did value of a landowners holdings.

Fast forward to the last 10 years suddenly we are being told times are different. Archaic notion of people only spending on a home what their incomes could afford was a thing of the past. Everyone should own a house, and price of a house should simply set by what a buyer was willing to pay. House prices always go up so you’re a sucker for not getting on the bandwagon. But it was all an illusion and a generation of Canadians will pay the price for falling into the debt trap.

Want to know what a house should be worth? Use the same equation an ancient Roman would use. Pretend you owned the property and had to rent it out. What do you think you’d get per month? For a house take that number, multiply it by 175 and you’ll have its value. For a condo use 125. In my hometown of Kelowna it means property prices will fall another 30-40%. But of course we are now entering a prolonged recession. If incomes start falling, so will rents and property values will sink even lower. A slow melt could turn into a vicious spiral.

At end of the day each of us has a finite period of time on this planet. Debt = slavery, and being forced to live the austere life of a slave just to own a house is no way to live.

#106 Boycott on 06.18.11 at 1:13 am

Correction is already here. If you just look at the average or the median prices, you can’t really see the correction or the true magnitude of the correction. As they say real estate is local, to the extent it applies to even a small community. There are preferred location and then other locations. During boom all locations rise but during bust the ‘other locations’ are distressed quicker due to lack of sales or extreme uptick. If you look deeper, some locations have risen and some have stayed stagnant, but many locations have corrections of already more than 20%. Many vacation properties have already dropped more than 50%. Average or median don’t reflect the reality quickly. All you got to have is patience and become a vulture. There are many in crisis, many have to move, many have already brought their next one and so on. So look out and have patience and apply the pressure. Deal with attitude like how business or mob deals and you will get your correction.

#107 Robins on 06.18.11 at 1:17 am

Inventory is not moving in Richmond in BPOE since Japan’s tsunami last March. It will hold prolly for rest of this year/early 2012. Anyone who buys there now will see more than 30% haircut by 2012/2013.
My guess is there is a significant number of specuvestors who own several properties as principal homes for themselves, their parents, their in-laws and their teenage kids.

One source put the number of Richmond condos owned by a couple living on 10th Av Vancouver at 16 units.
Go to page 1 of this link and read the OP’s comment.
http://translate.google.ca/translate?hl=en&sl=zh-CN&u=http://www.xcar.com.cn/bbs/redirect.php%3Ftid%3D14749253%26goto%3Dlastpost&ei=ojn8TdTnO4TPiAKxvPX8BA&sa=X&oi=translate&ct=result&resnum=1&ved=0CCAQ7gEwAA&prev=/search%3Fq%3D%25E5%2582%25BB%25E7%259C%25BC%25E4%25BA%2586%25E5%2590%25A7%25EF%25BC%258C%25E5%2582%25BB%25E6%2590%258F%25E7%2582%2592%25E6%2588%25BF%25E5%25AE%25A2%26hl%3Den%26client%3Dfirefox-a%26rls%3Dorg.mozilla:en-US:official%26biw%3D582%26bih%3D814%26prmd%3Divnsfd

#108 Prufrock on 06.18.11 at 1:23 am

You want brilliant or accurate?

The prosaic truth is that it will be status quo until something big happens such as China hitting the wall and/or another credit crisis. In the meantime, Carney will do nothing but jawbone because he’s backed into a corner, while F may take some limp-wristed action such as increasing the minimum down payment to 10%. this will have no effect in Van or Toronto because people are running scared from HAM into houses they can’t afford. All of this stes the clock ticking for interest rate increases.

If the powers that be are successful in kicking the can down the road, things will continue, Canadians will go deeper into debt and pressures will build. Eventually the global economy will falter (unless cold fusion is invented) and only then will TSHF. At that point there will be a crash and a sellof, with housing leading the way–not before.

#109 totalchaos on 06.18.11 at 1:25 am

Graham,

I bought a house in a Vancouver ‘burb 10 years ago for $235K. This was lot value only. Knowing the community well, I was shocked when it hit $300K, and expected a crash when it was “worth” $400K. Since then, incomes haven’t gone up much, but personal debt has. I can’t understand why it would be “worth” more than $350K. I sold almost a year ago for $635K (thanks Garth) and I doubt if I could get more than that today (thanks greaterfool) By my calculation that spells a 45% drop in price in my community.

I fully expect prices in my hood to be cut in half, which sounds like a lot until you realize most of Vancouver westside would still be over a million. In my hood, houses are small, but on the west side, all the 2 bedroom bungs have been replaced with pseudo-mansions which will become extremely expensive to run and maintain. Because of this, many 1.5 – 2 million houses today could be unwieldly white elephants tomorrow and a 60% price drop not unlikely. The families I know on the west side of Van do not have household incomes of over 200K/year, so a house should not be more than 800K.

Don’t ask me about the condo market. The leaky condo issue wasn’t resolved from 10 years ago and those places continue to be re-rainscreened and swapped like hockey cards. There has been no real changes in the building code to stop the new ones from following. You won’t be able to give them away as the repair costs will be prohibitive. It was like that 11 years ago for condos. People lost their condos as they couldn’t afford the “special assessments” of 60K or more.

As far as a time line, here’s what I think. In the Valley, it started a couple of years ago, but very slowly. Tri-Cities and New Westminster prices have dropped about 8% from a year ago. Richmond, Whiterock and Burnaby will be feeling it by fall. Maybe east Van too, but they will have lots of excuses. Vancouver west side will hit the wall in no more than a year. When that happens, the bottom will really drop out in the ‘burbs, as the shock of realestate not in a purpetual upswing will really hit home and freak out a lot of folks. And the sucking void that ensues will pull Van down quite quickly relative to the outlying areas. I expect we will have a very different market in 3 years, but it will continue to slide for many more, and then plateau for at least a decade. I figure you have a good 20 years before you need to worry about an upswing in prices.

Regards,

Totalchaos

#110 Just Jack on 06.18.11 at 1:26 am

Prices will fall to the point that you will entice a first time detached house buyer back into the marketplace. These timid rascals will want to put 20 percent down and amortize the mortgage over 15 years. They also will be conservative in only using a maximum of 25 percent of their gross income for debt servicing. So all you have to do now is plug in the income for your neighborhood.

Ouch!

#111 PLP on 06.18.11 at 1:28 am

…how do you expect a correction in Canada, if Canadian voted Harper. ..?

#112 smartalox on 06.18.11 at 1:38 am

I predict a long stagnation, twelve months at least, as rates climb, sales fall, and the pressure cooker builds. With RIM in the tank, the boomers are going to start selling out, but if nothing’s moving, prices will fall.

That’s the sucker’s rally, say 20 to 30%.

The big question is what’s going to trigger the stampede of Asian buyers to exit the market. As soon as the rumours start in China that the market is shaky, the fall will be unstoppable. The Chinese may be cash rich, but they don’t have enough experience with capitalism, to understand it has a downside. When that happens, the fall will be a further 50%, in markets heavily weighted with HAM, within one year, so that takes us to 2014, with some houses down 70 to 80% from peak values.

I hope that by then I’ll have enough savings in an income spewing portfolio to make mortgage payments for me!

#113 pablo on 06.18.11 at 1:44 am

Carney won’t be raising rates this year.
There will be no pricing correc
tion in real estate this year.
Sales will fall through the balance of the year.

and why will all this occur as I’ve foretold, well because I said so, that’s why!
jk- look the u.s. is going into the shitter big time, china will slow down this year. Europe is having a heluva time staying afloat. Unemployment will start creeping up by year end. Oil will stay at current levels if not higher. Watch for quarterly corporate earnings start missing projections in the second and third quarters.
All this setting the stage for a big clearance sale in real estate in Canada for 2012.
There you go, I said it and I win.

#114 Freedom 85 on 06.18.11 at 1:47 am

Garth,
I believe the correction will ultimately shake out along the lines of Fibonacci probably giving back approximately 61% of the gains from the top to the ultimate bottom. So if the average house ends up being $800,000, then the ultimate bottom for that house will be $305,000 when all is said and done. That should be enough to shake out the speculative fervor.

#115 Freedom 85 on 06.18.11 at 1:50 am

As a follow up to the contest question, I think the property values remain within 10% of the overall average price of this month for the remainder of the year. Next year the economic issues take front and center and we begin to see the prices drain….

#116 poco on 06.18.11 at 1:53 am

#3–#15–#17–#23–#24–#25–#26–#29–#30–#31-no autographed book for you
don’t you read or believe any of the posts from many here who tell of dropping prices and lack of sales in places such as kelowna and area–van Island –lower mainland outside delusional Vancouver–come on people, you’ve got to do a little homework to know whats going on
remember percentages are not to be relied upon–a few sales of high end homes can screw things badly–look at Vancouver stats-up what? 27+ % since the downturn in 2008–sounds great but in those stats the burbs of the tri cities — bby–new west are included in those numbers–sounds like we’re all up 27+%–trust me we’re not

if you haven’t seen the true numbers from a few months ago watch this –they haven’t gotten any better

http://www.youtube.com/watch?v=q3qK1AI5bmo

PS: half of you sound like a realtor i know

#117 not asian on 06.18.11 at 2:12 am

The fall will be similar to RIM shares. It will tank once the majority figures out that Van and TO are overpriced and over-rated. The decline will begin this year, but will slowly escalate for the next 3 years. Please refer to the stock charts for RIM starting in 2007.

#118 confused and a little crazed on 06.18.11 at 2:16 am

ok,,here is my ticket in:

maybe 5 % off peak. i guess that is may 2011 before the end of dec 31 2011. because March – june are the business house openings. Aug is more like vacation time. This is also dependant on interest rate hikes from Carney

then a very slow melt down another 20 % thru 4 years
totalling about 25 % about 2006 prices
ie Van east home $720 k down to $550k- $580 K still incredibly expensive

I do notice our cost of living just seems to get higher and higher …with a little reprieve in gas prices now

#119 Rafa on 06.18.11 at 2:19 am

I think there will be a minor “correction”, once sales go down to the point where sellers get more desperate, and prices drop say 10-15%, two things will happens:
1.- Sellers will refuse to lose more and will hold strong.
2.- Then buyers will get excited and start buying again.
If there is a price drop of even more than 15% then people will cry and try to murder people at the parliament, then they will get nervous and keep rates super low for a while more (maybe rates will raise but then they will drop like flies again). So with “better” prices and “better” rates, buyers will get even more excited…then everything starts all over again.
One thing is sure, my salary won’t go up much, i can see that for sure, but i dont have to worry zero down and a comeback of the 35 yrs mortgage will save me XD.
Oh and i forgot to mention that the only happy people will be the banks, the government loves to spoil them with things like CMHC (which sounds like other countries where banks and big companies get richer favored by the government).
The End.

#120 Signpost in the bushes on 06.18.11 at 2:20 am

Just imagine, for a moment, what would happen to home prices if all buyers refused to buy with borrowed money, preferring instead to save up to buy with their own money.

#121 debtified on 06.18.11 at 2:23 am

I expect the magnitude of the correction to be inversely proportional to the magnitude of the balls that the BoC governor finally grow.

#122 George on 06.18.11 at 2:43 am

I don’t see interest rates going up this year, Carney can’t or is unwilling to pull the trigger, he just seems to like to talk about it a lot.

#123 obert on 06.18.11 at 2:45 am

Prices will fall by 30 % this year as compares to Jan 1st, 2011.
Once the drop of 10% happens the panic starts with more and more negative forcasts in the main media and the current owners will try to catch the profits they accumulated within the last 5 years. There may be a bears’ trap for month or two but it will not stop the ultimate drop. In the spring next year possibly some consolidation with a 10-15% drop, and another steep drop in late 2012. We will likely equlibrate with the USA prices within 4 to 5 years.

#124 Neil on 06.18.11 at 2:47 am

At this point I am not expecting a major correction this year. Maybe around 5% towards the end of summer and into the fall. Overall though, I’d say prices need to drop by a fair margin. A $200,000 mortgage at 6% has got to be about the most for an average income family to be comfortable with, so given the likelyhood of only 10% down I’d say the average price needs to get to $220,000 – I think that means about a 30-40% drop overall. I also agree though that people won’t stop borrowing until they can’t, so interest rate levels are a big part of the puzzle.

#125 UK lurker on 06.18.11 at 3:00 am

Anyone who thinks 0.25-1.00% will have a serious effect on the market are wrong. It needs major external events. IMO it’s all about China and the global economy. When (not if) all the effects of the global QE experiment wear off, probably very soon, and in Europe and the US, now, then Oil will start to go seriously into reverse, stock markets will take another big hit, and China’s property bubble and the commodities bubble will implode. That will knock Canada’s confidence and currency. I think we are right in the middle of that happening at the moment, and I suspect by the end of the summer Oil will be heading below $80.

The last time this happened the hot markets in canada went into reverse pretty fast, we could see 10-15% falls in Vancouver and the GTA by next spring. I don’t think there will be a suckers rally either as the global outlook will be far too gloomy for another couple of years. I would expect to see parts of Vancouver to drop 40-60% (they are effectively an Asian market now, and you see those kinds of falls as Asians are herd investors). The same goes for the GTA condo market.

Outside of the big metro areas I would expect to see a steady decline of 10-20% over the next 2-3 years, but at some point a recovery will set in, and Canada will be the first country to feel the effects due to its commodities, so I would expect prices to stabilise and then begin climbing again towards the middle and end of the decade.

#126 Eileen on 06.18.11 at 3:14 am

I have no expectations or hopes at this point as I continue to be dismayed and dumbfounded by the Toronto housing market. All I know is it’s unsustainable. But just wanted to say this post was especially humorous. The at-risk group descriptions were so apt and bang-on, it evoked immediately funny images in my mind’s eye and much laughter. I have no apologies for laughing, as I’m not a boomer… and have always been disadvantaged by the boomers massive consumption of everything and leaving a general wasteland in it’s wake… thus, I have no sympathy for the greed of boomers.

#127 Hosehead on 06.18.11 at 3:14 am

Hi Garth – Here is my prediction for the housing correction: A repeat of the 2008-2009 shock with a 15% or so drop in the fall of 2011 with the most bubbly, like Vancouver, dropping as much as 20%. Then I think there will be a levelling off period followed by a multi-year melt as you call it with sales figures fairly flat and prices holding or dropping a little. Vancouver entry level SFH will still be an unaffordable 600-700K and 2 BDRM condos still 400 – 500K. I think 2015 is going to be the real date for the reckoning when the tides will turn. This is because many of those who bought in 2010 with 5 year closed mortgages will be up for renewal at a much higher rate and the values of their homes no higher than when they bought. The job market is also going to be bleak for those graduating in the next 5 years taking away the next crop of 1st time buyers. I don’t see buying getting any more affordable however even with a crash – prices will drop but rates will rise so it will still suck the same percentage of your monthly take home to buy.

The housing market seems so difficult to predict. It is volitile enough that I’m happy to keep renting for the short term. It really is about predicting when common sentiment changes from “you’re an idiot if you don’t buy” to “you’re an idiot to take on big mortgage debt”. American sentiment has changed big time. Many of us who come to this blog see things in terms of the latter, but the vast majority of Canadians belong to the former. If I’ve learned one thing from you its how shady the real estate industry is when it comes to selling the “you’re an idiot not to buy” mentality and how the MSM generally helps the industry get their message out.

– Sean in Vancouver

#128 Tony on 06.18.11 at 3:14 am

A 2 percent erosion in Canadian housing prices with year then a freefall late in 2012 as commodity prices also go into a freefall earlier in the year. A 35 percent fall in Canadian housing prices from late 2012 to the end of 2013.

#129 richard on 06.18.11 at 3:29 am

Let me have a try at this:

Yes, there will be a correction. When? As soon as families start drawing up ration lists at Loblaws to make their monthly mortgage payments.

#130 Canuck Abroad on 06.18.11 at 3:38 am

I am not convinced that interest rates are going to be the driver for a decline. A rise in interest rates might make things worse, but I think prices will correct regardless. Buyers only need to start believing that prices might be lower next year and they will hold off on buying – that is why you see a bulge in listings but a decline in actual sales along with an increase in sales prices, as the more prime properties are the ones that sell whilst the less prime properties sit. We are seeing this in some markets now.

Prices started to correct in 2008 but the decline was halted with poor government policy. Too bad. They should have let prices correct naturally at the time, because now they have even more ridiculousness to work off. I expect we will see a retracement to 2002 or 2003 prices over the next five years. So, the percentage decline will vary by location depending on how sharp was the run-up.

#131 Canuck Abroad on 06.18.11 at 3:42 am

Would anyone like to forecast for Toronto neighbourhoods of Davisville, Moore Park or Leaside specifically? Say over the next two years? Just curious…

#132 Kate on 06.18.11 at 3:54 am

Well, if we look from the affordability standpoint, Vancouver houses should crash at least 50%.

#133 Canuck Abroad on 06.18.11 at 4:04 am

The future of Vancouver?
http://www.independent.ie/national-news/struggling-families-flock-to-care-centre-for-meals-2678745.html

To the many xenophobes on this site (and wow, there are many), you should not be blaming the wealthy Chinese for wanting to launder their cash in Vancouver. If you were Chinese and weren’t sure when the communist party might go all communist on you, wouldn’t you do the same? Who permits all this buying? Your government, that’s who. The Canadian government. So complain to them. Write your local representatives. Demonstrate. Vote the bums out.

#134 bbcoq on 06.18.11 at 4:10 am

Ever seen a head and shoulders chart for other assets like stocks, commodities etc? I am betting we are riding the last legs of a bull phase-they are doing everything they can to “engineer” a soft landing and for everybody’s sake I hope they do but not optimistic.
Marty Zweig used to say “don’t fight the fed” and rates will be going up sooner or later-here is my prediction:
2011 down 10%
2012 up 12% and then down 30%
2013 up 12% and then down again to the moving average
But I live in suburban Vancouver so I have come to expect the unexpected! BTW I have never met so many who work in “development” lately.

#135 Bobby on 06.18.11 at 5:52 am

The rapid rise in the housing market is solely based on the herd mentality. People are still jumping on board because there is the perception that prices could still rise.
The similarities to the dot com crash are daunting. Share prices kept screaming up and companies such as Pets.com, a few guys with a cat and a computer, all of a sudden were worth billions. Of course, there were the pumpers that said it was different this time.
But it all of a sudden stopped when the herd realized they didn’t want to hold a share at $100 that was worth less than a few cents.
With the Chinese buying up Vancouver with dirty money, the frenzy will continue until that taps stops and those holding overvalued properties panic.
It has already started as Hong Kong has just made some dramatic changes to the property financing requirements.
Change will come really quickly, but it’s coming.

#136 Cow Man on 06.18.11 at 5:57 am

Amigos:

I am really old. As in, more hair in my ears than on my head. My experience from previous real estate runs, says that the price by the end of the decline, will be lower than the beginning of the ascent. It will revert below the mean.

#137 Bob Copeland on 06.18.11 at 6:20 am

Houses will drop different amounts in different areas just like America. The average SFH selling price will fall to 3 times the average family income for the area. When bubble’s burst it most often over correct’s, which is the time to jump back in.

#138 disciple on 06.18.11 at 6:27 am

I just discovered last night, an average of one house in every mini-sub-division in my part of the GTA burbs to be “abandoned”. These almost-new SFH have no sign on their lawns and nobody living in them. Easy to spot…yellow newspapers at the front door…no blinds…it appears that someone is cutting the lawn but look through a window and there is no furniture, completely empty….

Is this what is happening in B.C.?

#139 Heloguy on 06.18.11 at 6:29 am

Why don’t we ask the question what is the house worth? If you look at your insurane policy you will probably see an amount for a rebuild there. That is what the insurance company has decided the sticks and stones will cost to replace. That is where the houses will adjust to minus the amount that would be paid to the contractor. On my house the amount is about half of the market value. In the higher priced areas of the country it is without a doubt a whole lot more than 50 percent. Take a look and scare youself.

Cheers

#140 Pr on 06.18.11 at 6:40 am

Mr Carney, Mr. Bernanke and others and his predecessors have created a false economy based upon perpetual debt and upon money and credit being created out of thin air. Today that is accompanied with zero interest rates, a combination that in time can only bring a falling dollar, inflation and a collapsing economy. Your house will go down the drain in the same time.

#141 AlanC on 06.18.11 at 6:47 am

How fast and how far will housing fall?
Have a look at Japan!
Over the next 15 years:
Major Cities -66% in nominal terms
Other places -33% in nominal terms
After inflation? They will be worth nothing in 15 years!

The first link I viewed!
http://efinancedirectory.com/articles/The_Dangerous_Disconnect_Between_Home_Prices_and_Fundamentals.html

Regards AlanC

#142 SquareNinja on 06.18.11 at 6:57 am

The crash will come this fall, and fall huge it will. Canada will fall harder than America, because despite economic factors, don’t forget demographic ones. Canada’s bubble once popped at coincidentally the best time (the 2008 Financial Crises), but now will be popping again at the worst time (the start of the baby boomer retirements; 2011 is the year the first boomers turn 65).

There’s no telling how far and how fast Canada’s bubble is going to deflate. This is a time unprecedented in history. Sure, HAM is coming from overseas, but once their own bubble pops, that tsunami is making its way to Vancouver without a doubt. People in China don’t know what a bubble is… did you realize that? And despite the best efforts of the Communists, there’s only so much they can control.

Canada’s in for a horrific crash, and it’s going to be swift and violent, like when the Canucks lost, and a riot of pent-up teen hormones was unleashed. Lives will be seen for what they were based upon, and the meaning that granite and stainless steel once had will fade into a background of sadness and depression.

Garth used to tell us that the bubble would pop like a teenage boy in bed for the first time, but he has softened his stance and now predicts a slow melt… the kind that causes wrinkly boomers to take Viagra or Cialis. Garth was right since he started this blog… and his first prediction of a violent second correction will also hold to be true.

90% off? No biggie for Vancouver.

#143 House on 06.18.11 at 7:02 am

There is one fatal flaw in your logic. As can be seen from the justification for the intervention in the Air Canada strike, pseudo-economist Steve( David Olive says he only has 3 courses in his undergrad degree) will not allow anything to “hurt the economic recovery”. Thus we see the Bank of Canada not doing what it should. Why should we expect them to allow interest rates to rise when this would kill any recovery by the loss in confidence and the loss of jobs in home sales, building and appliances just to name a few areas just as the next election is around the corner. But this decision to defer will have even greater consequences for the future for as you say it must correct sometime.

