Trust me

Andrev is a Russian guy. Came here with his wife and two kids a few years ago. An engineer, he landed a great job and soon started saving for his family’s future. He knew he had to invest and ended up putting all their money in second mortgages promising 9%. Six months later the broker was gone, and so was the money.

“Why?” I asked, “did you do that? It was a crazy dumb investment with no security.”

Because, Andrev said, the mortgage guy was Russian. Like me.

But this piece is not about second mortgages, finding an investment opportunity or even Russian dudes. It’s about trust. And women.

Yesterday Money Magazine published an article on whether it’s better to rent or buy a home. This is a hot topic, with rate increases coming later this year, prices at a screaming pitch, and a swelling number of economists finally agreeing with me. You can get the tone of this particular piece from the lead: “Owning the roof over your head should still be a goal for most Canadians as paying rent is like paying someone else’s mortgage, experts say.”

Well, that got my attention.

In fact, here is the entire argument for renting-sucks, buying-good, using a $300,000 house as an example:

With interest rates currently so low, on the purchase of an average $300,000 property, mortgage payments are unlikely to be that much higher than rental payments. A fixed-rate mortgage of 5% and an amortization period of 30 years would put monthly mortgage payments at $1,521.02.

Adding in property taxes monthly payments are likely to be about $1,771.02, according to figures supplied by BMO. If a monthly rental of $1,200 increases by about 5% a year, after eight years your mortgage payments will be less than your rent, BMO says.

That’s it, property virgins, all the facts you need from a leading financial magazine (and bank) to make that secret, sweaty house porn addiction legit. No longer do you need to ogle those intimate red spots on the site under the sheets with a flashlight. Get over the shame. Go and have closing climax.

Ooops. Maybe not. I ran some numbers.

So a $300,000 house with 5% down (like Money Magazine says), and a five-year mortgage at 5% spread over thirty years does indeed cost $1,520 a month. Of course, after 60 months, you’ll have paid $54,590 in interest, and reduced the $285,000 mortgage by just $18K.

But what the hell, we’re building equity!

Or not.

Over five years also count $15,000 in property tax (we’ll exclude utilities and maintenance), plus on buying there was $6,000 in closing costs (mostly land transfer tax), a charge of $7,900 for CHMC insurance and, of course, the $15,000 downpayment. If the down had been invested for five years at 7%, it would be $21,038. So the true cost of owning is $104,528, or about $1,742 a month.

Hmmm. More than rent.

But what about those evil landlords (like BMO says) jacking rents by 5% a year? Well, not where I live. In Ontario tenant-friendly rent control legislation pegs the allowable increase for 2011 at merely 0.7%. That is 2.3% below the current inflation rate, which basically means rents are decreasing, not humping.

So over five years rent (assuming this kind of change) would total $82,810. Once again that’s way less than owning – more than $21,000 less. If that extra were invested at 7% over five years, it would be $30,400. Also more than the homeowner’s equity.

So what happens after five years when the deflowered virgin learns this and sells? Then (assuming the house retained its value), she’d get $18,300 after paying commission and retiring the mortgage. Of course $15,000 is just the down payment being returned. So I guess this person has spent about $17,000 more that the renter to live in the same house.

And what might happen if real estate values fall? Right. Glub, glub. Selling would be impossible without actually finding new money to buy your way out. Rent wins.

OK, so how does this magazine declare: “Owning the roof over your head should still be a goal for most Canadians as paying rent is like paying someone else’s mortgage, experts say”?

Because the expert is Judith Cane, president of Antara Financial Group, in Ottawa. Says she: “I am of the mind that it’s always good to buy… it’s better, especially if you are younger to put your money into buying rather than renting.”

Now this is the part of this blog about trust. According to Cane, her financial advisory practice, “specializes in serving the financial needs of women. And their needs are different.”

If that means people need to be given incomplete information, guided into bad decisions and fed grossly inappropriate advice just because they’re women, then I guess they are special. But, of course, this is untrue. Women have an equal right to ethical treatment and full disclosure.

Hell. I hear some of them are actually as smart as guys.

But don’t tell Judith.


#1 Mr. Reality on 07.21.11 at 9:32 pm

Too funny Garth. That does not look like a picture representing success……..

Mr. R.

#2 From kits on 07.21.11 at 9:33 pm

well said…I think key to that argument about not owning is the lose in value which the general market isn’t thinking about their “investment.”!!!!

on fire this week Garth…attaboy

#3 City Slicker on 07.21.11 at 9:44 pm

RBC said today housing is SIGNIFICANTLY slowing down.
Sorry don’t have the details just a news flick in the elevator on the way to work…

#4 totalchaos on 07.21.11 at 9:44 pm

There are a few women that are as smart as guys – the rest are smarter!

#5 bubu on 07.21.11 at 9:46 pm

she is blonde.. what do you expect:)

#6 TurnerNation on 07.21.11 at 9:47 pm

Obligatory “Russian Reversal”: In Soviet Russia house sell you!

#7 T.O. Bubble Boy on 07.21.11 at 9:48 pm

U.S. Moves Toward Home ‘Rentership Society’

U.S. homeownership rate has fallen below 60 percent when delinquent borrowers are excluded

Hmmmm – and what is Canada’s at again — nearly 70%? What’s wrong with this picture?

#8 rental monkey on 07.21.11 at 9:52 pm

What’s with the quilt behind her? Is that supposed to draw in the women? Weird. She should at least be standing in front of a store selling Manola Blahniks. Then she would get the attention of most ladies.

Come to think of it, this statement reminds me of the episode of “Sex in the City” where Carrie is about to lose her NY apt. but can’t, and I mean can’t seem to pull herself away from a pair of Manolo’s. Can’t remember if she bought the shoes, but I think she almost lost her apt (that she owned) until her friend stepped in and lent her a big wad of cash to save it. This was airing probably circa 2005….irony? Funny how art will imitate life…..or is it vice versa?

#9 squidly77 on 07.21.11 at 9:54 pm

Calgarys at 74%.

#10 jess on 07.21.11 at 9:56 pm

I rather put money on something like this

“The toilet cannot be hooked up to water, sewage or power lines and must cost less than five cents per user per day. It must convert urine and feces into clean water, mineral ash fertilizer, carbon dioxide and energy.”

#11 VMT on 07.21.11 at 10:04 pm

Great post. Also, I came across an interesting article on the subject:

Has Housing Bottomed? Here’s How to Tell

#12 wes_coast on 07.21.11 at 10:19 pm

Well – at least Judith doesn’t give nutritional advice …….

#13 Vlad de Mad on 07.21.11 at 10:19 pm

Why has there been no mention of the Chinese government imposing restrictions on property buyers due to the impending bubble in China? Purchasing a second property requires a 50% down payment (2), there is no bank financing for a third. It may make sense for Chinese buyers to buy in Canada for that reason, but if they require financing, where is it coming from? The Chinese authorities, he said, “are really worried by the real estate boom in China, so they restricted people” to buying no more than two properties. THEY ARE BUYING ALL OUR HOMES!

In other news, US consumers living on credit!


#14 Mr. Lahey on 07.21.11 at 10:20 pm

Andre the Russian engineer learned a hard lesson in mortgage fraud. Hell, Randy and I even know some folks who got burned on a supposed 1st mortgage. The problem was the lawyer never registered any mortgage and just pocketed the money (he did make some payments out of their own money before the whole scheme collapsed). Yes, they had documents stating they had a first mortgage on a property but they were fraudulent documents. Captain Garth, as to your recommendation of becoming a landlord of apartment buildings in small towns, let me advise extreme caution. You will have a nightmare of a time with your tenants and then will discover after no longer being able to take the bounced checks and trashed units that you are then faced with an illiquid asset. If you think a single family home can be illiquid, try an apartment building in smallsville. The shithawks they are a circling… Randy, were those gunshots I just heard? I think Ricky and the boys are having a shootout with that damn Cyrus again.

#15 Aaron - Melbourne on 07.21.11 at 10:23 pm

A new Australian documentary: Real Estate For Ransom

(Preview only at this stage)

My ticket to the preview has been reserved.

#16 Bottoms_Up on 07.21.11 at 10:24 pm

Don’t like the 8 year arguement as one will obviously be paying more until that time anyway. And that doesn’t even consider higher interest rates after renegotiating the mortgage after 5 years. And have rents ever increased by 5% y/o/y?

However, her example doesn’t suit the Ottawa market too well, to buy a $1200 rental would likely cost ~$200,000, so buying might actually make sense if the market is not going to collapse.

A $300,000 home/town/apt. in Ottawa would likely rent for anywhere between $1600-2000.

#17 Patz on 07.21.11 at 10:28 pm

Lordy, lordy, does we gots to hear that “renting is like paying someone else’s mortgage for them,” over and over again like some kind of Chinese water torture?

I rent. For my rent I get the use of a very nice house just as if it was mine. My landlord pays the mortgage. Should he fall behind the lender cannot come after me for the payments. Should I decide to move up, down, sideways or (gasp) to the GTA (like that would ever happen–wait, it did once), I give notice and move. The landlord has to sell. Never mind what that entails.

Owners get to ride the bubble up, yes, but they’re stuck with it on the way down. We just get a rent reduction, either from our landlord or by moving–happening as we speak.

etc. but hey you know all that…

#18 Troll on 07.21.11 at 10:35 pm

Gold Gold Gold Fiat Fiat Fiat Guns Guns Guns

#19 Dad on 07.21.11 at 10:38 pm

Lads I only ask we avoid making the easy joke (and you know what I’m referring to) at the woman’s expense and debate the issue, not the woman. Making the obvious jokes is only going to destroy this thread as badly as gold destroyed the last one.

#20 Cookie Monster on 07.21.11 at 10:42 pm

Garth, nice article again as usual.
About earlier today, I think I’m knocking your books and your investment advice incorrectly or out of context, in normal times I think you are 100% right, but these are not normal times and I think that’s the pretext that was missing earlier.

On the other hand, your views on deflation in terms of falling prices as per the YouTube flick are still wrong. That’s a pure fallacy perpetrated by governments to steal more in taxes by stealth.

See, no insults! Like there ever was.

#21 Rich Renter on 07.21.11 at 10:45 pm

In Alberta the only rent control is that it occurs once a year. Not everyone will get 7% return or stay 5 years in the same rental. At the end of the day the pending decline in prices will be very different on where you live in Canada.

#22 JohnnyBravo on 07.21.11 at 10:47 pm

Don’t know where Ms. Singleton came up with the 5% annual rent increase projection. Over the past ten years, the annual rent increase has averaged around 2% (2011 may skew that a bit). This is in Ontario. And her expert source, Ms. Cane, has her business in Ottawa, so…

However, give Ms. Cane (some) credit. She did say, “…if you are highly mobile and plan to be in a location for less than five years. Then renting is probably the best option.” I know: duh, but at least she admitted it.

But here’s where she loses all credibility: She wrote a blog titled “How To Improve Your Sex Life By Fixing Your Finances” in which she writes, “…it may make sense to seek out… a financial advisor. … Isn’t the cost of a financial advisor worth saving your relationship?”

Sure, a financial advisor can definitely improve your sex life. Because if you hire the wrong one, someone who is more focused on lining their own pockets rather than managing your wealth, you may very well get totally F√çK£∂.

#23 Timing is Everything on 07.21.11 at 10:48 pm

Back to the future…

“Thursday’s report has renewed calls for a rent control system in Saskatchewan. ”

But wait…There’s more…

“[She] began renting a two-bedroom apartment in Regina five years ago. “And then [the rent] went from $639 to $669 to $744 to $819 to $969,” she said.

