A week ago the head US central banker dude said he’d keep interest rates unchanged for two years. The world yawned. But not here.
As you know, the American economy is borderline recessionary, pulled down in no small measure by a zombie real estate market. Houses are now more affordable than ever. In fact, a new survey by Zillow says in many places they’re ridiculously undervalued. The problem is, real estate’s not cool any more. It bit so many people they want nothing to do with it. Cheap mortgages or no.
So, in hopes for a real estate revival, banker Ben Bernanke vowed to keep ’em that way.
How has this news been greeted in Canada? Bizarrely. For example, here’s CIBC economist Benny Tal, who usually knows better: “Many people can use this opportunity to look into extremely low mortgage rates, so again the misery of other people elsewhere is helping Canadian home buyers.”
And right on cue, realtors have picked up this torch of misinformation. CREA’s now forecasting that house prices in 2011 will rise at twice the level of inflation, and about five times faster than wage gains – like that was just a normal deal. Parroted by the media (no offense to birds), this statement of US monetary policy is now being heralded as proof Canadian house prices will ascend without end.
Hey, here’s Eric and his email. See what I mean?
Hi Garth: Now that the US has committed to keeping their rates rock bottom for the next few years, do you think that the BoC will follow suit and keep the Canadian rate low for another 36 months?
Since 2008 I’ve been able to convince my wife that we’re better off renting. I also predicted a significant housing decline in Canada by January 2011, that hasn’t materialized yet – in a significant way. After observing the emergency measures that H and F are willing to introduce to keep the housing industry inflated, I must ask myself, what’s stopping the Canadian government from continuing this behaviour? I mean, the Conservatives don’t want a drop in housing prices because it would hurt them in the polls. So, my current theory is that they will attempt to maintain an inflated market through low rates and home owner incentives until May 2015 – until after the next Federal election.
If I can put 30% down on a house and pay it down aggressively for the next 4 years (in a low interest environment), I can make a significant dent to the remaining mortgage balance before 2015. We can get a 25 year mortgage for less then what we pay in rent.
Now, I want to kick my own ass for considering a house purchase after waiting for so many years, but it doesn’t appear that interest rates will rise any time soon. I’ve been amazed at the governments ability to prop up the current prices – will the stimulus ever end?
First, let’s think this through. Why did the Fed respond with this two-year rate thingy just when the markets were eviscerating themselves?
Because money’s made cheap to encourage borrowing. The Fed (and Obama) desperately want citizens to take out mortgages and buy houses. They want businesses to run up their lines of credit ordering stock and hiring new workers. They want entrepreneurs to borrow money to open small businesses, build factories or expand. They want consumers to buy new cars on credit. In a country we all think is drowning in debt, they want more of it – because debt means stimulus. Like sex, only later are the consequences overwhelming.
Today Americans are not consuming endlessly, so retail sales and housing sag. Personal consumption is down. The savings rate has grown. More money’s being invested and less spent. And tens of millions of families who owe more on their mortgages than their houses are worth cannot even fathom the notion of rates increasing.
OK, so cheap money’s intended to be an economic stimulus. Washington wants to stimulate inflation in a country where the big thing people own – real estate – is massively deflating.
In Canada, however, no such deal. Cheap rates have ignited an orgy of borrowing. Canadians now owe more than ever – about a buck and a half for each dollar earned. Mortgage debt’s exploded to a trillion dollars. The national savings rate is zero and in BC it’s negative. The average family has more debt than assets. And we now owe more on a household basis than Americans ever did – even at the bubbliest moment of real estate excess.
Mark Carney knows this. He knows cheap money has resulted in irresponsible borrowing and reprobate lending. He sees Van houses going for a million and young couples in Regina taking on debt they’ll never repay. He’s aware of the asset inflation this has caused, and that it’s come at a time economic growth is stagnant and nobody’s making more money. Mark’s a smart cookie. He’s well aware this puts us on a path like the Americans charged down, circa 2003.
And he knows he has to slow it, lest we end up with so much debt that servicing it takes all of a family’s disposable income, leaving nothing for flat-screen TVs or jobs at Best Buy.
This is why rates will rise in Canada, Eric, w-a-y sooner than you or Benny or CREA think. And so they should. It would be a sound, prudent, wise moment in monetary policy history. So, your theory about F and his boss keeping rates low until the next election is just a giant excuse to get house horny with your wife. F does not set rates. He only irritates us.
Having said this, of course, we can all expect five-year mortgages to get a little cheaper thanks to the rush by investors into bonds, driving yields down. But that’ll be pushing on a string. There’s simply little extra pent-up demand that cheaper money can unleash.
Interest rates don’t just happen. This is the price of money. It falls or rises to manipulate human behaviour. And we fall for it every damn time.
209 comments ↓
Great post !
And here’s Zillow’s stock chart (recent IPO):
Life…imitiates life?
http://stockcharts.com/h-sc/ui?s=Z&p=D&yr=0&mn=9&dy=0&id=p13699504865
The only thing that makes Carney a smart cookie is he knows who is keeping him in office. Jimbo has him so wrapped around his finger he’s afraid to make any move. The proof is in his actions during the past year. Keep dreaming, but my am afraid you will be very disappointed.
I love your blog! And first!!!!!
Eurozone has re-entered recession.
US recession imminent.
Canadians are rightfully asking themselves whether the Canadian economy is headed for a cliff if the United States falls to recession so soon after the last one. Do we hit the rocks together, or is our safety net still holding?
While Prime Minister Stephen Harper and Finance Minister Jim Flaherty warn of tough times ahead, they also point to the last recession a few years ago and how Canada walked away with a few bruises but no broken bones, like the Americans. Don’t panic now, they say.
But the pain train is revving if the hobbled U.S. economy is heading to what is called a double-dip recession, Europe continues its nose-dive and other global markets struggle.
Garth are we looking at a certain time frame for interest rate hikes?
I am also assuming flight to quality is going to get the bonds even cheaper.
In Alberta it seems, the longer you wait the cheaper homes become, prices are down 15-25% depending on where you live, mortgage rates are at muti-generational lows and houses are a plenty.
The trend is your friend, don’t buy in Alberta now, houses will be cheaper here next year, and the year after.
BTW, I 100% agree that interest rates will go up faster than most imagine and with every tick up, prices will tick down with 100% certainty.
Sorry Garth, you’re so wrong there; Rates in Canada won’t rise anytime before 2020 at the soonest. Like I said earlier, that $800,000 house will soon be a $2 Million dollar house and anyone who does NOT buy right no will be kicking themselves (and cursing at you too.)
Sorry for the bad news, take care.
Garth, we have a similar environment here in Australia. I feel for Eric because I’m in a similar situation (though I won’t be buying a house any time soon). Rates here are higher than Canada though I believe. What I don’t understand is your faith in the central bankers. Aren’t these the ones that have let the current housing/debt bubble go on uncontrolled? What makes you think that they’ll “get religion” and get all prudent on us?
A little while ago I read an article that said, “PREDICTION; SOON HOMES IN TORONTO WILL BE SELLING FOR $100 MILLION DOLLARS EACH !”
At first I thought that was crazy, but now I’m not so sure, I think that just might happen some time next month.
Garth, just a thought…
Maybe if you stop talking about Carney raising rates, he might actually (finally) do it.
Just sayin’…
Trying to make sense of the Con political moves has never worked out for me, but to throw one more prediction into the wind: I’d expect if anything F would take this opportunity to finally really tighten up CMHC and bring about the over-due correction since the recent majority means that they have 5 years for it to become old news by re-election time. I hope even F realizes that the bubble can’t be kept on life-support for another half decade.
But – what does Goldman Sachs want Carney to do? Can anyone see a report of their CDN$ derivatives?
Regardless of what you think it SHOULD do, the central bank has been pretty clear that it targets core inflation and unemployment, pretty much exclusively, when setting rates. All Carney’s handwaving that we’re spending too much on tick is obiter dicta.
But if you think that’s depressing, I’m reading Greenspan’s memoirs. THAT’S depressing.
i hope he does allow rates to rise, cause if he keeps them at the artificially low rates there will cause even more problems then they have already created, when the housing bubble does come crashing down we will know who to blame. Bankers and the super rich are crashing all economies world wide. good video link with Max Keiser explaing what is happening. http://www.youtube.com/watch?feature=player_embedded&v=kUyutryL_SY
What about cities outside crazy Vancouver and Toronto? How about markets in smaller cities? Where house prices are more like $200,000 to $300,000.
Suppose Eric puts down 30% on a house and now has to pay off a mortgage of $200,000. If he locks in for 5 years at current rates, and aggressively pays down principal, wouldn’t that place him in a reasonable position even when interest rates go up?
Fine for Eric, but do you know anybody who’s actually doing that? — Garth
Rates won’t rise.
You doubted it before Garth, but the US is following Japan’s footsteps.
Because we are so closely tied to the US (as you mention every other day) no rate rise here either. Carney isn’t going to stoke the currency fire, it is already hurting our exports and manufacturing.
Kilt.
What I don’t understand is why Jim Flaherty doesn’t raise the down payment and lower the amortization on a house, say to 10/25.