#144 Don'tBelieveTheHype on 06.18.11 at 7:02 am

I’ve already lost a bet that real estate would drop in Kitchener-Waterloo over the last year. Cost me two lunches. I think ultimately we’ll settle back to 1996-97 prices in most markets. That will mean different percentage drops in different markets depending on how ridiculously inflated they are.

#145 etreamar on 06.18.11 at 7:08 am

I get the feeling they are going to delay raising interest rates for quite some time, maybe closer to the end of the year? Even then, with 5 year terms, in 2009 those people will not feel the crunch until 2013-4? I guess it depends on the interest rates at that time as well.

I wonder if we will not see the major part of a correction until 2014. If something happens and a good portion of those people loose their jobs then sooner. I would suggest a %decline to slightly less than the rise for each area. I do not think you can apply the same number across the country.

But then again people are fickle and how can anyone predict what will actually occur. How much risk can they sleep with at night?

#146 T.O. Bubble Boy on 06.18.11 at 7:16 am

The correction will take prices back at least to 2006 prices.

2006 was when F and Harper started the 0/40 experiment.

So, for the GTA:
May 2006 Avg Price = $365,537
May 2011 Avg Price = $485,520

Drop = -24.7% (I’ll round off to an even -25%)

Assuming that the melt takes 5 years, Avg Household Income might be about $110k-$120k by then, so the Price/Income ratio would be a “normal” 3:1.

#147 BrianT on 06.18.11 at 7:20 am

#31Garr-It sounds like people want the China story both ways-good for Vancouver and TO as hundreds of thousands of rich crooks will flee here and yet the Chinese economy will continue to boom pumping up Canada and Canadian RE. IMO China will continue to grow but in reality what we are seeing right now is a massive wave of “insider selling” of China which usually isn’t a positive.

#148 Dean on 06.18.11 at 7:32 am

I live in small town Canada and folks are just starting to get it….higher food prices, energy prices, Governments hiking every fee they can, no raises, food companies making their sizes smaller but charging a bigger price…right now there is a lot of “deer caught in the headlights” looks on peoples faces and those who listened to Garth and ‘got it’ a little earlier have managed to diversify and pay down debt but when the masses start to feel the flames licking at their asses this real estate thing will drop like shit from a goose at 30,000 feet!!!!

#149 Love this Blog on 06.18.11 at 7:36 am

I believe the suckers have almost all piled in, and housing sales will slow even more in the next few months. In early January we will see the start of a reduction in prices as Christmas bills make people start feeling the crunch of their other payments (boat, car, etc)

The real slide begins when summer comes and goes with no $ for vacations, etc and interest rates have been hiked 2 or 3 times because people are not heeding Carney’s warnings about debt. By fall, the market starts to drop hard, and there is no sucker’s rally, because as I said before, most who were willing to take on enormous debt have already done so. By this time, anecdotal stories of relatives, etc who have lost houses will be circulating, accelrating the decline. New buyers will not jump in, due to fear and the trend of downward prices. In August of 2012, BHP Billiton will announce their go/no go on the Janzen mine. If it is a no go, confidence in the economy as a whole, and in the local area deflates and I can finally start to anticipate Vultching!

#150 Min in Mission on 06.18.11 at 7:45 am

I was going to “randomly” generate an inspired guess about the future in the hopes of winning Garth’s book. But, I just figured to heck with it, I can’t come up with “inspiration” this early in the morning.

Some great “inspirations” so far.

#151 j shum on 06.18.11 at 7:50 am

#12 Harry – I see that someone responded to your post already. One might argue what you said applies to Winnipeg too. I hear the exact same arguments. Economy is great here. Won’t crash. I think it will stall. And I am asian canadian and I will say I don’t think there is HAM here with the exception of students from there may be buying houses when they come. However I am left scratching my head because I just don’t think the numbers support what is happening. It’s as was said based on people taking more and more debt. It might be different for people who got in earlier at a lower price but people entering in the last two years, they as a bank says are richer than you think, are married or just are getting a mortgage but a house that would not support previous definitions of affordability of a house, like 3 times your income. And I don’t think people’s incomes are going up that much. They may be anticipating that will save them when the interest rates finally go up When? When When? Please when?. Latter than what someone said in a previous post.

I believe the old rule for a quick rule to figure out how much you can afford is 3 times your income. Let’s say 60,000. Not bad right? 60 X 3 is 180,000. What does that buy you in Winnipeg? Not much, unless you are willing to live in a not so good area for the privilege of owning a house. Interestingly enough, I think the area where the house prices in town I would say have appreciated the most has probably still the reputation of being the worse neighborhood in town. I think it’s couples/singles that have to have a house because you can’t rent and have a kid and immigrants moving in. So where as a house in this area was maybe 90 in 2007-2008, this is now could list for 175,000. I’ve seen similar houses list for that. Renovated houses in that area are now going, and listing for 200,000 ish. You need to make more than 60 to get in this worst area of town if you want to follow the traditional rules of affordiblity

I’m not a risk taker so I will be called the looser and I probably am. However I am not willing to take on that much debt. People are getting rewarded for taking on more debt

#152 guelphite on 06.18.11 at 7:51 am

If one has a 20% downpayment and mortgage payments would be less than 26% of gross income, and you have no debt, is there any way buying a house would be a hedge against high inflation. One has to live somewhere. If you have cash in the bank, believe the stock market is overvalued and corrupt and expect imminent high inflation, would it make sense to buy now?

#153 Rocket Boy on 06.18.11 at 7:58 am

Let me dust off my crystal ball and see what’s in store for housing and our economy in general…

I believe housing has already shifted in lower gear (price appreciation) – working in the insolvency industry – many clients within the past few months are completely tapped out – rising fixed expenses, stagnant income (if you have a job to start with) and the greatest level of denial ever seen.
Clients will do just about anything to keep the house – some appear willing to use a food bank and use those funds to keep the house payments up-to-date.

So, the government knows we’re royally screwed when they jack up rates – and will be very cautious not to do that until mid 2012 when their backs are against the wall and inflationis rampant – housing & auto mfg. is the only thing keeping Ontario breathing – raise rates – our dollar soars and our products become uncompetitive around the world – and at the same time – our resources will be less in demand as the world economy shifts lower.

Now, as Americans signed up for those mortgages years ago that gave a teaser rate for 1 year and then would explode with higher rates that basically started the free fall – here in Canada, with the vast majority locking into never seen before ultar low interest rates – our decline will be more sutle (but markets such as Vancouver, GTA condo market) will take a quicker beating at first, and then a gradual decline.

I predict flatline growth in 2011 – and as more people have to allocate income to ever increasing expenses (food, fuel & services) they will cut back to protect their only asset -housing – this will have a slow but profound impact on our economy as 60% of GDP is contributed to consumer purchases.

In 2012 – the effects of a sluggish economy will become more evident, unemployment will rise – fear will set in, purchases of new homes will come to a virtual stop – as jobs begin to disappear, those who at least see the early warning signs will try to sell, too late – as houses begin to flood the market, and everyday Canadian starts to see the danger signs – we’ll see 10-15% drops in early 2012 – and as Garth remarked, a fool’s rally – followed by a late 2012 decline once again – by early 2013 – mortgage renewals begin to take the direct hit of higher interest rates will cause a surge in listings and a mirror image of what has happened in the states will appear here –

My assumption is an overal decline of 28-35%. Some markets will fare much better – places like Milton, Mississauga – will take a direct impact – while communities that have prices in the low $300’s today – will take a 10-15% haircut.

I am a homeowner – I realize the dangers, but we bought in 2002 before the madness began. We enjoy our home and everything that comes with it – I won’t sell – because in my opinion our community did not rise as quickly as those in communities such as GTA – I do feel for those who have entered the housing market in the past 2-3 years (which includes both my brother and sister-in-law) – with 5% down – they will sink fast and panic – those who buy today – in places like Woodbridge and Vaughan – where starter homes begin at $500K and just a walk away from noisy hwy 400 – they will get smacked around so badly it will take a decade before they even return to even…

I believe the world is about to face a serious set of economic storms that will engulf everyone (homeowners, renters)

I don’t know what it will take to weather this coming storm – maybe our currency will become utterly useless and food and water will be our new currency – as I do today – I trade 2 home grown tomatos with my neighbour for 3 home grown cucumbers from his garden – back to basics – the day of 1 car, 1 tv and a family trip that consists of a picnic basket will be the in thing –

#154 JamesKitchener on 06.18.11 at 8:00 am

Some very good Answers so far in the blog, and one thing is correct we do not know when and which cities will be hit the hardest, but Vancouver, GTA and will be hardest hit. As they were in the 90’s

So I will go a little different as I am a forecaster of sorts and this May hold true.. and I do not have the alligator skin of Garth if it does not.

First some Information, 5 houses went up for sale on my street all sold within 10 days except one! The greedy one. For your information one drop their price $15,000 some were within 5%, mine sold in one day for asking price. Is the price decline or a market decline?

Year 1 You will look back five years to year one and say yep this is when it started. Year one is the year that you start seeing higher prices but people still sell as they drop their asking price, some like mine continue to do well (the Desirable homes), the ones that do not sell are the greedy ones.

No price decline as people are asking pie in the sky prices. Therefore people just say that one was asking to much. The drop in house price is thought to be realistic pricing and not a market correction (until 5 years from now, looking back)

Year 2 People will still be in denial that anything happened in year one but this is the year prices decline by 10% in Canada and 25% in the bigger centers. Or stay the same. Again people just look at it as people reducing their prices to sell and not a market correction.

Year 3 is the year where very high priced homes and condos (speculative buyers) cannot sell and another 10% hits the market but the higher end homes and condo decline 25%. Now people start to wonder? But are still in denial as they will say those are the speculators.

Year 4 bearing any shock to the economy and to the world, in the last four years, prices decline 25% across the board and probably more in Vancouver and Toronto. This is a cumulative decline from year one.

Year 5 is the year the fear comes and then maybe it drops or maybe it recovers to a dead cat bounce.

Year 6 is the year everyone notices

So the most important thing is when does year one start or has it already started?
In my Opinion we are in year 2.
Good luck, James

#155 Juanita Violini on 06.18.11 at 8:03 am

30% crash by the end of this year and 50% by the end of 2012 (in most areas).

I live in the Invermere BC area of the Columbia Valley. An area known as ‘Little Calgary’ due to all the second homes owned by Calgarians who come out on the weekends. This week there was a ‘For Sale’ add in the paper. The price is definitely the lowest we have seen so far.

“2000 sq. ft. Radium Home for sale. 4 bdrm, 2 bath, dbl garage, large yard, located D/T close to park & shops. $270,000. WE WILL PAY YOUR DOWN PAYMENT”

Very interesting.

#156 Mikey the Realtor on 06.18.11 at 8:06 am

There will be no crash, prices remain approximately where they are and stagnate for a few years. People would rather eat cardboard then sell.

#157 TBrown on 06.18.11 at 8:37 am

In Northern Alberta the economy is picking up, yet home prices are still not accelerating. Home prices here will hold for now until interest rates rise. There isn’t a big speculative component to the market up here as there aren’t many condos and SFH’s aren’t great for rentals. Jobs are easy to find, they pay pretty well. The thing is, everyone is pretty tapped out already, they spent to their limit – they just need an interest rate hike, oil price drop etc.. Then it will all depend on how high interest rates climb – if rates went to 8% I would think avg prices would fall 30%.

#158 bigrider on 06.18.11 at 8:39 am

In order to calculate the magnitude of the decline in housing prices you must first ascertain what the rate of inflation has been ,per year, since the housing mania began.

If the latest housing price boom started arguably in 1998 and we have averaged approximately 2% inflation per year since then until today, then that gives a compound total return of about 29%(13 years at 2% compounded). This is the amount your home should have appreciated approximately.

So, take the estimated value of your home in 1998, add 29% approximately and this should be what it is worth today.

Since houses have appreciated by more than 100%(GTA) , and in some cases 200% like Vancouver then price adjustment in a crash scenario will probably take prices down to the 2003/2004 price level of same home, that is what your home would have appreciated between 1998 and 2003 (29%) during the inflating bubble.

Price adjustment in a crash scenario will take about half the time it took to get to it’s inflated value today 2011. So 13 years of escalating values followed by 5 years or so of declining values. By 2016/2017 decline will have run it’s course. Decline will follow same pattern stock market declines follow, that is, a relatively large hit quick ( the swoon,say minus 15%) followed by a suckers rally that does not achieve previous high, followed by a slow grind lower over next 5 years or so.

Once price adjustment has run it’s course, a long sideways move with no price increases or decreases worth mentioning ,probably for a decade.

#159 Ralph Cramdown on 06.18.11 at 8:41 am

I’m not convinced that prices will go down nationally this year at all. House prices, they say, are serially correlated. In other words, when they’re going up, they keep going up for a long time, often way past sensible valuations. People look to last month’s prices and last year’s — you don’t often hear monthly stats comparing the stock market to last year, but housing is very seasonal and has a lot of momentum.

Compare to the US, where prices have been going down for a lot longer than anyone expected. Hear all the experts pontificate on what needs to be done to “clear the market” and wonder how long prices will continue to grind down, also in an environment of unusually low rates (though tighter credit qualification).

Realtors say “you can’t time the market” and that’s generally true — of the STOCK market. Housing is much more trendy and less volatile, and I’m confident saying we’re far nearer the top than the bottom. I don’t need to buy at the bottom, just hopefully within six months or a year of it.

#160 Lisa on 06.18.11 at 8:59 am

Let’s remember that so much of our perceived world is smoke and mirrors.
The “rich Chinese”…how much do we REALLY know about them? Not much, Yet, we’re afraid of them because we perceive that if they can throw 2 million at a crabshack, they must have plenty more where that came from. Not necessarily the truth.
Another example:
The expensive neighbourhoods of Leaside and Moore
Park and Davisville…majority of households there are 1-2 paycheques away from the street. Yet, they do a great job of fronting a veneer of affluence.
It’s all a big poker game.

#161 cendrine on 06.18.11 at 9:06 am

Just a quick comment about being a boomer and our greed and over consumption:

I was born at the tail end of the baby boom (late fifties). As a small child I can remember how a shiny, modern future was predicted where disease would be conquered, every manner of technology would make life easier and life was supposed to be so much better than ever before. That was the expectation built into every commercial, cartoon, world exposition and even the school curriculum. The newspapers were full of articles describing the latest scientific innovations. My generation experienced the full benefits of vaccines, antibiotics, the green revolution, and many other discoveries.

Needless to say, our expectations were very high and we acted as if there was no end to innovation and wealth. We felt, and likely still do, a sense that the world could only get better. Unfortunately, my generation has not realized that we live in a very privileged bubble, a more recent incarnation of La Belle Epoque or, perhaps more fittingly, our own version of the Roaring Twenties, and it may be about to burst.

Don’t be so hard on the Boomers. They behaved according to script, responding to the zeitgeist of their times. If you are a Millenial, I am willing to bet your grandchildren will do the same.

#162 God on 06.18.11 at 9:10 am

Contest question: What magnitude of a correction do you expect this year? Or will there be one at all?

I’ll randomly pick five brilliant answers and send them a fabulously autographed copy of my current book. As soon as the damn post office works again.

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

How can one randomly pick five brilliant answers?
That seems contradictory.

(i)either the creme rises to the top, or

(ii)your offer is a fraud on par with Satan’s minions Goldman Sachs

Otherwise That means I have to submit 5 answers thus, de-facto, I win.

I thought you were omniscient. Poser. — Garth

#163 Samsara on 06.18.11 at 9:12 am

I think we have some predictive power. That is, we know that the housing market will crash. However, to actually predict when, at what rate, and how far it will crash is anyone’s guess. There is no way we can predict that.

I’m an ecologist, I study patterns in nature. Ecology and the economy are very similar. Heck, they both have the same Greek root word ‘Eco’=home. Ecology is the study of home. Economy is the management of home.

What I’ve learned as an ecologist is that we can often recognize patterns in nature. Nature is very cyclical. However, to actually model these systems is incredibly complex. I think the same is true for the economy. We recognize there is a pattern. We recognize that the real estate market is speculative and prices are driven higher than is sustainable. That’s about as far as we can get though. The system is far too complex.

There are wars and rebellions in the Middle East and earthquakes and tsunamis in Japan and New Zealand. Families to whole continents are swimming in debt. The whole system is shaky. Things will correct, nature has a way of making sure it does. When, how long, how fast, and how bad is anyone’s guess?

#164 Daisy Mae on 06.18.11 at 9:12 am

I believe the real estate market outcome is largely governed by desirability — location, size and condition of the houses — and whether or not the area has experienced current bidding wars.

If the housing increases have been slow and steady over the years the decreases in values will reflect that, and not be quite as pronounced.

#165 ballingsford on 06.18.11 at 9:38 am

I just checked out the neighborhood where I’m interested in buying at some time in the future and it’s hard to believe how many pimples are on the map. Also noticed that one house that sold a short time ago is now listed again.

I’m wondering if a lot of these homes are for sale because of a breakdown of a relationship because of money problems.

Anyway, I’d say a 15% correction this year and another 20% next year.

#166 mikett on 06.18.11 at 9:38 am

The last few months has been the sucker’s rally.
Hang on this winter, slippery slope begins

#167 yukon don on 06.18.11 at 9:40 am

I say calm before storm now , Penticton has been on slow melt for two years , but heat seems to be rising. Homes go way below asking in 2011 , 2012 10% , but slow start gaining as year goes on. 2013 drop sucker rally , rince repeat. Drop of 15%. 2014 bust picks up steam and less sucker rally or stops. slow melt for another 20%. So in jan 2015 a $500,000 in 2011 jan( listing price) will be $253,000 asking. Well in total this will be 50% and will still be sinking……..book me…….

#168 nm on 06.18.11 at 9:44 am

I dont believe the crash will come this year, Spring of 2012 is when I believe we’ll see the first signs of price decline

#169 BrianT on 06.18.11 at 9:58 am

#61Cendrine-Yes, but you neglected to mention or don’t understand the reason for all that. The global economy was booming because of massive discoveries of cheap oil (high quality cheap energy). This was followed up by an incredible increase in debt accumulation. We are at the tail end of both. As an aside, most don’t realize that the greatest gains in Canadian RE happened decades ago-these gains seem as impressive as the numbers (debt taken on) is so much greater. A friend purchased a house in a midtown TO location in 1972 for $25000 and sold it in 1989 for $500000. TWENTY TIMES OVER IN 17 YRS-those % gains are gone.

#170 JSM on 06.18.11 at 9:58 am

I think those who are looking at Seattle and San Fran as models for Vancouver should realize that house prices there are down 29% and 39% respectively from the peak. And, unlike Vancouver, neither US city reached an absurd level of 9 times median earnings for peak house prices.

http://www.calculatedriskblog.com/2011/03/real-house-prices-and-price-to-rent.html

#171 T.O. Bubble Boy on 06.18.11 at 10:03 am

As far as this year goes, the *national* house price index won’t fall more than 1%-2% by the end of 2011, since you’ll have Vancouver and Toronto skewing the average.

Certain markets will fall 10% or more, but they will be too small to drag the overall index down that much.

#172 VanIsle Retireee on 06.18.11 at 10:37 am

I have never commented on Garth’s blog but I read it regularly. But since I can now win something, well, that changes everything.
How much will housing prices change this year? With every reason to believe that interest rates will not change much at all this year (it would kill a very fragile recovery in the US, and certainly Canada cannot risk raising rates much if the US does not), probably the drop will be minimal – across the country as a whole, perhaps 5%-10%, including Vancouver if they have not burned it all down by the end of the year.
Did I win??

#173 Jim Summers on 06.18.11 at 10:40 am

Guessing what house prices will be is just like guessing what the weather will be like. So in that spirit, I’ll just guess: whatever the “price” is for a house in Canada today, it will be 4.72% lower at the end of December. Even if prices are already crashing, it will take months to gather steam.

Long-term, house will go back to 2003 prices, inflation-adjusted. Within two years, prices will hit 2006.

I look forward to any fame and fortune my wild guesses might bring me.

#174 Dorothy on 06.18.11 at 10:46 am

The fact is that the housing correction will be different depending on the area. In areas that are depressed (such as south western Ontario) there will be a huge drop (it’s already underway). But in areas that never saw a large increase in the first place, the correction will be minimal.
Areas that saw prices rise due to speckers and flippers, will see a big drop. But if it’s also an area populated by many retirees the drop will not be anywhere near as big as in south western Ontario, because retirees who are weathly enough to retire to places such as Kelowna, are also wealthy enough to hang onto their properties in a down market. And retirees will begin to do that in increasing numbers, renting out rooms if they have to, rather than see their lifelong investment go down the drain. Such people don’t HAVE to move, so they won’t.
The most spectacular crash will come in places like Toronto and Vancouver. The places that have seen the largest gains. And it WILL be spectacular. But unfortunately, even a 50% correction in such places, will still leave homes unaffordable for most. And 10 or 15 years from now the prices will start to climb again.
So for those of you who are biding your time wondering when will be the best time to invest in your first home, my answer is that it will depend very much on where you live.

#175 Kim on 06.18.11 at 10:55 am

Cow man …’I am really old. As in, more hair in my ears than on my head. My experience from previous real estate runs, says that the price by the end of the decline, will be lower than the beginning of the ascent. It will revert below the mean.’
____________________
Hmmm…they say that ‘the truth is simple’ ….
Your little blurb makes me think that your probally more right than anyone eles…
So if I had a book, I’d send you one … and it would be more a ‘picture’ book cause I am still working on ‘fueling’ my brain right now… at the ‘Garth Station’. (:

#176 Kaganovich on 06.18.11 at 10:56 am

202 Cookie Monster from previous thread

You wrote:

Marx was a bright guy but he was absolutely wrong. His Manifest was the most socially destructive book ever written outside any religious text. Rand was a brilliant woman and correct. Rand never wrote a book that led to massive slaughter, oppression, poverty and destruction of a nation or nations by ruthless dictators. Rand’s idea are of freedom and recognition of the best among us and the good for being the good. Yes there are many individual who are far superior or more dedicated to a cause than the rest of us, people who are greatly responsible for our standard of living today. Great industrialists and scientists.