#24 Taipan on 07.21.11 at 11:02 pm

Another good blog posting.

The good news with this story is that a bloke wont get into trouble. As Judith is able to “specializes in serving the financial needs of women. And their needs are different.”

Healthy scepticism and suspicion is essential to survive in the modern world.

There are both good and bad out there from both sexes.

However when it comes to special needs, would she be talking about “nesting activities”. Those women whose biological clock have gone off and now need a place to have and bring up there babies? Whose husband says, we shouldnt buy, we should rent because housing is going to fall dramatically.

So off she trots to Judith, who understands her, “NEEDS”.

Well here is a reality check Men will rip men off, women will rip women off. There is no loyalty between the sexes.

50 years after the sexual revolution, women will be just as good at ripping off other women.

#25 Midas on 07.21.11 at 11:04 pm

“Why I Would Rather Shoot Myself In the Head Than Own a Home”

#26 kimi on 07.21.11 at 11:12 pm

#5 Bubu said she is blonde.. what do you expect:)
Bubu, sorry but… majority of dumb blondes, are really burnettes (meaning they dye thier hair).

#27 ryan on 07.21.11 at 11:17 pm

How about throwing down a few extra bucks on the mortgage and pay it off years sooner, save a bundle and not worry about the rent vs buy debate.

#28 kimi on 07.21.11 at 11:21 pm

Rental monkey… she probally has the quilt behind her to show she is not competition, hence she is not showing cleavage (that would be showing if she was targeting men). She is probally trying to portray that trust-worthy lady next door that is best friends with dear old mom.
If she did have Manola Blaniks behind her I don’t think many women go with her … because Manola chicks probally are more into owing more Manola’s than long term/home owner/investment stuff.

#29 kimi on 07.21.11 at 11:28 pm

Imagine .. Judith’s blog site has a ‘How to improve your sex life by improving your finances’… a nice big fat mattress stuffed with cash? So Judith also offers sex advice … two in one… what a deal! LOL!!

#30 Brad in Cowtown on 07.21.11 at 11:29 pm

Now there’s the Garth we know and love! Back on track. Excellent post tonight, sir.

My only question would be… do owners actually know renting is often the financially smarter choice (and just refuse to admit it)? Or have they actually convinced themselves that its not about their egos and societal status?

I’m convinced that, more often than not, people dive into home ownership for the simple reason that they can say “this is mine – I bought it.” It’s like a psychological orgasm. And math be damned.

#31 BC Bring Cash on 07.21.11 at 11:38 pm

The largest bubble the world has ever seen is the fiat, counterfeit US $ standard. The emerging market consumers think they are now the super rich like the Americans did during their housing bubble hey day.
Wait till they get a reality check like the US did. For example after a Chinese RE bubble burst where are all these new consumers going to come from. The Americans, Europeans, Japanese etc. are broke. The BRIC’s are in trouble. I suppose the Corporate world can count on Vietnams consumers next. Just like the local RE bubbles, eventually this global search for cheaper and cheaper production will fail because no one can afford to buy these goods at any price.

#32 Utopia on 07.21.11 at 11:39 pm

“And what might happen if real estate values fall? Right. Glub, glub. Selling would be impossible without actually finding new money to buy your way out. Rent wins” ~~ Garth.

I love how you used the words “If real estate values fall”. I wonder what the odds are that the current prices will hold too? Not to mock the house-porn addicts too much but they seem to have not noticed that real estate prices have already collapsed or are in retreat in every single Western democracy with the exception of Canada.

Very weird.

Got to repeat this for the kids. We are the last man standing in the Western world. The final bastion of extreme home pricing and cheap loans for the inexperienced. The only country amongst our peers with more foolish buyers than sellers in a world awash in bad debt.

Even those crazy house-horny spendthrift Ozzies with their high interest rates loans have finally started to bite the dust and their market is now fully in retreat……

You Oz gang can back me up on that.

So are we special in Canada? Oh probably. We lasted longer than anyone else thus far and enjoyed the fruits of the housing bubble much more than others.

Will it last though?

Don’t make me laugh! The US is headed for recession, China’s growth is slowing, much of Europe is wallowing in debt it cannot repay and the Third world hardly has three nickels to rub together. The Middle East and North Africa meanwhile are in uproar while Japan battles an epic debt and many of the Eurasian oil producing nations are sinking under the load of political discontent and discord.

Yeah. Housing deflation is in the cards for us here in Canada. Consumption is already in decline here at home and it will get worse as time progresses.

So “Glub, Glub” it is. We don’t even need higher rates to go underwater anymore. Low rates are all that has stopped the bleeding from really starting in earnest.

#33 Anon on 07.21.11 at 11:46 pm

strange … no gold bashing today…

#34 AgAu on 07.21.11 at 11:48 pm

There is more to the ownership vs renting debatemath than simply comparing a rent to a mortgage payment.

Renting over 30 years would cost at least $432K (I assumed the constant rent, as well as the constant property tax to simplify the calculation)

Owning: $300K-5% downpayment = $285K mortgage.
At 5% interest rate over 30 years, total payments made by owner will be
$1,520/month*12 months*30 years = $547,200 (the interest is almost equal to the mortgage).

RE ownership costs also keep piling up:
+property tax (approx $3000/year = at least $90,000 over 30 years, since RE always goes up :) )
+roof repair (once, maybe twice)
+new appliances (twice?)
+new kitchen
+new carpet/hardwood floor

$637,000 expense over 30 years for the intangible pride of ownership, vs $432K expense renting. The house would have doubled in price (assuming 2.4% growth)

Renting beats owning as long as the renter invests money more profitably. That can only happen where the renter is disciplined enough to invest the money in the equity markets (or successfully speculating in PM or similar).
Benjamin Graham said:
“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”


#35 nonplused on 07.21.11 at 11:51 pm

Great post today Garth, one of your better ones recently.

I would like to add another intangible: Flexibility.

Renters can rent a big house when they have teenage children and then move to a more appropriate house when the kids (hopefully) move out within a few years without realty fees.

Renters can take that better job on the other side of town or in a different town without being stuck if their house doesn’t sell, and again avoid realty fees.

Renters can put their savings in a GarthPlan ™ by reading Money Road (c) thereby earning better returns and remaining liquid, or better yet buy gold! (Had to throw that in, since you are on a hate.)

Renters aren’t stuck with the house when they realize how high the utility bills are, how noisy the highway is, and how much maintenece is required.

Renters don’t have to worry about how they are going to pay for a new hot water tank when it springs a leak in the middle of Christmas vacation.

Renters don’t have to “qualify” for a mortgage.

“Owning” is great. But its best done when prices are low, not high.

#36 Joe Q. on 07.21.11 at 11:52 pm

Historically, at least in Ontario, the average annual increase in rents has been far below what is allowed by law.

Besides, anyone capable of claiming that “[rent] increases by about 5% a year” is so out of touch with reality that it’s difficult to believe anything they write anyway.

#37 bubu on 07.21.11 at 11:55 pm

another “good advice”:

oooo, Canada has different rules for mortgages…

she is a little blonde also:)

#38 kilby on 07.22.11 at 12:03 am

#18 Troll
I would love a gold Fiat with guns. Is that where I should be investing? Should I hold the Fiat for a long while or sell before it loses too much value? What kind of guns appreciate the most? Squirrel guns?

#39 Kurt on 07.22.11 at 12:03 am

Gee, that looks like a really nice quilt. Can someone get Judith to move out of the way so we can get a better look?

#40 AgAu on 07.22.11 at 12:05 am


CMHC annual report:

Mortgage Loan Insurance
Number of housing units insured 643,391
Amount of equity in their homes, on average, of homeowners with CMHC-insured mortgages (per cent) 44

Does this mean things are not as bad as they seem?

#41 TheFirstRick on 07.22.11 at 12:12 am

If I finished with something like that, they would call me a misogynist an delete my post. It happens all the time.

#42 rentin on 07.22.11 at 12:14 am

What a stupid woman.

People with money do what people with no money don’t do.

If you think you are going to get rich just renting and investing at 7%, think again.

Garth is right, people are going to run out of money, not lose it. Hard times are ahead. The US consumer is running out of cash, and we also spent tommorow’s money on infrastructure.

If you want to make money buy stuff on sale. Housing is not on sale yet…..

#43 Signpost in the bushes on 07.22.11 at 12:26 am

Have an instructive time “playing” with this calculator;

#44 wicked as it seems on 07.22.11 at 12:28 am

Re: West coast #12

LOL, Diplomatically said old boy!

#45 Vancouver=Baltic Ave. on 07.22.11 at 12:30 am

Hello Garth
The heat is on, not in Vancouver. Still cloudy and overcast in July and the smell of fresh cut grass is in the air. A murky economy exists the kind that reminds me of the economy that was created in Miami back in the 70’s on the cocaine trade. Exploding real estate values….
It may take a years but this bubble will deflate or maybe just like Miami, blow in so many ways.
Enjoy the sweet smell of success Vancouverites and enjoy the Angels in your backyard.

#46 2or3orsometimes7 on 07.22.11 at 12:35 am

Women’s needs ARE different. The ovum requires much more resources than the sperm. Men are able to have magnitudes of offspring more than women. Men’s procreative investment lasts but a few seconds, to women’s 9 months. And as a broad generalization, men are much more willing to accept risk (fluctuating market returns) than women (regardless of costs, at least there’s a guranteed roof over our heads).

Evolutionary psychology argues that whereas men need to keep their options open (ie. have access to as many new women as possible in order to potentially father as many children as possible – hence inherently allergic to commitment), women need to secure stability (ie. making sure their man does not impregnate someone else who will then take away some of his resources – hence hysterically demanding commitent).

It would seem that in evolutionary terms, men want rent (potential of an easy out), women want mortgages (shackles).

A female who trusts her mate and thus prefers to rent

#47 Josh L on 07.22.11 at 1:10 am

Anyone who tells you it’s always better to rent, or to buy is lying and has an agenda. Crunch the numbers and it’s usually more expensive to buy, but if you can expect some house appreciation, even just inflation, you can be further ahead to buy. My basic rule of thumb is if you are planning on staying put for at least 5 years, then buying may be the right move. Anything less and the realtor and lawyers eat your gains and more. Of course if you’re riding a bubble up then owning’s where it’s at. But those only come along two or three times a lifetime. Just don’t get caught on the downside with a big mortgage.

#48 Bill Gable on 07.22.11 at 1:10 am

Listening to “Going Mobile” – by wrinkled old Peter Townshend – that is the joy of renting.

We have friends that still own in our old condo building and it is is a nighmare for for them all, with repairs and lawsuits and worse.

We rent.
The landlord doesn’t make the grade, he’s back on craigslist tracking through broke hacks, and we leave.

Power of cash will become apparent.

#49 Jody on 07.22.11 at 1:19 am

Toilet paper, toilet paper, toilet paper, booze, booze, booze, cigs, cigs, cigs.

Me thinks Judith is scared of what’s coming down the pipe and feels the need to spout nonsense. People who buy get very angry when other people don’t drink the buy kool-aid, it’s always the same people who messed their lives up think and feel that everyone else should be in the same boat, they spit venom. If you bought and don’t like the situation you’re in then do something about it, seriously, start taking responsibility for your decisions. As for Judith, she just needs a good talking to, maybe a spanking if she keeps saying buying is cheaper than renting.

#50 Jane on 07.22.11 at 1:19 am

#12 wes_coast on 07.21.11 at 10

Ya, exactly!