Garth wouldn’t that have the same effect on the housing market and allow Carney not to raise interest rates and hopefully get our export market going again?
To raise the interest rate only hurts our exports, we just want to stop the reckless consumption of housing here in Canada.
BEWARE THE MONSTER GLITCH-MAKER…THE BOND MARKET! NASTY FOLKS…
US central bank boss Ben Bernanke did not do debt-infested people everywhere a favour in unleashing, last week, a continuation of his diabolical monetary policy of low interest rates through 2013.
To the debt-addicted ones out there his announcement is pure Nirvana.
Imagine.
How good will it be for the next two years borrowing till you barf?
New everything for the house! In fact, a new house, too! What the Hell, Ben knows EVERYTHING, because Mr. Obama says it’s so! He’s just so damned smart!
That’s the excuse, driven by a fairy-tale view of the world, basically something for nothing after inflation discounts five-year mortgage rates and so forth.
But there is a PROBLEM here, for such silly people.
It’s the financial monster of all such monsters, the international bond markets. Their daily actions drive the relatively puny-by-comparison stock markets.
And while currency markets may see more actual fiat cash churning through every business day, the bond markets are the main drivers of financial life on Earth. They do the heavy lifting. Do not forget that!
What all of those nits wits out there, who are thinking of loading up on more debt to buy more crap should remember is this: Should the bond markets demand even a half point more for a US 10-year bond THAT ALONE will be enough to not just ruin your pathetic day, but possibly to end your exceedingly pathetic life.
Watch carefully US Veep Joe Biden’s current trip to China.
Two things are happening:
1) He’s there to suck up to America’s largest lender of last resort (outside of the US fed’s at-home money printing and bond buy-back scam), and;
2) He’s there to be taken behind the fiscal woodshed for some one-on-one with the new Chinese leader, a stern fellow who doesn’t take crap from ANYONE!
Mr. Biden will return to DC a thoroughly chastened man. Sure China and the US are mutual economic co-dependents.
But China STILL holds the whip hand. It can throttle the Hanks anytime. By demanding ADDITIONAL half points for bonds, along the mid to upper yield curve, it can THUS determine the outcome of the next US presidential election, US joblessness, the future of US military adventures, the future of the Eurozone (it has no future, pretty much already), and much, much more.
And, finally, it can flatten Mr. and Mrs. Canada. That’s called COLLATERAL DAMAGE. Mr Carney and Mr Flaherty know that. That’s why we should all pay attention at their hearings on Friday. Plough through the bureacratese. The distillation will go long the lines of: GET OUT OF DEBT YOU FOOLS!
So, if the BoC premptively raises its rates, shortly, now you know WHY.
So, localized pain now or a great throbbing headache POSSIBLY later when one would least expect it!
#96 Cato from yesterday
“The big problem for Canada is our relationship with the US is changing in a big way and our gov’t is oblivious to it. The US is getting back to basics – to an economy of producers and not just consumers. This involves weakening the USD and repatriating jobs lost over last few decades – top of the list of countries to bleed is Canada. Its happening now and we need to prepare for it. Regardless what F. says or hopes for we aren’t going back to the good old days of producing goods america can produce for itself.”
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That is truly one of the most thoughtfully written posts, that I’ve read in a while here. Do you have any insights of where Canada is heading, once we realize that we manufacture nothing.
thanks
Mark Carney cannot raise interest rates for primarily the following reasons: 1)economy is getting weaker, 2) raising rates will make the dollar stronger and hurt Canada’s global competitiveness. Canadians will stop buying real estate when it stops rising and unemployment starts to rise. In my opinion, low interest rates are here for a while but some day they will rise as you predict. The global debt burden is deflationary (see Japan) We are also subject or under the influence of a political class and system down south that is totally disfunctional, corrupt and more and more ideologically driven. This leads to uncertainty which isn’t particularly good for business investment nor investment returns in equity markets.
We will get over all of this but it will be years and as you have written a million times before an individual should have a mix of financial investments that will generate income and ensure some stability.
My 2 cents.
Good post as usual, so I apologize for going off topic.
Canadian soldiers who were wounded in Af’stan are getting the short end of the stick from their government so what do H and M do? They restore the Royal to the Navy and AF so meanly dispensed with by Trudeau in ’68.
And what do the 1st responders from 911 get? Bloomberg tells them they can’t come to the 10th anniversary ceremonies at ground zero–not enough space. Paranoiacs think it’s because there are still serious medical issues to be dealt with.
http://www.federaljack.com/?p=97473
Does this relate at all to our hosts post? Only if you think your government is gonna do right by you. That’s not the game they play.
(no offense to the birds)
Garth, your blog gets funnier all the time.
By the time Carney gets around to raising interest rates, the powers that be will have injected enough stimulus into the U.S.A to guarantee a japan style zombie decade, then interest rates will be locked at zero for a long time, perhaps forever.
Garth,
Hopefully you are right about Carney.
I guess we’ll see:
Rates go up significantly = GOOD Canadian public servant.
Rates stay the same/lower = EVIL Goldman henchman.
Time will tell.
Food for thought :)
One more time Garth has no clue about the future.
BoC if anything will cut rates. I will bet 500CAD to anyone that the next move will be a cut rather than increase in interest rates.
There is no chance in hell that BoC will increase before the Fed.
If I wasn’t tied down here, I’d sell my house in Toronto and buy one of these $150k mansions.
http://www.planbeconomics.com/2011/08/17/10-cities-where-you-can-buy-a-house-for-under-150k/
People say the US is doomed, but any family starting off in America today can lock in dirt-cheap housing costs for the next 30 years of their lives. Sounds like a good head-start to me.
“This is why rates will rise in Canada, Eric, w-a-y sooner than you or Benny or CREA think. ”
We’ve been waiting how long now? LOL.
“There’s simply little extra pent-up demand that cheaper money can unleash.”
Exactly.
Investors will gradually move money from bonds to stocks and other investments. I expect the five year rate to tick up ever so gradually.
Carney – watch him raise rates as soon as Canada has 3-4 months of solid economic data.
Here in Vancouver the markets gone soft, like Junius on prom night.
Romeo Jordan
xoxox
Carny may be a smart cookie, but is he a monster?
You’re right raising rates until it hurts and our dollar his US$1.25 would be good. I don’t think the BofC will do it, nor the bond market either, I think the BofC follow the lead of the Fed because they have to. They can not afford to price Canada out of reach of our number one customer, the US, much better to inflate in step with the US since all our governments are major debtors anyway, inflation is their friend. 100% for certian the will not be deflation, some prices may fall but net-net prices are going to rise fast for the next five years on the back of low rates and defaults. Mark Carney my words.
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Chaos Field describes where this planet is going, mainly because it’s being run by morons and bimbos. As I am neither of the aforementioned, I’m thinking very seriously of getting off this planet. Oooohh, that caused a massive eruption of formulating brain cells!
“Bizarrely. Because money’s made cheap to encourage borrowing.” — Hmmm. There may be a few years’ supply of greatest fools left after all!
*
Food Riots in Japan? Rice is radioactive, and Rice Futures; Fourth Reich Germany; EU Slump The west is in a deep hole.
Robin Hood Another tax for the EU; Soaring unemployment, but there’s plenty of part-time jobs; Lies With all the lies floating around govts. these days, here is a link which might actually make sense. See? Argentina Still nuts after all these years; Earnings collapse, SEC destroys files (convenient) and Wells Fargo.
If ever there was a great reason for revolution, this is it; Reading material only if time permits. “In that document it said, and I quote: ‘The process of transformation, even if it brings about revolutionary change, is likely to be a long one, absent some catastrophic and catalyzing event – like a New Pearl Harbor.” A year later (2001), dubya was in charge and 9-11 conveniently took place.
4:45 clip Fukushima, and 6.2 ‘quake; and here; Not-so m$m A slightly different view on Libya; US Riots A link already posted said there were several cities ready to riot.
Iran Fireworks this month? They have already started their own oil bourse, now this; Immigration EU dumps on UK; Sci-fi or sci-fact? Art imitates life imitates art.
#96 Cato from yesterday
Couldn’t agree more, and then watch our best and brightest start exiting Canada.
#149dd on 08.17.11 at 3:30 pm
…I notice Eric Sprott is bailing out of gold. — Garth…
Ya, he is selling some gold and moving it into silver. HA. I see you just read the readlines. Too funny.
printed out a spec sheet no room on the wall. This is the end of the selling season. This bubble has already burst
#8 waterloo Resident
Really? And who might be buying this $2M house?
I don’t think Carney wants to raise rates, if he does the dollar will soar and we cant afford that. A high loonie is bad for both manufacturers and commodity exporters alike.
The only option I see is tighter lending rules to choke back the runaway housing market. Flaherty gets the enviable task of announcing that one.
Canada’s housing bubble is over, no matter which way you look at it.
I was reading through the Real Estate listings in Vancouver tonight in the local rag realtylink. It arrives free to our door and works well at the bottom of the bird cage when we are done with it. My wife refers to it as the “new funny pages.”
What is really striking is 2 things. Very, very few sold listings on the pages. Only one or 2 per page. Interestingly they are almost all smaller properties. They are also much lower in price than the average listings.