You sound like a disciple of Rand to me. Was Rand wrong about anything? Was it not Greenspan, a devoted sycophant to Rand in his formative years, who aided and abetted the financial disaster we are dealing with presently? This, to me, seems to be a direct thread connecting crazy ideas of extreme deregulation an a unswerving belief in EMH to poverty and most likely destruction and so forth. Now, I will never deny the fact that many atrocities were committed by people claiming to be Marxist. Some were most likely twisted sociopaths, personalities much like you might find running large multinational corporations nowadays. I don’t think that this discounts the whole of Marx’s corpus. Capitalism’s rise through history was just as bloody and brutal as that of the communism’s. This has been well documented and thought about. For example, Mike Davis’s Late Victorian Holocausts, R. Wright’s What is America, Naomi Klein’s Shock Doctrine, John Perkins’s Confessions of an Economic Hitman along with Hoodwinked all spell out some of the human costs of extreme neoliberalism as well as capital’s blood soaked history. Our standard of living today has as much to do with the globalization of labour and finance as it does with industrialists and scientists…hence this blog. T. Eagleton makes a valid point here:
Imagine a slightly crazed capitalist outfit that tried to turn a premodern tribe into a set of ruthlessly acquisitive, technologically sophisticated entrepreneurs speaking the jargon of public relations and free market economics, all in a surreally short period of time. Does the fact that the experiment would almost certainly prove less than dramatically successful constitute a fair condemnation of capitalism? Surely not. To think so would be as absurd as claiming that the Girl Guides should be disbanded because they cannot solve certain tricky problems in quantum physics. Marxists do not believe that the mighty liberal lineage from Thomas Jefferson to John Stuart Mill is annulled by the existence of secret CIA-run prisons for torturing Muslims, even though such prisons are part of the politics of today’s liberal societies. Yet the critics of Marxism are rarely willing to concede that show trials and mass terror are no refutation of it.”
I guess we are starting to veer from the original issue that sparked the debate though. I believe there is such a thing as society, whereas you and M. Thatcher belive there is no such thing. I guess we can just agree to disagree.

#177 nocte_volens on 06.18.11 at 10:57 am

Re: Contest question: What magnitude of a correction do you expect this year? Or will there be one at all?

Here is my two cents worth. I feel that house prices will return to about the level they were in 2000, with an adjustment for inflation. For example, my humble shack was worth $160,000.00 in 2000. It is now worth $375,000.00 (and no, I didn’t treat it as an ATM… it is almost paid off). Given a slow motion crash lasting to 2018 or so and giving 3% inflation per year, that would leave my house worth about $250,000.00 in 2018. This would just be a return to the long term mean. I think it is possible that prices will over correct to the down side and fall below the long term mean. If so, the return to the long term mean could take us out well past 2018.

#178 jerry on 06.18.11 at 11:15 am

I think a 20% discount is already happening. The difference between the market comparable “list” price and actual sell price bears this house. We had 18 listings in our area comparable all in $690,000-$725,000 range. However actual sold prices were in the range $530,000-$570,000.

I see CREA stating house prices are increasing at 8% but this does not mean they are selling. I think folks often mislead themselves about list prices versus actual sale prices.

#179 David B on 06.18.11 at 11:15 am

Who knows? but this we know … RIM shares fell 26% overnight, Harper and Co are about to rain on the parade of their best and brightest who have kept the government trains running. Carney has warned home buyers several times wrt debt and interest rates, company raises are a thing of the past, the mighty USA is about to reach into a very deep well to find cash to survive as their middle class and are largest trading partner are forced to tighten their belts buying less Canadian goods. We here are now deep in two (2) war conflicts! All this will effect Canadian pocket books which in turn effect purchase power … so a year end Real Estate Correct could be as high as 25%.

#180 Ben on 06.18.11 at 11:20 am

Chine$e billion$ of $tolen money needs to be laundered and if it costs a 30% haircut in Vancouver property values so be it. It’s still 70% free money.

#181 Rural Rick on 06.18.11 at 11:21 am

No prediction just an observation. Very small events start the avalanche perhaps this news will start boomer’s selling at any price.
http://www.nytimes.com/2011/06/18/your-money/mortgages/18reverse.html?ref=business

#182 daystar on 06.18.11 at 11:27 am

#31 garrulous squirrel on 06.17.11 at 10:39 pm

“There are hundreds of thousands of Chinese bureaucrats and outright criminals being let into Canada with cash aplenty to launder.” – gs

Considering that 30,000 immigrants coming into Canada last year were Chinese (classified as units I wil note), the rest of your midsized post went pretty much un-noticed by myself, I think, for good reason.

#183 Queen City Renter on 06.18.11 at 11:51 am

Garth,

I cannot comment on most of the country so i will simply give my thoughts on Saskatchewan, namely the QC – however, relevant for Toontown too. 2011 will be a year to remember in Saskatchewan. I believe that housing will rise in 2011, but namely due to an increase in higher cost homes selling. Saskatchewan is faced with record wetness across most of Southern and Southeastern Saskatchewan, which has resulted in many farmers in the region only being able to seed between 10-40% of their land. Around Saskatoon and northern many areas are dry and in need of rain, but should fair well this growing season.

Those who do get crops out should get good dollars for their product, especially the pulse people and canola people. Interestingly enough Saskatchewan exports to Japan are already up 76.9% until April of this year and exports from SK to the world are up 7.4% this year. (source: IC TDO Database)

Interestingly enough people normally cite international exports as the key driver to economic prosperity in our province, however SK is actually a net importer when interprovincial trade is accounted for. Also the vast majority of our exports travel to the US. Our future growth will depend on that of the US and other key provinces like, AB, BC, ON and QC.

But hey, we have resources, commodities, all these things are looking strong in the near term in this volatile world. But, SK should recognize that food now follows oil prices and we should be careful of that. However, commodities alone keep us at a decent economic level, but until SK learns to process what we dig and grow we will cease to become the power house we need to be. For example, when was the last time you saw uranium being mined in Ontario, but a decent portion of Canada’s uranium exports come from the province.

Lastly, irrational thinking is at an all time high out here, self proclaimed economists have become the norm, ready with their trusty BA’s in Psychology. Given the level of insanity in the QC and the greater SK, i predict that this year housing will rise 9% YOY, but driven by high end homes, next year housing will rise 2% YOY, and in 2013, housing will drop 5%YOY, followed by 5-10% drops for the following 2 years.

It will take some time for the Psych grads to come to terms with the fact that the housing market is a new archetype and it represents a deep black whole that is blissful to be in, only until you step out of it.

PS – Any SK government cutbacks and employment cuts and QC is fcked. Oh well, we could always use more real estate agents, that way you can work with a former rough rider!

Go Green!!

#184 cadmar on 06.18.11 at 11:51 am

The corrections will eventually fall tyo 1.5 -2 times family income (including income from boarding overseas students and basement renters) and then bounce back to historical levels at 2.5 times family income.
How come no one mentions that during the Great Depression, the real estate market was no where near 10 times family income and I believe that the prices went down to 1 – 2 times family income?

#185 Imstupid on 06.18.11 at 11:52 am

First off, I take great offense in calling all of us idiots. When I’m the only stupid one. That being said I can move on to the question on hand. How much of a correction will take place in housing. That’s a hard question to answer. What I can say is that if history is an indicator we should see something like what happened in the late 80s early 90s. This of course is subject to many factors. Such as commodity prices, inflation, and the general economy. The gov’t at this point has no more tools at it’s disposal to prop up prices other than creating generational mortgagesand I don’t believe they will do that. Interest rates are irrelevant at this point because too many people are using heolc to keep the household afloat. I can see a 25-30% decline in some areas and no growth for some time. Meaning inflation will further reduce real wealth and the cost of ownership will rise as a percentage of value. Just an opinion, based on % of income for ownership.

May I add that BOC is trying to hold off the inevitable until the indebted generation gets inheritance from parents, so they can pay debts. I don’t think BOC will be succeed and it will correct alot sooner. This means the inherentence that should be transferred with in the next decade will also evaporate.

But I’m stupid.

#186 TurnerNation on 06.18.11 at 12:00 pm

How can Canada be different when the majority of Canadians live within 200km of the USA border??
What magical pixie dust lies on our side?

R/E is an emotional game (flipping, nesting), and not until the media begin their interest rate fear campaign after the first .25% hike this year will people begin to feel the heat.

#187 Soylent Green is People on 06.18.11 at 12:14 pm

I wanna book !!!!!!!!!!!!!

.
.
.
.

.
.

#188 LSC on 06.18.11 at 12:14 pm

Contest question: What magnitude of a correction do you expect this year? Or will there be one at all?

I believe the correction started this spring. Each week more and more listing are updated with a new price. The question is how long can organizations like CREA, CMHC and MSM mask the correction in data manipulation and spin. I believe the period of smoke and mirrors will run out soon. When the smoke or fog lifts public sentiment will turn. Unfortunately, the magnitude of the correction will still be muted by these groups, so an accurate percentage is unlikely.
I will throw out for consideration a correction of 15%-18% (Vancouver, GTA etc.), with an average nationwide correction in the 8%-10% range.

#189 haha on 06.18.11 at 12:17 pm

medium correction, followed by slow depreciation. the prov and fed gov will slowly release info about this, and the real estate industry will paint it up as dandelions instead of roses. information about defaults, banks taking back properties, etc,… will be hard to come by since all concerned (real estate industry, fed and prov and mun govs…) DO NOT WANT the canadian public to panic and stop spending…

#190 doctore on 06.18.11 at 12:18 pm

Dear god, my eyes, my eyes!!!!?

#191 Hoof - Hearted on 06.18.11 at 12:19 pm

Here in HAM central…(BC) …….its looking ugly.

Ratio of ” For Sale” versus ” SOLD ” is running at least an order of magnitude .

#192 Hoof - Hearted on 06.18.11 at 12:29 pm

Italy and Spain dragged into Greek crisis

http://www.independent.ie/business/european/italy-and-spain-dragged-into-greek-crisis-2677569.html

The difference between what Spain pays to borrow over 10 years and what Germany pays reached 2.7pc yesterday, reaching levels last seen in November during the Irish debt crisis.

Unsurprisingly, Greek government bonds plunged ever further yesterday. The yield, or cost of borrowing over two years, reached 30pc — a new record.

It came as the country’s prime minister George Papandreou failed to lockdown support in parliament for austerity plans that are a condition of its new bailout deal.

Portuguese and Irish two-year yields also hit the highest levels since the launch of the euro in 1999. Ireland’s two-year yield increased 86 basis points to 12.96pc. The Portuguese two-year yield surged 58 basis points to 13.02pc.

#193 Dr. WAYNE on 06.18.11 at 12:29 pm

Great way to ‘dodge’ the question Garth.

Read the comments. This is astonishing. — Garth

#194 .9999 silver on 06.18.11 at 12:38 pm

i believe all value in vancouver property post 2005 will be lost. There’s othing to support the increase in value
claimed.

property increased according to BC Assessments
all subject to property tax increase’s ass well…
value increase over previous 23 years 0.1%
2005 9%
2006 6%
2007 30%
2008 27%
2009 0% hiding olympic tax increase costs year
2010 37%
2011 22%
i think alll the overheated value will go Poof….
unsustainable increase in input costs being shown here
best Rae in vancouver

#195 Wise Guy on 06.18.11 at 12:41 pm

Reading the Saturday Toronto Star and in an interview with Jose Bautista that just recently signed a multi-year $65 million contract with the Toronto Blue Jays on why he is renting a three bedroom condo instead of buying and his response was, “The city’s torrid real estate market seemed too volatile and too unpredictable”.

Even Jose knows it’s a bad idea to buy in this market!

#196 vreaa on 06.18.11 at 12:49 pm

Buying Vancouver Houses From China By “Remote Control” Via Internet

http://wp.me/pcq1o-2xU

#197 brainsail on 06.18.11 at 1:01 pm

I think it is going to be a slow burn for a year or two. It will take that long before most Canadians will grasp the situation they are in. They are still in lala land believe that gravity only exists outside of Canada.

The tipping point will be about employment. There are so many jobs connected to housing and the meltdown is going to change many lifes. 26% of the working population works for the public sector?

This blog made a major milestone today because all the responses agree that there will be a correction. Either that or they are all motivated to get a free book.

#198 Live Under Your Means on 06.18.11 at 1:04 pm

Re the pic – all I can say is OMG.

Friend just came by. A month or so ago he sold his 4 yr old home for $100k more than it cost him to have it built. It’s a v. nice 2 story home on a v. large lot in a fairly new sub-division – Spider Lake – in Dartmouth, about 10 mins from us. Thirty YO chap was being transferred here from Barrie, ON. His RE agent pointed him to a house next door for sale, but when he saw our friend’s home he knocked on their door and made them an offer they couldn’t refuse. Now they’re having a 2100 sq ft ONE level home built on the same st. He and his fiancee own a Rust Check franchise which does very well. No kids at home. Living with friends until Oct till their new home is build. New home will be worth at least 600K, but it won’t cost them that price. They don’t care if the market goes down (which I brought up) as they plan to live in it ’till they have to put in a wheelchair ramp. :-)

BTW, it’s who you know here.

#199 HappyPlace54 on 06.18.11 at 1:11 pm

I don’t see a correction for real estate prices in 2011. There are so few listings on the market right now prices have only increased, and interest rates are still low. I’m betting on a slowdown in the fall but no price correction this year.

#200 Hoof - Hearted on 06.18.11 at 1:11 pm

Greek Protesters Are Better Economists Than the European Authorities

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/greek-protesters-are-better-economists-than-the-european-authorities

QUOTE:

I have maintained for some time that the Greek government has had more bargaining power than it has used, and the past week’s events seem to confirm this. Because of the massive opposition to further economic self-destruction – the latest polls show that 80 percent of Greeks are opposed to making any more concessions to the European authorities – the Greek government has so far been unable to reach an agreement with the IMF for the release of their latest loan tranche on June 29. So what happened? The IMF is going to hand over the money anyway, while the European authorities (who are in control of IMF decision-making on matters of Greek economic policy) continue to quarrel over how long they will postpone Greece’s inevitable debt restructuring, roll-over, or whatever they choose to call it.

That’s because the prospect of a disorderly default – as would be triggered by the IMF simply sticking to its program and not lending Greece the money – is too scary for the European authorities to contemplate. For this reason the many news articles about the possibility of a financial collapse comparable to what happened after Lehman Brothers went under in 2008 are somewhat exaggerated. The European authorities are not going to let that happen over a measly $17 billion loan installment. The events of the past week were all a game of brinkmanship, and the European authorities had to blink because the Greek government, as much as it wanted to, couldn’t get approval for the deal.

=========

The founders of DEMOCRACY appear to be taking charge…notes for the rest of us Bankster victims.

#201 CraigM on 06.18.11 at 1:19 pm

In my opinion, answering the question of how much value will real estate lose (and when) is a very difficult exercise, as the ability to deliver a correct answer means one must have a complete and thorough understanding of how other people think and be able to predict their thoughts and emotions. I can only share what has worked, and continues to work, for my wife and me.

We owned a condominium in the Okanagan a number of years ago; we had a few RRSPs, but the condo was our primary investment. It was in a great location: high, sweeping view of Okanagan Lake and a five minute walk to the golf course that we overlooked.

As a result of being laid off at the company where I’d worked, and with alternative employment just not available in the same area, however, we realized that we had to move, the best chances being either to the west coast or the prairies; we put the condo up for sale and I started the job search.

I accepted a very decent offer for a position in Calgary and we made plans to move. The challenge was that it took more than six (6) months for our condo to sell. Those six months were a period of sleepless nights and extreme stress that almost cost us our marriage. Finally it did sell; it was a bonus that we did make a fair bit over our outstanding mortgage commitment, although not as much once real estate commission, closing fees, and early mortgage payout penalty were factored in. As well, after considering the lost opportunity cost on the original down payment, I’m sure that we came out with less than what we might have made. However, the relief of having sold the place was immense and we prepared for our new lives.

The primary lesson we learned was that we were not going to put ourselves through the same experience again where the place we lived was going to hold us back from opportunities that would enrich our lives. We had the discipline to put what we made on our condominium into our RRSP (we had lots of contribution room and there was no such things as TFSAs yet) and we started to invest the difference between our rent and monthly mortgage payments.

So what does all of this have to do with the discussion about the upcoming correction?

As a result of our original experience, I completely agree with Garth about the perils of relying on a single, illiquid asset as a primary investment, especially if it is leveraged. I also believe, however, that everyone has to look at their own circumstances and lifestyle, and determine for themselves whether entering the real estate market at any particular time is right for them, regardless of where the market might be in the future. A real estate market correction of any proportion will have significantly less impact, if any, on the couple that are debt-free and owns their home outright (and plan to stay in it) and have acquired a diverse set of investments that are sufficient to support their retirement. Compare that to the potential impact of that same correction on the young couple starting their careers with significant student loan debt, want to start a family, and acquired a $500k house a couple of years ago with a $25k down payment borrowed from their parents. In the case of the latter, if that young couple needs to sell in order to realize the minimal equity that they may think they have when they see what similar real estate in their area is listing for, they are still dependent that someone else will want to purchase a home of that style and size, in their neighbourhood, for a price that is close to what they will need to ask in order to cover the mortgage and all associated closing costs (and hopefully make a bit of profit).

So I would put forth the following to Graham: how much of a correction do you need to have take place in order to enter the market where you want to live, and then have the life that you want? Should that correction happen, and you are able to purchase the real estate that you want, are you planning to make that your home, or are you purchasing it primarily as an investment. If the latter, ignoring for the moment all of the other costs that you will be presented with (maintenance, property taxes, etc.), are you reasonably comfortable that when you need to sell to realize your equity, that there won’t be another correction then?

My wife and I rent a place in a fantastic location in Victoria (we’re back on the west coast, where my heart is: an additional benefit of renting in Calgary was that I was able to take immediate advantage of an opportunity on the Island when it arose) run by a professional property management company, and my wife has worked hard to make our place a true home. We continue to put aside the difference between our rent and what we would pay for an equivalent place in terms of mortgage payment, property taxes, and condo fees, and are sitting on a fairly nice set of diverse investments (which now include TFSAs). Between my own experience and what I have learned on this blog, we have continued to realize a return of 6% per year.

The main point (and I apologize for taking so long to get to it) is that I am living in the place that I want to live, with the woman that I want to be with (this strategy really saved our marriage), and working in a job that I really enjoy. While we may not be real estate millionaires, we are completely debt free (okay, except for dinner on Thursday night that I paid for with Visa) and we have sufficient resources put aside for retirement (a few years away yet) and emergencies. If there is a correction, the impact on us will be minimal, if any. If there isn’t a correction and prices continue to rise, well we could probably have made more if we had put our money into real estate at the right time and taken advantage of the current real estate market. Then again, we could have also made more money if we had sunk a couple of bucks into lottery tickets and picked the right six numbers (according to my dad, by buying two tickets with the same numbers, one realizes more of the jackpot if someone else picked those same numbers). Should we worry that we missed an opportunity there?

For us, we enjoy our lives, in large part because we live happily within our means and don’t really think or worry about any upcoming correction.

#202 Devore on 06.18.11 at 1:29 pm

#33 B_rent

Oh, and good luck finding renters to live under those blue tarps.

Blue? That’s a very special shade of green, called the Vancouver Rainforest Green.

Woodframe condos… why would any city even approve such stupidity, or anyone pay to live there?

#203 Jon in Cowtown on 06.18.11 at 1:30 pm

The problem Garth is who do you believe, certainly not the mainstream media and the local RE board! Nominally here in Calg prices are down marginally but the anecdotal evidence is otherwise. Homes are probably down a good 20% from the peak and condos (at least the stick frame variety) are down a third.

#41 probably said it best, we’re looking at a nominal return to 2001 – 2003 prices in whatever market you’re in assuming the wheels don’t fall off the larger economy. If that’s the case we’re probably looking at a 50% drop likely by 2013. The next question becomes how will we ever find out? From the a fore mentioned trusted oracles?

#204 OnlyTheBankersLaugh on 06.18.11 at 1:31 pm

Interesting times for RIM. Another big employer stripping back high paying jobs that Canada desparately needs. Manufacturing jobs lost where the boomers will not work again. McGuinty still selling alternative energy as sustainable replacement and delaying nuclear decisions.

Luckily, I think that RIM is the classic oversold stock at this point and they will come back but analysts have dog piled this thing like no tomorrow. Interesting to hear your view, Garth. QNX is the most kick ass operating system on the planet but Jobs is the marketing master.

On one other offtrack subject, it is a bit scary that corporations can rush back from recessions due to sales external to America and Europe sales as is happening in my business. Jobs won’t return here but we’re growing like crazy in Asia, South America and Middle East. No major wage increases in engineering as we bring in Indian nationals on Oil Sands projects. It appears that the housing economy will replace many other falling sectors until it pops. Thank God for our resources but they may be increasing mined, logged and paved (and ski hilled, golf coursed and condo’d) by other nationals brought in. I can’t believe that it is happening but it’s happening. Will our work visas tighten up to save jobs?

#205 Jamaican_Gal on 06.18.11 at 1:32 pm

I KNOW when prices will drop: eventually…;)

#206 BROMANCE on 06.18.11 at 1:34 pm

From my experience here in the US, expect it to be worse than you can imagine. Its like any bear market: you can’t imagine what’s it like until you experience it. And even worse are the people around you, and its not just the ones that are also going under. The people that never had anything, or tried to really do anything and are perfectly happy. In fact, they laugh at you for even trying. Why didn’t I just do nothing? I have no debt, didn’t spend lavishly, but my business is getting crushed. It leads to bouts of depression even if you are still kicking. You always have that feeling of how bad will it get? Things are already worse than I thought was possible. Your whole world seems to be sinking into a funk. Retire? The prospect becomes more remote with each passing day, and each new stunning blow. I think back to the things my father told me his family did during the depression, and soon things don’t seem so bad.

#207 Sam on 06.18.11 at 1:36 pm

Hi Garth,
Quite simply the correction will be between 20-40%
this year and another 20-40% next year. The number will be in the major urban areas like Vancouver.

#208 Joe on 06.18.11 at 1:45 pm

Re the pic: Thanks for ruining my day, Garth

@Ben #4: Cute. I like that.