#51 Dorothy on 07.22.11 at 1:21 am

While Garth’s investment advice is generally good, there are those who would not invest their money wisely if they decided not to buy a house. Rather they would simply blow all that extra cash on luxuries they don’t really need.

My son is a good example of this. He was saving a downpayment but I talked him out of buying now, telling him the market is falling and he’d get more for his money if he waits. But while he waits the money is burning a hole in his pocket and, instead of investing, with each passing month he acquires a new “toy”. The end result will be that when the market hits “bottom” he won’t have enough for a downpayment, and his dream of home ownership will be in tatters.

I’m truly sorry now that I told him to wait, because even if he’d paid too much by buying now, at least he’d have the home he’s always wanted. For some people, buying a house is a form of forced savings. And if they don’t buy they end up with nothing.

I’m not advocating people buying homes with little or no downpayments, that is the road to financial ruin. But for those with substantial downpayments and adequate salaries to cover the costs, homeownership can be a good thing.

#52 The Original Dave on 07.22.11 at 2:51 am

I’m back to lay into the gold preachers. I’ve delved into casey,sprott,taylor,rule,kaiser,celente,schiff etc. A lot of these guys are market psycho analysts and have done years of research in behavioural economics as well as years of geological research to help understand ore bodies of a mine or a potential mine. Where are you in that thought process? Yes, gold stocks will likely outperform (well researched and lucky mines) garth’s picks for the next couple of years, but is it worth it? Do you know which stocks to pick? Most importantly, do you know when to lock in profits? Remember…greed and fear. Garth simply tells you guys to lock in profits. Everyone is a genius in a bull market, but very few realize those gains in the end because of greed. That’s why the whole boring/balanced argument is so important. Steady rather than manic. This will ensure that you make money without having to do ridiculous amounts of research on market psychology and friggin cut-off grades of a property you’re not sure is even worth being mined.

Garth leads everyone here to the simple, steady path. I’ve gone both roads. Yes, gold, silver, rare earths, uranium, potash can all make you astronomical gains, but they can also be heart-breakers. You better be prepared to do years of research if you want to do well in option number 2. You need to understand market psychology to know how to ride the wild ups and downs, and you better get some good geology books and research material as well. You can time the asset’s trend perfectly, but if a supposed “gold mine” only has dirt in the ground or if the cut-off grades are too high for it to be a mine, it doesn’t matter what gold is doing. Remember, most mining companies don’t have earnings yet, just potential or pounds/ounces in the ground that the market speculates on depending on the current price of the asset.

7-8% steadily is just easier.

#53 timo on 07.22.11 at 4:30 am

a perfect graph to show how the the price of Gold follows the debt ceiling. The US and Europe are going to have to print like crazy.

With every kick of the can the increase in debt to fuel a smaller and smaller taxbase will force little old gold and silver to follow.

For my family it is about trying to preserve what I have and not making a huge profit. I don’t worship gold but I see no way that we can grow a healthy economy out of this ever increasing debt load. Canada better worry about this because as far as I am concerned this is engineered and with every devaluation more and more jobs that truly pay taxes will cross our borders and leave. Enjoy the commodity bubble because it will put the US in a deep recession and will sooner or later collapse again.

#54 Tim on 07.22.11 at 5:20 am

I rent a 2 story home thats been beautifully renovated and has half an acre of land for 1 thousand a month. The landlord likes me because I keep the yard looking nice and I don’t trash the place. After looking at house prices accross the city I live it is completely nuts to buy right now.

#55 Don'tBelieveTheHype on 07.22.11 at 6:15 am

Have you seen the Canadian Business article that promotes the wisdom of renting instead of buying?

#56 Genghis on 07.22.11 at 6:17 am

Missing from the equation is the cost of maintenance. Around 1% of the value of the home per annum over the long run. Depending on the timing this could be a very significant expense, e.g. the roof goes, or some unexpected structural failure happens in the 5 year period.
Add $10 to $15K to the cost of ownership.

#57 SquareNinja on 07.22.11 at 6:24 am

#11 VMT – thank you for that awesome link!

#58 lawrencej on 07.22.11 at 6:33 am

Garth – I totally disagree with the notion that a 7% investment return via a diversified portfolio is plausible. I’ve seen your rationale behind this in the past, but a “mix of ETFs, bonds, preferreds”, etc doesn’t really work. Of course a random sampling of 100 investors following your mantra will indeed reveal some 7%+ portfolios, but the mean will not, and there will be few above 7% after 5yrs, without excessive risk taking. After all if this is so easy, why are the smartest global macro hedge funds (the big names) flat this year? These guys dwarf your investment knowledge (and mine), have much better information, and way more experience & tools at their disposal.

Of course if real rates head back up, there is a higher likelihood of success, but at the moment your projected returns seem too high for a retail investor.

Are you a DIYer? — Garth

#59 detalumis on 07.22.11 at 6:50 am

This woman’s website is plenty scary, it is actually full of what I call “a whole of nothing”. Im sure she’s going after the oh-dear-I’m-a-widow-what-shall-I-do-now club the ones who are left a big whack of cash by their mate and are clueless on how to invest it. She has no information on what products she pushes, nada and even tells the poor dears not to worry their pretty little heads over nasty details like independent legal advice.

Don’t I also need a lawyer or an accountant or other specialized services?
You might. But rest assured that if you do, we have a network of professionals dedicated to helping you take hold of your financial dreams. We will make sure you are in good hands.

Reminds me of Patricia Lovett-Reid from TD bank on her TV commercials who also talks to people like they are complete idiots and seems to be more concerned with filling her head with Restylane and Botox than financial facts.

Women who think they are special and unique and fall for this “personal relationship with my clients” drivel deserve what they get. I’m sure Earl Jones was very good at forming personal relationships as well.

#60 Jas Girn on 07.22.11 at 6:55 am

The only advice I would get from Judith is on where to buy the most delicious cupcakes. Other than that, she will

DELETED. I have trashed almost all of the ‘fat’ comments so far, and will continue to do so. Stick to the topic. It’s not food. — Garth

#61 Kevin on 07.22.11 at 7:01 am

“So over five years rent (assuming this kind of change) would total $82,810. Once again that’s way less than owning”

Fascinating. Now what happens if you extend this out to 50 years? You know, including the 20 years after the mortgage has been paid off, and the renter is still writing monthly cheques for $5,200?

I can’t deny that mathematically, you can come out ahead by renting if you do indeed invest the difference. That is, if someone has $2,000/month in their monthly budget earmarked for “housing,” and they either spend the whole wad on a mortgage, or rent for $x and invest $2000-x each month, then yes, they’ll come out ahead.

But in the real world, renters don’t do that. They either don’t have that extra money to begin with, or they spend it. (Cue the 2 or 3 investing renters to chime in and prove themselves the exception to the rule).

It sounds good in theory, but humans are emotional, and it just doesn’t work like that in the real world. The people you’ll find populating 300-unit apartment buildings aren’t sitting on millions in stocks, bonds, and ETF’s. Truth is, their RRSP’s are just as barren as homeowners’.

#62 Incubus on 07.22.11 at 7:01 am

“But what about those evil landlords (like BMO says) jacking rents by 5% a year?” LOL

What BMO says is full BS.

I am a landlord in Montreal, last year my increases were 0%, this year it was less than 1% and next year I am planning 0%.

The reason, people are broke and have no jobs. The condomania in Montreal does not help neither. Right now they are building condominiums like crazy. They rent what they can’t sell and they also give one month free.

#63 HouseBuster on 07.22.11 at 7:10 am

Garth, You mentioned that only 1% of Canadians have a net worth of $1 million or more.

How is this possible with so many houses priced at $1 million or more?

Because the bank owns them. — Garth

#64 Mr. Lee on 07.22.11 at 7:18 am

The argument is not about renting vs owning. The argumement is about affordability and living with in one’s means. For example, the historic family income to home price ratio was 3.5 to 1. Now the country is approaching 5 to 1. I that living with in one’s means? No.

Prudance, diversification in asset allocation, and seeing your dwelling as a pocession and not an investment vehicle would serve Canadians well. A realization, also, that prices always revert to the mean no matter what the speculators and manipulators have to say would also serve us rather well.


#65 waterloo Resident on 07.22.11 at 7:27 am

((( ” they seem to have not noticed that real estate prices have already collapsed or are in retreat in every single Western democracy with the exception of Canada.”)))

Yes, that’s true. But what everyone doesn’t understand is that CANADA IS DIFFERENT, we are UNIQUE, and for that reason our housing bubble will NEVER POP.

What the Bank of Canada is doing is keeping our housing bubble inflated with emergency low interest rates for the next few years until the other housing markets around the world finally recover, then once that happens and all of our GOOD HIGH-PAYING MANUFACTURING / ENGINEERING JOBS come back from
China / India then our economy will benefit from all those high-paying jobs and our housing will boom once again.

Now, if Mark Carney is WRONG and the CDN consumer cannot keep spending like mad for the next few years to support the economy with consumer spending, then we really are truly ‘SCREWED’.

#66 T.O. Bubble Boy on 07.22.11 at 7:35 am

That 5% annual increase for rent is a bunch of BS… one-bedroom apartments in midtown Toronto that I rented 10-15 years ago still go for the same price ($1000/month)!!!

Same thing with “rental condos” like CityPlace in downtown Toronto – rents have been flat for 5-10 years (approx $1300-$1600/month for a 1-bedroom or 1-bdrm + den) because of the constant supply of new units.

#67 Utopia on 07.22.11 at 7:37 am

#19 Dad on 07.21.11 at 10:38 pm

“Making the obvious jokes is only going to destroy this thread as badly as gold destroyed the last one”

Not sure if Gold destroyed the last thread. There is nothing wrong with a little controversy in my mind. I have to admit though that I could not resist taking the piss out of the Gold-huggers just a little.

Why should they dominate every site with their one-sided point of view and insult everyone else while they are at it?

Of course, invoking the “confisction” word was just guaranteed to send those dogs howling for the hills and I did write it deliberately to get them freaked out a little.

Knowing they are a very paranoid lot made it all the more fun.

They really drive me nuts though because so many of them seem one-dimensional and negative in their investing views. Brainwashed even.

They keep repeating the same tired old lines that were being used in the last gold bubble of the seventies and early eighties as though “this time is different”.

I suspect they are in for a surprise though.

#68 househornyhousewife on 07.22.11 at 7:44 am

I agree with most of you about Judith’s faulty logic (although I think that the pot shots about the lady’s weight and colour of her hair are pointless and display a certain amount of .. uhm .. immaturity.. kindergarten level immaturity).

Anyone who says that buying a home is cheaper than renting doesn’t have their thinking cap on straight (to say it mildly). OF COURSE buying a house is more expensive than renting one … well DUH ! I don’t even know why we are all wasting our precious time arguing this point. When deciding whether or not to buy a house, I don’t even think that the possibility of renting should enter into the equation because if this is the only reason you are deciding to purchase instead of rent (ie. that it is cheaper) then no mathematical calculations are required .. renting IS cheaper and less risky than owning (if the sewer backs up, you collect your renter’s insurance, move to a new place and refurnish from scratch with brand new stuff .. woohoo).

HOWEVER, if I am able to afford to buy a house (and by afford, I mean REALLY afford .. downpayment of at least 25%, mortgage payments, taxes, utilities, insurance, and most of all, repairs .. and not just the roof but any repairs that may spring up .. some can be real doozies and I can write a book on this one), I would STILL go for the house.