Doing the math shows that most of the sales in the $700.00 per square foot range whereas almost all of the listings are north of $1,000 per square ft. Quite a gap.
Meanwhile the funniest part are the listing numbers. Page after page of the more expensive listings are all rounded to an “8” – ie $1,698,000 and $1,728,000 all the way up to $5,088,000 and beyond.
It appears everyone is trolling for HAM. Why am I not surprised?
…I notice Eric Sprott is bailing out of gold. — Garth…
PS, l love how YOU cherry picked the article. HA.
I hope you are right Garth, but I don’t have as much faith in MC No Hammer as you do. He is GS (Giant Squid) all the way. He won’t do Canada any favours.
Raising the BoC rate would cause our loonie to rise. Hurts exports. Rates will stay at this level for years.
However, if need be, CMHC could introduce price ceilings.
Sorry Garth you are so wrong.
You think Carney will do the right thing. I’m banking he’ll do the wrong thing.
Politics is never for the good of the people, but rather control and the good for a specific self absorbed group of individual.
Carney is too chicken-SH## to raise rates unless the US does it. I think he let this go way too long and now is almost at a point of no return. Now he can only let this run its course, like an addicted gambler, He’s hoping the US will recover before Canada’s house of cards fold.
Debt will keep on growing until it can’t any long. Then you going to see the domino affect….
Carney FOLLOWS THE MARKET and the BoC will not raise rates on its own. If you want to see what rates will be, watch the 3-month banker’s acceptances on this page:
http://credit.bank-banque-canada.ca/financialconditions
It is really that simple. He tries to stay around 0.25% below that. Most central banks do the same. The RBA:
http://www.debtdeflation.com/blogs/2011/08/05/de-mystifying-rba-setting-of-interest-rates/
The Fed:
http://www.elliottwave.com/features/default.aspx?cat=mw*aid=3658*time=pm
So please, can we stop all this useless discussion?
Garth:
Residential Real Estate will eventually decline in value but you have the timing wrong. Consider the following.
1. Low BoC rates and low bond yields for years to come. A high rate differential between us and the USA will cause our currency to rise. Not good for exports and a government wanting a second majority.
2. Labour force stops growing in 2018. Number of people turning 65 in Canada surpasses those turning 20. FIRST TIME IN CANADA’S HISTORY.
3. In British Columbia, by 2025, the number of people dying will exceed the number being born. In other words, natural population increase will be zero for the first time in BC’s history. From now until 2025, BC will add approximately 120,000 people from natural increase.
4. Immigration is the big variable. Power over numbers is shifting towards a provincial policy (Provincial Nominee Programs) from a national program. If it remains at current levels or rises, Vancouver and Toronto will not experience any RE collapse. By 2025, BC will have gained anywhere from 750,000 – 1,250,000 from immigration. Huge implication for municipal and provincial elections!
Waterloo Resident—this was from your post a while back directed my way–i mistakenly took it as sincere and replied back—you know the old saying–fool me once……
you said—-
Yes, you are correct about that, sorry, I’m sort of in a vacuum when it comes to information, that’s why we really need input / info from enlightened individuals like you, thanks for your time and your efforts. I really don’t know much other than the space between Kitchener-Waterloo and Toronto, and even then all I see is prices going up and up, I have not seen anything come down yet.
______________________________________________
then you post this today in #8—-
Sorry Garth, you’re so wrong there; Rates in Canada won’t rise anytime before 2020 at the soonest. Like I said earlier, that $800,000 house will soon be a $2 Million dollar house and anyone who does NOT buy right no will be kicking themselves (and cursing at you too.)
Sorry for the bad news, take care.
______________________________________________
——the greater fools are not only the ones presently buying into this market, but the ones who cannot see that it has been deflating for some time
Sorry, but the only vacuum you’re in, is the space between your ears
??? has Mikey taken another handle ???
I don’t think so Garth. I’m on Eric’s side and I see a lot of people around me just like him. Not seeing the rate hikes happening anytime soon and when they do happen I think they will be slow and gradual. This will delay the inevitable house correction. It’s easy to predict that there will be a housing correction, the real difficult thing is predicting when. You’ve said a few times since 2008 that “it’s here” but I don’t see any sign of a correction yet here in “the epicenter”. That rates are still this low now in the second half of 2011, no-one could have predicted. That they might stay this way for years to come is equally shocking. It may delay the correction for some time.
I made a mistake in yesterdays post. It should have read ‘amortizations’ — not rates. Sooorrry…
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not 1st on 08.16.11 at 10:45 pm
“I don’t think that Carney and F are as reckless as the U.S. is and wanting to inflate this bubble more. They wouldn’t have changed mortage rules a few times if they wanted that. ”
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These fools should never have tampered with mortgage AMORTIZATIONS in the first place. And, yes, they’ve been reckless and stupid and arrogant and…..
Seen this in the US and now its come to Canada on 08.17.11 at 10:57 pm
“What I don’t understand is why Jim Flaherty doesn’t raise the down payment and lower the amortization on a house, say to 10/25.”
********************
This is what amortizations WERE…before Flaherty started tampering with them.
So what you’re saying is that Flaherty should set about rectifying his past mistakes. Yes, that would be nice…
The Toronto Star reports today of a potential future of lower standards of living, higher taxes and later retirement ages, due to demographics.
http://www.moneyville.ca/article/1041039–freedom-55-in-your-dreams-pal
I am sure that the current debt levels of the average Canadian will not help improve any of these.
Interest rates don’t just happen. This is the price of money. It falls or rises to manipulate human behaviour. And we fall for it every damn time.
Not the price of money. Its the price of unbacked currency. If electronic and paper currency is money its a rather poor and cheap form of money. Too easy to create and the cost of it is too low to give it value.
Rates are not going up anytime soon but neither will housing prices.
#36 Devore / #8 waterloo Resident
Like I said earlier, that $800,000 house will soon be a $2 Million dollar house
>> Really? And who might be buying this $2M house?
I’ve heard that Waterloo is the new Vancouver, which is the new Singapore, which is the new Hong Kong. It is obvious that all Chinese billionaires are lining up to buy $2M homes next to Kitchener.
(sarcasm off)
Unless you’re talking about the wealthy Asians that send their children to Waterloo, I don’t see any “Hot Asian Money” saving real estate in a city dominated by RIM — who is cutting jobs left and right.
Everyone looks at Carney and expects him to change the rates when Canada is a rate taker.
If the US double dips, Canada’s economy will suffer. Cyclicals will tank and housing will finally weaken. That’s when the wheels start falling off because suddenly mortgages start to look riskier and the credit spreads on them would start to soar… without Carney’s help
Our government has already used its dry gunpowder in the 1st part of the crisis so this time won’t have much wiggle room. Add a little spark of austerity on top of this and Canada’s economy still won’t ignite. This will really shock the planet since they all think we’re beyond reproach. That’s when the bond vigilantes start making bets on us and send our rates soaring… and we end up somewhere between Iceland or Greece.
Gold 1800 and it was mentioned yesterday that E. Splott is selling his paper into this rally. That’s what the smart money does: frantically create and sell paper (ETFs, funds) into frothy markets (Then the market will go “splott” all over the speculators). Kind of like the condo developers in Toronto and Vancouver today.
Disclosure: no position short or long in gold.
European stock markets getting creamed overnight.
10 years + of the worst stock markets in history. Insurance companies now three years running making good on seg fund gaurantees for product purchased as far back as 1998 never in history having to do so before.
Does anyone really think that Canadians are going to rush into financial assets anytime soon?
Meanwhile, as I flipped through a magazine this morning in T.O called “condonews” I was amazed to see the amount of towers actually going up in T.O and how many are sold out.
It seems that banks overseas are taking a huge hit today. I wonder if all is not well in the land of emergency meetings and mass protests?
I hope you have your seat belt on and have put your chair in the upright position because we are about to feel some turbulence. Up or down it matters not for the excitement is in the ride.
wild year, what a soap opera.
Hugo Chavez’s wants his GXXD back .
http://www.topix.com/who/hugo-chavez/2011/08/chavez-venezuela-recalling-11b-in-gold-reserves
http://uk.finance.yahoo.com/actives?e=l
He needs to worry about keeping his fricking job…not what the interest rate is. I agree that low rates are here for a long time…..I don’t see any Volkers here in Canada.
I agree with Garth (gasp) that it would be the fiscally responsible thing to do…but it would just accelerate the Canadian collapse (which will happen anyway) in a reality where rates are low stateside.
Collapse is hard and it will get MUCH HARDER.
We can only hope for a rapidity of collapse (which may not happen) that guts the government and legal systems to the point where individuals will be free enough to take actions that can preserve families socialogically speaking.
We need complete failure of the entire edifice of governance/law in the lower 2/3 of the modern pyramid…..and yes many bad things would happen (stop your whining you sorry self entitled creatures) but it would allow the social structure of human society to stabilize.
I realize I am talking “Greek” to most on here…but a few get it.
World Made by Hand.
For 20 years we have witnessed the Japanese housing collapse.
It is really very simple but im surprised that nobody has caught on.