My take on the correction: I wholeheartedly agree with Graham, that a 50% correction after a 25% runup in the last year is negligible. As has been said before, Vancouver is ground zero. A condo downtown is, what $350,000, it’s 1bed,1bath, 600 sf. I’d say that should be no more than 200,000 if it’s brand new, and maybe that’s high. So that’s 42%. A nice round 50% seems reasonable to me. Your market would be new professionals, not coffee baristas post-correction, so a $130,000 mortgage is manageable on a $50,000 starting salary. Hopefully they have a nice downpayment and no student loans. Well, in that case we’d better make it a 70% correction on 1-1 condos downtown.

And shacks going for 1.2M. If it’s a teardown, a real boarded-up, burned out teardown shack, that should be $.2M. Yeah, maybe I’m crazy there, but whatever.

McMansions in Surrey with a suite, they’re $700,000=ish now, I’d say $500,000 is a good point to go to, so about a 30% correction. I can’t afford one unless I have a tenant, and I really, really don’t want a tenant. Wonder how that’s working out for everyone having Joe Weed living in their basement.

So a 3bed, 2 bath in the burbs, say Surrey still, they’re around $525,000. Reality check: try more like $300,000. So correction of 45% again.

Yup, 50% across the board. I could do times income. Let’s do times income.
Condo downtown, target market probably makes about $40,000: 4.5x income. Vancouver’s always been high. I think that’s fair.
I’m not touching the teardowns.
3bed/2bath in Vancouver east, families probably making $100,000 household income, houses there should be more like $600,000: So 6x income. Wow, still really high. That’s a 50% correction though.

Yeah, 50%. My bets are on 50%. This is a rambling, not intelligent answer, I just wanted to give my $.02. I’ve got a copy of the book already.

#209 Echo on 06.18.11 at 1:46 pm

It will start next year, the sucker rally will begin in the spring of 2013, the new and long term decline will begin in Jan/2014, and it will last until 2019.

Parallel to this, starting on a larger scale this summer, you will see big retail starting to leave their shame at the door for sales, which will continue even throughout the sucker rally in real estate, and as a consequence people in many sectors will begin to lose their jobs. That will in turn cause massive defaults on mostly older mortgages, many of them boomers, but also lots of newer ones as well.

Banks will flood the market with repossessed properties, boomers trying to get out alive from either current mortgages where the house IS their nestegg, or they are about to default and want to avoid legal fees will list their homes, and scared kids trying to cut their losses will panic, rightly so, and try to sell.

Commercial real estate will also lose significant equity because of this domino theory. Personal and corporate bankruptcies will be at the highest levels in Canadian history, and trustees will make a fortune so if you’re contemplating a new career…

We will recover, but if you’ve become indebted to a mortgage at the top of this market, or you are in an industry where your paycheque is entirely dependent on consumer spending, you will likely be in trouble. Debts, or at least their ramifications don’t go away in most Provinces, and layoffs in many sectors will be rampant.

Pay off debts, rent an apartment,, save, and invest as Garth has indicated. Good Luck.

#210 DJH on 06.18.11 at 1:49 pm

“What magnitude of a correction do you expect this year? Or will there be one at all?”

I’m sitting comfortably in beautiful Victoria, no mortgage, ocean views, and sufficient money to feel reasonably secure. I don’t expect much of a drop in prices. Every day I jump on my bike and cycle along the gorgeous ocean shoreline (Beach Drive) that makes this place a gem. Most who visit would give their eye teeth to live here, and that’s what will moderate price declines. And did you know there are neither mosquitoes nor black flies in Victoria?

#211 Jody on 06.18.11 at 1:59 pm

I don’t think it matters two shi** what happens/is going on in Canada. People should be very concerned with what is happening in the rest of the world and the contagion that will spread and eventually infect us.

The economy we have is being driven by commodities, which, if people in other places go broke, means we go broke as well. A lot of countries are getting pegged right now, the US, Greece, Spain, Portugal, Italy etc. The Euro is looking to be in very grave danger, so is the US dollar, in IMHO it’s a race to the bottom. By 2013 we’ll see 50% off current housing averages, easy, that’s if we are even still alive after Amerika goes nuts and starts WW3.

1.) Our economic might (hahahahaha!) comes from natural gas right now, I’m sure grains will skyrocket soon as well but right now it’s natural gas. More and more countries are starting to make plays on their own NG reserves, most are fracking (using fresh clean water and dirty chemicals, to get NG out of the ground), the US is doing it a lot more, check out the movie Gasland. Europe is having a fit over it right now as companies are trying to do it over there. Everyone wants NG security, especially after the crap the Russians pulled by cutting off supplies. In fact security is going to play a huge role in the future as countries around the world don’t want to have to rely on others for the things they need. We may get more for our NG in the future but we certainly will not be selling more of it, unless we sell it to ourselves, that won’t happen as the profits of companies will plummet. NG takes more abuse and more Canadians apply for work at Burger Kings.

2) The Euro – Greece is just the beginning, za Germans are having fits right now, so are la French, their banks will be utterly screwed if the Greeks say no to the crippling austerity measures, not to mention the civil unrest (re: war) that is going on in Greece, watch any riots other than Vancouver lately? Greeks have been doing that for months, same with the Spanish, coming soon to Portugal, Italy, and everywhere else. What do you think Canadians would do if our federal government wanted to sell off the Wonderland, Banff national park and Newfoundland? Go and watch the hundreds of interviews on Russia Today, go read some other source of information other than the butt kissing MSM. Try not to have a stroke when you learn about what is going on outside our bubble. The Euro is in very real danger of falling, especially if the Greeks say no, remember, nobody in Europe thought the people of Iceland were going to tell them to piss off, but that’s exactly what the people of Iceland told the rest of Europe to do, surprise! Everyone knows that scumbag bankers set this garbage up and are profiting from all this misery. Look to Europe to introduce a new game, the default game, every country will start to default, the dominos will fall. Hell, even the UK, they are bringing back the Glass-Steagall act, under a conservative government! The majority of people on this planet have no full time job, no food, and are living from day to day, more people join them every hour, these facts WILL affect us.

3.) The US. Our inbred cousins to the South keep screwing things up, especially when they QE every 48 hours. They’ve been running the printing presses non-stop and anyone who thinks that the spectre of hyperinflation is not hovering is refusing to look at what is going on, it’s like someone somewhere is purposely trying to devalue the US dollar so it becomes easier for the US to meet their debt obligations, or just outright default. Ask state reps and other politicos why various US states are selling off their public land to the Chinese? Why are the Chinese using their US dollar reserves to buy company after company in Canada and the US, do they know something we don’t?

Some people say, “Don’t bet against the US!” Whatever. If the US all of a sudden grew a brain and voted in a true fiscal conservative like Ron Paul, yea. The US would rise up from the ashes and kick some major butt once again. But, as it is, right now the US is socialist state that is bankrupt (morally and monetarily). It is not the US of old, the US where you could hang your shingle and be in business, no, now you have to pay off dozens of people and continue to kiss ass if you want to hang your shingle up and serve some customers.

The US is not a capitalist society, it never was. The US is not like it was in the 50’s, the 60’s, the 70’s, the 80’s, or even the 90’s. It’s a former economic powerhouse that was brought to it’s knees by regulation after regulation, usually done to protect those already in business from competition or by some idiotic lobby group. I mean c’mon, you can’t even buy Kinder eggs in the US, and if you try to take them across the border they confiscate them, seriously, they sound like an economic powerhouse to you, what bloody planet are people living on? The US is nothing more than a giant state. Giant states always go banrupt and fall.

4.) Brazil, Russia, India, Africa. People tend to forget, if they even had a thought in the first place, about the world outside North America and Europe. The rest of the world is moving on, Brazil has as much or more oil and NG reserves than the Saudi’s, Russia has more NG than all of North America, India has more brains and willingness to innovate in one town than the entire regulation crippled US has in it’s entire country. Africa has the biggest untapped labour pool on the planet, a planet that no longer needs North America or Europe. We are spending and printing ourselves into irrelevency. A 50% drop in housing prices should be the least of our worries.

#212 Live Under Your Means on 06.18.11 at 2:01 pm

My hubby did a stupid thing. Usually a family member or a neighbour drives us to the airport. None were available & rather than paying $50+ he went on line. Found someone to do it for less than half the price – it’s only a 20 min. ride on the highway. He gave the guy our home tel # & departure date. Talked to his boss the next day and his boss told him it’s a scam. Hubby is v. upset with himself, for falling for such a scam. He is so security conscience, to the point most people think he is paranoid. We have a professional security system at home, along with video cameras, etc. which he installed. Today he bolted the home safe to the cement floor in a closet downstairs. He’s been meaning to do that for awhile. Now he’s going to take out the hard drives of 5/6 laptops and put them in our safe. (He gets discarded laptops from the recycle centre & spends hours creating workable ones.) Then he gives them to friends & children who cannot afford them.

#213 Live Under Your Means on 06.18.11 at 2:13 pm

PS to my last post. Neighbours offered to take us to the airport as the days they take care of their 2 grandchildren has changed. We never even asked them. They offered and we’ll reciprocate when they go overseas in Sept.

#214 Womble on 06.18.11 at 3:01 pm

As long as the general economy doesn’t completely tank (commodities crash due to China falling over, etc etc) I can’t see there being a huge, US style crash, however the “correction” will, as a result, be excessively long and painful — a slow melt, stagnation, frogs and boils, all the good things.

Honestly, though, the percentage decrease and it’s exact timing isn’t the issue. Unless you’re (hoping on) flipping, that huge wrecking ball of a mortgage is going to be chained to your leg for a long time, longer than it’s going to take for the market to correct/crash/implode/supernova/whatever. The risk at this point isn’t that you might miss out on a few tens of thousands of dollars of speccy money from whatever residual momentum is in the market before it turns, but that you’re going to end up badly underwater when the market changes direction and your wrecking ball pulls you under.

#215 Russ on 06.18.11 at 3:02 pm

In Vancouver where I just sold my house I’ll say 60-70 percent over 5years. I’m guessing about 30 percent of that will be in the next 18 months.

#216 bill on 06.18.11 at 3:10 pm

however bad the outcome is always a bit tough to say as it involves the future.
it wont be good. just to much bad stuff everywhere.
wont be so bad in kerrisdale but places in vancouver that have been overbuilt will suffer the most.
I dont see good jobs on the horizon ,quite the opposite.
not enough suckers to keep the game going so…..
this link depicts an illustration of what will happen to people in varying degrees.

http://www.youtube.com/watch?v=PF4YwBO56uQ&feature=related

#217 Waterloo-Resident on 06.18.11 at 3:13 pm

My prediction: ITS CRAZY BUT ITS ONLY GOING TO GET MORE AND MORE CRAZY. If interest rates hold at current levels then we will see a continuation of prices rising up at 5% to 15% per year for the foreseeable future. If rates slowly go up, about 0.25% every 2 months, and rise no more than 2% above what it is now, then the home prices will flatline but not fall; some places up 2%, some places down 2% but overall about the same. Then once rates stabilized at higher levels we will see the prices for homes will CONTINUE to rise 5% to 15% per year for as long as Canada exists.

The reason for this is the MASSIVE numbers of immigrants that are flooding into this country and they all need somewhere to live, so this immigration is creating an artificial floor to the market, and the prices of real estate will never go down as long as immigration levels stay this high, it’s as simple as that. Income levels of the masses will not go up, but they will get the money from somewhere.

Yes, the boomers will die and they will pass on their home to their kids but it will be their kids who will then sell those homes to others at every-increasing prices.

Greece is going to default but that will only help to keep our rates low, possibly even making them go lower, and that will make our housing market go up another 50%, not go down. Strange but true. With each country that goes bankrupt and sends shockwaves into the world markets the stock markets might lose 20% per month but our houses will go up 10% during the same time since rates will be heading lower and lower.

What I don’t understand is how will a family with an average income of only $50,000 each ( $100,000 combined ) going to pay for homes that cost well over $10 million dollars ? They will get the credit from somewhere, they always do.

#218 bill on 06.18.11 at 3:18 pm

”People would rather eat cardboard then sell”

well that’s handy as that’s what they chose for a building material here in Vancouver, home of mildew and rotting condo’s…

#219 KamiKid on 06.18.11 at 3:21 pm

Hi Garth. I pulled out the tea leaves and pretty little tea cup and I predict a 7.65 % correction this year. I really have no clue I just want to win something and your books are well worth the read. Thanks for the blog.

#220 Bill Gable on 06.18.11 at 3:22 pm

The cascade of price changes will be like a monsoon.
Human nature changes on a dime ( as Mr. Turner has been schooling those dawgs that have been paying attention) and I think a lot of sane people realized it is high noon. I am of the mind that we will overshoot to the downside, but it will happen in steps and tip toe in on kitty cat feet. Stealth implosion, if you will.

I have a friend who is very wealthy and he rents!

The reason? “Anytime fundamentals are fractured and we have destruction in the true economy and the job engines stall – taxes have to go up, and the leveraged will get destroyed”.

In Rome, when the RE collapsed at the end of the Empire, home values didn’t recover for nearly a thousand years.

History rhymes, suckers get taken, an Turnerites manage to prosper.

Ergo – pay attention to what our host is saying. Mr. Turner could be living in the Bunker, enjoying the squirrel souffles and shining the Harley – but instead, he is on the balustrade yelling ” RUN” – got it?

Sell, and get out.

Send my book to BPOE, Mr. Turner.

You might be able to help him, although that seems about as likely as the Vancouver Canucks ever winning the Stanley Cup.

#221 maxx on 06.18.11 at 3:46 pm

When?
It has already started. Was out doing the family shopping this a.m. at a (relative to most) very buoyant shopping center. I walked in to 4 clothing retailers advertizing major markdowns and….. had all of the shops to myself along with much solicitous attention. Later on, went to Dollarama and……it was packed, as are the thrift shops! People are no longer spending like it’s 1999. This makes all the real estate price reductions we’ve been receiving by email fit the puzzle.

By how much? Low interest rates, although having extended the bubble period, are now almost completely ineffective as cash is and will be much tighter for so many more than it is now, due to decreasing jobs and increasing debt.
Lately, we’ve been visiting properties being sold mainly by boomers. Most are really trying it on with the asking prices (perhaps they should be reminded of the banksters line: “past history is no guarantee of future performance”), however it is evident that they genuinely want to unload and their mind-set is now firmly on the road to real negotiation. Some, of course, are not really intending to sell, but are trying to reel in a sucker. I believe that the suckers are fewer and farther between now.
Unless H,F and C can pull a rabbit of major proportions out of their collective hats, each passing week will bring more evidence of stagnant listings with increasingly fewer sales.
Large cities with pull (jobs, tourism, sports facilities, health infrastructure, etc.) will hold out longer but will also eventually capitulate.
So, as regards 2011, average 10% down (incompetent/pharmacologically delusional pricing notwithstanding) and possibly some fireworks in the fall, with a continuing slide going forward.

#222 Art_Vandelai on 06.18.11 at 3:57 pm

My prediction…no decline this year, marginal decline next year (maybe 15% in Van but relatively stable next year), and the same in 2013.

The reason…governments and central banks will pull out every possible trick in the book, including outright paying people to buy houses (homebuyer incentives) and stocks (capital gains tax reductions). Impact on future generations and the value of a dollar be damned.

THe US and Canada have fully invested themselves in stalling the natural business cycle (or inflating it away), which only means that when another recession actually does hit, it will be a big one. They are aware that a negative wealth effect is going to lead to unrest that makes the recent riot over the hockey game look like small potatoes and have many policies at the ready to try and keep the current facade going.

#223 Cookie Monster on 06.18.11 at 4:01 pm

#176 Kaganovich on 06.18.11 at 10:56 am
I agree there is a society but it’s an inclusive term, a collectivist term, it’s not a ‘thing’ it’s a social structure. Laws are created and applied by individuals to individuals, not by society to society.

#224 TurnerNation on 06.18.11 at 4:02 pm

Why buy in the GTA (Garth Turner Area)?

Here’s a large brand new Richmond Hill house for only 2200/mo or about 26k/yr.

If you bought, you’d be paying 26k in the first year for land transfer tax, closing fes, possibly CMHC cost, interest, property taxes. Equity what equity?

http://toronto.kijiji.ca/c-real-estate-house-rental-BRAND-NEW-HOUSE-BATHURST-AND-JEFFERSON-W0QQAdIdZ291423705

And brand new townhouses for 1500/mo:

http://toronto.kijiji.ca/f-real-estate-house-rental-Markham-York-Region-W0QQCatIdZ43QQLocationZ1700274QQPageZ2

#225 salonist on 06.18.11 at 4:03 pm

the neighbor was vacuuming his lawn again.
did a look see on the internet and it’s not uncommon to vacuum your lawn.
this is oakville,
rush hour starts at 8:30
oakville has more dog walkers than customers at a timmy’s franchise.
no shortage of construction trade jobs, as most sales in the south part of the city are tear downs.old money.
the new subdivisions north of dundas (highway 5) are about a month away from completion.don’t know how there going to make their payments.
so if you want to earn a little extra on the side in oakville to pay your mortgage,start a lawn vacuum service.you will do well.

#226 randman on 06.18.11 at 4:09 pm

If this was posted already…my bad!

“According to a new study, almost 60% of China’s “high net worth individuals,” defined as those possessing more than 10 million yuan in investable assets, are either considering emigration through investment programs or are completing the emigration process. The survey, conducted by China Merchants Bank and Bain & Co., also reports that 27% of those with more than 100 million yuan in investable assets have already emigrated and 47% of them are thinking about leaving the Motherland.”

http://blogs.forbes.com/gordonchang/2011/06/05/chinese-entrepreneurs-are-leaving-china/

Looks like the Chinese are coming!!!

#227 Bottoms_Up on 06.18.11 at 4:16 pm

#211 Jody on 06.18.11 at 1:59 pm
—————————————-
If it’s going to be a currency ‘race to the bottom’ doesn’t that mean high/hyper inflation?

If so, how can housing be halved under those circumstances? Doesn’t real estate protect (to some extent) one against high/hyper inflation because of the shrinking effect on the mortgage?

So, if it’s a currency ‘race to the bottom’, then housing should actually sky-rocket?

#228 LS on 06.18.11 at 4:20 pm

Isn’t this the truth, I really wonder if I will ever want to own again as well if this plays out like I think it will.

———————–
#91
We all come to this blog because we are all secretly house horny but are refusing to pay the current market price to get our pleasure on. By the time this plays out – you’ll be looking at housing like you would Whoopy Goldberg naked. Value traps are repulsive even if they come with granite and stainless.

#229 Timing is Everything on 06.18.11 at 4:45 pm

Graham wonders -“Ultimately, how much of a crash do you see? 30% 50% 80%? And it matters as to when…”

‘when’ IS everything wrt to this question. The answer is a zero to 100 percent crash depending on ‘when’. Prices could possibly keep rising…until it doesn’t [the limit]. Who knows how much and ‘when’ the ‘limit’ is?…Only the market knows. Timing is everything.

——————————————————–

Contest question: What magnitude of a correction do you expect this year? Or will there be one at all?

This question makes more sense because there is a time-frame reference. So I’d say a 0% (give or take 5%) ‘correction’ this year depending on where. But, You know…all those pesky variables come into play…

Hey Carney, what you thinkin’ ’bout these days? How’s them oil futures? Hey China, What up!? Harper, you got the power, dude. Hey Benny B., got those printing presses tuned up? Hey, Bill and Marge, are ya gonna cash in your housing ‘chips’ this year?

Of course, sooner or later the ‘correction’ will RTM. Look out belowwwww…
—————————————————–

It’s never too late to make a better decision. ;)

#230 Kinetic Forces on 06.18.11 at 4:53 pm

All you require to predict the price drops in houses is view all of the charts of increasing property values for the last ten years.

Prices will drop much faster in Vancouver and GTA compared to other markets. 25 to 30% in Vancouver by the end of this year or early next. Only about 10 to 15% in other centers.

Prices will drop in a negative direction (only twice as fast) as they have risen in the positive in the past.

Long term property values in 5 years will look exactly the same as they did 10 years ago.

Meaning each market will look pretty well the same as they did, compare Calgary to Calgary. GTA to GTA,Vancouver to Vancouver etc.

The exception will probably be the Saskatoon type areas where there is more Energy related industry, but their prices will end up a little better than 10 years ago, but not hugely different.

The opposite applies to those markets where industry is being obliterated, those market unfortunately do not stand a chance.

Just my Opinion.

#231 maxx on 06.18.11 at 4:54 pm

#33 B_rent on 06.17.11 at 10:43 pm

-Excellent post!

#232 Mr. Reality on 06.18.11 at 5:31 pm

210 DJH on 06.18.11 at 1:49 pm

“What magnitude of a correction do you expect this year? Or will there be one at all?”

I’m sitting comfortably in beautiful Victoria, no mortgage, ocean views, and sufficient money to feel reasonably secure. I don’t expect much of a drop in prices. Every day I jump on my bike and cycle along the gorgeous ocean shoreline (Beach Drive) that makes this place a gem. Most who visit would give their eye teeth to live here, and that’s what will moderate price declines. And did you know there are neither mosquitoes nor black flies in Victoria?”

The problem is that you are the minority in Vic and everyone has their “gorgeous ocean view” property because of one thing —– huge amounts of DEBT!

It’s a national problem — 1.5 trillion last i heard. The Yanks thought Seattle was immune from the down turn. They couldn’t of been more wrong. Victoria will fall along Vancouver because of high prices and income disparity.

Mr. R.

#233 Dorf on 06.18.11 at 5:55 pm

I like Graham’s investment strategy…. go all in, way over your head, in a single investment that could ruin your entire life, and hope the hell it pays off. All he cares about is his jealousy over the money.

Hey Graham, I just won $100 on the 6/49, quick go buy $440,000 in lottery tickets.

Better yet, buy a house right now and build a workshop in the basement, where you can make yourself a sign that reads. “Will work for food” and save it until you need it.

I expect there will not be a large correction until all these money-hoarding baby boomers either start heading to a care home or just simply die off, because really….they are the ones responsible for screwing the entire economy with their filthy money bloodlust.

They screwed the job market for years, drove inflation, drove the housing market, drove crazy commercial and retail development, and on it goes…..

What do you think they will leave in their wake when they are gone ? A ghost town.

When will the crops grow good again ? When the swarm of locusts dies off.

Here’s a tip: Buy a house in your area when it becomes affordable to you, until then rent cheap and save your money and live a nice life. Your life will not be nice with a huge, “most of your adult life” mortgage payment.