Yes I realize I am paying extra in order to own my own home but in my opinion it is worth it. I can make any changes to my home that I want to (renovate, excavate, paint, whatever .. it’s MY home), I don’t have to put up with some jerk who has my house key and who can decide to come in and make “repairs” or changes to my place whenever he or she wants to, when something breaks down I can call someone right away and get it done as opposed to waiting for my lazy-ass landlord to do it, if the furnace doesn’t work and continues to break down in the winter I can have it replaced instead of putting up with constant breakdowns and repairs (landlords rarely want to “invest” in new equipment) .. in short, IT’S MY HOUSE AND I CAN DO WHATEVER THE HECK I WANT.

This is what I am paying extra money for and it is damned well worth it as far as I’m concerned. Of course it makes absolutely no sense for someone who cannot afford a house to buy one simply because they think it is cheaper than renting .. well DUH ! (again .. sorry but this kind of reasoning I find to be completely assinine). When I was a student, I rented a place. When I went out into the work force and had to pay off my student loans, I rented a (slightly better) place. When I needed to build up a bit of equity, I still rented a (even nicer) place. However, when I was sufficiently on my feet and had something put aside, I decided that a house is what I wanted and this is what I got. That’s not to say that I only have my house. I also have something put aside in investments and a plan for my retirement and this also went into my calculations of whether or not to buy. After all, when I retire, I cannot eat drywall and paint.

But for heaven’s sake, if a house is what you want and you can afford to buy one, then go for it. If you cannot afford to buy one then it is not the end of the world, just rent a nice place and save (and invest wisely) your money.

I think that all of this discussion boils down to a question of priorities and nothing more. Owning a house should not be your top priority. Financial security (present and future) and personal satisfaction (ie. happiness) even out at number one. Then if you have enough built up equity to get yourself a little something more (a house, a nicer car or whatever) then why not ?

I suspect that if everyone looked at their priorities and budgeted more wisely, we would probably have less people buying into properties that they cannot afford and more people putting money away for their futures. The real estate market is what it is. Professional advice is rampant (doctors, lawyers, real estate agents, bankers, contractors etc..). We as individuals and consumers are free to use our own brains and think for ourselves. If someone, like Judith, is giving us what seems to be some pretty bad advice, then we should be smart enough to figure this out for ourselves and act accordingly.

Knowledge is power.

#69 Mississauga renter on 07.22.11 at 7:48 am

We’ve been in our place over two years and our landlord hasn’t ever raised the rent. And the rent is less than average for a comparable house and location. Nice semi-detached, great location, built 2002.

#70 Sheila on 07.22.11 at 8:24 am

You exclude utilities and maintenance, but these expenses can really wipe out unsuspecting home owners: the roof leaks and needs replacing, water backs up into the basement from tree roots and the whole front lawn needs to be dug up, the furnace breaks down in February, a toilet stops functioning, the dishwasher needs a new timer, the driveway needs resurfacing, windows have to be cleaned yearly, the eavestroughs cleaned, the fireplace as well.

Rooms need new paint. The stone on the front patio has lifted and needs fixing.Damned racoons have entered the attic or the chimney and ants have made it uo to the 3rd floor.
You’ll need to allocate funds for the lawn(plus mowers, hoses, sprinklers, rakes, hedge trimmers, clippers) the flowers(plus pots, earth), garden chairs and tables, garbage bins, snow shovels/blower, barbecue and gas.

Count in home insurance, gas or oil, electricity, water, ratepayers’ association fees, and there will be more unforeseen costs. Guaranteed.

Home ownership can be fun and freeing if you are realistic and have the money and time. It can also be an emotional and financial prison.

I know. Been there, done that.

#71 Bobo on 07.22.11 at 9:01 am

If that house grows 2% per year (in-line with inflation, but less than income), it’s a wash between renting and owning. That’s hardly unreasonable…

#72 Bottoms_Up on 07.22.11 at 9:07 am

#30 Brad in Cowtown on 07.21.11 at 11:29 pm
There are some things that can’t be quantified in monetary terms and shouldn’t be decided solely based on money.

What’s the price of peace-of-mind knowing a landlord isn’t entering your property (often times illegally) when you’re not at home?

How do you put a price on knowing that the little elbow grease you use around the house actually benefits you?

Or that you can have pets?

Or that you won’t have to move in 6 months because the owner has sold the place?

Also — if people did the math on cottages, no one would ever buy one (it just doesn’t make sense based on monetary reasons alone). However, one can’t really quantify the value of having your own little spot that you can go to at any time…it is yours, not someone elses. No rental contracts, no booking in advance, no worrying about getting ripped off, or not getting your deposit back.

#73 Randis on 07.22.11 at 9:10 am

Can’t imagine there would actually be people paying for broken advice like that from Cane …

Once again numbers manipulation here … the whole “after-8-years-rent-becomes-more” shxt is just untrue because it totally neglected HIGHER interest rate in the future, which is entirely possible given new term rate negotiation after the first 5 years … and of course they make it sounds like 30 years amortization is a norm and is a good thing to get into …

So many of these so-called experts out there … WTH is wrong with this world we are living in? …

#74 Daisy Mae on 07.22.11 at 9:16 am

Judith Cane: “specializes in serving the financial needs of women. And their needs are different.”

What gall! And such stupidity….

#75 Daisy Mae on 07.22.11 at 9:42 am

Tim on 07.22.11 at 5:20 am “I rent a 2 story home thats been beautifully renovated and has half an acre of land for 1 thousand a month. The landlord likes me because I keep the yard looking nice and I don’t trash the place. After looking at house prices across the city I live it is completely nuts to buy right now.”

My early experience wasn’t that great. We rented a SFH — we worked on the garden, painted the interior. And every time we made improvements the landlord jacked up the rent. I knocked the rent back down, re-imbursing ourselves for labor/cost of materials. We finally moved…and she immediately put the house on the market. LOL Live ‘n learn!

Hey, we were young….

And now there is rent control. — Garth

#76 Devil's Advocate on 07.22.11 at 9:55 am

I love the sound of renters money in my piggy bank

How many rental properties do you own in Kelowna? Is this a conflict-of-interest with your business as a realtor? — Garth

#77 Nemesis on 07.22.11 at 10:05 am

“the debt ceiling crisis in Washington is all but over” Hon GT…

….“There is no deal,” McCarthy said, using the same phrase used by the White House and House Speaker John Boehner (R-Ohio) following reports they were nearing a deal on Thursday. McCarthy said Republicans would not rush to push a bill through in order to meet the Treasury Department’s Aug. 2 deadline. According to McCarthy, House Republicans will seek to follow their own “three-day rule” in order to allow members of Congress to debate the plan.”…

[TheHill] – House GOP Whip McCarthy expects no debt surprises, deals over the weekend

You were saying, GT?… ;)

I was saying it is politics, not economics. If the threat were real the bond market (which knows more than both of us) would be in panic mode. It ain’t. No default. — Garth

#78 Brad in Cowtown on 07.22.11 at 10:08 am

#72 Bottoms_Up
There are some things that can’t be quantified in monetary terms and shouldn’t be decided solely based on money.

What’s the price of peace-of-mind knowing a landlord isn’t entering your property (often times illegally) when you’re not at home?

How do you put a price on knowing that the little elbow grease you use around the house actually benefits you?

Or that you can have pets?

Or that you won’t have to move in 6 months because the owner has sold the place?

Also — if people did the math on cottages, no one would ever buy one (it just doesn’t make sense based on monetary reasons alone). However, one can’t really quantify the value of having your own little spot that you can go to at any time…it is yours, not someone elses. No rental contracts, no booking in advance, no worrying about getting ripped off, or not getting your deposit back.

Valid points. :)
And if owners want to say that the excess costs are worth it in the end (because of the points you mentioned) – fair enough.
But too many owners like to spew the “renting is paying off someone else’s mortgage” parochialism, and they often love to do that familiar spew in a belittling fashion. Renters, after all, have not achieved that “home ownership” star on their life resume, and therefore must be poor, unintelligent, and lazy, or some undesireable combination thereof. So, I guess in that sense, maybe the owners are just trying to help the renters with their “benefits of ownership” speeches ;)
All kidding aside, I’m not saying renting is always the financially smarter choice, but… most of the time, it is. The beauty of “buy vs. rent” math is that it isn’t difficult and it doesn’t lie.
As I said earlier though, ownership seems to be much more of a status symbol than anything else. Especially for so many people in the past decade who have purchased homes that they couldn’t really afford. Yes, it’s partially the government’s fault for messing with minimum down payments, and amortization periods. But ultimately, people should still have the self discipline not to gorge themselves on debt, regardless of how cheap it might be. If Pepsi and Pringles were 5 cents each, would most of us quickly balloon up to 300+ pounds.
Sadly, probably.

#79 Rocket Boy on 07.22.11 at 10:12 am

Good Story G, reminds me of my father-in-law who sold his house a number of years ago. Hired a realtor with the same ethnic background as his. Flaw to that strategy was a very visibe minority group outside of his was buying homes in the area. Smart move was to hire a realtor of that ethnic background – took him nearly 6 months and a couple of price drops to move it.

G, I do see a flaw in your view of owning vs. renting. At this stage in the game, I see little advantage to buying anything as prices have moved up too fast. However, like myself and many of my friends. We pay our mortgages accelerated weekly, add additional payments when we can, and most importantly – each year we are allowed to put up to 20% towards the balance. In fact, since owning my home, it has forced me into a disciplined savings pattern that I never incorporated while renting. As a renter, more funds were available but I spent freely without making any headway. With my mortgage, we are in the home stretch and some nice coin on the side – just wait till the mortgage is done. I will reroute that money into our savings and in 30 yrs will be living well “shelter free”.

So, you may say, those who attack the Mortgage Dragon – can be mortgage free within 7-10 years. Your view is someone taking a 30 year, paying monthly. I have always been told that a mortgage that is reasonable can easily be paid off within 7 years.

Making a point with one stroke of the brush does not represent everyone. Just as those who bought before the bubble. I purchased in 2002, and became aware of a bubble brewing in 2005 (read Ben’s housing bubble blog in the States). I knew the risks, and the rewards. Living mortgage free within a few years will surely beat any rental death trap.

Using a mortgage as a forced savings plan didn’t do much for middle-class American families, did it? They lost it all. This is the absolute risk of owning real estate in an inflated market. — Garth

#80 Mississauga renter on 07.22.11 at 10:16 am

“So over five years rent (assuming this kind of change) would total $82,810. Once again that’s way less than owning”

# 61 Kevin
Fascinating. Now what happens if you extend this out to 50 years? You know, including the 20 years after the mortgage has been paid off, and the renter is still writing monthly cheques for $5,200.

After 30 years the renter could probably buy a house outright and still have plenty of investment gains left over.

#81 The InvestorsFriend on 07.22.11 at 10:19 am


Number 40 AgAu posted the link to the CMHC’s annual report for the year ended December 31, 2010.

These governments workers got around to publishing this this yesterday, almost seven months after year end (big publicly traded corporations most get this done in about 3 months, some inside of two month)

At page 46 the report indicates CMHC has $514 billion of insurance in force.

At page 50 they show that is backed up by $8.5 billion in capital set aside for this purpose (CMHC also has a some more capital than that for other businesses or services it operates)

CMHC fairly trumpets that its insurance capital is fully 223% of the amount that the Office of the Superintentent of Financial Institutions (OSFI) would consider a minimum.

What they never show (as far as I can see) is that the $8.5 billion works out to a capital ratio of only 1.65% of the insurance in force.

So apparently the government employees at OSFI figure that something like 0.74% would be the minimum and the employees at CMHC accept that but run at 1.65%.