Once property and stocks collapse whats left?
So your offering 0 interest rates big whoop.
In fact by offering 0 interest rates all you are doing is making money free.
Want to get your economy back on track then charge a decent rate of return for cash in the bank. Then make people pay a decent rate of return to borrow and risk that money.
While interest rates remain near 0 this will never be over.
It will take a quantum leap of thinking and leadership to get beyond the rational economic teaching.
Sorry Garth, but I don’t remember “sound, prudent, wise” actions of our politicians lately. Why would they change their ways now?
What you say makes perfect sense: it can’t continue like this anymore, houses are way overpriced and it’s all because of our Keynesians in power who opened the floodgates of cheap money for the masses. But the reality is different and the bigwigs keep inflating the bubble – as irrational as it is… I wouldn’t expect them to do the right thing – the game is played in Washington and we just follow…
“The average family has more debt than assets.”
Is that true? This is saying that the average household net worth in Canada is negative. Where did this stat come from? A MoneySense article from October 2009 reported that Canadian household net worths – while down a little – were still very much positive:
“The average net worth of a Canadian household now stands at $385,000.”
Granted, that was 2 years ago, but I find it hard to believe that in just 2 years, the average Canadian family’s net worth has plunged from almost $400,000, into the red.
Garth, can you clarify this?
Didn’t Garth predict large interest rate hikes by Carney in 2011, starting in May?
As I said then, it’s suicide to raise rates with the CDN buck so strong. And as long as Us rates are rock-bottom there is very limited scope for Carney to do anything on the interest rate front.
The best thing they can do is make the mortgage rules more stringent going forward.
Seriously Garth, Sprott selling gold/silver ??
He sold PHY.U because it is trading at a 20% premium and bought his silver bullion fund because no premium.
On his conference call last week, he re-iterated that he had 70% of his net worth, now about 1.3 billion estimated, in precious metals.
Gold trading at a new high this morning in case you hadn’t noticed.
Now there is a man with a true crystal ball.
Hi Garth, re: “It would be a sound, prudent, wise moment in monetary policy history.”
One can hope anyway.
Thanks for sharing your thoughts as always.
PS, I mostly come here for the great pics anyway. ;)
While interest rates remain near 0 this will never be over.
————
All roads lead to Athens.
Soaring rates tank real estate.
Rates at 0% for a few more years guarantee underfunded pensions, thus future cuts in benefits. Cuts in benefits means a cut in lifestyle, therefore a drop in real estate valuations as more people need to downsize in order to save more.
Low interest rates will not effect real estate in gta.
We are in a deflationary period and GTA is not immune.
Pent up demand is exhausted and debt is creeping into households faster than you can say Jack and Jill. First Time buyers are decreasing rapidly. This fall market will not be pretty. Remax and Royal Lepage know this and have sent the marketing teams to the media to try and stave off a disastrous fall season. It wont help. The numbers dont lie. This will now be a depressed market for a very long time.
Excellent post, Garth.
I hope you’re right about the future of Canadian interest rates but never underestimate the power of the baby boomer/affluent immigrant vote.
#54TurnerNation
…Gold 1800 and it was mentioned yesterday that E. Splott is selling his paper into this rally….
That is right. Selling the gold EFT (which is selling at a premium) and buying physical silver.
Still sounds like a gold short to me. — Garth
“The average net worth of a Canadian household now stands at $385,000.”
————
The median is probably half of that.
Over the decade, housing has doubled and the boomers have gotten 10 years older… therefore net worth should have at least doubled. But it did not.
If I remember correctly, it has only increased but 2-3% annually, meaning that debt has risen much faster than net worth.
philly fed mfg – expect 2 – actual -30
dow 9k on the way
For all the reasons cited by many of those above, Carney will not raise interest rates until the Americans begin to raise theirs. And I’m surprised Garth appears to think otherwise.
As for housing, in markets outside of the few remaining hotspots, prices have been slowly deflating for over a year now. So I don’t understand a lot of the comments on this blog wondering when prices will begin to fall. Falling prices are already here folks, have been for some time.
Our economy is very fragile at the moment, so it won’t take much to tip it back into recession (if we’re not already there). The problem is that, in a consumer driven economy such as ours, if people do the prudent thing and begin to save instead of spend, that could be enough to tip the scales and send us plunging into the abyss.
What kind of a society have we created when living within ones means can actually contribute to a bad result?
Why would you be surprised? Failure to curb borrowing in Canada is a far greater long-term threat than a further diminution in exports caused by a higher currency. Many posters here today do not understand the macroeconomics of where we are headed. Carney does. — Garth
One thing is for sure this year, unless you held a lot of gold bullion in your portfolio, you returns are poor.
Banks shares, preferreds ,ETF’s related to various asset classes but gold in the red. Bond ETF’s slightly positive but 60/40 split (efficient frontier) yields negative results this year so far.
Darn it, should have bought a T.O condo !!!
You statement is so general as to be meaningless. Bank preferreds, for example, have barely moved in capital value while continuing to pump out tax-efficient dividends to their owners. Your gold pays nothing. At the end of the day, it’s all about cash flow. — Garth
I don’t know that I would agree with that comment so much. Probably a more apt explanation might be that “It (interests rate which ARE the price of money) falls or rises mimicking human behavior”. It does not manipulate but mimic as is consequential to human behaviour in the supply/demand interplay.
People make purchases largely based on emotion. They later justify those purchases with the weak logic of a cognitively dissonant accord.
The demand for things right now is weak a fear holds back consumers and so too then is the demand for money to buy those things. Interest rates will not rise significantly until demand does which, eventually, it will.
Bond rates rise to attract investment in them at the expense of other things be they competing bonds or real estate. Right now bonds don’t have to compete so much as they enjoy a renewed favour on the international stage, unless of course they are Greek government bonds. Supply and demand… go figure eh.
Personally I think we are nearer, if not already at, bottom as consumers grow weary of the lack of significant capitulation amid the constant wolf crying. I’m seeing a renewed confidence. Call it a “dead cat bounce” if you will. These people have heard that proclamation time and time again over the last three years and it has yet to come to fruition. Historically these cycles last 7 to 10 years and while I am aware of the extraordinary demographic pressures this time around I am confident will tend to address more than dismiss them. I personally believe we are at the edge of a great real estate investment opportunity. Zig when they zag so to speak.
#18 What I don’t understand is why Jim Flaherty doesn’t raise the down payment and lower the amortization on a house
THIS WOULD BE A VERY PRUDENT MOVE. I have said here before, that buying a home should not be for everyone. If you do not demonstrate an ability to save, you should not be able to buy a home.
Interest rates are irrelevant.
END OF THE WORLD DATE MOVED FORWARD
Does today’s stock market plunge indicate the end of the financial world is nigh again.
Is now the time to buy low? I keep nibbling on down days…
Agreed. Good post. I just wish Carney and his whacky crew would act as smart as you say they are and raise the damn rates already!!! Savers continue to get punished and forced to make more riskier moves to get even a sniff of return.
#52 TO Bubble Boy
Waterloo was here way before RIM and they certainly are not the only employer out here.
Real Estate out here has always been pricey compared to other comparable cities.
#8 waterloo Resident
i cant tell if you’re a realtor or just a complete tool, but in the last few summer months visiting friends ive talked to people in kingston, sarnia, toronto, barrie, tri cities, the story is the same: every penny is going to their house and maintaining it.
just talked to a guy yesterday who said he cant afford to eat this month cause his air conditioner broke, and he has a job at a university lol.
if you even mention interest rates going up they crap their pants.
i know 22 y/o kids making 25k/yr who bought houses based on their o/t earnings and now their hours got cut back they cant afford the mortgage.
i have a friend who works at RIM, renovated his house, spent around 30k on the kitchen alone, didnt like it, but couldnt get what he wants for it selling it so now he’s renting it out to university students and went out and bought a 400,000$ house in N. waterloo. neither is paid off and he makes around 60k/yr. that was before the layoffs started.
brilliant right? these are the people supporting the robust housing market.
so explain to me, how long do you think the song will keep playing before we realize there’s only one chair left?
Romeo Jordan at 30 said:
“Investors will gradually move money from bonds to stocks and other investments.”
If you speak of individual investors that may be true. But for ever dollar “moved” from bonds to stocks another investor must buy the bond and someone must sell the stocks.
Investors as a population are powerless to move existing money out of bonds.
What they can do is at some point demand higher interest rates to buy new bonds from companies.
Corporations on average are financed about 50% by bonds 50% by equity (very roughly, it could be 40/60 or 60/40 but it is in that range.) Whatever that range is will not change much.
I will say it again!! S and P should be downgraded !!!!!http://money.cnn.com/2011/08/18/news/companies/sp_investigation_mortgages/index.htm?hpt=hp_t1
The human race is a resilient species, ultimately doomed but resilient, with still a long future ahead of it, probably not as long as the past behind it but still a lot of time ahead. This (recession) too shall pass, as those before it did, long before the human race does. Long before you do.