For my income, a payment of $1500/ month or less is comfortable. Less is better. At that rate, I need to be making headway on the principle as well as the interest, not just making minimum payments on a revolving credit account. It needs to be a livable house too, not needing thousands in repairs.

When you can find suitable accommodation for your comfortable price range, and make headway on the actual paying off on that accommodation, then buy.

I’ll take the guesswork out of it and tell you the exact date it will happen, just to help Garth out and take the heat off of him.

The exact date the first correction will happen: August 24, 2011 at 2:43 PM.

The trifactor for the Triple Crown:

WIN: “Wanna Be First in Line For the Hangman”
PLACE: “I’ll Buy Anything That Anybody Else Does”
SHOW: “Run My Life, I’m Too Stoned To Think About It”

#234 Hoof - Hearted on 06.18.11 at 6:10 pm

#52 westopia

Good link re: Ghost Cities

It has to stop..if for no other reason than save face..more and more people will see this charade and China will look foolish..especially when they have so many poor while these sit empty.

Maybe the revolt will carry over here, when sheeple wake up and see the global economic toxicity of HAM $$$.

#235 Dorf on 06.18.11 at 6:10 pm

Really dude, I read thousands of pages of articles and do my research. I ask questions and look around. I sniff the bullshit to see how bad it smells. I talk to people. I do A LOT OF THINKING OF MY OWN.

I do not email people questions, “When should I buy a house ?” instead of thinking about it for my own dumb self and arriving at a reasonable conclusion.

Why do I want to take all the work out of it for the guy who will not think for himself ?

Why do I want to do all of the work and then give somebody a Vulcan-style, Reader’s Digest version, brain-dump of “here is everything I know”, now compete with me on a level playing field.

You disadvantage yourself with your lack of effort.
Why would I NOT want you to be disadvantaged against me, after all EVERYTHING in life is a competition, and I have put forth the effort to know something and be better prepared than guys like you.

I have given myself the advantage, why do I now want to share it and save you all the effort when you were too lazy to care much about it in the first place ?

No dude, if you want to get ahead of the pack it is ALL WORK FOR YOU. If you do not put in the effort, you stay with the herd. A comfortable realm of mediocrity where the majority of the population resides. Get comfy.

If you were to ask ME about investment advice, I’d tell you to buy a house. You are perfect for it.

#236 eaglebay on 06.18.11 at 6:13 pm

WOW…
The majority of the bloggers here talk big about houses and big “investments”.
It turns out that most of them cannot afford a $20.00 book.
What would they do for $50.00.

#237 KIM on 06.18.11 at 6:13 pm

The economic impact of the Japanese earthquake and tsunami are starting to come to light as companies are reporting last quarter numbers. As a result layoffs will be announced like We seen with RIM. Add to the fact QE2 ends this month. Throw in the threat of a default of one or more piggs and you have a situation that can make 2008 look like a picnic. Only this time Interest rates are at near zero percent and consumers sitting in record debt . Throw in austerity and you have a perfect storm to crash any party. What does this mean for RE? Price reductions and if history repeats would mean 10-15% drop this year on top of the current gains for the year. People/realtors/economists were all surprised how fast and hard RE prices were falling in 2008. I think We see a repeat but worse.

#238 The Original Dave on 06.18.11 at 6:20 pm

i was the first to believe this would all unravel in 2011. It hasn’t thus far.

The great unraveling has to occur in the spring. That’s when the sellers and homeowners will say “WTF??!?!!”. When homes aren’t moving when they’re expected to sell, panic sets in.

A dramatic price drop starts with a time when the masses expect it to be robust. In November for example, if a correction is coming, people will say “yeah, but everything will pick up again in the spring as usual”.

When the spring market changes, prices will seriously change.

#239 Imstupid on 06.18.11 at 6:37 pm

#200 Hoof Hearted

Smack on buddy.

Very few people remember what happened to donald trump in the 90s when he was on verge of bankruptcy. Let me refresh your memory he was heavily invested in real-estate and the market tanked. If it wasnt for the fact that he would have taken the bank of America down with him, he would be begging on the street corner for spare change. You as what does this have to do with Greece you ask. Well the same thing they have a number of euro banks on hook if they default. So the question is as always. You can only go bankrupt, if you got to do it you may as well take as much as you can before you go.

It’s like financial cancer. You know it’s going to kill you and the doctor has told you how long you have till the inevitable. So party it up until it gets you and leave a big bag of IOU’s when your gone.

#240 Been There, Done That on 06.18.11 at 6:37 pm

#156 Mikey the Realtor on 06.18.11 at 8:06 am:

“There will be no crash, prices remain approximately where they are and stagnate for a few years. People would rather eat cardboard then sell.”

——————

The suckers who paid bubble prices might be eating cardboard since they can’t sell when they’re underwater. But the vast majority of today’s homeowners purchased before 2005 and did not pay bubble prices.

Most boomers will be just fine selling at a pre-bubble price and still make a tidy profit, thank-you very much.

Bubble buyers will have no choice but to sit on the sidelines and sweat it out while those who purchased homes from 1980-2005 sell off their property and get on with their lives.

Too bad for the relatively small number of homeowners who overpaid. Oh well. Life ain’t fair.

#241 Daisy Mae on 06.18.11 at 7:02 pm

“Read the comments. This is astonishing. — Garth”

Are we hopeless? LOL

#242 Kat on 06.18.11 at 7:08 pm

#156 Mikey the Realtor

For someone that should be so busy (because the market is so great, as you constantly hint at) you seem to have tons of time to read this blog and make meaningless comments.

#243 Sanok on 06.18.11 at 7:40 pm

Sir, if I knew when and by how much the prices would fall I wouldn’t be on this godless site, I would be in Punta Cana with my TFSA and RRSP nearby to keep me company. Only to swoop in 5 years later and buy up an apartment building ;)

#244 VICTORIA TEA PARTY on 06.18.11 at 7:54 pm

#200 Hoof – Hearted

Thanks for your effort here, H – H, in that your comments are indeed timely, as we shall shortly find out!

GREECING THE WHEELS OF OBLIVION

It’s wheels within wheels as tiny Greece threatens to blow-up the Euro experiment in social planning, and other forms of dominance and big government skullduggery. Take note, Mr. Obama.

What bothers the idiots who run the EU, from its various low-brow parliamentarians, to the European Central Bank gnomes (ECB), and to who knows how many well-pressed bureaucratic grazing suits, motoring about in their near-new Mercs and Bimmers, the whole damn thing is just a house of cards!

At the heart of what is essentially a snotty European attempt in defying financial gravity (just like the Yanks!), is what’s going on inside the ECB’s vaults: in a word NOTHING!

Those vaults hold, apparently, about $50 billion of Greek bonds. Fine, but it also carries another nearly $2 trillion of crappy bonds from OTHER Eurozone countries and a handful of cash to cover the above lot, which it can’t of course. And we should soon fine out the rest of the story.
As goes Greece, so go the others!

The Eurocats, know this alright, and are therefore scared out of their wits at the mobs in the streets of Athens. For it is the mobs who rule this roost. This is known as MOB RULE. The IMF doesn’t have a prayer.

MOVIE RE-RUN

We’ve seen this movie before in downtown Europe.

–First, I’m specifically thinking of July 14, 1789 and the storming of the Bastille in Paris that presaged the atrociously violent French Revolution and the ascendancy of the equally revolting M. Bonapart, whose empire was eventually blown-apart by one Mr. Wellesley, aka — the Duke of Wellington at Waterloo on this VERY date June 18, 1815!

That battle presaged 99 years of British Empirical rule — Pax Brittanica — until

— Second, in late June 1914 when a mob of one, a skanky little Serb, wasted the Austrian Archduke and his wife in downtown Sarajevo, on the occasion of the couple’s visit to its Balkan colony, just down the creek from their home town of Vienna.

The War to End All Wars shortly followed. And the view has been crappy ever since.

What makes this 2011 Mob “thing” so interesting is that it is a repeat of history in that this gaggle of jobless ne’er-do-wells is destroying a different kind of European empire, one built on fake money instead of fake royalty. Man oh man. Nothing new here.

In this case, the Euro suits will get wasted and the mobs get even until the arrival of another Greek military coup (Remember 1967!).

And then what, for the rest of us?

Nothing for a while, I’m afraid.

But those who’ve got cash on the sidelines should have the pick of what’s left of the equity and bond markets starting early next year, if things go according to what I figure. It’s a buy!

All I do know for sure is “History” is a tricky little wench!

#245 Cowgary on 06.18.11 at 8:00 pm

When stock market bubbles burst, they generally fall back to the level where they originated. Housing bubbles are not any different in that it is just one more bubble being fueled by human emotion.

Therefore, I suggest the housing market will fall back to the 2006 levels, where the insanity began. Of course the percentage will differ, depending where you live.

I also think we are in the sucker’s rally at present…

#246 Nostradamus Le Mad Vlad on 06.18.11 at 8:11 pm


#233 Hoof – Hearted — “#52 westopia — Good link re: Ghost Cities”

Gentlepersons, there has to be a clear reason why those cities were built in the first place. A city is built with a purpose in mind, no matter if it is a tent city or an ordinary one.

Not too long ago, a blogger here (forgotten who) brought up the point that if there was a nuke attack on Shanghai or Beijing, or an event (caused by HAARP?) were to unexpectedly happen, where would the Chinese govt. house those people?

Apparently China has its own HAARP so hence, the ghost cities, all ready to go and be lived in. Perchance, what has the US done for its citizens?

A poster today said it may be an event, rather than something financial but that event would be the cause of the unravelling, and I agree with that viewpoint.

The effect to the cause would be the markets go berserk and tailspin into the ground.
*
Ohhh, be still my throbbing eyeballs. 244 (Victoria Tea Party) posts already and it is Saturday. Imagine if Garth went back to the m$m!
*
Doublle Jeopardy BoA screws itself in the process; 6:34 clip Audit the Fed (+ BoC) and gold is money; Psyches Toying with people’s emotions; pull the rug out from under their feet, turn their lives upside down and leave them penniless; Greece Either shit or get off the pot; US$ mirage The dollar is done; Declining High Street stores failing.

Global Nuke Update; 14:02 clip Agenda 21 opposed; Af’stan Same result as USSR; Brits. get what they deserve; Stand Up For Canada! Heroes, all of them; Harper’s Prisons and the NAU. Although this is American, one see which way society is headed; BP Taxpayers on hook for clean-up costs; 5:56 clip E.coli engineered?; Plans ‘9/11 didn’t change anything. It was simply an excuse to implement existing plans.” So all of this was pre-planned, except the natural change in cycles; This would go with the US carrier arriving off the Syria / Libya coast in a few days.

#247 .9999 silver on 06.18.11 at 8:18 pm

Vancouver …lets see…
historical average price increase 23 years prior less than 1%
till 2005.
increase in since assessment 136%? ($315000 to $754000) …
take off say 7%
Real economic growth – government stimulation here 0%…
So lets be nut’s …
Say 125% ish Down…

Rae

#248 Chris on 06.18.11 at 8:30 pm

Hi Garth,
Great posts as usual and keep up the informative great work that you do.
I believe real estate will fall in direct propotion to how it went up.
The real estate pendulum has over swung on the upside and is going to do the same on the downside.
When all is settled and done,real estate will go back to its historical average and then it will be looked upon as a home to be lived in,not an investment,or a lottery ticket,casino
The world at the moment and all its economies are in a dangerous place and some are starting to teeter on the brink.Not only is Greece in huge trouble,so is much of Europe,not to mention our Big Brother to the south.
The problem with everything now is Debt,Debt,Debt.
If we have a major world event such as a default,look out.
As i said I believe real estate is headed for an epic meltdown.I’m not a Doomer,but a realist and what I see right now scares me.
The signs are all around you,if you care to see or pay attention to them.
Let the past be your guide,real estate has crashed before and history tells us,it will happen again.

#249 poco on 06.18.11 at 8:41 pm

#240 Been There, Done That
The suckers who paid bubble prices might be eating cardboard since they can’t sell when they’re underwater. But the vast majority of today’s homeowners purchased before 2005 and did not pay bubble prices.
Most boomers will be just fine selling at a pre-bubble price and still make a tidy profit, thank-you very much.
Bubble buyers will have no choice but to sit on the sidelines and sweat it out while those who purchased homes from 1980-2005 sell off their property and get on with their lives.
Too bad for the relatively small number of homeowners who overpaid. Oh well. Life ain’t fair.
_______________________________________________do you have any figures of how many homes were sold in Canada since 2005? look it up
-how many of those homeowners who bought between 1980 and 2005 actually sold a property or two and “moved up”
-it is not a relatively small number of people who overpaid for their property–it’s thousands
as the bubble buyers drop their price (as they’re doing now) to exit this market, what do you think happens to the prices of houses that were bought pre-bubble era—that’s right they begin to come down—as they are doing now !!!!
sorry but you’re living in a dream world–many listings in numerous areas are already at 2008 prices and falling—soon it will be 2007 then 2006 and down down down we go

#250 shanks on 06.18.11 at 8:56 pm

I do not think we will see this correction this year. I think sellers will be few and far between, but buyers will be even scarcer. However, the for the people who are buying, they will continue to push home values even higher in certain in certain urban areas, while the rest of the country will see home “values” stay flat or even dip a bit.

I believe that a correction may occur in the following year or two or three, but will be precipitated by a seemingly external event. Major slowdown in the world economy for instance. I am pretty sure the current government has a few more tricks up its sleeve to keep the game of musical chairs rolling for another little bit, because when the music stops, we all fall down.

#251 shanks on 06.18.11 at 8:57 pm

(ps, please send me your book)

#252 TEMPLE on 06.18.11 at 9:18 pm

My prediction: I don’t know. If really pressed, I’ll say probably lower, maybe higher. Then I’ll point out that the dismal science exists to give astrology credibilty. After that, I’ll skulk off to read Marketwatch or some such crap.

TEMPLE

#253 SMOKING MAN on 06.18.11 at 9:18 pm

First off Garth don’t need a copy of your book, I hate reading anything that is more than 1000 words, I lose concentration. ADD or something like that.

What will happen next, now your in my domain.

Kids copy what I am about to say, save it to a word doc, and If I am wrong, feel free to bash and ridicule me. Don’t expect any off you to say Smoking Man Guru predictor we are not worthy.

Greece will eventually default, get booted out of the Euro and start printing drachmas again. setting up a maximum moral hazard. They will then trade with China and Russia. Other county’s will see that it’s no big deal to say f-u to the banksters. and they too will stiff there creditors.

Ron Paul will be a contender in the USA presidential election, and that will scare the crap out of wealthy Americans, they too will park some money here.

Canada is a small country, small percentages of world wealth will flow here for safety like no tomorrow, because we are small that small percentage of world wealth will be huge, they will buy up real estate and resources companies, and more important Canadian Bench Mark Bonds driving fixed mortgage rates to basement, Will be record lows.

Carney can not touch the overnight unless he wants to be the guy known as the guy who killed manufacturing, and the housing market. All he can do is try and talk down real estate, and when Greece goes under he will drop the overnight rate.

It is going to be a real estate boom like we have never seen, prices have been climbing 5% a year, watch that triple for the next few years.

What will crash Canada is when the USA recovers, that’s when money flows will leave Canada and re balance in the USA.

Renters BUY while you still can, The USA anit going to recover anytime soon.

Plus the Bilderbergs are bullish on Canada, little birdie told me

And Garth in this country it’s not price to income that count’s, Its income to monthly payments that the herd looks at.

#254 Robins on 06.18.11 at 9:26 pm

#89: “Prediction: Vancouver and Toronto will not see a drop this year. In 2012, when US starts significantly raising rates, we will not follow. We will let our currency suffer. Gasoline and food prices will skyrocket in Canadian dollars…(THIS will be the Black Swan trigger). If C Raises rates, he will cause a slowdown that will lead to recession. If he doesn’t, prices for fuel and food will go higher…all while the government says no inflation. People will be poorer. Middle class will shrink. meaner society ahead. Don’t believe me…should have been in downtown vancouver on wednesday.”

Very well put, indeed. I spoke to several seniors in our social club who laughed at the local politicians’ attempt to pinpoint the blame on a small faction of anarchists. They reiterated that it is unnatural and more ugly scenes will ensue.

Our smarta$$ policy will one day explode in F’s face.
http://www.bclocalnews.com/richmond_southdelta/richmondreview/opinion/letters/118685289.html#

#255 Deanne on 06.18.11 at 9:42 pm

Recently drove by a house in Vancouver – about 21st & Cambie, and, naturally, looked it up on my realtor app (I oscillate between this blog & the app ;) and my partner and myself had guessed about 1.4mil. (3 bedroom house, 2 bathrooms, wood frame, renovated)
and it was 1.989 million! Might as well just say 2 mil. Ridiculous and depressing. So I hope the correction is 50%. I will take a stab and say 15% by end of 2011, and 20% somewhere in 2012 and 25% in 2013.
Love your blog, even though I’ve got itchy fingers on the app. Cheers,

#256 betamax on 06.18.11 at 9:57 pm

#212 Live Under Your Means — have hubby call the guy back and cancel the ride because your trip was cancelled.

#257 betamax on 06.18.11 at 10:06 pm

#90 Mr Buyer: “we in Canada have insane housing prices across the country with a huge number of people with massive debt, high unemployment and decreasing numbers of low paying new jobs…expect a decrease of much much more than 40%”

Agreed. Good post.

This time it is different: we have more public & private debt than in previous housing bubbles.

I’d guess 30% off the first year, then a steady decline thereafter for another few years, then scraping along the bottom for a decade. The excess debt will deny anything approaching a quick recovery.

#258 betamax on 06.18.11 at 10:09 pm

#158 bigrider — good post and I appreciate the reasonable calculations, though I think the market will over-correct.

#259 Dodged-a Bullit-in-Alberta on 06.18.11 at 10:11 pm

Greetings: There will not be any great correction until each of us can walk into any bank, mortage broker, reality office, trust company, home builder, anywhere in Canada; and find copies of “The Greater Fool” sitting on the table.

#260 mid-Ontario on 06.18.11 at 10:14 pm

I better get my thoughts together as I am keen on a free book.
Here, the melt has begun. May stats show then highest RE inventory since 2007. Year over year sales have dropped 17% while prices have remained firm. The reason cited and printed “wet weather”. Oh my goodness, earlier, it was a late spring, before that a snowy winter. Next, it will be a cloudy summer.

Nothing matters folks on the Canadian front as Carney is just following the GS leadership around the world. Unfortunately, for him and his cronies, things are unraveling. Greece is just the tip. The US and their world policeman attitude are broke. We will know it big time this August as the debt ceiling debate is about the expose the whole debacle of debt and the inability of the US to repay.

This will spook investors everywhere who in turn will drive commodity prices up and interest rates on treasury notes. This will start the great rise in interest rates around the world. Small increases will totally stall RE. As the rates increase, RE will begin to fall at the same rate to off-set any monthly payment increases. By the fall, RE will begin its slide towards a drop of over 70%. I will be precise as a new book demands precision.
We will drop 12-15% by Christmas 2011, another 15% next spring and another 10% next summer. Within 2 years, we will be down 70% across Canada in large urban areas.
The US economy/market/RE will be in free fall next Spring and continue to fall until it hits bottom until new leadership allows it to re-shape itself some 8-10 years down the road. Many will be hurt including all over-extended Canadians. The pressures here on jobs, pensions, investments will be enormous. The job loss scene will be result in many losing their homes.

By 2020, we will be back moving towards recovery but the bones of the RE investors/speculators will be everywhere. We will wonder: “what were we ever thinking?”.

#261 HouseBuster on 06.18.11 at 10:28 pm

I’ll stick to what I’ve been saying all along.

There will be a drop in house prices to 2003 levels. After that there will be a bounce in prices (sucker rally) and then ultimately a drop to 1998 levels.

#262 UVZ on 06.18.11 at 10:33 pm

#253 SMOKING MAN

Smart money buys low not high. They don’t even buy low. They buy very low.

Only time will tell how big ‘the herd’ is.

#263 Mr Buyer on 06.18.11 at 10:43 pm

#235 Dorf… I want my neighbor to be as well off as I am. It is in my best interest. People asking questions are people searching for knowledge. Obfuscation of knowledge has a hugely negative impact upon the collective consciousness of our country and the wider world. I want thinking, hard working and caring neighbors. We are turned against one another in the quest for mere scraps. A change of heart in front of a hungry mob is too little too late as they are beyond reason at that point. Competition is great but co-operation is a force multiplier. Highly skilled individuals can not stand against highly skilled teams. People sharing their experiences in this blog help give an alternate impression than that of the wider media. At the dawn of the American Revolution a University was simply a meeting of citizens sharing experience and knowledge in a community center. I would ask you to reconsider your position. Knowledge is indeed power but I feel knowledge understood by many is more powerful. Remember the saying ‘divide and conquer.’

#264 Been There, Done That on 06.18.11 at 10:45 pm

@ poco on 06.18.11 at 8:41 pm:

According to StatsCan I live in a city of 320,000 people that reside in 145,000 households. The local realty board reports 4000 or fewer sales in any given year – about 23,000 total sales since 2005. Roughly 30% of households are renters, the other 70% owners. So we’re looking at about 24% of today’s owners being bubble buyers, which makes about 17% of total households being bubble buyers.

So yes, it is a relatively small number of people who have overpaid. The other 83% of us either bought a long time ago or are among those who are still renting.

As to this: “what do you think happens to the prices of houses that were bought pre-bubble era—that’s right they begin to come down—as they are doing now !!!!
sorry but you’re living in a dream world”

“Dream world”? That’s exactly the same thing I’m saying. You’re agreeing with me. Pre-bubble buyers will sell at pre-bubble prices without breaking a sweat because they never got caught up in the bubble in the first place.

The 17% who paid record high prices during the past few years simply do not have control over the future of this market. Just because they overpaid doesn’t mean I have to! They cannot and will not prevent a price drop.

Cheers, BTDT

#265 smartalox on 06.18.11 at 10:57 pm

What was the decline in Vancouver house prices in the wake of the Hong Kong hangover? 20%? 30% from 1995 to 1998 once residentsrealised the communists were ready to play ball? I expect this new crash will be twice as steep, and at least twice as fast.

The nouveau riche tend to overreact to swings in the market, and view small losses more severely than more seasoned investors. When prices start to fall, investor immigrant sellers will race to undercut each other, panicking just to preserve whatever capital they can.