The explanation for this is that first mortgages are deemed to be very low risk. I believe OSFI uses risk-adjusted assets whereby certain assets are counted as very low risk. This is the same rationale that banks use to figure that soveriegn debt assets (even Greek bonds) have zero risk.

Point is, CMHC has extremely little capital, on a percentage basis, backing up all this insurance. If housing prices crash and we get a lot of mortgage defaults CMHC would be run out of capital in short order.

But don’t worry the government employees have run models which indicate they have plenty of capital.

CMHC, is SAFE AS HOUSES, but how safe IS that?

#82 Kitchener1 on 07.22.11 at 10:19 am

its all about timing.

The person that purchased in the GTA in 1989– who had to wait until 2001-2002 to just break even on their purchase price would have been better off renting.

The person who purchased in 2002 and sold in 2011 would have been better off buying.

There are no solid rules.

Every person is different, has different goals and needs.

Long term view– 25 years, probely better to own– chances are you will make some money. Now vs the stock market, a person who owns a home, will probely not sell in a down market unless they are forced to but as long as they are working and can pay the mortgage, they will stay.

In the stock market, when values plunge (like RIM down from $120-30 in a year) people might sell out of fear etc..

#83 kimi on 07.22.11 at 10:29 am

I have a question: I have heard and read that the CDN dollar is going to go up to (anywhere to 1.15 to 1.40. Could that be true?
In regards to the housing fall, wouldn’t the dollar fall as well? I am a bit confused, my dad said its because we have minerals, natural resources, etc and he doesn’t believe the CDN dollar will fall. I don’t get that, isn’t the Cdn dollar linked to housing, and if it does rise wouldn’t that be bad for the economy? (Jobs etc) How does that work?
I mean in the US the housing fell and US dollar fell… isn’t it the same? Any of you blogger experts have time to give me a short FYI, would be appreciated. Thanks.

#84 Debtfree on 07.22.11 at 10:30 am

Government bonds rock solid or quicksand ?

#85 kimi on 07.22.11 at 11:01 am

#61 Kevin and #72 Bottom ups
I rent. I also have more investments than anyone I know. I never share my personal financial information with friends. They think I live like them … cheque to cheque. They own. Or do they?
I’m just going to mirror back to you that most people don’t own thier homes, the Bank does. And it takes most people several years just to ‘own’ 1% of that home they live in, because they pay ‘interest’ first, not principle.
As for all the fears that Bottom ups stated. I don’t live my life in fear. Like landlord coming in the place/no pets/having to move because the place sold.
I’ll mirror back that when I want to move, I can do it tommorrow, legally landlords are respectful of ‘when they come in, they need to give notice. If I own there comes a huge bunch of other potential fears, what if the roof leaks, what if the taxes go up, what if I lose my job, etc.
Maintinence is not my problem… so I have more free time. And it may appear that I save 0 and have 0, like Kevin said, because I am doing more fun stuff than my home owner neighbors, but thats the trade off. There’s more to life for me.
Its about choices we all have. I don’t want to mow, repair, paint, replace, double shifts, double work, or think that what I ‘mortgage’ is something I own.

The truth of it, there is so many places you can call your own. I have Stanley Park and your tax money makes it beautiful… just for me.

#86 Tri State Pat on 07.22.11 at 11:02 am

June update from FCIQ real estate database for Montreal, Quebec. (
June total sales up 5% from last year (1% detached,12% condo and 3% multi). CUMULTIVE 2011 from last year total down 10% (-11% detached,-4% condo and -17% multi).
Here’s the kicker, total listings are climbing fast (even faster in Quebec City). More specifically for Montreal, June total active listings up 19% (16% detached, 24% condo (wow!), and 17% multi). CUMULATIVE 2011 from last year total up 16% (12% detached, 23% condo, 15% multi).
First listings swell then prices go down. C’est la vie…

#87 CM1976 on 07.22.11 at 11:06 am

Garth, you say that “In Ontario tenant-friendly rent control legislation pegs the allowable increase for 2011 at merely 0.7%. That is 2.3% below the current inflation rate, which basically means rents are decreasing, not humping.” But when I check it states that the landlord can raise it in concert with the CPI increase:
“The guideline for a calendar year is the percentage change from year to year in the Consumer Price Index for Ontario for prices of goods and services as reported monthly by Statistics Canada, averaged over the 12-month period that ends at the end of May of the previous calendar year, rounded to the first decimal point.”

When I check on the CPI from June 2011 they state “Consumer prices rose 3.1% in the 12 months to June, primarily the result of higher prices for gasoline and food purchased from stores.”

Where did you find your numbers? (My landlord is trying to raise my rent 3% and I want some ammo to counter this.)

Many thanks,

Information here. — Garth

#88 Devore on 07.22.11 at 11:32 am

If a monthly rental of $1,200 increases by about 5% a year

All you need to know about this “expert” right here.

#89 sail1 on 07.22.11 at 11:34 am

Speaking as a landlord for to many years, Garth is 100% correct, everyone should be renting. We would definitely have a better selection of tenants. Financially many people are just not cut out to be homeowners. Many condo’s , flats, rooms, homes, basements available.

Well done Garth, keep preaching to the choir, I thank you, along with many other landlords.

The plural of ‘condo’ is ‘condos.’ — Garth

#90 Bobby on 07.22.11 at 11:41 am

I can only chuckle when I hear of the necessity of having a financial advisor. Reading the latest edition of Moneysense, there are a number of articles specifically about retirement.
In the articles they describe many individual cases and in the vast majority, the first piece of advice is to ditch the financial adviser. In one case some 55 year olds were in limited partnerships in undeveloped land in the Caribbean. In another, some were stuck in some high fee, poor returning funds that would have significant costs to bail out of.
Most financial advisers are just salesman and become indignant if you ask them how they are paid. There is a message there.

Sure there is. Get an advisor with nothing to sell who gives independent advice and manages money for a fee. Or you can trust your wealth to an unqualified, untrained amateur with no access to preferred securities who reads magazines. — Garth

#91 Mr. Plow on 07.22.11 at 11:42 am

Didn’t have a lot of time to read the entire post just skimmed it, didn’t read comments either so not sure if this has been covered.

Real question to me though isn’t how much does it cost to rent vs buy over 5 years. But how long does housing cost you over your lifetime?

The real question should be how much does it cost to have housing from 20-80 (or whenever one moves on to their reward). And compare that to buying and renting.

Cause as you all know, when the mortgage is paid off the monthly expenses drop significantly while the rent payments continue. Would be curious to know if the money you lose by owning in the early part of your life would be offset by the gains later in life when the mortgage is paid and the renting option continues to pay more.

Rough numbers, cause I am short on time:

Rent for 60 years at avg (it would fluctuate, higher and lower) of $1,600 a month – $1.15 Mil

Pay a mortgage and associated costs for 30 years at avg of $2,000 a month – $720,000

Pay only associated costs for last 30 years at avg of $600 a month – $216,000

Total: $936,000. Plus you have an asset valued at ‘X’ at the end.

This also assumes someone takes 30 years to pay a mortgage, and that they are carrying a hefty mortgage payment. (Garth’s example was $1750) i.e., they did not put a lot down at the beginning or at any time during the 30 year period.

Be curious to know others thoughts, or if someone has time to run more detailed numbers.

#92 Devore on 07.22.11 at 11:46 am

#56 Genghis

Yes, of course maintenance is missing from the equation. When you expect to sell your house in a bidding war with a non-conditional offer, regardless of the state of your house, who needs maintenance.

Also, property taxes go up. I love how rent goes up 5% a year (hahaha, and hohoho, mine just went DOWN 7%) but property taxes do not. Home owners should pay attention to their civic politics and prepare to bend over.

There is no province (except maybe for Quebec, because they’re their own country) that has rent controls on new occupancies. Landlords are free to set rent at whatever they like for new tenants, yet rents have gone nowhere in the last few-10 years. I know someone will point to places like Regina or Quebec, where vacancies are basically 0%, but in most markets they have been well above normal; for every Regina there is Abbotsford and Windsor, where vacancies are pushing double digits.

#93 Devore on 07.22.11 at 11:53 am

#61 Kevin

Fascinating. Now what happens if you extend this out to 50 years? You know, including the 20 years after the mortgage has been paid off, and the renter is still writing monthly cheques for $5,200?

Why, do you expect to be renting for 50 years? Do you expect to live in the same house for 50 years?

Oh hell, extend to 100 years, it will look even better!

How about this: rent when real estate is bonkers, and buy when houses are cheap, perhaps even cheaper than renting right from day 1! What a concept.

Rent vs own comparisons beyond 5 years are asinine and serve no point except to stroke egos.

#94 Devore on 07.22.11 at 11:56 am

#62 Incubus

I am a landlord in Montreal, last year my increases were 0%, this year it was less than 1% and next year I am planning 0%.

That’s because rents track incomes, not costs. Should be obvious, but too many people are used to financing their lives with paper equity. Rent is a cash business baby.

Alright, enough of Garth’s blog for today, gotta get some work done around here.

#95 Cookie Monster on 07.22.11 at 11:56 am

I was saying it is politics, not economics. If the threat were real the bond market (which knows more than both of us) would be in panic mode. It ain’t. No default. — Garth
I’m almost afraid to say this because I think what I’m about to say is to obvious.

If the debt ceiling limit holds, hence the purpose of having a debt ceiling in the first place, then the government has to prioritize it’s spending and must make cuts to balance it’s budget. It then becomes a simple matter of prioritizing it’s obligations and paying it’s creditors is priority number 1 or else interest rates go ballistic and all Garth’s bond holding become worth less fast.

Defaulting on their debt obligations is not going to be their first choice so the fear mongering is pure politics. The actual holding or raising of the ceiling is pure economics, and the fact is, holding it would be the right thing to do since raising means going further into debt and making the problem worse in the future.

I say 60:40 it likely will be raised and once raised, since nobody in their right mind wants to buy treasuries, the fed will again be the buyer of only resort, and that means, like so many voices here said yesterday, people should buy gold or equities, while all fiat will continue to be debased, some faster than others, but all none the less.

Gold and silver are safety and security from the evil powers that be.

The resumption of economic growth will make your argument moot. BTW the possessive of ‘it’ is ‘its’. — Garth

#96 Beach Girl on 07.22.11 at 12:00 pm

I have several set of friends, suprisingly. Some friends laugh at me, driving their SUVS, Escalades, Boxsters, etc., while I drive an 11 year old Cavalier with a tad of leprosy. I just tell them, at the end of the day I will be eating name brand cat food, will you?
Then on the other hand, all these young people getting mirred up with cell phone bills, just one idiot talking to another. Just cranky, the heat. And I am a landlord to 2 single moms, I have not raised their rent in 7 years. Because they do not piss me off.
The Jack Russell is being a pain today.

#97 The InvestorsFriend on 07.22.11 at 12:06 pm

Garth said at 77:

If the threat were real the bond market (which knows more than both of us) would be in panic mode. It ain’t. No default. — Garth

Well, I too don’t think there will be a default.

But the bond market is not always correct. It was the bond market that up until 2007 and 2008 was convinced that mortgage bonds backed by the higher tranches of subprime mortgages (the best of the garbage) were risk free and was properly rated AAA.

The bond market has tended to blindly follow the ratings agencies and assume AAA means no risk. And the bond raters were paid to rate junk as AAA and convinced themselves and the bond market it was indeed AAA.

And now the bond raters are scared to downgrade the United States because of the implications.

No, the bond market is not always that smart. They miss some things. They exhibit herd mentality.