So, I went to Sandpoint, Idaho for the past week to enjoy some sun, warm lake water, and a little relaxation. While there, I noticed a significantly large number of Canadian license plates, primarily from Alberta and B.C. I’d say one in every seven cars is Canadian. This is a town that is peppered on every downtown block with a real estate office, so naturally there are always people on the sidewalks standing outside of the offices while looking at the posted listings in the windows. After “people watching” for nearly an hour at a local Sotheby’s office, I made a few observations. A few things were remarkable… 1. Nearly all the people who gave a damn about the real estate office’s listing were Canadian. 2. I heard no less than SIX discussions of Canadian couples and a few families stating they would simply “take out a line of credit on their house and pay cash [for the properties in Idaho],” 3. All lookers outside the RE office made statements like “I can’t believe that is the price [it is too much money]” or “These prices are higher than I would have thought.”
Here’s the thing… First, hardly any Americans were found in front of these Real Estate offices precisely because of Garth’s point. We’re burned out on it. We’re literally BORED with it. Real Estate is now completely passe. We’re not the HGTV zombies that we were only seven years ago. We now recognize it as the shelter it is, and we have a newly found respect for it. Basically, we’ve returned to the mean. What a novel concept. We had gotten used to the pricing frenzy seven years ago, and we only thought it was the “norm,” thinking RE prices only go up over time. Well, we all know that simply isn’t true.
Second, prices in the U.S. have certainly compressed in most markets. However, the “deals” are mostly only in cities that are frankly not that desirable. I was somewhat surprised at how surprised these “conservative” Canadians were that prices weren’t as low as they were expecting in a place like little Sandpoint, Idaho next to the lake. Lake side or near-lake property by beautiful Lake Pend Oreille is running about $350-$400/square foot, which is still a bargain if you ask me. But, unfortunately, it wasn’t the $100/square foot that many were expecting to find. The prices have already come down considerably. Nearly all of those $125/square foot (or less) properties my friendly Canadians were hoping to find are found in nasty undervalued areas like Florida, Arizona, and “fly over” states. The entire U.S. RE market is not what the media intimates. In fact, most of it is not. Media always reports the extremes – it sells papers and captures audiences. Take, for example two great cities, my fair city of Seattle and the bustling metropolis of Toronto. The average price for a four-bedroom home here in Seattle is still higher than that of what would be found for an average four-bedroom home in Toronto, and this even after Seattle has suffered a 27% market correction. Hell, the building I live in here in downtown still averages a little over $1,100/ square foot (which is stupid by most market standards, I know).
Last, I’d like to address these Canadians who are taking out or willing to take out lines of credit on their homes to purchase another home (a vacation home, of course). Don’t do it. Yawn. We Yanks have already been there, done that. This is not a newly-found behavior that will further solidify your net worth in the real estate realm. In fact, this is precisely what we were doing seven years ago. Trust me on this one… it doesn’t end well for anyone. Using your primary home as a piggy bank is not a wise idea because that piggy bank is only valued on paper what the market currently will bare – it is NOT a liquid asset. That value of your home vacillates quite a bit when the market goes South (and it will, believe me). It leaves you broke and/or underwater. Not smart or prudent, especially after having already witnessed what happened here in the U.S. It simply amazes me people would even consider doing this.
So, the point? The point is this… Stepping back and objectively observing the behaviors I saw made me feel a little sick at my stomach, while at the same time oddly intriguing. I realized that Canadians are simply doing the exact same thing Americans were doing five to seven years ago. Nothing whatsoever is different. You say tomato, I say bullshit. Americans were flooding vacation markets in our nation and Mexico, operating in the exact same way not too long ago. Is it human nature to follow the footsteps of others? Or is it human nature to want to show the world why “[we’re] different” this time? Or is it something else?
If you’re hankering for a second home and using funds pulled from your primary home’s current value, forget it. Be smart, be prudent, and wait. You’ll be happy you did.
http://en.wikipedia.org/wiki/Lake_pend_oreille
http://en.wikipedia.org/wiki/Sandpoint,_Idaho
Raising interest rates would boost the dollar and hurt things like car sales, which they don’t want.
Going back to 25% down payments would suppress house prices and stop the insane borrowing, which is what they do want. This would make more sense…
So who knows what they will do?
Here we go again…..
CBC: The Toronto Stock Exchange shed 350 points Thursday and the Dow was 450 points lower after fear returned to almost every sector on North American stock markets.
Canada’s benchmark S&P/TSX Composite Index was 351 points lower, at 12, 228, shortly after opening. The Dow Jones Industrial Average in New York fared even worse, down 446 points, to 10,964.
Oil prices lost more than $4 in New York to trade at $83.25 a barrel.
The Canadian dollar was off by more than a cent, trading at 100.82 cents US.
And are we going to panic again? Didn’t we get that over with ten days ago? Volatility is the new normal. — Garth
#44 thetruth,
You said (for the millionth time): “If it remains at current levels or rises, Vancouver and Toronto will not experience any RE collapse.”
Hasn’t is already been demonstrated to you a million times that this is a fallacy? Immigration levels were just as high for years and housing demand did not increase because of SUPPLY increases. Secondly, the vast majority of immigrants come from places where Real Estate is less than Canada. They do not have the money to enter our over priced market – now more than ever.
Why do you keep repeating this when all of the analysis says that it is not true?
#26 casanova
“One more time Garth has no clue about the future. There is no chance in hell that BoC will increase before the Fed”.
———–
They already did. At least twice. Where were you? You also have to ask yourself why Australia has raised its rates so high despite what the Fed has done. Are they not also a Western, English speaking commodity nation just like Canada? China is the answer there of course as China is their largest trading partner. The Fed cannot dictate the interest rate policy for the world but they sure are having a big influence on us in this country..
#78 The American,
You said, “I realized that Canadians are simply doing the exact same thing Americans were doing five to seven years ago. Nothing whatsoever is different. You say tomato, I say bullshit.”
Exactly. Nothing has irritated me more about Canadians the past few years then the smug attitude that somehow we are of a different mindset, smarter or more Conservative than Americans. All nonsense.
We are lucky that Canada trailed the US in deregulation of our financial institutions. If the crash hadn’t happened when it did there is no doubt in my mind they would have done the same in Canada. Anyone who is dumb enough to make the changes to the CMHC rules they did would be dumb enough to further deregulate the financial industry.
#53 Moneta,
I agree. The impact of low interest rates on housing in Canada have pretty much run their course. There are clearly still a garden variety of greaterfools running among us but the consumer is pretty much spent.
If the US is in recession now or by the Fall then people will be less confident in making large purchases. I strongly believe that Canadian consumption is already contracting as well.
I also agree that the greatest fear Carney has it that one day the bond vigilantes strike and push our rates up quickly. I believe he would prefer a gradual adjustment upwards but is clearly in a bind.
Get ready for a deluge of sales into Manulife income plus products as well as competitor products like Dejardins and CI mutual funds same over next while.
The allure of a 5% implied gauranteed growth rate of capital in these ‘reverse annuities’ given where interest rates are and where it appears the stock market is going ,will be irresistable to people shell shocked by the horrendous markets over past ten years.
They are for the most part a ripoff, but the story is an easy sell for salespeople to sell.
As a planner Garth, you will have to deal with your clients asking about it.
67dd on 08.18.11 at 9:26 am
Still sounds like a gold short to me. — Garth
……………………………………………………………………
Fine by me. Silver is in the bag.
U.S., EU ‘dangerously close’ to recession: Morgan Stanley
””””””””””””””””””””””””””””””””””””””””””’
We shall see if Canada can stay out of a recession
http://www.theglobeandmail.com/report-on-business/economy/us-eu-dangerously-close-to-recession-morgan-stanley/article2133314/
#83Icon-They built this “insane” borrowing-now you believe they want to stop it?
#159 arctodus on 08.17.11 at 5:26 pm
thankyou very much for your post yesterday with the link to that article from the OIL DRUM.
Are we creeping into the next recession? the next leg down?
The oil drum is articulating again what peak oil experts have been drumming for years. Every time that oil prices spike ( this last spring?summer 2008?), a recession follows. This has been happening for the last fifty years.
We are now on that bumpy plateau that M.Hubbert forcasted for the early 2000’s. We are now producing the expensive oil. Oil companies now need high oil prices to extract. Once they reach a level that they are profitable(+$100/barrel), the greater economy simply cannot grow. A new recession begins, pushing oil prices down again.. rinse, repeat…
Oil is the only “real” capital of the world. The power in that little substance has fueled this economic boom. However, the amount of capital required to get it out of the ground is quickly reaching the level of not being profitable. Are we getting close to an EROI of 1:1 ?
Perhaps we already have, which would explain the rampant speculation to keep the bubble inflated.
I know I’m only talking to a very few on here, but that’s OK. It’s a subject that most would rather deny because it’s too painful to ponder. By not confronting this issue, are we all speculating in our own minds?…Are we all just kicking the can down the road? magical thinking or wishing something better will come will not save us. Only a concerted effort to get real and face the real issues will help. Most of our leaders do not have this on their radar screen( or choose to ignore as well so they can keep hoarding). This is worrisome because how can the public change things if the powers that be have no clue?