The HAM view Canadian real estate as a ‘land bank’ when the panic hits, there’ll be a run on the bank, just like any other. Only the ‘land bank’ isn’tinsured by CDIC.

#266 robert on 06.18.11 at 11:05 pm

#210 – Cost of living on Van Isle is going up, up, up isn’t it as the BC govt. tries to rein in its ballooning debt. How much does it cost you to get off that Island? Is it going to get cheaper real soon; I doubt it. How about that hydro bill? Nope, there’s a crash a comin’ even in Lotus Land. Lots of folks lost it all gambling in the housing market in the 80’s in your neck of the woods. Can’t happen again you say? No, the crash will come when Carney gives up trying to chase the US dollar into the basement, Flaherty quietly hammers CMHC into performing due diligence on insuring the liar loan portfolio, and some long needed foreign ownership regs dampen the HAM hog calling contest. When will this happen though; not soon enough. I think the whole mess is balancing like a plate on a knife point; with Eurozone debt crisis on one side, balooning inflation in Chindia, Middle East unrest, and the Obama admin moving back and forth between the competing special interests who really drive US policy. All it will take is one more Black Swan landing on the plate to tip the whole mess. Short run prediction (-10%), 3 years (-25%), one more major catastrophe (-50% in under a year). The dead cat bounce has ended; it’s just that the corpse hasn’t stopped twitching yet.

#267 t on 06.18.11 at 11:06 pm

I would love to see re lose 80% but I doubt that we will see that this year.

In the end, it really doesn’t matter if it continues to climb up or if it crashes down. If you want to know if you should be buying or not just concider how you would feel if you lost 100% of whatever you might pay for a place. I your conclusion is that you want to live somewhere and you wouldn’t care if you could ever get your money back out then go ahead and buy. If you do care about the possibility of losing any of the capital cost, then don’t buy. Buying a primary residence should never include an expectation of making money.

#268 JohnnyBGood on 06.18.11 at 11:08 pm

#253 SMOKING MAN

Interest comments.

That Greece will default is a fait accompli, and everyone knows it. The only question is: under what terms? IMHO, the Eruogarchy will go to great lengths to keep the “union” together. Monetary union is but a step (though a huge one) toward some kind of political union. There are rumblings of this as some complain that a monetary union can only work in the long run under a political union. However, if they conclude that their dream of “The United States of Europe” has failed or must be postponed, then I can see the financial elite cutting and running, and leaving Greece and other countries to their own devices, but only under terms that are favourable to them (i.e. the common people cover their losses). However, the people will not make this easy for them. The battle is raging, and the outcome is very uncertain. The whole mess is made more complicated by what some call ‘financial terrorists’ who are taking advantage of the crisis to line their own pockets.

If the main stream media in the US still has any clout, Ron Paul will not be a serious contender. He is actively being ridiculed, shut out and marginalized by them. Many of his libertarian views make it easy to do. The only way a Ron Paul could win is if their was a huge shift in the system’s balance of political power, from the banks to the people. (Do not think for a minute that Obama’s win reflected some kind of fundamental shift in American politics. His actions since the financial meltdown have proven he is as much a Wall Street puppet as any president ever was.)

As for the housing market: I don’t know why so many people believe higher interest rates are somehow so sacrilegious. Punitive rates that have slowed the economy and destroyed housing values have occurred many times in the past. The big difference this time is that it would take much lower rates than before to do so. While a healthy economy is important, I don’t think it’s the top priority. If it’s a question of either saving the banks or saving the people, the banks (or at least their owners) win every time. If the financial meltdown of ’08/09 did not prove this to us, I don’t know what will.

Your thoughts on money flows make a lot of sense. If you want to know where to invest, look to where the money is flowing. Absolutely. Simple. True. However, even in much vaunted Canada, supply and demand will determine the trends in the housing market. Cheap credit that is growing at an accelerated rate is the primary source of demand. In order for your thesis of foreign money supporting the housing market to be valid, a huge chunk of the foreign investment would have to have direct impact on housing. But even if that were so (which I don’t believe), I don’t think this would be enough to prevent a decline once the sellers outnumber the buyers and people can’t take on any more debt. All the indicators point to an average Canadian consumer who is very over indebted. Lower and lower mortgage rates, combined with new weird and wonderful mortgage products, (not to mention CMHC insurance) are strong evidence that we are near the end, as the banks scrape deeper and deeper at the bottom of the barrel for new mortgagors. The game is effectively over. F and Mark Carnage know it. At this point, the higher prices climb, the more devastating will be the fall once it comes. And it surely will. ( I do, however, agree that a Canadian housing crash would likely be out of phase with the US economy–unless the US just keeps stagnating for years.)

#269 Nostradamus Le Mad Vlad on 06.18.11 at 11:17 pm


Hoof-Hearted and Westopia — Nice timing for empty Chinese cities!, orOne min. clip Mirage? 5.9 ‘Quake close to Fukushima; War with Lebanon, Syria and Iran? Retiring Boomers It’s a shock?; Weather woes Where has the NMF gone? It’s supposed to let loose but Either this is a scare tactic by the WH, or it;s true;

Twenty Tips to survive an economic meltdown; Trading of OTC gold and silver to end July 15, ‘tho it may be paper contracts only; Gold Two; UK banks abandon Eurozone (Smoking Man may be onto something); Spain Just like Egypt in February; Food Inflation Could be added to the list of events to knock the west’s economies down; Euro has had the opposite effect; Kleptogreeks.

2:53 clip Resistance is futile. The Borg have arrived! China buying up America, so this would be a good reason for the NMF and the SAF to start their ‘quakeshakes.

#270 49 on 06.18.11 at 11:30 pm

Below is my opinion, I am not an expert, do not follow my advice, seek a professional’s advice before making financial decisions, and above all, do your own due diligence:-
1) See previous GF Blog on the anatomy of bubbles, & the graphs ALL look the same:- Dutch Tulips, South Seas, Dot Com, USA RE. The downturn here will be at least as fast & fierce as the rise to the top.
2) How low will it go? In general, in a bull RE market with bidding wars & hype etc. people pay as much as they can possibly borrow. If the banks gave the average person 10M in credit, then guess what houses would be bid up to in a crazed market?
With debt to GDP at close to 150%, is there anyone left with any borrowing power with which to buy a house at today’s prices?
No, the majority is tapped out. Without HAM to support prices it’s anyone’s guess as to how low things will go.
In the correction, how many people in RE/development/construction related industries will be able to keep their jobs and support their lifestyles? This industry has been a massive contributor to GDP in the last decade.
If the precipitant to the above is a bursting of the Chinese Bubble, you can kiss commodities goodbye as well as the global economy along with HAM support.

Even though bubbles return to the mean without fail, with ++ bearish sentiment & lack of consumer credit, this crash will, for a time correct significantly below the long term trend line.
Therefore, my guess is that the bottom will be between 10-25% below the longterm trendline for any Canadian city with RE bubble characteristics.

#271 Waterloo-Resident on 06.19.11 at 12:12 am

Home prices in Canada will never go down again, for some strange reason they now only go up and up.

#272 Corban on 06.19.11 at 12:19 am

My book is in the mail hopefully, so here is my uneducated guess:

People still smoke weed and burn oil, so Western Canada will have cash for a while yet. Maybe stagnation until the mean rises to meet current prices? As for GTA..well, I played a lot of Grand Theft Auto back in the day and I didn’t think it was all that great.

#273 Kate on 06.19.11 at 1:12 am

I started tracking real estate prices in my Burnaby Heights ‘hood after a poster here suggested it. Here’s what I’ve got:

V883007 – 4025 Oxford – May 30 – $948000; June 18 – $899000

V883733 – 3631 Yale – May 30 – $869000; June 18 – $849000

V890327 – 3627 Trinity – May 30 – $928000; June 18 – $849000.

So the answer to your question, Garth, is ….now.

#274 Jas Girn on 06.19.11 at 2:04 am

The big crash will happen when BPOE chokes on his real estate debt. Now, send me the book Garth. Lol.

#275 Jay Currie on 06.19.11 at 2:21 am

So, once upon a time, I moved into a house which had just come off the market having failed to sell at 903,000. that was three years ago.

After we moved it went on the market at 803, then dropped to 798 and is now, four months later at 769 and sitting.

Decent enough house. Fun to rent.

So it is down 10% from a three years ago.

Which is about right for the Victoria market. The who thing is down about 10%.

Now, where does it go from here….well, not up.

Listings are up. The 2m plus market is so dead realtors are pulling listings off MLS while they keep them on their “keep hope alive” websites.

My bet, right here, is that another 10% this year is unlikely to clear the market. But that is what we’ll see regardless of interest rates.

Vancouver will crash much harder. But with the flight capital out of China, the crash will look softer than it will actually be.

Boxes in the sky are already in full rental mode. So are houses at silly rents.

My prediction is 10 percent this year and then 10 % a year for ten years.

#276 PPP on 06.19.11 at 3:53 am

My 2 bob’s worth: Australian property has tanked. Not yet reflected in prices but there is no volume. Auction clearance rates at 15% in major cities and that’s BS stats from realtors. Buyers have stopped dead in their tracks. Vendors just need a touch of reality and “bang”. I have followed Garth’s pathetic little blog for a year or so now and am amazed at the similarities between your bubble and ours…….Vancouver sounds like the ultimate though, especially based on those photos of what look like backyard dunnies of $1.7 million….so, I reckon 50%. Probably more…..seal blood on the streets by 2013, no wuckin furries.

#277 Pr on 06.19.11 at 5:09 am

…The depth and length could shock many people, and have dire consequences for the at-risk groups. One BIG surprise will be for the other group who cause the mess in the first place, look at Greece, the prime minster fly in helicopter, he push the people to far. He will never live in Greece again! Greeks, Dont give up your beautiful island to the bankers! Go Greece! Vancouver be prepare.

#278 tomohawk on 06.19.11 at 5:39 am

I think the driving forces behind any long-term market correction are demographics and psychology. So I will say:
– Suburbs in most major cities will be in bad shape. Most will drop 30% or more over the next five years as the price of gas continues to climb. The more car-friendly the suburb the worse it will be.
– Anyone living in the centre of a city is probably okay. The ability to walk/bike to work, the store, etc. is going to compensate somewhat for the higher cost of living there. So say 10% drop in the centre of most cities, perhaps Vancouver being an exception.
– Multi-story SFH are going to tank big time as families are smaller and seniors don’t want to navigate stairs. One story, smallish homes will do okay. The McMansion era is pretty much done. The one exception will be for the uber rich, they can afford to live large even if the SHTF.
– Families will concentrate into fewer dwellings. So you may commonly see three generations living under one roof again in order to save expense (heating, childcare, etc.). People will learn that growing veggies on a small plot of land is a lot smarter than having a pristine lawn full of grass.
– Farmland will drop in price as the average farmer is quite old and surely deserving a good retirement, but then go back up in price as people realize that the food they eat is mostly garbage and expensive to boot.

#279 Devore on 06.19.11 at 6:59 am

#264 Been There, Done That

“Dream world”? That’s exactly the same thing I’m saying. You’re agreeing with me. Pre-bubble buyers will sell at pre-bubble prices without breaking a sweat because they never got caught up in the bubble in the first place.

You’re assuming they haven’t partaken in the equity party. Negative savings rate in BC means that, on average, they have. Take away renters, who have no equity to borrow (those poor sods), as well as the recent 0% down buyers, and the picture looks even worse.

Hey, I’m sure you’re right, probably nothing to worry about.

#280 T.O. Bubble Boy on 06.19.11 at 8:00 am

@ #269 Nostradamus Le Mad Vlad.

That link re: the end of OTC Silver Trading is extremely interesting… lots of other tidbits in there too from the Dodd-Frank act, including the Accredited Investor Qualifications, which now *exclude* the value of one’s principal residence in calculating net worth.

Imagine if they used those qualifications here!

The recent articlea about all of the “millionaires” in Canada would need some serious revisions.

#281 Neo on 06.19.11 at 8:23 am

#253 Smoking Man

I think you need to go back to understand what things actually exaserbated the Great Depression. You will find things eeirly similiar. 1.) Excessive U.S. Government spending to get out of the deflation death spiral…check. 2.) Rolling defaults across Europe which caused the second leg down….soon to be check. Greece defaulting will be a disaster. You thinking otherwise shows your lack of understanding not only of history but of the many intrinsic layers that are involved in Globalization. Canada’s resource based economy will take a huge hit from the eventual deflation that will take place.

#282 Not Fooled By Property Spruikers Hype on 06.19.11 at 8:33 am

Garth

Remember one thing in the USA & Ireland at the peak of their markets (2003 – 2006) the Banks would send out “Licensed Valuers” to value a property they would perform their “Black Magic” & give the Banks a piece of paper that would tell them a house was “Valued” at $500K & the banks would lend the buyer $450K assured by a piece of paper that the property was worth $500K.

That same property today is worth under $250K & falling…. Want a common sense Valuation?

Throughout history a house has been valued at 2-3 times Average Single Male Income {Not Household Income } & Investment property is 11 times rental yields. It really is that simple, anything else is just a temp quirk that will revert back to the norms.

I am from Perth Western Australia a so called “Mining Boom” with $120 Billion Dollars of projects in the pipeline. (Yes Billion not a Typo!!)

Yet our prices have just dropped 8% in the past year after going up 200% since 1999 – 2000.

Agents are trying to reassure the markets that thisgs will be back to normal.

But normal is 2-3 times Single male income. I know the agents are not referring to this as the Norm but a short period in history when prices ran away fueled by cheap easy credit.

#283 hornyvulture on 06.19.11 at 8:40 am

The stock market is heading lower, so companies lay off workers and home buyers lose confidence. HAM is scared away from Vancouver by riots. Once MSM states declines, real estate newbies will realize their error. Fear that Canada is no longer different will perpetuate to cause long term decline in prices.

Even so, there will be only a 2 to 5 percent decline in home prices this year because people only sell at a loss when they are forced to. Sellers think their castle is worth way more than market value. They chase the bottom of real estate and not lower their price for many months.

PS. Thank you Garth, for teaching us what the banks don’t want us to know.

#284 terces on 06.19.11 at 8:53 am

Garth – you asked for predictions about where the market is going this year – and get a bunch of blather from your readers……so here is my prediction.

Every bubble in history reaches a tipping point, perhaps a pin prick that starts to let the air out, the proverbial last straw that broke the camels back.

The irrational exuberance in Vancouver is classic bubble mania – you cannot reason with the people who are chasing this market.

I have surmised for sometime that when the bubble bursts in Vancouver it will roll across the country and affect all the markets.

This past week Vancouver had some nasty blows – they lost the Stanley Cup final, they rioted and embarrased themselves on the world stage, the governor of the Bank of Canada – Mark Carney – flew to Vancouver and delivered a warning that the real estate is severly overpriced. The TD issued a warning that Vancouver real estate will drop in value this year. My prediction is that Wed June 15 will mark the moment when the Vancouver Real estate bubble started to hiss air. Within the next year the last 20% to 30% of the spike in values in Vancouver will be wiped out. Then the market will grind lower, as it has been in the rest of Canada at an almost imperceptable .4% to .7% per month.

As the media starts picking up on this storey, the decline in values in Calgary, Edmonton, Saskatoon, Toronto and Montreal will become more obvious to the public, who have been constantly lied to by the real estate boards and media.

Vancouver will drop 20% to 30% this year. The others will continue to drop 5% to 10% this year. The public will start to accept the facts. The “wealth effect” will turn into a negative wealth effect and we will start to spend less, much less this year.

To top this, the price of oil will continue to decline this year, and in tandem with the drop in oil, the loonie will fall well below parity with the U$D.

You heard it here first.

Garth if my submission is chosen as a winner in your contest I would much prefer to receive a new IPad2 as a prize as I already have a copy of your book.

Best Regards

#285 UVZ on 06.19.11 at 9:02 am

I think it has been established that based on rational calculation Canadian RE is currently at a massive price bubble.

DECLINE = A long-term drop (e.g. over five or more years)
COLLAPSE = A short-term drop (e.g. over two years)

Decline Factors:
1. Boomers liquidating SFHs
2. Record-level indebted Canadians with no or insignificant interest rate hike
3. Natural reduction in number of buyers (i.e. fewer buyers on hand) versus RE supply
4. Gentle tightening of credit debt lending guidelines
5. ‘Herd’ moving away from real estate while numbed by mainstream media optimism

Collapse Factors:
1. Global economic implosion
2. Record-level indebted Canadians with significant interest rate hike
3. Tough love tightening of credit debt lending guidelines
4. ‘Herd’ moving away from real estate while fear-mongered by mainstream media

Wildcard Factors:
1. Unexpected major natural or manmade events (collapse or decline factor depending on event)
2. Foreign RE investor behavior at a time of record global economic problems (offset, collapse or decline factor)

The pieces are in position.

#286 Albertaguy on 06.19.11 at 9:09 am

Here is the correct answer:

a 5% decline for every .25% increase in BOC rates and/or for each 5% increase in required minimum down-payment

otherwise business as usual 5% increase per year under current conditions

#287 TaxHaven on 06.19.11 at 9:14 am

Graham: If your $100K house ends up worth $103K, but the price of pork is up 60%, of electricity 35%, of canned beans 40%, of oil 50%…you are NOT “ahead”. Not even “making out OK”.

In fact you’re dead in the water, even IF everyone else’s house has lost even more than yours…

Because you can’t eat houses and nothing will beat renting…

#288 SMOKING MAN on 06.19.11 at 9:27 am

262 UVZ on 06.18.11 at 10:33 pm
#253 SMOKING MAN

Smart money buys low not high. They don’t even buy low. They buy very low.

Only time will tell how big ‘the herd’ is.
.>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Perhaps but Bubble Head Money never buys anything.

To afraid of risk

#289 Daisy Mae on 06.19.11 at 9:37 am

“betamax on 06.18.11 at 9:57 pm#212 Live Under Your Means — have hubby call the guy back and cancel the ride because your trip was cancelled”

Notify the police and/or hire a house sitter, as well?

#290 stage1dave on 06.19.11 at 10:13 am

Back in 05, I was crunching numbers coming out of the USA & already getting involved in flame wars re: inflated car values & the like on some of the car boards I’m on…when the RE component got added in, I just thought it was a logical extension of “casino capitalism”.

By 08, I was hearing first-hand horror stories from a few of my US buddies about the housing situation (“I’m the only house on my street without a for sale sign in the yard”) & disappearing 401K’s…

(It’s worth mentioning that more than a few of my verbal opponents were of the opinion that if a bunch of underqualified immigrants had not been allowed to buy housing with no money down, everything would be fine. Apparently, the economic downturn in the USA could be laid at their collective feet alone)

Later in 08, coping with $1.43/litre gas, no real interest rate to speak of, & being particularily bored one evening; I got involved in yet another discussion on one of these car boards about “the future of housing”, & made the following predictions:

1) Prices will continue to escalate until another bubble needs to be pricked…& the profits taken.
2) Once a record level of indebtedness has been reached, & the maximum amount of suckers hooked; interest rates will rise.
3) As the banks have taken a huge hit on large non-performing house loans, government/taxpayer subsidies will then flow out to these poor, struggling institutions. (Turns out most of that got handled while I was typing, with, I presume, yet more to come)

I figured 3-4 yrs for all this to take place, because in place of a crystal ball I had substituted the 70’s & replaced Brazil with the average NA homeowner. As this economy doesn’t “produce” much of anything anymore, credit must fuel speculative bubbles…

House prices will return to a value that conforms to the normal inflation curve, as several posters have noted; pre 2006 pricing. Communities that have drank the KoolAid (hello, Saskatoon!) with the aid of gov’t supplied down payment enhancements will fall harder, & faster.

Average households generating 100K of gross income will be able to finance a 220K working man’s bungalow @ 7% & still be able to dress their children. That’s where average prices are headed. I won’t comment on Vancouver, because I simply don’t understand what in hell is going on out there…& I don’t know any HAM. (I also won’t mention the GTA, because although I was born there I can’t be held responsible for this)

One last thought re: house valuations over the long term: the only things I’ve seen that CONTINUALLY appreciate over time & AHEAD of a nominal inflation rate is stuff that had a small production run and/or THEY’RE NOT MAKING ANY MORE!

Bobby Orr rookie cards, Ferrari GTO’s, 1948 silver dollars, drawings by dead (verifiably, not socially) artists…maybe autographed Garth Turner books?!

In conclusion, IF you’re going to speculate, try doing it with something that CAN’T BE REPRODUCED by your neighbour…simply because he’s got a bigger LOC. And, get in & get out!

Happily renting in Edmonton…

#291 CanuckMe on 06.19.11 at 10:40 am

I predict that housing prices will correct 30-40% by 2015 as interest rates rise and another 20% by 2020 as boomers sell to lesser demand.

#292 penpal on 06.19.11 at 10:45 am

about # 217

I PREDICT WITH 100% CERTAINTY THAT IF YOU TAKE A MENTAL COMPETENCY TEST THAT YOU WILL FAIL.

Do you even reread the bullshit that you post before you hit the “SUBMIT” button?

Why even post if your lack of critical thinking skills is just so evident?

I sincerely hope that you have not reproduced.

#293 Ronaldo on 06.19.11 at 11:04 am

#284 Terces – totally agree…you hit it right on the nose-when the last ones to the party are the realtors themselves, you know this party is about to end real soon. They, the very ones who drove this thing, will end up being the greater fools. Can’t wait.

#294 BrianT on 06.19.11 at 11:15 am

Good summary of the Greek situation-to the PTB we are all Greeks eventually http://sturdyblog.wordpress.com/2011/06/18/democracy-vs-mythology-the-battle-in-syntagma-square/

#295 American Werewolf on 06.19.11 at 11:24 am

@ #253 SMOKING MAN

Your flowery assessment forgot to take into account what happens when China implodes and stops buying Canadian commodities like crack to keep up with their 10% target growth rate.

#296 Up till down on 06.19.11 at 11:30 am

Very surprised at the generally positive sentiment of people who are guessing. Given this is a mild doomer blog, I suspect no crash in 2011. Economics is meaningless when it comes to housing and with low rates, a percentage can still buy, so prices will rise…

That said I’m all with the bank of canada, it’s not healthy for anyone.

#297 TurnerNation on 06.19.11 at 11:43 am

If home ownership in Canada is at 70% levels, what of the many speckers and flippers owning 2-5 rental condos or houses on top of their principle residence?