So yeah, there will hopefully not be a USA default because everyone involed knows it would be a disaster. But don’t count on the bond market to be geniuses.

By the way the bond markets is pricing in basically almost zero inflation or default risk on U.S. long bonds for thirty years out. How intelligent is that really? (almost no infaltion!) A truly smart guy, Warren Buffett begs to different on that and would not touch a long bond. Who is smarter, the bond market or Warren Buffett?

#98 Bob Green on 07.22.11 at 12:10 pm

Here’s a rent story that poo-poos the doom and gloom around renting (though I acknowledge fully it is not the situation for all renters).

I have rented the same basement suite in Calgary for 8 years. In that time there have been 2 rent increases. I started at $650/m, then to $700 and finally to $800 which has been the rent for the last 3 years. What do I get for that? All utilities, cable, etc. 1000sq f. Large windows (only a half deep basement), renovated bathroom/living area, 1 bedroom (huge), laundry. Outside? Landscaped back yard with super nice firepit, hot tub, storage shed. 4 parking spots along the back fence (this is a 40yr old lot, extra length).
Location? SW Calgary near the old Currie barracks (very high profile area where 80yr old lots sell for $500k+), my bus ride to downtown takes 25min (tops).

This has allowed me to pay of student debt, build a respectable (so far) retirement nest egg, purchase shares and live a comfortable life.

Renting is terrible.

#99 garrulous squirrel on 07.22.11 at 12:15 pm

Investing in second mortgages can be safe and proitable… have to do it the right way.

First…….no brokers who represent a flight risk. There are plenty who have their feet on the ground. The newly arrived ‘entrepeneurs’ can be very flaky and still think they’re in the old country whenever they get more than $29.95 in their pockets. The old country rules are why everyone left…remember that.

Second…..diversify your holdings by never advancing more than twenty thousand dollars per file.

Third… must receive the payments directly…not through the broker ‘in trust’. Your money is too tempting for the ‘newly minted’. The local governments may want to ‘save a job’ for the immigrant instead of hiring individuals and families who created the infrastructure…but you should never be stupid like that…..especially with your money.

In the old country you can collect debts ‘the old fashioned way’. But here in Canada we have no such option……the court system will not bail you out if you get burned. New immigrants are considered ‘hands off’ by the criminal justice system.

Four….set strict criteria regarding who you loan to. My favorite are ‘just got back together after a separation’ couples. They both have gainful long term employment and long term committments. What happens is that these couples have had a spat….they have separated and gone out and had a fling…new car…new clothes….a vacation or two….and then the bills started coming in and they realize they can’t afford to stay separated. They need cash to resettle the nest.

I have enjoyed monthly payments ( in excess of 9%) from tax auditors who had to deliver newspapers in the morning to make the nut ( I loved that one)….truckers who worked extra shifts for a year…etc etc etc. Choose who you lend to very carefully. Your broker brings the client to you…..charges them an upfront fee and you cut him loose….thats the way it works in second mortgage land.

I would not touch second mortgages with a barge pole. — Garth

#100 Genghis on 07.22.11 at 12:21 pm

House prices in big cities in China (relative to income) make Vancouver look almost reasonable. This is clearly not sustainable.

#101 stephenbryant on 07.22.11 at 12:22 pm

Garth obviously I touched a nerve yesterday. My point about insider trading was not that you are trading securities based on information provided to you from Corporations. It has to do with information you gathered while in office when you were in government. Few, .001 of 1% are elected to office in this country and know the inner workings of government. I’m sure many of your decisions are based on what you think governments will do based on your past history. I’m saying your closer to that information than most.

#102 dd on 07.22.11 at 12:24 pm

Downtown Calgary rent: 2 bed 2 bathroom apartment
2008 $1500
2011 $1500

Love it.

#103 MoneyMyHoney on 07.22.11 at 12:25 pm

Relation between GDP and the size of male organ:–giving-new-meaning-to-private-sector-study-finds-link-between-penis-size-and-the-economy?bn=1

What does the Greek stuff measure up to?

#104 dd on 07.22.11 at 12:30 pm

The return to economic growth and the crash of the metals-

Ya, we have heard that story before. Skyrocking growth from 2000 to 2007 sure didn’t muffle the price of the metals. Just like the story of interest rate increases. Ha. Across the globe there is real negative interest rates as far as the eye can see. Too funny.

#105 disciple on 07.22.11 at 12:31 pm

I love long bonds. Over 10% return is good, no?

Nestle has gone deeper into China, acquiring a major stake in a domestic candymaker. It’s developments like these and countless others that are buoying my sentiment.

Get out of housing altogether and hitch a ride on the corporate bandwagon. You can always buy back outright with your profits. Thank you, China!

#106 jess on 07.22.11 at 12:36 pm

Smoke pours from a building in the center of Oslo, Norway, Friday July 22, following an explosion that tore open several buildings including the prime minister’s office, shattering windows and covering the street with documents. (Thomas Winje Øijord, Scanpix, Norway/AP)

#107 dd on 07.22.11 at 12:36 pm

#9 Squidly 77,

so how did that gold and debt ceiling argument work out for you Squid? Congress will pass it and the metal is on the rise. HA. Told you that gold bugs are not investing in the metal just because of the ceiling. You calls on the metals have been totally off. Don’t quite your day job.

#108 Smoking Man on 07.22.11 at 12:36 pm

O………………. Bubble Heads any of you catch the Infaltion numbers today………They say way down.

LMAO Brave Carney talks tough not three days ago, sends the dollar into orbit.

Today we get Stats Can doing damage control… Got to love it.

Any way your dream of HousingCrashMegedon just got pushed way back again…..

As far as renting vs owning, Sold my Condo closed yesterday,

had it for 2 years , 4 months, 50 k down profit after all intersest taxes fees laywers real easte agen commision 89000

176% for a little over two years

Ya but I guess my teneant who reads this blog must be happy he forked over 28K in that time frame..
Thank you very much……..Ted

#109 Nemesis on 07.22.11 at 12:41 pm

“I was saying it is politics, not economics. If the threat were real the bond market (which knows more than both of us) would be in panic mode. It ain’t. No default.” — Garth

My ‘left brain’ agrees with ya, GT… My ‘right brain’/SpideySense are flashing, “Danger, Will Robinson! Danger!”…

Here’s an interesting think piece from the Economist that nicely sets out the contrarian argument, “Compromise may still be possible, but there is nothing inevitable about it.”…

[Economist] – Dicing with debt and the future:
The Theory of Inevitable Compromise, and why it is probably wrong

#110 Cookie Monster on 07.22.11 at 12:41 pm

The resumption of economic growth will make your argument moot. BTW the possessive of ‘it’ is ‘its’. — Garth
But real growth in N.A. is unlikely to happen so long as governments continue burning through capital. Capital destruction means less capital which means no good paying jobs, which means low productivity, which means more printing, which means more devaluation of savings and business destruction via inflation. This means bond holders will continue to be robbed because someone has to pay for all these mistakes and the people with money will pay. Pensions will be worth less.

#111 disciple on 07.22.11 at 12:50 pm

Bill O’Reilly is a Rupert Murdoch creation. It’s time to kill that beast. (The show, I mean, yeah). Incidentally, Murdoch also is responsible for the defamation of Andrew Wakefield (vaccines) and the selling of the Iraq War.

But you won’t hear about those on the evening news.

#112 garrulous squirrel on 07.22.11 at 12:54 pm

Thank God for the Conservative government…we are finally starting to see some justice for Canadians. Hopefully the Liberal appointed judges who had free reign to practice their nut job ideology will finally start moving the crooks and scum bags off the public dole if they want to keep their jobs. Huzzah!!!!! the Liberal reign of terror is over. Good for us for recinding the citienship of those 1800 phony liars who scammed a passport out of the weak kneed Liberals.

I hear most of those folks came in over the last five years – under Conservative rule. The politics of this seems irrelevant. — Garth

#113 disciple on 07.22.11 at 12:57 pm

Coincidentally, the head of Reuters serves on the Board of Merck, and Miriam Stoppard who writes at the Daily Mirror newspaper is married to Sir Christopher Hogg, who was Chairman of GlaxoSmith Kline in 2004. Dr Kumar, the Chairman of the GMC Fitness to Practice Panel who ruled against Dr Andrew Wakefield, would not answer questions about his shareholdings in GlaxoSmithKline, and said there was no such thing as vaccine damage and that any parents who claimed that their children had suffered such would be treated with scorn and contempt.

Stop electing banker puppets! The truth is that if nobody voted, there would still emerge the pre-ordained winner. Please be advised. You do not change your world through the political process of elections, you do it through your purchasing power. Every day. Use it wisely. Incremental change. One mind at a time. I’ll be waiting for you on the other side.

#114 Cookie Monster on 07.22.11 at 12:57 pm

On the other hand, if interest rates were to rise encouraging people and their governments stop spending and start saving again. We could start rebuilding capital, thereby providing money for investing in productive endeavors, have lower inflation, pay real interest rates to pensioners and savers. Higher rates would force liquidation of malinvestments and reallocate labour and resources.

In this scenario, bonds will also get hit. Either way, interest rates have to rise either by inflation and market panic or by intent and market panic.

#115 jess on 07.22.11 at 1:14 pm

trust me shell games –

…kinda destroys the image of swiss banking
Credit Suisse Group’s former head of North America offshore banking was among seven bankers charged with conspiring to help clients in the U.S. evade taxes through secret bank accounts. In the past two years, prosecutors have filed criminal tax charges against more than two dozen UBS clients, four UBS bankers, four other alleged offshore enablers and several other clients of Credit Suisse and HSBC
from 1998 -2009

U.S. Department of Justice Press Release: Manhattan United States Attorney Announces Charges Against Swiss Financial Adviser For Conspiring With Over 60 U.S. Taxpayers To Hide More Than $184 million In Swiss Bank

#116 disciple on 07.22.11 at 1:21 pm

It’s fear of death, mostly, that motivates people. They don’t recognize this, though. In their controlled panic, they console themselves to either money, religion, politics, sex, drugs, rock and roll, and other vices of humanity. Diversions, docility-inducers, devil’s workshops, mind-altering smoke and mirrors that the Mainstream Media is expert on.

BUT…once you lose that fear of death, you lose the vices, and become awakened to your true self.

The greatest illusion of all is that you have control of anything. I am also afraid of leaving my loved ones behind, but perhaps as soon as I have also helped them lose the fear of death, my job is half-finished?

#117 The InvestorsFriend on 07.22.11 at 1:28 pm

Disciple at 105 said:

I love long bonds. Over 10% return is good, no?

Yes, 10% is great. Did that come from capital gains or did you find 10% interest rate?

Capital gains would be due to declining interest rates which can’t go on declining forever (but I been saying that since 1990 and so has almost everyone…)

#118 Aussie Roy on 07.22.11 at 1:43 pm

lawrencej on 07.22.11 at 6:33 am

Looks like it’s not just the Aussies that have fallen for,
SAFE investment must be low yielding and a high yielding investment is RISKY.

Reading the comments here by some show that many would take a low yield because they think its safe. Taking this rubbish idea one step further many of these numbnuts would have been buying tech stocks in 1999 (or a rental property in Van in 2011, insert other low yielding RE anywhere else in the world before they popped) because these where low yielding investments so they must be safe – LOL.

Maybe the Zimbabwe scam artists should promote a low yielding investment by email instead of cash they need to get out of the country. Being a low yielding investment it would have to be safe, right.