#75 The InvestorsFriend (Shawn Allen)
“END OF THE WORLD DATE MOVED FORWARD”
——————-
Not the end of the world Shawn. Actually it was a pretty predictable outcome considering the wild moves over the last days. The TSX is still in a longer term downtrend and I would have been pretty surprised to see the previous peaks exceeded. Actually I am sure that there is quite a ride in store for us all yet before this cycle concludes.
Meanwhile, a lot of apples are getting shaken out of the trees.
#73 Devils Advocate “I personally believe we are at the edge of a great real esate investment opportunity. Zig when they Zag so to speak”
I would like it if you would elaborate on your point above. Would the masses not be ‘zagging’ towards RE right now? By ‘zigging’ as you say above in your post would you not in essence be ‘zagging’
I ask respectfully as my confidence in this impending RE correction, melt, crash ,whatever everyone here wants to believe, has been shaken.
#68Mon-And a housing crash will decimate that number-the USA median net worth was impressive circa 2006-now it is basically peanuts.
“And are we going to panic again? Didn’t we get that over with ten days ago? Volatility is the new normal. — Garth”
No. I don’t panic.
I’ve been hearing about rumblings out east about the run up in credit by households but this really shocked me:
In Newfoundland and Labrador, with high prices (e.g., loaf of bread is $4), inflated home prices and shiny new Datsuns in every driveway, manufacturing sales declined by 26%, as a result of a decline in non-durable goods (food, beverage, etc…).
I continue to believe that no province in Canada will be spared the imminent correction. Doesn’t matter what the rates are.
Junius: talking about thetruth: Why do you keep repeating this when all of the analysis says that it is not true?
pretty funny
to eric:
Why not house hunt right now? Maybe you can find something 25% under current values.
There are always bargin’s out there if you look hard enough and are patient…find a couple getting a divorce and who just want out, maybe they have large legal bills to pay and you can give them an offer with no conditions.
Hasn’t Garth been buying and selling places during the time of his blog?
American,
Interesting observation in Idaho, lakeside.
I get what you are saying about the cheapest real estate in US being less desireable. I am not sure about buying in Vegas, the whole desert, no water thing kind of worries me…However, I remember when I read one of Harry Dent’s books about demographics, he quoted Vegas as being a good place to invest in. I do not believe he is just wishful thinking, he seems to know a lot about this. Any knowledge on the matter? Is there any place you would buy in? Perhaps you would feel more comfortable to invest in a more expensive place for stability like the places you mentioned….
any thoughts appreciated.
Further….it’s just like a pendulum swinging wildly. It’ll eventually settle down. I do understand this. It’s very intriguing.
#68 Moneta on 08.18.11 at 9:42 am
“The average net worth of a Canadian household now stands at $385,000.”
————
“The median is probably half of that.”
You are correct!
“Average household net worth is pulled up by the 20% of households who control 69% of all the household wealth in Canada. Median net worth is a lot less. In fact, in early 2009, the wealth of the median household was only $170,000 compared to the average of $385,000. The huge gap between median and average is a measure of how much the average figure is pulled up by a tiny number of very wealthy households.”
http://www.moneysense.ca/2009/11/01/the-all-canadian-wealth-test/
Gold…
At the end of the day – it’s all about lack of counterparty risk. In the last 10 years – when have you seen a market panic and gold not get liquidated at the same time?
True Garth.. Volatility is the new normal.. Until we reach 950 in S&P and 10000 in DOW in the coming 2 weeks. Then comes QE3 to the rescue.
If not down go the stocks. Corporate profits cannot replace high sentiments of investors.
#19 Victoria Tea Party on 08.17.11 at 10:59 pm
“…borrowing ’till you barf.” I don’t know whether to feel pity for them or ROFL at your perfect choice of words. Great post.
Hi American
i can sure see why folks would be thinking of buying as that part of idaho is very nice indeed.
An easy way to see what the banks actually think is not in their words but in their actions.
ATB – A big bank in Alberta for those of you outside the province – is currently offering a 5 year fixed rate mortgage at 3.09%. They are aggressively pushing it and rightfully so.
But, as a consumer why would they be pushing it? For their benefit or for the benefit of their clients? I am guessing for themselves. Would they rather have a client in a 5 year variable that may avg 2.75% over the next five years or a client at 3.09% for the next five years?
My guess is the latter… I have to conclude that they feel variable rate mortgages will stay low over the next five years. On average, lower than 3.09%.
#18 What I don’t understand is why Jim Flaherty doesn’t raise the down payment and lower the amortization on a house
———–
Garth, can you comment on this because I actually agree with this. It allows exports to continue while putting the breaks on an overheated housing market.
read the bottom very carefully…
‘Economic theory tells us that it is precisely the fickle nature of confidence, including its dependence on the public’s expectation of future events, which makes it so difficult to predict the timing of debt crises. High debt levels lead, in many mathematical economics models, to “multiple equilibria” in which the debt level might be sustained—or might not be. Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.'”
As I have said before…
Eric should compare the cost of renting and the cost of owning over his LIFETIME not a 5 year period or the course of his mortgage. Assuming he will need shelter for his life.
A renter who leaves the nest at 20 and rents their whole life at an average of $1500 a month, and lives to 80, will spend $1.08 million over those 60 years.
An owner who buys and has avg costs of $2,000 a month for the first 25 years while he pays his mortgage, then an avg of $500 a month for the rest of his life spends $960,000 over the same 60 year period.
He also has an asset at the end of it that will be worth whatever the market bears at that time.
This also assumes he takes 25 years to pay for his mortgage and does not take advantage of periods of low interest. Also assumes he can always make payments as interest rates move up and down over the course of the mortgage.
That is my rationale, that I am sure will be very well received.
My guess is the latter… I have to conclude that they feel variable rate mortgages will stay low over the next five years. On average, lower than 3.09%.
——–
Sorry, it does not prove anything at all.
They can securitize the loan, upfronting 5 years of profits, and sell the MBS to you at today’s ridiculously low rates all because you think rates will stay low because they are doing this.
#95 bigrider
I think that is what DA is getting at. A lot of people who have been on the sidelines waiting for the “crash” or the “melt” are still waiting. I think he feels they are about to come out of the shadows and make the purchases they have been waiting on.
Personally, I don’t see it. Big centers like Van and TO cannot be sustained at those prices. Smaller centers like Edm and Cal (which I know the best) I would consider to remain somewhat stagnant with potentially small drops or small increases.
Just me though, we all gotta so what we think is best and look forward after our decisions, not back at them.
They can securitize the loan, upfronting 5 years of profits, and sell the MBS to you at today’s ridiculously low rates all because you think rates will stay low because they are doing this.
——
And then the market puts 15X on those one time earnings.
House of cards.
http://www.cnbc.com/id/44184535
Any upward pressure on yields has the potential to cause large and broad damage that would be felt internationally.
“The markets can be quite forgiving for quite a while, but basically a country is deemed insolvent when the market for whatever reason decides it is,” said Edwards.
“You will get repeated rounds of money printing to try and stop it, but ultimately gravity has a habit of pulling markets down to where they should be.
You can delay it, you can play around, but ultimately the pigeons come home to roost.”
wow, and this is optimism?
Mr. Plow at 108 says:
But, as a consumer why would they be pushing it? For their benefit or for the benefit of their clients?
The heart of capitalism as explained by Adam Smith in his 1776 classic: (An inquiry into the nature and causes of) The Wealth of Nations is that people an cnd companies act in self interest and this leads to the greatest economic benefit. He wrote that it is when corporations or people pretend to act in anything but their own interest that you have to watch out.
An intelligent consumer looks at the mortgage offered by a bank and makes his own decision if he wants it. Banks are not out to harm their customers. They are mandated to look after their shareholders but within the laws and regulations.
In other words: News Flash: The banks are not your Mommy!
If you expect them to be, grow up!
#98 disciple…
“…shiny new Datsuns in every driveway…” ???
Either you are talking pre-1986 times, or there really is a strange time zone on the Rock!!
The S&P was savagely critized for being the only ratings agency to have the balls to act on the US’s debt situation. Today they are being investigated for not sounding the alarm in ’08 on mortage securities ratings. Oh the irony!
http://www.pri.org/stories/business/justice-dept-investigates-s-p-s-role-in-mortgage-crisis5476.html
#111 Mr Plow.
You forgot some factors such as,
1. People move
2. Selling your home costs money
3. Maintaining a home costs money
4. Borrowing costs money.
As a rich renter, I’ve spent $85K for the past 5 years in Calgary and have seen my savings grow by $40K and owe $0, compare that to my neighbour who has paid $130K over the past five years, no savings and still owes 380K.
“Fine for Eric, but do you know anybody who’s actually doing that? — Garth”
We are! $200,000 house in a smallish city, bought six years ago with a 25% down payment. Paying accelerated bi-weekly mortgage and throwing whatever else we have at it.
But, to be honest, we purchased well below our means. So we were able to do this. Most of our friends in our city – not to mention friends nearby Vancouver and Calgary… and Kelowna – are mortgaged to their necks… or beyond.
And, to top it off, they are using their houses as ATMs.