Home ownership rate could be over 100% (on paper) if one uses a ratio of one house/condo = one household.

The most shocking items on this weblog are the accounts of ordinary middle class Canadians owning 2-4 rental properties. Unreal. That 500-600sq foot new condo boxes run 300-350k + 600/mo in taxes and condo fees, at the low end, in downtown Toronto is way out of line vs. possible rental income stream.

It’s all fun and games at 2.5% interest rates. But what about in 5 years’ time if rates are up to 6% and condo fees, taxes, utilities are up by another 30%?

#298 SaggyBottomBoomer on 06.19.11 at 11:49 am

Well here in the Okanagan where I live real estate has already dropped in value. Not quite in free fall yet but headed there. The last year has seen price drops of 15-20%, particularly as you get further from Kelowna and into the outlying areas. The mania in Vancouver will end soon and I can see similar price drops coming into effect across the country. As many have commented the only thing we are waiting for at this point is the triggering event that will start the slide.
So in short I say there will be a slide and the decline will be at least 10% this year across the country and a similar melt until we reach the bottom, which if the rest of the world is any indication, could be a long painful slide down the razor blade of life.

#299 Ben on 06.19.11 at 12:02 pm

Dirty HAM cash needs to be washed, no better way then buying 1.5 million houses cash.

#300 Keith on 06.19.11 at 12:16 pm

I’ll have a go: Every modern bubble is fueled by easy credit, every modern bubble is burst by a contraction of credit. Mark Carney continues to issue warnings about the debt levels of canadians, while leaving interest rates untouched, and mortgage funding/insuring policies at stupidly unsustainable levels as has been pointed out on this blog many times. So the answer to when is when Carney grows a pair and moves the BOC rate to a level that reflects the real rate of inflation in this country, sadly underreported by official statistics.

How much? The words of a couple of investing giants come to mind: John Maynard Keynes ” The market can stay irrational longer than you can stay liquid” and Warren Buffet ” When markets are irrational for long periods of time, the day of reckoning can be very painful” (I’m paraphrasing). In Vancouver where I live, the return to a rational level will be the long run value of real estate which means that price increases over the rate of inflation will contract back to reality.
I would say 30 – 40 percent is not impossible.

#301 VICTORIA TEA PARTY on 06.19.11 at 12:27 pm

“…magnitude of a correction…”

Canada’s real estate “industry” is part and parcel of our greater economy. And thanks to our (let’s be truthful, here!) colonial status, in this nuts-oid world, prices will be determined by the fates that lie in wait for our trading partners over the next period of time: US, UK, EU, Japan, China.

All of their economies and various markets are, one way or another, pretty violently “ill” right now and no respite is in sight.

As a result, I believe the move in Canadian real estate prices will be for them to trend lower for many years to come. Determing actual figures, nationally, will depend on regional outcomes, then averaging those out.

So I’ll go with a full year (2011) real estate percentage drop of 5 per cent. Next year, the decline will accelerate, but I don’t know by how much, because by then the trend line down will be out of control. The legitimacy of the world’s largely illegitimate banking sector will determine the rate of decline at that point.

In other words, a very long and meaningful swoon, the death of a thousand tiny price cuts.

#302 Raj on 06.19.11 at 12:46 pm

I think it may be less complicated than most believe. If we assume greed keeps prices going higher, than fear will drive prices lower.

Buyers need to be driven by fear and sellers as well in order to have a price correction. The last time we saw a pinch of fear was when the global crisis began. At this point, the stock market was falling, and all we heard about was Armageddon and future job losses.

The good ol’ government then used their stimulus to steer the economy out of the dumps, with the assumption that things will pickup and they can begin to ease out of the quantitative easing that fueled the resurgence in the RE market. Problem is, the economy hasn’t improved as thought, thus the steering will continue, and the market will continue to balloon higher.

The question of the pop is not of IF but WHEN. This is a trick question, as Carney is in control, and can/will let the only thing driving confidence in the market right now, and that is housing. Buy and house, flip it, and you’ll make money. That’s the Canadian economy we have right now.

There will not be a big drop in housing unless the fear element is involved, and the driver of that is the MSM. All I hear about is the good stuff, prices are going higher, tighter supply, HAM, cheese, and everything else people can afford to eat now that food prices are higher than last year.

If interest rates remain low, no drop in housing, if the stock market crashes and people start to wear depends on a regular basis, then things may get a bit interesting.

Where this story heads from here is more like a page out of the “choose your own adventure” novels from way back when.

Turn to page 25 if you believe rates will rise and Carney causes Carnage.

Turn to page 30 if you want to continue snorting cheap debt until you go blue.

Turn to page 31 if you wish you had HAM.

Turn to Garth Turners new book if you are in need of a Financial GPS.

#303 Dorf on 06.19.11 at 12:51 pm

263 – Mr. Buyer

Everything you say is true, but it all depends on everybody working hard and putting in the effort. It also depends on everybody contributing and nobody taking a free ride. It also depends on others listening and accepting the information they are given.

So far, we have been attempting this concept for thousands of years and we only get further away from it, so good luck with that.

Asking for the magic answer is not seeking knowledge, it is seeking the easy way out. It is a refusal to read and listen and think and think some more. It is two seconds work compared to people who have spent countless hours reading this and others to get all the information they need to MAKE THEIR OWN DAMN DECISION INSTEAD OF ASKING EVERYBODY ELSE TO RUN THEIR LIFE FOR THEM.

These are the days of genetic cleansing.

What this economy will really do is weed out the lazy, the inept, the useless, the unskilled, the unambitious, etc, etc. It is in no way whatsoever geared to teamwork and acceptance of every useless, lazy, loser as part of the overall team, because they need to be carried.

Sorry, I didn’t generate this system, I’m just trying to keep on top of the ever-changing rules.

#304 UVZ on 06.19.11 at 12:51 pm

#288 SMOKING MAN

You may be right. However RE buying opportunities come rarely in a lifetime. In recent memory there were the mid-1980s and the mid-1990s.

The Bubble Head (aka small time rational RE investor) would only know when the timing is right if he/she understands the numbers and is positioned to act when everybody else is running away.

#305 don on 06.19.11 at 1:36 pm

I’ll take a shot! (not listed in any order)

1) Ongoing World financial mess and political situation (corruption) – Costly, unneeded wars $$$
2) Current unsustainable levels of both government and household debt – House equity loans, reverse mortgages eating away at principal, shinny news cars
3) Young people folding to peer and parent pressure to start in a mansion and not a starter home – Young first on the layoff list
4) Human nature forgets the past and no research is done (Human nature in most cases appears to be cyclical). The race with the JONES is a catchy fever even common sense doesn’t seem to cure this.
5) China’s recent announcement regarding officials stealing vast amount of money and hiding over seas – well China won’t be letting that happen anymore.
6) This will be the year of the strikes
7) Hearing stories that banks are already slowing down the house equity loans.
8) Demographics – Housing boom started as pre-boomers, freedom 55’ers started to retire early. Moving into 3-5 bedroom houses in designated retirement areas away from there families as opposed to Young families who have a lifetime of living in the area. Retirement and downsizing is about to explode.
9) The stock markets have fallen a great deal over the last three weeks.
10) Rising interest rates sooner or later, but inevitable.
11) Higher taxes, higher unemployment, inequality gap, lobbyist stricken politicians, Privatization and out sourcing the MBA’s 1990 – 2011 mantra is actually more costly in most cases and degrades services.
12) 70% home ownership in Canada, Who is left for you to sell your house too. Some of those HAM’s will now be running from the Chinese Communist Party for embezzling funds.
Conclusion:
Canada follows the US in most everything when it comes to bubbles (late to the Party and last to leave) not in all cases but definitely when herd mentality takes center stage. Ignorance and the ‘It’s different here’ mentality, allows others to justify similar situations. There will be an initial correction and it will mirror the US to some extent. Years of price declines – sales by the end of the summer will be stagnant as is already becoming apparent. Victoria BC, something like 2000-2400 real estate agents and 400 sales last month. Guessing the exact date is for impatient people who are looking for the light at the end of the tunnel – and this tunnel is a long one – and we’ve just entered. If you have border line equity and will have trouble when rates rise, it would be a good practice to reevaluate the worst case scenario – don’t be a debt slave forever. People who remember the past can sense stagnation in the air, smaller numbers of tourists, less people shopping in Canada, less people eating out (packing lunches to work), more people worried about money. 2011 could be the Tipping point. Any one factor can spark off the price reduction>
A) Rising rates
B) Demographics (need to retire and down size) the recently informed will be the first out and that may be enough to start the implosion as the rest of the herd catches word.
C) House hold debt
D) Higher unemployment – single family incomes
E) Crack down on the HAM’s – pressure from China
F) Commonsense and principles of sustainability being championed by the herd (less likely – but would make me sleep better at night)
G) Higher taxes, diminishing retails sales, layoffs – vicious cycle.
I’m sure there is more that I have missed or have not stated. But my two cents. Once upon a time Buffalo’s were hunted by herding them to run off cliffs.

#306 Rob now in Nova Scotia on 06.19.11 at 1:36 pm

Hi Garth,

Thanks for soliciting everyone’s input. May I suggest a sort of voting formula, with A) no correction, B) 5 -10%, etc.

A stock broker once said, you can predict the magnitude of a correction but not when or you get the timing right and the value of the correction wrong.

My prediction is at the end of this year, home values will be down 1-2% across Canada, with Vancouver and the GTA 4-5% up, skewing the results. Next year, the average home is 5% cheaper across Canada with Vancouver and the GTA down 1-2%. My prediction assumes no major rogue events like a default in Greece, QE3 in the US, no major war anywhere, etc.

If there is a rogue event like one of the above then we get cold water thrown on the stock market, which destroys investor confidence and we get a waterfall decline across Canada and then who knows where the housing market will fall to.

I predict that within the next 3 years, we will witness some kind of major rogue event that will be global and that is what will pop the housing bubble more than anything that Garth has written about in his blogs. When we get there, housing across Canada will be worth 5 to 10 cents on the dollar and you will have a lot of selection. That will happen within the next 10 years.

Robert B.

#307 LS on 06.19.11 at 1:38 pm

#273 Kate

Thanks, keep posting updates, it is quite interesting!

#308 poco on 06.19.11 at 1:44 pm

#273 Kate
I started tracking real estate prices in my Burnaby Heights ‘hood after a poster here suggested it. Here’s what I’ve got:
V883007 – 4025 Oxford – May 30 – $948000; June 18 – $899000
V883733 – 3631 Yale – May 30 – $869000; June 18 – $849000
V890327 – 3627 Trinity – May 30 – $928000; June 18 – $849000.
So the answer to your question, Garth, is ….now.
—————————————————————–glad to see others doing this–you get the true picture in any given neighbourhood of where prices are going and how quickly they can go down

i usually write the realtors name down and if the listing disappears, i’ll wait about a week to see if it’s relisted (new price and new mls#-hence new days on market—

i’ll phone the realtor and tell him/her that i am “kinda” interested in the area and want to know what the selling price was–they’ll always tell you, thinking they’re getting a new client. works all the time

unfortunately as you can see, 90+% of the posters on here have never tried this and have no clue to what is really happenning in the housing market in many areas of the country–i guess they rely on those dumb CREA numbers

#309 don on 06.19.11 at 1:45 pm

To add to my last post: final prediction is that houses will fall back to affordable prices. You house is only worth as much as someone is willing to pay.

#310 God on 06.19.11 at 1:50 pm

Where’s my G*d damned book ?

St. Peter…..e-mail Grim Reaper….see if wants some O/T.

#311 maxx on 06.19.11 at 1:59 pm

#253 SMOKING MAN-

…incomes are e.v.a.p..o.r…a.t..i.n……g, the herd is now well aware of it and H, F and C have no choice but to follow the yellow brick road to restore financial sanity. The first step on the road is to raise rates. Slowly, at first, but raise rates they must.

#262 UVZ- Precisely.

#312 MikeT on 06.19.11 at 2:11 pm

@300 Keith:
Buffett’s ” When markets are irrational for long periods of time, the day of reckoning can be very painful” is applicable to so many other things:
– the more you extend the rubber band, the more painful when it snaps
– the longer the drought period – the more violent the first rain after it
– the longer without [email protected], the more pleasant it is :)
– the thirstier you feel – the more water you drink when you get it
etc.

#313 Devore on 06.19.11 at 2:24 pm

#300 Keith

Every modern bubble is fueled by easy credit, every modern bubble is burst by a contraction of credit. /…/ So the answer to when is when Carney grows a pair and moves the BOC rate to a level that reflects the real rate of inflation in this country, sadly underreported by official statistics.

Credit won’t continue growing forever, it does not have to shrink, just slow down.

#314 BrianT on 06.19.11 at 2:37 pm

#293Ronaldo-Newsflash: Realtors don’t control the Bank of Canada, they don’t control CMHC and they are not directly influenced by Goldman. If there were any all powerful realtors invited to the Bilderberg meeting this year they were left off the leaked list.

#315 poco on 06.19.11 at 2:43 pm

#264 Been There, DoneThat
According to StatsCan I live in a city of 320,000 people that reside in 145,000 households. The local realty board reports 4000 or fewer sales in any given year – about 23,000 total sales since 2005. Roughly 30% of households are renters, the other 70% owners. So we’re looking at about 24% of today’s owners being bubble buyers, which makes about 17% of total households being bubble buyers.
So yes, it is a relatively small number of people who have overpaid. The other 83% of us either bought a long time ago or are among those who are still renting.
As to this: “what do you think happens to the prices of houses that were bought pre-bubble era—that’s right they begin to come down—as they are doing now !!!!
sorry but you’re living in a dream world”
“Dream world”? That’s exactly the same thing I’m saying. You’re agreeing with me. Pre-bubble buyers will sell at pre-bubble prices without breaking a sweat because they never got caught up in the bubble in the first place.
______________________________________________

i guess your perception of 17% being a relative small number to my perception of 17% being a very large piece of the pie is like night and day

some economists like to turn the table when talking of percetages –ie: don’t worry 90.9% of employable people in the USA are working–and look where they are

and yes, pre- bubble buyers will sell at pre-bubble prices– but you miss the point–built up equity over the years since they bought (including the bubble years) will disappear over the coming years–who knows how far it drops.
and considering 60 to70% of boomers (9M-i think -retiring in the next 15 years ) do not have pensions or any worthwhile savings, what do you think they were planning to retire on–exactly –their houses!!!

“sell without breaking a sweat” again i repeat –you’re living in a dream world

#316 Jon in Cowtown on 06.19.11 at 3:33 pm

#284 terces, you’re entirely right, many of us have blathered, myself included. Garth’s question was: What magnitude of a correction do you expect this year? Or will there be one at all? The key being “this year”.

I think what terces is predicting, is entirely feasible. Give him an iPad Garth!

#317 Chris L. on 06.19.11 at 3:58 pm

Values will start to drop the instant the bank of Canada raises rates by 0.25% and seems to want to continue.

Prices in that year will trend lower by about 2% increasing in various markets to 5-10% over the early years after the rate rise. Any city with low job numbers or jobs who’s pay is level or decreasing will lose value soonest and fastest. Obviously Vancouver and Toronto will be hit hardest (up to 10-15%), while other markets who’s values don’t trend higher than the long term average of 2-2.5 times yearly income will shrink far less. Most, if not all markets will suffer some claw back in prices but will generally follow the same trend, even if moderated in scale and sharpness.

Values will shrink going forward 10 years and to a trough that was slightly higher than the long term trend and hold (not to rise for an additional 10 years).

Depending on what the government does, will write the course for the next years after the downtrend. Most boomers will keep their houses as will those who overbought for a period, but it won’t matter as the glut of houses will still override demand. As sentiment falls, so will interest and with it, prices.

As far as buying, start looking in 2-5 years or just as soon as RE falls out of favour to the next “big thing” to capture the imagination of the general public. When everyone has forgotten about housing, that will be the time to start looking.

#318 Live Under Your Means on 06.19.11 at 4:07 pm

#256 betamax on 06.18.11 at 9:57 pm
#212 Live Under Your Means — have hubby call the guy back and cancel the ride because your trip was cancelled.

Hubby did next eve., but only on an answering machine. Left a msg that trip was cancellled and said we might use his services in the future – to pretend he thought the guy wasn’t a scam artist.

Anywho, several neighbours will be keeping a close eye on our house. At least 3 have keys and code to our alarm system. One couple will be visiting inside every 3 days, and a few will check the backyard. This all started years ago when one of our neighbours were broken into – they ripped the frame of the side door out. We were on our back deck – 2 homes apart – and never heard a thing (fairly large lots). I can’t believe that one neighbour, who goes to their cottage for days, never locks their garage (and wouldn’t doubt their door leading to their kitchen).

#319 Live Under Your Means on 06.19.11 at 4:17 pm

#289 Daisy Mae on 06.19.11 at 9:37 am
“betamax on 06.18.11 at 9:57 pm#212 Live Under Your Means — have hubby call the guy back and cancel the ride because your trip was cancelled”

Notify the police and/or hire a house sitter, as well?

……………

Daisy Mae – My 2nd reaction was that he should notify the police. But realistically, they will not patrol our street on a daily basis. We live in a fairly nice neighbourhood and there are so many other areas of the city that experience much higher crime rates.

#320 Live Under Your Means on 06.19.11 at 4:31 pm

#289 Daisy Mae on 06.19.11 at 9:37 am
“betamax on 06.18.11 at 9:57 pm#212 Live Under Your Means — have hubby call the guy back and cancel the ride because your trip was cancelled”

Notify the police and/or hire a house sitter, as well?

——————

PS to my previous reply to you. Too late to hire a house sitter. When we had our darling Echo, a fab. black lab, we always had someone to stay with her when we went on vac. for 2/3 wks. She had never been put in a kennel when young so too difficult to do so when middle aged. She would shun us for the first day or 2 when we returned.

#321 zombiedelight on 06.19.11 at 4:38 pm

There s a really simple solution to prevent future bubbles to run so high….
There should be an information law that forces all real estate agent to tell their customer where’s the price of houses situated in a 50 year moving average….

So every buyer would get to see a graphic of the price of the house they desire and what might be the future price of that house in 20 years, ie it might go down 200k before the mort-gage is over.

Hey F, C, H, CMHC, like my idea???

#322 TurnerNation on 06.19.11 at 4:42 pm

Our tax dollars at work. Harper has professed his love for this tiny country overseas:

Experts Fear Israeli Design to Balkanise Arab States

By Adam Morrow and Khaled Moussa al-Omrani

Jun 18, 2011 (IPS) – Cairo – Developments in Libya have raised fears among Egyptian analysts and political figures of the possible break-up of the North African nation into two warring halves. To support the assertion, they point to longstanding Israeli designs – supported by the western powers – to balkanise the Arab states of the region.

“Libya could be split in two, with Gaddafi staying on in the west of the country and a revolutionary government loyal to the western powers in control of the east,” Mohamed al-Sakhawi, leading member of Egypt’s as-yet-unlicensed Arabic Unity Party, told IPS.

For three months, Libya has suffered internationally sanctioned air-strikes by the western NATO alliance, launched with the stated aim of supporting the ongoing popular uprising against the Gaddafi regime. Revolutionary forces based in Ben Ghazi now hold most of the country’s eastern half, while forces loyal to Gaddafi continue to control the country’s western half from the capital Tripoli.

Yet the fact that NATO – despite its overwhelming air superiority – has so far failed to dislodge the Gaddafi regime has led many local observers to question the western alliance’s intentions.

“The western campaign against Libya wasn’t undertaken to protect human rights or foster democracy,” said al-Sakhawi. “It was launched with the aim of breaking Libya up politically so as to prevent the unification of three revolutionary Arab states – Egypt, Libya and Tunisia – which together might pose a threat to Israeli regional dominance.”

#323 TurnerNation on 06.19.11 at 4:50 pm

Tax dollars part II: “We know he has WMD”

“In “Winning Modern Wars” (page 130) General Wesley Clark states the following:

“As I went back through the Pentagon in November 2001, one of the senior military staff officers had time for a chat. Yes, we were still on track for going against Iraq, he said. But there was more. This was being discussed as part of a five-year campaign plan, he said, and there were a total of seven countries, beginning with Iraq, then Syria, Lebanon, Libya, Iran, Somalia and Sudan.

…He said it with reproach–with disbelief, almost–at the breadth of the vision. I moved the conversation away, for this was not something I wanted to hear. And it was not something I wanted to see moving forward, either. …I left the Pentagon that afternoon deeply concerned.” “

#324 Joethebruce on 06.19.11 at 4:52 pm

All I see in my area are homes selling for top dollar. It seems obvious that we are in a bubble but I think there is a lot more room for air before this thing pops.

#325 Mikey the Realtor on 06.19.11 at 5:35 pm

“#242 Kat on 06.18.11 at 7:08 pm#156 Mikey the Realtor

For someone that should be so busy (because the market is so great, as you constantly hint at) you seem to have tons of time to read this blog and make meaningless comments.”

Meaningless? Or it just doesn’t sway with your hopes and wishes? I’ll pick the latter.

The fact is that the demand is increasing behind the scenes and the supply is shrinking. This blog alone has about 10k RE owner wannabes. If prices pulled back a little the rush of buyers will easily overcome that pullback and before you know it, new highs.

#326 cendrine on 06.19.11 at 5:39 pm

At Brian T who said:#61Cendrine-Yes, but you neglected to mention or don’t understand the reason for all that. The global economy was booming because of massive discoveries of cheap oil (high quality cheap energy). This was followed up by an incredible increase in debt accumulation. We are at the tail end of both. As an aside, most don’t realize that the greatest gains in Canadian RE happened decades ago-these gains seem as impressive as the numbers (debt taken on) is so much greater. A friend purchased a house in a midtown TO location in 1972 for $25000 and sold it in 1989 for $500000. TWENTY TIMES OVER IN 17 YRS-those % gains are gone.

If I had said anything about peak energy I would have betrayed myself as a reader of the Automatic Earth.

I may have just spoiled my chances….

#327 Live Under Your Means on 06.19.11 at 5:48 pm

I’ve had one of the most stressful days in my life. Won’t go into it now. But, why do men blame their wives for everything – ‘you must have put that somewhere’ and then gee he realized he did. He ranted for hours – I said nothing but was fuming inside. He screwed up big time.