Peoples so called logic can be a funny thing. The safest investment is one you can risk manage (hedge etc) not the one you can get the lowest yield from. Don’t believe me there are plenty of examples through recent history if you care to look.

Is a rental property which earns 8% rental yield safer or risky than a rental property returning 2%?. (Lets say same condition homes one in Van and one in an unbubbled city). Sorry but most don’t have any clue about risk even if they live in it everyday.

It was hard enough to train risk managers in the 90s sounds like it would be almost impossible in the 10’s.

Aussie Update

Alarm bells as first-home buyer numbers drop by 50%.

HOUSE prices in Perth have dropped for the fifteenth successive month, marking the longest stretch of consecutive monthly falls since the global financial crisis

#119 Daisy Mae on 07.22.11 at 1:54 pm

Sail1: “The plural of ‘condo’ is ‘condos.’ — Garth”

Often wondered about the apostrophe usage these days. When I went to school, placing the apostrophe in — as an example ‘condo’ — it’s incorrect to spell it ‘condo’s’ because it says ‘condo is’.

But I see the apostrophe used incorrectly every day….so the rules haven’t changed, after all?

The grammar cops have arrived. — Garth

#120 Victor on 07.22.11 at 1:57 pm

5% increase in rent per year? Nice try!

Living in central Toronto in a great 2 bedroom apartment, here are the increases I’ve had these past years:

2011: 0.70%
2010: 0.00%
2009: 1.80%
2008: 1.40%

Meanwhile with the funds my wife and I have been saving from not owning a house we don’t need at this stage in our lives, our net worth is constantly growing thanks to a mixed basket of equities and fixed income that have done nothing but grow over time.

#121 Nemesis on 07.22.11 at 1:58 pm

In other, less serious, news related MotherRussia (and it’s clearly time for a laugh)… “Putin’sArmy” are encouraging RussianWomenEverywhere who’d like to see UncleVladimir back in the Kremlin… to

Порву за Путина!

Which, loosely translated into the EnglishVernacular, parses as, “Sport Your H**ters for Putin!”…

Naturally, there’s an HD campaign video. [PG13 – Ladies may prefer to skip this one]

#122 Cookie Monster on 07.22.11 at 2:15 pm

And today I learned the possessive of it is its.
Thank you.

At least I’m good for something. — Garth

#123 Smoking man is Right. Thanks Mark Carney on 07.22.11 at 2:41 pm

Working is for suckers. Thanks to Mark Carney I have reduced my working hours by half. Why work when your money is being devalued and inflation is allowed to run wild? Spend and gamble with the banks money. If you win you win if you lose you go bankrupt. I am playing the go bankrupt way. I LOVE A FREE LUNCH. Viva Mark Carney. Come on Garth how can RE go down? Go out and buy a house and live above your means. You never have to pay it back. I am now talking with my mortgages broker if he can pull some strings and get me some free cash “LOC”. Why work garth and save? When the government is giving free money away?

#124 ballingsford on 07.22.11 at 2:56 pm

I hope that those women, who are as smart as men, don’t listen to Judith.

As for the others who are smarter than men, then tell your man not to listen to Judith because she only caters to women.

Vacation starts today, yaaahhhhoooooooo!!! I’m gonna use some of my disposable income that I have because I’m a renter and go pay some cold cash for some ice cold beer!

It sucks being a renter! Too much extra cash for cold beer!

#125 gladiator on 07.22.11 at 3:02 pm

Порву за Путина! means “I will rip it for Putin”, or “I will rip for Putin” or “I will rip you for Putin”.
Порву is used as “rip”, but often is also used to threaten people: “I will rip you apart”.
My Russian-speaking friend helped me with this post.

#126 HSC on 07.22.11 at 3:03 pm

The point about rent controls in Ontario is worth exploring further. But first, I would like to offer one point of clarification. Any residence in Ontario that was occupied after November 1991 is exempt from rent control guidelines. Therefore, all the countless condos built in the GTA and purchased by investors over the past 20 years are not subject to these controls, and any rent increase by a landlord to a tenant in those properties is legal.

It should be noted that with the introduction of rent controls in Ontario in the mid-1970s, along with the elimination of government incentives on the creation of affordable housing, the construction of multi-unit rental properties collapsed and has never recovered. The rent control exemption introduced in 1991 was an attempt to undo this mess, but it was too little, too late. So when we take note of the huge number of condos being constructed in Ontario — and in the GTA in particular — it has to be understood in this context. These condos, being purchased by investors/would-be landlords, have become the new rental stock. And with the huge number of new immigrants settling in the GTA every year, the demand for those new rental units remains strong. This is evidenced by the fact that despite the very high number of units being built, vacancy rates continue to fall.

Now please don’t mistake this as an argument against the notion of a property bubble. I agree that homes in the GTA are way overpriced. And condos in particular just keep getting smaller and more expensive. I’m amazed that people would spend a half million to wedge themselves into one of these shoe boxes. In a just world, or a world in which home prices bore some relation to their intrinsic value, GTA home prices would be in for a steep decline. But by hobbling the rental construction market with all kinds of punitive legislation against landlords, the Ontario government has helped to sustain this bubble.

Interestingly, there was a bill introduced to legislature in May 20111 that proposes to remove the rent control exemption for properties occupied after 1991. If this bill gets passed into law, it could be a nail in the coffin of the GTA condo market. The annual increases permitted under rent control guidelines would not cover the typical increase in condo maintenance fees, much less the increased cost of ownership that investor-landlords will face as interest rates rise. This would greatly change the economics of buying a condo as an investment property. If potential investors can no longer rely on rental income to cover their costs, the incentive and ability to leverage themselves to the hilt in order to buy multiple units will quickly erode. On the other hand, if the bill fails to be passed and the status quo remains, I believe that continued high immigration into the GTA paired with the absolute lack of new rental property construction, may continue to prop up prices longer than one might expect.

#127 jess on 07.22.11 at 3:21 pm


solution of water, salt, sodium phosphate, chicken broth, and other ingredients

Pumps up the meat + price since the producers sell by weight. N ot so good if you are on a salt restricted diet since a whole chicken can contain 550mg of sodium /4oz compared to unprocessed which may be at 75mg/4oz.

“Who wants to pay $4.99 a pound for the added water and salt?” asks Michael F. Jacobson, executive director of the nonprofit Center for Science in the Public Interest. ”

#128 Utopia on 07.22.11 at 3:42 pm

It seems we need to address the concept of interest rate sensitivity on home prices in more detail. Younger and more inexperienced home buyers in particular might benefit from the following post.

I am only bringing this up because of comments I have seen over the past days and weeks that tell me there is something of a disconnect in thinking about how pricing fairness is arrived at in a rising rate environment.

Everyone seems to grasp that if you already own a home and then rates subsequently rise, your monthly payments will increase upon renewal of your mortgage.

That is easy to calculate.

Not everyone seems to grasp though that home prices (as a general rule) will begin to decline as rates go up.

But why would home prices go down?

Simple enough. There is a relationship between the cost of money (the rate) and the price of the goods for sale. Home prices can fluctuate wildly as rates go up and down and we have seen this firsthand in the most bubbly of markets. Pricing in a deal that is acceptable to both buyers and sellers means taking into account the cost of borrowing and not just the price of the asset under review.

It sounds elementary and yet few buyers are getting it. We know they don’t get it because they are buying solely on the rationalization of monthly carrying costs. If they understood the simple arithmatic they would just sit back and wait for asset prices to fall as rates rose.

There is therefore no real urgency to purchase in advance of suspected interest rate increases. That is actually a time to steer clear of rate-sensitive purchases and wait while allowing the smoke to clear.

Where the rule breaks down is during times like ours where buying power exceeds market sanity and bubbles are forming. Nonetheless, it is still worth understanding the concept if you have never bought before and are now contemplating your first home.

I have probably worn out the teeter-tooter analogy although it is very fitting. When interest rates rise, prices of the assets for sale will decline. When interest rates decline then home prices (assets) will increase in value.

So pricing and rates are generally on opposite ends of the teeter-totter. When one goes up the other falls.

The reason this concept is important for first-time buyers is that we now know with certainty that interest rate increases will be coming. That is a reason to wait to make a purchase, not rush to complete a deal.

Alternatively, it is a time to demand a price reduction from the vendor rather than bid up his prices further in a competition with other buyers.

You younger people need more information to fortify yourselves against the never-ending onslaught of bad information that comes from parents, in-laws, spouses and Realtors in this regard. You need the right kind of information so that you can fight back and be well armed when you do so.

I realize this is very basic. I just hope it helps.

#129 Utopia on 07.22.11 at 4:06 pm

And let me just add that I make no apologies to you Realtors out there who keep pressuring our younger impressionable first-time home buyers to rush to purchase “because rates are rising”.

All of you took the courses. You know how rates work. My opinion of those of you who keep pressuring young buyers to jump in “or be priced out forever!” is not just low, it is in the range a disgust.

There is a reason I call you people Real-Turds. you earned it.

#130 Smoking Man on 07.22.11 at 4:07 pm

123 Smoking man is Right. Thanks Mark Carney on

So true…………….

If you don’t have squat, you have nothing to lose you can never go below Zero. Called bankrupt……

Back in the day when I was nuts and risking like a mad man, everything in wify’s name……….It worked out great. I started thinking to much, messed me up. I do much better as an idiot…Lost it all….Got stupid again… and made it back fast.

School realy mess people up. Tell your kids to drop out in grade 9…. only math you need is Sales-Expence= Profit.

I get my balls busted cause I can’t spell…who cares I can still communicate. It’s only important to indoctronated obidiant tax fram slave churned out of our freedom creativity killing school system.

Remeber a wage is only the crumbs of some one’s (like me) Deal

#131 jimsum on 07.22.11 at 4:07 pm

I noticed that #34, #51, #61, #79 and #82 all share the common belief that homeowners are more responsible with money and investments than renters.

What about second mortgages and HELOCs? It is common for homeowners to consolidate their credit card debt with their mortgages, then charge up the cards again. Homeowners may have a small amount of forced savings, but they also have irresistible access to easy credit.

It is a tragedy when renters piss away what they save from not buying a house; but it is an even bigger tragedy when homeowners piss away the money they borrow against their house.

#132 ballingsford on 07.22.11 at 4:51 pm

Nice quilt, kind of, but not to my liking. Why does that picture make me think of the good and the bad, with the quilt being the good although it’s not that good?

Let me ponder that while I sip or quaff a few cool ones. The answer lies within.

Something in that picture is distracting. Not sure if it’s the smile or the eyes. I guess I need more beer and a swim in the pool before I figure that one out!

#133 Snowboid on 07.22.11 at 5:18 pm

#76 Devil’s Advocate

Okay, so you are making a bundle on renters… or are you?

We were landlords several years ago in Kelowna, and even with good deals on our purchased properties, it was a rare month where we broke even. We eventually made reasonable money (even after capital gains) on the sale, but that was 2006.

We are now renting a condo with a beautiful view of a park, close to downtown and the beaches, almost 1800 sq ft – luxury unit.

When we subtract monthly strata, special assessment, taxes and maintenance that owners pay we end up with a net rent of about $ 650 a month.

Last year, units in the complex went for $ 400K – $500K, but are down at least 10% from then. So let’s say a selling price of $ 400K. With 20% down would still leave a $ 320,000 minimum mortgage, but not counting legal fees, PPT, etc.

25 years at 4% is $ 1683 a month – come on now are you really happy to hear those pennies in your piggy bank???

#134 Smoking Man on 07.22.11 at 5:24 pm

Bubble Head one thing I have learned by reading your posts is most of you are afraid of Risk.