Prior to moving here, my wife and I lived in California. Bay Area. We saw the same behavior there while we were renting, which made us cautious when we moved here. Now we’re watching Canadians head toward the same cliff like lemmings.
by #60 Kevin [i]A MoneySense article from October 2009 reported that Canadian household net worths – while down a little – were still very much positive:
“The average net worth of a Canadian household now stands at $385,000.”[/i]
MoneySence is for greater fools
#95Big-In TO, the extremely expensive sales (over 1.6 million) have slowed to a snails pace compared to May 2011. I don’t know why for sure, but obviously very few could qualify to buy one of these low money down (I think).
#92 BrianT –
I guess it depends what you mean by ‘they’.
The real-estate-establishment (Realtors(tm), banks) like it this way, but Carney and Flahrety have been warning for a while.
I predict a phased-in return to 25% down, if world events don’t overtake us first. (Ref Europe, today’s Philly Fed)
disciple :
new datsun’s? could you give me a link to that?
#78 Panopticon Singularity
You seem to have a lot of loser friends. Not everyone is living on the edge of the cliff.
I have some friends and some acquintances that are all doing very well. I went for a walk with a girlfriend last night. They live in a million dollar home and drive luxury vehicles. House paid for in cash 5 years ago. They have cottage as well.
Another one of my sons friends family is building their million dollar dream house just outside of Waterloo. They have cottage as well and wife doesn’t work but shops all the time.
I heard about a nearby house that sold for about 900K. Seems they were first time buyers, young family. Must be nice.
I don’t think any of these people are having trouble buying groceries.
#111 Mr. Plow,
You said, “A renter who leaves the nest at 20 and rents their whole life at an average of $1500 a month, and lives to 80, will spend $1.08 million over those 60 years.
An owner who buys and has avg costs of $2,000 a month for the first 25 years while he pays his mortgage, then an avg of $500 a month for the rest of his life spends $960,000 over the same 60 year period.”
You are leaving a few things out of the equation.
1) You don’t account for a number of household expenses including property taxes and the usual maintenance. You need to add at least $500.00 per month to the cost of ownership.
2) You don’t add into the equation what happens to the money that the renter saves. To make the comparison fair (assuming the same person with the financial means to buy) you would have to acknowledge that the renter could invest the $500-$1,000 per month difference and build up a portfolio of equal or greater value to the property.
I do admit that most renters do not save the difference. I have said before that the forced savings of having a mortgage does tend to operate as a discipline for most people. However if you are older, wiser and have the discipline the decision is pure economics.
When the price to rent ratio is as out of whack as it is now in many cities in Canada and otherwise there is no reason to buy.
#111 Mr. Plow
Your rationale does not account for overpaying to buy a house.
The only thing you can say about the long run is that we’re all dead. I am thoroughly sick of these asinine comparisons of perma-renters to house buyers. How many people do you know, who are not complete bums, rent their entire life? Uhm, lets see, zero? Find a less disingenuous line of reasoning to justify paying these insane prices for shelter.
So long as renting remains way cheaper (half or even less) than buying, renting is the only economical choice. Rents are tied very closely to incomes, so unless you see incomes exploding in the near future, renters will continue to have more wealth building options until house prices correct.
There is one metric that really deserves a little more anaylsis.
70% of all canadian households are home owners.
What that means is that there are only 30% households left to purchase a house.
However, lets break this down.
these numbers are ALL ASSUMPTIONS but i beleive them to be fairly accurate.
Out of these 30% lets assume
5% are seniors who are either widowed or require some sort of assitance or care.
5% are either 22 or younger and living on their own
5% are living on some sort of govt assitance, disability, low income housing, welfare etc…..
5% due to personal circumstance and debt/ credit score problems will not qualify to borrow any $$ (they might have gone bankrupt or are about to
this group will not be buying a house–EVER
lets say margin of error on this is +/- 5%
that leaves somewhere in the ballpark of 10-15% of households left to purchase a property. This portion controls the market so to speak, BUT they are not aware of this fact.
If this portion does not purchase, then the market stops, there are no move up buyers etc..
Thats why, back in 2008-2009 before the emergency interest rates were put in place, prices were droping 15% plus in a matter of 7-8 months. There was no bottom as this group went on strike.
With the economic numbers out today, its a given that the US is either in or will be very soon in a recession. That means that same is true for Canada. Remeber what happened last time to the RE market when we hit a recession– well its about to replay it self again.
Look whats going sub $30 again.
http://finance.yahoo.com/echarts?s=SU+Interactive#symbol=su;range=5d;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;
This time I’m staying away.
Mr.Turner, if the BoC does raise rates, does this not mean that bond prices drop, thereby resulting in higher yields and higher fixed mortgage rates?
The BoC rate has essentially no impact on long-term bonds or fixed mortgage rates. — Garth
NEW YORK (Reuters) – Renewed worries about Europe’s debt crisis and a raft of weak U.S. economic data sparked a rout in global equities and Thursday, while gold shot to new highs and U.S. bond yields hit record lows as investors sought safety.
“The market is in meltdown mode; the data continues to stink. I don’t know that there’s much more to be said. We continue to be in a soft patch,” said Sal Catrini, managing director for equities at Cantor Fitzgerald & Co in New York.
She’s going downnnnnn….Sorry G, the world is on the verge of financial chaos. Never in our history have we run up so much debt – time to pay the piper!
Hey GTA Girl, how goes the most conjested city in the country?
http://www.cbc.ca/news/business/story/2011/08/16/july-home-sales.html
I found these bits interesting:
Oh, so now prices were previously skewed upwards by high priced sales in a couple of regions in Canada (imagine how those sales have skewed the Lower Mainland average), thanks for letting us know in a timely fashion CREA! And now “moderate somewhat” = price declines. Gosh, didn’t the CREA just a couple of months ago release a rather rosy 2011-2012 prediction, which later got deep-sixed, then upgraded again? Sheesh, these guys are worse than weathermen, better pack an umbrella AND sun screen.
Bill
Hi American
“i can sure see why folks would be thinking of buying as that part of idaho is very nice indeed.”
What is wrong with a nice visit, why the compulsion to buy a place that is nice (in the summer?) For profit? The fixed costs of buying a place will finance an entire summer vacation!
Just got back from a trip to Wyoming, Montana and South Dakota. Absolutely gorgeous. Gas 85 cents a liter, Beer $16 for a 30 pack! People there, friendly and helpful. Do I want to live there or buy a place, no. Will I go back? I hope so.
#109 Alberta Guy
The answer is thus : Flaherty and Harper are Conservatives, defined by their unswerving belief in ideology over facts. They came into office inheriting a robust economy, and a budget in surplus. They immediately cut taxes, raised spending, and de-regulated the mortgage industry; copying what G.W. Bush had already done in the U.S. When it became apparent by 2008 how badly those policies were unravelling in the U.S., instead of taking heed, they proclaimed it ‘was different here’ and made minor tinkering changes to the mortgage rules. They had to have known this was dangerous, but they were hunting an election majority, so prudence was not even contemplated. Now, here we are. Basically Harper has already shot all his bullets. The housing bubble is popping, Canadian taxpayers have all the risk via CMHC, and there is little appetite for more stimulus ( unlikely it would help at this stage anyway ). Harper has his majority, the surplus is squandered, and unemployment will spike with the demise of the Ontario and Quebec manufacturing industry, which is far more dependent on housing than automobiles. Welcome to the world of King Stephen………..
I work IT at a number of large law firms in Calgary. Normally I see a ton of new mortgauges closing every day, but today I stopped in the foreclosure area. They are totally overworked shutting people down, they told me they just get used to the sad state, hardened. They told me its very busy right now, I suppose that’s one of the stats you don’t hear much about in the news. Over financed delusional early mid 20’s calgarians trying to have it all on a wing and a prayer.
WHO SETS THESE LOW BOND RATES?
Garth said at 130:
The BoC rate has essentially no impact on long-term bonds or fixed mortgage rates. — Garth
That is what I have always understood too.
But who then IS causing 10-year bond rates to be so extremely low. Under supply and demand rules extremly low bond rates suggest we have a surplus of savings and few borrowers. Are enough pension funds and corporations and insurance companies so awash in cash and savings that this is the supply and demand level for 10-year bonds? (less than 3%).
Or do the central banks manipulate these rates down by buying bonds?
Few would believe the world is awash in savings. Is it?
Low bond yields are the result of high investor demand driving prices up. Surely you knew that. — Garth
This is too funny…
Canadian Prime Minister locks himself in the bathroom until his demands are met…
http://minreyes.ca/wordpress/harper-embarrasses-canada-in-brazil
Imagine our PM as a 5-year old. LOL!
If he is ready to do this in Brazil, imgaine how he operates in Canada. Now you understand why nothing is coming out in the media.
#89 bigrider on 08.18.11 at 11:01 am
Get ready for a deluge of sales into Manulife income plus products as well as competitor products like Dejardins and CI mutual funds same over next while.
The allure of a 5% implied gauranteed growth rate of capital in these ‘reverse annuities’ given where interest rates are and where it appears the stock market is going ,will be irresistable to people shell shocked by the horrendous markets over past ten years.
They are for the most part a ripoff, but the story is an easy sell for salespeople to sell.