Four years ago I got into an argument with my French MIL. Their next door neighbours were present and totally supported me. Our departure was not friendly, to say the least. Two years later MIL was all sweet with me. Will see how we get along this time. My DH gets into real arguments with her as well. Thankfully, we take off and travel for several days.

#328 rational on 06.19.11 at 6:12 pm

There is no point to predict Mr. Market’s crazy behavior in one year. Nobody knows it.

The better question is
“What magnitude of a correction do you expect eventually?”

That will be easy to answer. Assume now is at peak time (likely), the ratio of house prices to income has historically averaged about 3.5 in Canada. It now stands at about 5.5. So the increase is 57% (5.5/3.5=1.57) , since all bubble will go back to the original starting place so the correction will be 37% (1-3.5/5.5=0.37). It usually will overshoot in both ways so at least 40% correction is a reasonable answer.

#329 Hoof - Hearted on 06.19.11 at 6:19 pm

#246 Nostradamus Le Mad Vlad


#233 Hoof – Hearted — “#52 westopia — Good link re: Ghost Cities”

Gentlepersons, there has to be a clear reason why those cities were built in the first place. A city is built with a purpose in mind, no matter if it is a tent city or an ordinary one.

Not too long ago, a blogger here (forgotten who) brought up the point that if there was a nuke attack on Shanghai or Beijing, or an event (caused by HAARP?) were to unexpectedly happen, where would the Chinese govt. house those people?

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

Politely disagree

You build UNDERGROUND in case of Nukes….

RE is simply a make work project…each unit will still need to be maintained….

No bigger indicator of a faux economy.

Search for videos of 3 Gorges dam….they had poor peasants with wheelbarrrows and buckets to build much of it…versus machines…to keep people employed.

#330 Hoof - Hearted on 06.19.11 at 6:23 pm

Feeling smug?

Watch this…not for weak – hearted.

Financial Terrorism Caught On Tape! – Max Keiser (2011)

http://www.youtube.com/watch?v=iKRud5QY31E

#331 TS on 06.19.11 at 6:32 pm

Contest question: What magnitude of a correction do you expect this year? Or will there be one at all?

It appears no correction in Toronto or Vancouver. No increase either. It appears H and F will let debt levels increase to make themselves look good a little while longer. Those two must be driving C nuts….
Next year is going to be just that much more brutal.

#332 mikef on 06.19.11 at 6:58 pm

@BrianT

How come Heather Riesman got invited to the Bildeburgs?

#333 Imstupid on 06.19.11 at 7:04 pm

#217 WATERLOO RESIDENT

Everyone must read this post.

I’m stupid, but you must be retarded. No that won’t be fair to classify you as mentally challenged. You must have the intellect of a chimpanzee. Your comments must have been a joke because no on can be that stupid and be able to operate a computer or spell for that matter.

I hope that one of the individuals who get the free book donate it to you, as you clearly need it the most. Garth if you read this please send that reader a book.

I won’t even comment on what was written. Please read his comments and you’ll see why.

#334 Jack Layton next PM on 06.19.11 at 7:06 pm

#318 Live Under Your Means

Anywho, several neighbours will be keeping a close eye on our house. At least 3 have keys and code to our alarm system. One couple will be visiting inside every 3 days, and a few will check the backyard. This all started years ago when one of our neighbours were broken into – they ripped the frame of the side door out. We were on our back deck – 2 homes apart – and never heard a thing (fairly large lots). I can’t believe that one neighbour, who goes to their cottage for days, never locks their garage (and wouldn’t doubt their door leading to their kitchen).

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

That’s why everyone should have a gun..,me and Ida think so…

Other tips

Have ” Beware of Dog” sign really works….

Friend with shotgun? When out in woods etc…have then blast a piece of 3/4 in plywood approx. 1 ft X 1 ft.

Hang it up with a sign ” This is what a 12 gauge can do to plywood “or some such inference….

Also,…some break in artists do a 2 step…..breach the door with crowbar…may make noise..test alarm…walk way….neighbours see nothing…then they come back later to a breached door

Repeal the gun law !!!

#335 El Magnifico on 06.19.11 at 7:26 pm

The new ad to attract foreign buyers to British Columbia…

http://www.youtube.com/watch?v=YjwrO6FqIO8&feature=player_embedded

And a tribute to one of its now world famous citizen:

http://www.youtube.com/watch?v=kMDKzS-_W8k&feature=player_embedded

#336 Nostradamus Le Mad Vlad on 06.19.11 at 7:26 pm


Walking Is Difficult for the pointy-haired boss, but squirrels do fly — Pix.
*
#280 T.O. Bubble Boy — “Imagine if they used those qualifications here!”

Thanks for the feedback. From your link, here is where $5K (or $10K, from Harper’s promise), continually put in TFSA’s via penny stocks then cashing out for $8-$14 per share a few years later comes in really handy — “. . . there are 182,000 households in Canada worth between $5- and $30-million and 17,000 households in the $30-million plus cohort.”

It really doesn’t matter whether all hell breaks loose here — it probably will anyway but as long as one has a good portfolio of 45% – 55% via Garth’s suggestion, then one can easily look after the family while helping others out (food banks, women’s shelters, SPCA etc.).

Cheers!

#284 terces — “. . . in Vancouver is classic bubble mania – you cannot reason with the people who are chasing this market.”

Esp. with the mfg. / industrial and I.T. sectors shipping their stuff overseas — how are McJobs supposed to pay those fat mortgages and replace those lost wages? This cannot be sustained for much longer.

#322 TurnerNation — Good post and nicely pointed out. The west is broke and has nothing left to lose, as per its citizens but perpetual war is a money maker (until it runs out).
*
6:26 clip Well lookkeeee here. Is the US military about to blow up Joplin? There’s not much left. Levees Breached This may have something to do with it, and the NMF. The looming Missouri dam flood. It’s already started. Fort Calhoun “Like Fukushima #4, the reactor is not the problem. Those spent fuel rods are!” wrh.com.

Arctc Winters More of them as sun continues to back off. Blunder by the IPCC. Very, very stupid even by toddler standards. This is beyond comprehension.

Russia With Libya and Syria (possibly Iran in the near future in uproar), Russia is taking the opportunity to avoid working with NATO. High Food Price and biofuels. Is there a link? You betcha!

Af’stan Like Greece, it’s broke; Default Speaking of Greece . . . ; Big Swiss Banks 2 big 2 fail? Let those m-f’s sink in their own mire; Such as . . .

More BS from the m$m, blaming others.

#337 brainsail on 06.19.11 at 7:30 pm

We left Canada in the 80’s and now live in Central Texas and have a constant eye on the thought of returnng. It’s 103F today and the winds are 20 to 30kts and the lake is down about 30 feet from the normal(55% full). Normally, we see a couple of days of over a 100F in July and August. We live in the the hills and our property borders a green belt and every time we hear a siren we rush to the windows for any signs of smoke. We haven’t received any measurable rain for many weeks and normally June is a wet month. So, we can’t sail and are stuck at home, reading this pathetic blog.

We put this nobrainer list of things that could influence where the North American economy goes from this point in time. After we completed it she walked away and said ” Things look so bad now, I’ve just decided to take a Pollyanna attitute from now on”.

1: Interest rates

2: Oil prices

3: Middle East conflicts

4: Climate changes

5: Conservative government changes

6: China syndrome

7: Japan hangover

8: Canadian and US dollar value

9: Vancouver riot (not really a riot but the result of drunken party and same thing would have happened if the Canucks had won)

10: Greece

11: Cap and Trade

12: RIMM

13: Nuclear Energy

14: Flood areas

15: Drought areas

16: Wildfire areas

17: Property Taxes

18: Residential & Commercial Ultilities

19: Precious Metals

20: Canada Postal strike

21: Air Canada strike

22: Food prices

23: Employment rates

24: Rare metals

25: We stop here, as there are many more

Garth, skip the book for us. I send my mother a copy, so donate a copy to BPOE. The “Biggest Pain On Earth”.

The real answer to your challenge is “Blowin’ in the Wind”.

#338 Mr Buyer on 06.19.11 at 7:36 pm

303 Dorf…Message recieved and understood. I get it. I heard somewhere a long time ago that in large organizations 80% of the work is done by 20% of the workers and 20% of the work is done by 80% of the workers. I do not know if this is anywhere near hard science but I have seen lazy people renumerated handsomely. To tell you the truth I have not met many rich people that I though were worthy of their riches but I have only met a few. Your ‘weeding’ sounds a little like natural selection. I have to say that nature is indifferent. We really do not want to devolve to the point that society is torn apart. Hey, I benched 355lbs in my 20s (8 clean reps) and can still move 255 rather easily. I am a pretty good shot and can still run like hell if frightend enough (but much shorter distances). I read a ton and work more (not so much in my 20s) so competition is not something I am so afraid of. Having said all that, I have a deep fear of the ground getting slanted so much that my children can not see a doctor and they or their grandchildren perish due to simple infections (something else that happened in my grandmother’s time) or at the hands of starving neighbors. I am not willing to risk pure natural selection because of the weight of lazy people.

#339 fancy_pants on 06.19.11 at 7:41 pm

What magnitude of a correction do you expect this year? Or will there be one at all?

Garth,
this year I expect little correction.

I believe Mr Carney will talk the talk for a while yet before he walks the walk. His wagging finger is just warming up and the action stops at that for now.

And Mr Flaherty’s tightening of mortgage rules in itself has not been enough to get the RE correction ball rolling.

Although the sentiment on RE may be shifting a little now, it has been slow in the making.

Bottom line is I believe until mortgage owners backed into a corner and are forced to begin forking out more $ for mortgage payments, there isn’t enough to really propel this correction.

It’s coming, sure, but Mr Carney holds that special piece of the straw that will break the camels back.

#340 Utopia on 06.19.11 at 7:54 pm

You know, a serious question deserves a serious answer.

As usual, my post is a bit long and so I have left it until the end of the weekend so I don’t have to read a dozen responses from the Dawgs howling about me being long winded. I already know that. Stating the obvious won’t cure me.

Anyway, I started thinking a little more about the prospects of a housing decline in the current year a little more analytically the last day or so and came to the conclusion that the most likely scenario is for only a modest decline nationally this year, if any at all. I now anticipate price stability in real estate for most of the country to the end of 2011.

My rationalization revolves around the issues of easy credit, interest rate increases, personal and public debts, the end of stimulus, inflation, consumption and Government demand. I have given less weight to unpredictable forces originating from outside the country. We cannot control those elements.

There are some here who want Carney’s head on a stick judging by their comments.

He has ruined the country by not raising interest rates (in their minds) nor is he is not working hard enough to cool the housing market. Others think Mr Flaherty should be roasted in purgatory for not having implemented policy more aggressively to end the euphoria of home speculation that has led the country to be carrying amongst the highest personal indebtedness of all our Western neighbors and friends.

Still others would shut down CMHC and end the insurance program that guarantees that even those with no money have the ability to buy homes they can ill afford. We are all aware by now that many buyers are getting into homes with effectively zero down . Almost everyone is disgusted that Canadians have not gotten the message that debt is risky in a world close to the tipping point of debt Armageddon.

There is unhappiness all around.

Many here still seem dismayed with the Stimulus program that cost us our surplus budgets and now they fret that taxes will rise in the future as we repay the bill while programs will be pared back; possibly even eliminated. They blame the Conservative government of course. They show ignorance of politics by so quickly forgetting that all parties readily signed on to the stimulus measures we all enjoyed.

The same policies that have saved our Canadian Bacon thus far.

Some of them wish to change history while forgetting that it was in fact the majority of the house who voted in favour of the measures that are now in place. They neglect to consider or remember how a minority government of the day could not possibly have passed any financial bills without the direct support and confirmation of a majority of the all the other parties. We can readily conclude therefore that the Stimulus program had all party support.

But the revisionists are the real fools of course. There are too many on this site in my opinion.

Perhaps they are right to worry though. We are about to embark on a home grown form of austerity in this country. It is one of our own making but it will be quite gentle compared to the “industrial strength” bath that the rest of the Western World is now facing.

Some of you in the pack who are howling for blood might need a time-out in the dog-house. A Valium or two might help to settle you down a little too. No biscuit for you!

I now doubt that interest rates will move far from their current low rates for the foreseeable future. It seems obvious to me that our country cannot simultaneously end stimulus measures, improve tax revenues through user fees, cut government spending and then drive down private consumption with increased rates all at the same time.

That is not sensible and would set us up for a hard landing in real estate markets. We don’t want that.

As unlikely as it sounds, the most that Mr Carney can do right now is to forcefully communicate the hazards of taking on ever higher levels of debt and hope that message gets through to the general public. He can clearly see the hazard in carrying out the demands to raise rates that some of the Blog-Dawgs here howl for. He will know it is insane as it runs directly in the face of government measures designed to bring our national balance sheet back to health.

So we have choices to make. We cannot do it all. Not all at once anyway.

Let’s just consider the position he is in for a moment. The Harper Government is clear that stimulus is ending. This means that the government will no longer be substituting public demand dollars to offset the lack of private consumption. That leg is being removed from under the chair of the economy. At the same time, Mr Clement and most other ministers will be preparing operational cuts to government and programs totaling four billion dollars as a means to reduce the budget deficit to zero over the governments mandate.

Those efforts will further reduce public expenditures.

While this is going on we need to keep in mind that in the background the global economy is slowing and as we have seen, commodities are retrenching which adds a third layer to our economic mix and allows us to predict some national revenues and income will decline over coming quarters as global consumption weakens. So weaker revenues combined with cost cutting will have an amplifying effect on our economy.

All of these factors can only lead you to the conclusion that domestic growth will be sluggish in the coming years. But our economy will still need some stimulus to offset these very material changes to our way of doing business. Interest rates are clearly stimulative and are really our only answer at this moment in time. I cannot see how any significant rate increases will be forthcoming particularly in light of continued efforts in the US to maintain a low rate environment.

Lets also consider that raising rates now will almost certainly harm our struggling manufacturers, lead to a carry trade which will drive up the Loonie and sucker punch every indebted home-owner in this country simultaneously while killing off even more private consumption as the remnants of disposable income are consumed with higher debt payments.

Can any of you see how that this is a difficult balancing act?

To answer the question Garth posed; I do not expect even a 5% national correction in home prices this year as I do not believe rate stimulus can be withdrawn at this time nor for several quarters into the future. Housing will continue to percolate as long as interest rates remain low.

Barring the introduction of a third round of Quantitative Easing in the US and a global economy that gets pumped back and starts growing again, our near future will likely see prices holding fairly steady, even rising in many markets as the overshoot from past stimulus works its way through the economy.

Mr Carney still has his own mandate though.

If inflation fears rise on the heels of more stimulus in the US while driving a fresh round of speculation in the ongoing commodity boom, he might have no choice but to bring in rate increases. It does not even matter that the inflation we have experienced thus far is artificial in the sense that it does not accompany real growth or rising wages.

He would then be forced to take action. But this suggests that the consumer in Canada will suffer a material squeeze in the coming years as both higher interest rates and rising prices bite into their wallets while taxes increase and social benefits decline on the heels of program rationalization at the Federal level.

Should he raise rates too aggressively, it is clear that the Government will be forced to moderate it’s deficit cutting targets in order to maintain balance in the economy. That is essentially the big picture view. What we do need is real growth coming down the pipeline, fresh investment and a more aggressive attitude towards selling our products abroad. Business needs to become more engaged in the process of supporting growth here at home. They need incentives.

Every effort that lowers the burden of business costs, streamlines bureaucracy, eliminates red-tape and removes surplus regulation from the books is net benefit to the economy at a time when there is not a lot of money to throw at every problem.

Policy tools and initiatives that encourage business investment will be a major factor that moves this country forward if a tight money environment arises. Like I have noted already, this is a difficult balancing act. The Dawgs need to appreciate that there is more to this country than just concerns over housing costs and that any changes with regard to taxation, interest rate increases or deficit-cutting will cascade through the economy with potentially negative impacts for business, manufacturers, our retail sector and even investment in resources if the approach is too heavy handed or abrupt.

A rationale and gentle approach is required.

High personal debt levels are already having a damaging effect on private consumption as we can see but to compound the problem now would virtually ensure the onset of a domestic recession. The very irony that low rates are what is behind the high debt loads Canadians carry is lost on nobody yet to reverse policy when the economy is still somewhat weak appears counter productive too, if not outright dangerous. Where is the middle ground?

In the meantime, there are solutions to our problems that are best dealt with by Provinces, Municipalities and Federal Agencies like CMHC. There is no reason that our housing insurer cannot target overheated postal-codes with higher down payment requirements for example. In Toronto, the council there might be considering limiting the volume of building permits or taking other measures to restrain some of the excessive speculation. Failing to do so suggests it may be incumbent on other levels of Government to step in and impose some sanity on the most overheated cities.

The market is clearly out of balance and while it is too late to reverse the events of the past it is not too late to cool some of the speculative frenzy in key areas with targeted regulation that might shift investment to areas outside the hot zones.

In the final analysis, I believe that housing prices will remain stable for the foreseeable future and that no real correction (Vancouver excepted) is in sight as long as the easy money policy and low rate targets of the bank of Canada persist.

And on that note I think it is clear that Mr Carney will be hard pressed to raise rates contrary to those that currently exist in the US. Nor do I believe he can do so easily at a time when the Federal Government is cost cutting, eliminating stimulus and possibly contemplating tax increases or formulating new revenue streams.

Last, as the commodity boom has now cooled and oil prices are falling, the threat of growing future inflation will be moderated. This is central to whether rates rise or not and is key to my contention we will continue to see a low rate environment for much longer than most here believe is acceptable.

#341 Killer Chicken or Imploding Boomer? on 06.19.11 at 8:22 pm

338 Mr Bench press – arent you ESL teacher?

Renumeration??

#342 .9999 Silver on 06.19.11 at 8:39 pm

Vancouver
In BC all property evaluations are a fraud. No one will guarantee them, but hey do provide a nice hiddin increase in muni tax base’s. don’t have to raise the mill rate…
the real estate junkies are everywhere
the assessments are pulled out of a hat of top values provided by the sales of the real estate agents. they are sales weighted and driven.
No guarantee of value or accuracy will be given by BC Assessment Authority, (They will not Notorise the document as acurate), nor will any agency using this data. The “Assessment Authority’s” don’t even look at nor inspect the property they evaluate unless you protest it. 10 + years in my case. Their documentation consisted of bunch of shoddey notes and partial spreadsheets. As a buisness man I’d toss someone out the door who gave me such a pile of crap as documentation for a bill and asked me to pay them money. GO ask for your documentation , physically inspect , come to your own conclusion. If you sign an appeal form you have already agreed that their documents are valid
Also the city of Vancouver told me they do not do any authentication on the gross value file before they divide your property tax value out of it. Nor are they allowed to change it by the provincial legislation.
BC Assessments server is registered to a steven smith with a key server in LA…?
The Humpers are in your government’s financial office’s…their everywhere…
the assessment is how they determine and validate the base rates, … the market health
it will go BOOM, the longr it waits the worse it will be

Rae

#343 Jessica James on 06.19.11 at 8:48 pm

Please remove that disgusting picture!

#344 JRH on 06.19.11 at 8:55 pm

Has there ever been an article with as many comments?

#345 Mr Buyer on 06.19.11 at 8:57 pm

Renumerated…remunerated… BUSTED (I knew I should have just wrote paid). I did not have time to check dictionary.com and I think this is the first time in my entire life I actually wrote the word. I still stand by my assertions (I do not know if anyone will be able to decode them given my incomplete command of the language). As things stand now I can not even say remunerated properly without thinking about it first.

#346 BrianT on 06.19.11 at 9:00 pm

#332-The question is :why Heather and not MikeF?

#347 KIM on 06.19.11 at 9:02 pm

Utopia you have no understanding if economics. You are wishful Thinking. Prices have stalled and sales are falling and May was a blip in sales . people are now mated out/ broke and the government had shut off the CHMC taps of HELOC. Companies are reporting lower earning as well as revised earning plus layoffs. Watch the stockmarket and its slow motion crash. It’s 2008 only this time nothing can stop it. You know Canada is in a housing ponzi.

#348 Tess on 06.19.11 at 9:04 pm

It depends:

I forecast a stall out in prices (a real drop with inflation).

But we could have some huge drops if the following happens:

1) interest rates go up
2) Greece defaults on her debt
3) the USA does a technical default this August due to political disfunction.
4) Roubini is forecasting a hard landing for mainland China after 2013. Psychologically this would hit Vancouver hard and to a lesser extent Toronto.
5) The Canadian economy slows down and people can’t pay their monthly expenses due to large mortgage payments.

My best guess: The next year prices stall out, except for Vancouver and Toronto, because those populations are high on horn-dog housy goodness. Within 5 years we’ll begin to see drops that will continue for several years. First we’ll have big shocks, and then a stall, slow melt.

50% drops in Vancouver and 30- higher?% drops in Toronto. The less desirable areas and the condos will be the hardest hit. Lesser hits to single family detached houses in the best neighborhoods and the city core (20-30%.) These hits will not come in all of the same year — most like 2-3 years.

Saskatoon, Winnipeg, Calgary are all in for hits — I’d guess 30%. Edmonton and Halifax I’d guess 15-25% hits.

So 2-3 years of big drops, then for the next 5 years the housing market will stall out as the population deleverages.

#349 Lost the taste for RE on 06.19.11 at 9:45 pm

Response to #138 Disciple – Yes, this is what I’ve been seeing on the west side of Vancouver over the past several months. Usually the lawns aren’t being cut though. And generally, the house has recently sold. I’ve lived on the west side of Vancouver since 1977 (except for 3 years out of the country). I’ve never seen this in the previous “bubbles”.

I’d estimate there are 1 house every 2 blocks in this state with an equal number being bulldozed and rebuilt. There is definitely something in the air. Something similar to what I felt trying to get the hell out of downtown Vancouver on the afternoon of Wednesday, June 15. Something very ugly has already started in Vancouver.

Personally, I’d love to get out of this city, but until my daughter finishes high school, I’m feeling pretty much stuck. (Did anyone ever tell you that the public schools in Vancouver – even those on the west side, stink? The standards have dropped through floor. So if you want a decent education for your children, you need to pay for it with after-tax dollars.)

And it’s not only the Mainland Chinese who are buying multiple properties. We know very few families around here who don’t own one, two or more “investment properties”. Yes, many are of Asian descent, but a good number aren’t.

We are definitely living in “The Time of the Great Greed”. We will all suffer from this, some more than others.