What I am about tell you keep it to yourself and enjoy it while it lasts…..This is how a master bain works…

Ok here goes. 3% risk free return every day..
How is this posable dumb smoking man?

Go to the bank and get 8k USD for you and 8k USD for spouce. It will cost you about 7600cdn each depending on rates
Drive to Niagara falls. and go to Senica Casino my favorate place.

Over the night Take several trips each to the casheirs window chose different ones and give them no more than 1000 at a time to change to Canadian.

They will give you 500 CND for 500 USD , as of last week they where still doing that.

So each of you nets about 400. Money for nothing….
Whatever you do don’t cross borader with more than 10k with out declairing.

Smoking Man always finding ways to stick it to the man

#135 Aussie Roy on 07.22.11 at 5:24 pm

Wow, its offical the M$M have given in, on prime time TV no less.

Its a must watch, funny about 2 minutes in “I dont think anyone saw it coming”.

Fri 22nd of July 2011 on Channel 7 in Australia.

#136 Ben on 07.22.11 at 5:29 pm

My boss flew in from Chicago yesterday for a get together with the engineers here in Dallas. He told me… you know the VPN doesn’t have borders so if you wanted to work from Canada it wouldn’t be an issue. We all work remotely and he knows I’m renting an all inclusive furnished apartment in Dallas. I said thanks… I will keep that in mind if I have to go home for any reason but to be honest, it’s cheaper to live here so I’m alright. The apartment costs me $750 a month.

#137 Timing is Everything on 07.22.11 at 5:56 pm

#72 Bottoms_Up – said “Also — if people did the math on cottages, no one would ever buy one (it just doesn’t make sense based on monetary reasons alone).”

Ma and Pa bought a cottage many years ago…It saved their marriage! They saved a pile of cash (medication, marriage counseling and lawyers), not to mention their sanity.

#138 betamax on 07.22.11 at 6:07 pm

As Devore suggested above (somewhere) the rent vs. buy is too often presented as a false dichotomy. People sometimes rent at one stage in their lives and own in others.

People who once own don’t necessarily own in perpetuity: relocation, divorce, old age and hard times happen to us all. Life is long, and much can happen over decades. (Statistically, half of the smug owners posting here are going to find themselves divorced at some point. They may not be owners afterward.)

Regardless of one’s stage in life, it’s better to rent than buy at bubble prices, which is what we’re mired in here in Canada.

There’ll be a time to buy when prices correct, and renters who save money will reap benefits later — with a much larger downpayment or buying outright. Sure, they’ll have paid tens of thousands in the meantime, but so will owners for interest, taxes, insurance, maintenance, strata fees, and even — when the market corrects — depreciation.

Only in bubble times does real estate look like a slam dunk.

#139 TurnerNation on 07.22.11 at 6:44 pm

Best place on Earth?? The Squamish Sasquatch strikes again.

For the couple who has been serving Squamish patrons since they opened their first restaurant in 1975, Yiannis closure is more than heartbreaking – it’s life changing and tragic.
“We’re not sure what we’ll do next. we stayed open as long as we could to keep everyone in work,” she said.
“It’s really, really hard. We’ve done this all our life. This is our life’s work. We hoped to stay in it until my husband retired in three years time but this is what the economy did to us. stole our life.”
Donna said there were a number of growing factors that lead to Yiannis’s demise.
**First, the big businesses left town and the Royal Hudson train stopped coming to Pavilion Park, then the Sea to Sky Highway Improvement Project deterred people from pulling into downtown Squamish, then the HST came into effect, and then minimum wage went up, said Donna**

#140 Moneta on 07.22.11 at 6:52 pm

Patchwork Pro

published 26 February, 2011

Giving tokens of appreciation to clients often comes in the form of gift baskets or edible items -but for some advisors, it can be a challenge to come up with fresh ideas. Judith Cane, a registered health underwriter with Wealth Strategies in Orleans, Ont., found a unique concept with a personal touch: quilts. She makes them from scratch. Her latest, designed with a maple leaf motif, was tailored for a client recently diagnosed with cancer.

#141 Vlad de Mad on 07.22.11 at 6:56 pm

The subprime crisis can’t happen in Canada. My real estate agent told me prices will continue to go up and the best time to buy is right now. I asked her how she knows prices would continue to rise. She said her astrologist told her. I was impressed, who am I to argue with astrology, it’s a science. I mean, they launched the Hubble telescope so mankind could have pretty pictures to look at.

So I went to visit my bank to get a mortgage. I told them that my job was a bit shaky and I haven’t been able to save much money. They said no problem, will lend you $500K. I was impressed, so I asked how they are able to do that. The mortgage lady said that the bank takes no risk. Something called the CMHC insures all mortgages or something like that. They are floating this stuff on a bond market with the backing of the government. Wow, the CMHC sounds like one great hockey league. I told the mortgage lady if you, the bank, take no risk, I have $1 Million.

So I am now the proud owner of $1 million dollar house. All my friends are impressed. My real estate agent and her astrologer are really happy. I’m living the dream.

This wonderful story is brought to you by CREA, CMHC, your bank and the Harper government. “Live the Dream”.

#142 TurnerNation on 07.22.11 at 7:07 pm

Funny Canadiana story. Air Canada and Bob Rae as a modern-day Bob & Doug McKenzie duo.
I bet Garth spent his share of time in Air Canada’s executive seats and lounges, and dealt with their Soviet-style customer service!

Thank you, Bob Rae, for stealing my plane seat
Kenneth HarveY
Globe and Mail Update
Published Friday, Jul. 22, 2011 5:00AM EDT
Last updated Friday, Jul. 22, 2011 7:29AM EDT
…I stated my name and handed over my boarding pass. “I’m on the St. John’s flight delayed two hours.”

“No,” said the woman at once, her voice clipped by some regressive military accent, vaguely Russian or Eastern European. “Too late.”

“No seats.”

“No, no seats.” She waved me away

#143 a prairie dawg on 07.22.11 at 7:47 pm

#127 jess

Chickens being fed chicken broth?

Might as well add some Fava beans.

thpp thpp thpp thpp thpp.. lol

#144 Painted Toenails on 07.22.11 at 7:52 pm

Suffering succotash there’s a whackadoodle of misogynistic drivel on the blog today. Let’s have some fun.

Q. Why are all dumb blond jokes oneliners?
A. So men can understand them.

Signed: a cool blonde

#145 Devore on 07.22.11 at 8:00 pm

#136 betamax

Only in bubble times does real estate look like a slam dunk.

Steer clear of any investment that’s a slam dunk, and that includes real estate. No, you don’t have any secret information, no you are not getting in on the ground floor.

#146 eddy on 07.22.11 at 8:02 pm

here is a fascinating article called:


by Charles Savoie

#147 AG Sage on 07.22.11 at 8:08 pm

>#40 AgAu on 07.22.11 at 12:05 am
>Amount of equity in their homes, on average, of homeowners with CMHC-insured mortgages (per cent) 44

>Does this mean things are not as bad as they seem?

Equity calculations are based on inflated home values, so at this point in the market cycle it’s smoke and mirrors. Equity is the first to go. Whereas the debt stays put. Not a useless number, however. If you think houses are overvalued and ripe for a 25% decline, you can estimate that average equity in their portfolio is 19%.

#148 Utopia on 07.22.11 at 8:20 pm

#127 jess on 07.22.11 at 3:21 pm


“Who wants to pay $4.99 a pound for the added water and salt?” asks Michael F. Jacobson, executive director of the nonprofit Center for Science in the Public Interest”

Thanks Jess. They are only about 25 years late on this subject though. I am still happy something is finally being done. Years ago the wife and I bought a festive Turkey for Christmas. It was sold under the name of Butter something or other. We cooked it up and the damn thing was half liquid. Just oozed oily liquids for four hours while it cooked. Only a small roasted bird eventually emerged. We were disgusted and she refused to make the giblets and gravy with what drained out….and so we threw it in the garbage and never bought the commercial birds again.

#149 TurnerNation on 07.22.11 at 8:33 pm

My, our forum host is chatty today. :-D

Three years in my downtown Toronto rental condo with no rent increases (I negotiated it, in one of these years).
Yes it has granite!!!!!!!!!

#150 Utopia on 07.22.11 at 8:47 pm

#135 Aussie Roy on 07.22.11 at 5:24 pm

That was quite a well done piece your M$M put up. Fascinating. I watched it twice. What a nightmare you are all facing down there right now. Much more severe than the US downturn. Actually, it seems it is even worse than in Canada too in many respects and I cannot understand why nobody rang the bells on it all before it was already too late. So many losses.

What a pity.

#151 AG Sage on 07.22.11 at 8:49 pm

>#61 Kevin on 07.22.11 at 7:01 am

People lacking the discipline to save the difference between rent and a mortgage should not be handed 20:1 leverage on a purchase equal to 5x their annual salary. Call it a test, one that works remarkably well.

#152 Nemesis on 07.22.11 at 9:33 pm


Yes, in a literal sense – you’re correct… but functionally and in the context of the campaign video, “I will rip it for Putin” amounts to… [you watched it, right?]…

Regardless, I’m only back to ‘gloat’ [actually, no]… re: prior FortuneTelling…

GT!… WTF! are they doing ‘down there’!!?? In the context of your former life as an embedded politico [if rather too iconoclastic/principled from a ‘management perspective’] it would be enormously helpful to hear your take on all of this.

PS – it’s gratifying to see the SpellingPolice on patrol for a change… [“The Trivium/Quadrivium are strong in this one.”]

#153 WhamBam on 07.22.11 at 9:36 pm

Garth, you are a straight up GANGSTA cuz you tell it how it is!

#154 TurnerNation on 07.22.11 at 10:07 pm

Ohhh, so that it Moneta’s blog. Looks mundane. Pass.
So many doomers.

#155 Pr on 07.23.11 at 11:14 am

USAHere are the foreclosure filings, which are getting worse not better:
20) Boise , Idaho — 1 in 21 homes in foreclosure
19) Sarasota , Fla. — 1 in 21 homes in foreclosure
18) Lakeland , Fla. — 1 in 21 homes in foreclosure

17) Tampa , Fla. — 1 in 20 homes in foreclosure
16) Port St. Lucie , Fla. — 1 in 19 homes in foreclosure
15) Sacramento , Calif. — 1 in 19 homes in foreclosure
14) Naples , Fla. — 1 in 18 homes in foreclosure
13) Deltona , Fla.. — 1 in 17 homes in foreclosure
12) Bakersfield , Calif. — 1 in 17 homes in foreclosure
11) Reno , Nev. — 1 in 16 homes in foreclosure
10) Vallejo , Calif. — 1 in 16 homes in foreclosure
9) Orlando — 1 in 15 homes in foreclosure
8) Merced , Calif. — 1 in 14 homes in foreclosure
7) Stockton , Calif. — 1 in 14 homes in foreclosure
6) Riverside , Calif. — 1 of 14 homes in foreclosure
5) Miami — 1 in 14 homes in foreclosure
4) Phoenix — 1 in 14 homes in foreclosure
3) Modesto , Calif. — 1 in 14 homes in foreclosure
2) Cape Coral , Fla. — 1 in 12 homes in foreclosure
1) Las Vegas — 1 in 9 homes in foreclosure
USA — 1 in 46 homes in foreclosure
CANADA-VANCOUVER : Wait for interest rate to get 1 are 2 % higher it should be enough! Coming soon!

#156 Pr on 07.23.11 at 12:03 pm

Mind blowing speech by Robert Welch in 1958 predicting Insiders plans to destroy America :