As a planner Garth, you will have to deal with your clients asking about it.
…………..
Our previous Manulife FP, aka salesguy promoted their income plus products after the last crash. I did some research and decided against them.
arctodus wrote:
We need complete failure of the entire edifice of governance/law in the lower 2/3 of the modern pyramid…..and yes many bad things would happen (stop your whining you sorry self entitled creatures) but it would allow the social structure of human society to stabilize…
World made by hand.
———————————
Please enlighten us “sorry self-entitled creatures” on how “complete failure of the entire edifice of governance/law in the lower 2/3 of the modern pyramid” allows “the social structure of human society to stabilize”.
See outside that window? That’s reality, planet Earth circa August 2011, not a new 3D Wachowski brothers movie or film adaptation of a long lost JRR Tolkien sequel.
World made by hand jobs.
Scrolling down throught the comments, interesting to see how almost everyone disagrees with Garth’s sentiment of a BOC increase. I remember being dissed on here for saying we would have Japan-like rates back in ’08.
You’re still wrong. — Garth
“After all, higher rates are inevitable. The consequences are obvous. The question is, when?
My guess: a whole lot sooner than Mark Carney is letting on.”
Garth, almost exactly 2 years ago on this blog
And he raised rates three times last year. Were you asleep? — Garth
#123Icono-How is it possible you swallow all that nonsense? I hate to break the news to you, but realtors don’t make interest rate policy.
#127 Devore
You will notice I never once mentioned the price of the house, because its irrelevant. I was simply comparing the monthly COSTS over the course of a lifetime paying for shelter, and like I said assuming the owner is able to service the debt as interest rates fluctuate.
Everyone needs shelter as part of their budget, over the course of a lifetime it is cheaper to own that is my argument. What you pay for that house means nothing, I only care about the COSTS for shelter.
Sometimes it pays to not be short sighted.
And by no means was I saying that it means people should buy now. But it was relevant to mention as Eric is comparing the COSTS of renting vs buying. I am saying people only look at it in the short term, but long term it should be better to own as your monthly COSTS to have shelter greatly diminish when the home is paid for. The monthly COSTS to the renter will remain relatively static.
On the same day that Sherry Cooper of BMO goes on air to reassure Canadians that, unlike banks in the US and Europe, Canadian banks are well-prepared for the potential counter-party risk that could result from the impending Euro banking crisis, Zero Hedge attempts to throw some cold illiquidity on that whole thesis by pointing out that, with tangible common equity ratios of around 4% or less, Canadian banks are not as healthy as most think.
Garth, if you would, is this a concern?
#159 arctodus on 08.17.11 at 5:26 pm
thankyou very much for your post yesterday with the link to that article from the OIL DRUM.
Are we creeping into the next recession? the next leg down?
You are very welcome.
It is my considered observation that we are indeed into the next step downward in this collapse. Most people just cannot (will not) psychologically deal with what a true cascade failure in the worlds energy system could do. I fear that the reported production numbers of global oil production (esp out of Saud) are erroneous and that we are further along the bumpy plateau than we might like. I “think” based on a broad perspective of the situation that this is the year (or maybe it was last year) that we in fact started down the hubbert slope on the far side.
Our global society will without a doubt resort to mad fiat printing to hide the hard energy decline for as long as they can. Demand destruction that is well underway stateside will aid them in this effort.
I simply cannot envision a situation where this does not lead to societal collapse on a large scale in western economies (and many others) and thus open warfare.
There is absolutely no way out of this now and the efforts that could be used to mitigate this situation will be constantly thwarted by modern legal systems, pie in the sky ideas of growth economics, deeply flawed ideology regarding “human rights” and flat out weirdness in the political system.
We are poached…I just hope that we leave a functioning enough biosphere behind us so that the 30-50 million long term survivors can head into a diminished future with some sense of hope.
A World Made by Hand is the best outcome possible……it will not exist in places like southern Japan or anywhere we utilize our “nuclear” tools for peace or war.
#126 Junius
I did take that into account, that’s why the renter pays $1,500 a month and the owner pays $2,000 a month in my scenario. But even if you run the numbers at $2,500 a month for the owner for the first 25 years the owner still comes out ahead. (I actually made a mistake the first time, at $2K a month the owner will pay $810,000 for shelter, $960,000 for the owner at $2.5K a month)
You are correct about investing the difference that the renter would save by not owning, and the benefit to them for that. I didn’t take that into account as I was simply looking at it as a straight cost comparison. But you could also say that the owner could then invest the savings from having a paid mortgage for the last 35 years. Too many variables that I wasn’t willing to consider.
Again, like I said to Devore. I’m not advocating purchasing, that is something that people have to decide for themselves in terms of what is right for them. But Eric was comparing costs of renting vs ownership. My point is that comparison tends to be made over the short term, but when looked at over the long term (as everyone will need to pay $$ for shelter one way or the other) ownership comes out on top.
In my opinion.
The BoC rate has essentially no impact on long-term bonds or fixed mortgage rates. — Garth
Low bond yields are the result of high investor demand driving prices up. Surely you knew that. — Garth
scary thing is… lack of demand drives prices down…
interest rates could be moving soon…
http://www.zerohedge.com/news/next-domino-fall-canada
#8 Waterloo Resident
You’re too funny.
Have you bought your house yet?
If not, have I got the house for you. And it’s only $800K.
“What I don’t understand is why Jim Flaherty doesn’t raise the down payment and lower the amortization on a house”
Sounds reasonable. What are your thoughts, Garth?
#119 Rich Renter
Just looking at straight month to month costs.
You also assume that the owner doesn’t save anything either or save more when the mortgage is paid.
Your scenario played out over a lifetime (60 yrs):
1.) renters costs – $1.02 Million
2.) Owners costs – $859,500 + has the value of his asset.
You also are looking over a 5 year period which is not what I am looking at, so not sure how that is relevant when I am looking at it over the course of a lifetime.
#116 The InvestorsFriend (Shawn Allen)
Not sure if you misunderstood me. You seem like a smart guy so I have to assume you did.
I never said anything about the banking being my Mommy.
In fact, I said the opposite. I said I felt that since the bank was offering such a great fixed rate, and pushing people into it, that in fact they feel variable rates will be staying low over the next 5 years. They would rather see clients in a fixed rate 3.09% over the next 5 years than a variable over the next five years since the 3.09% will pay them more interest over that period.
Thanks for the discussion today fellas/ladies, appreciate it.
Will check back later for some of your responses. Or maybe tomorrow. Interested to hear some more opinions.
It’s differnnt here…
For those lollipop and rainbow lovers out there, this is a list of the most at risk (big) banks in the world, based on Tangible Common Equity Ratio (TCE)… losses a bank can take before shareholder equity is wiped out… < 4% puts them in the danger zone.
Hmmmm… seems 30% of the banks on the list are Canadian (you know, those no risk Canadian banks that are the envy of the world…lol). BTW, if you're looking for that dog B of A, it didn't make the list… their TCE ratio is over 5.5%.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2011/08/Canada%20Risk.jpg
Im sure that i wont be the only person to post this but zerohedge just posted an article on Canada regarding tire 1 captial ratios for banks
http://www.zerohedge.com/news/next-domino-fall-canada
good read.
now one of the commentors made an interesting comment i thought I would share, as it got me thinking about potential fx trade. This is not my comment but what someone else posted on Zerohedge
by TruthInSunshine
on Thu, 08/18/2011 – 15:52
#1574167
The smartest Canadian I know (who happens to beeeee Assssian) swears that the Loonie is the short of a lifetime….not soon…but now.
Canada-Australia-New Zealand for the trifecta.
He also claims the real estate market in Canada is a ripe pustule (and that even Calgary is highly vulnerable WHEN oil drops below $50/barrel), and that austerity meets Canadian Welfare State sooner than 99% of Canadians are going to comprehend.
He could be wrong, but he is a self-made multi hundreds of millions-aire, making his money dissecting financial reports.
So maybe he’s right.
Who knows.
And on that note, watch the EUR over the next month. It’s all fun and games until nations lose their infrastructure and the politicans and central bankers lose the complete confidence of the populace (as they should lose it; bang up job, boys).
END COMMENT
Interesting..
I did a calculation the other day, and learned some interesting things,
The lifetime productivity of the average Canadian is about $3.1 million. (Per capita GDP times life expectancy)
The average manditory spending (cost of living and taxes) over a lifetime is about $2.3 million (I’m assuming an average Edmontonian is an average Canadian for this).
This means that an average Canadian has a discresionary purchsing power of about $800 thousand over the course of his or her entire lifespan. That’s $800k a person is free to spend on nice cars, big houses, fancy dinners, entertainment, toys, whatever they consume that is not a basic necessity.
This may sound like a lot to some, but consider two things: Those cost of living expenses are bare minimums – 2 bedroom home for a family of 4, minimal commuting, no budget for entertainment and travel, utility wardrobe, etc.
This $800,000 budget has to cover every dollar of non-mortgage interest paid, at least 50% of every meal you eat out, and any amount over the average home price. It adds up quick.
Now this doesn’t really matter to an individual, exactly, because it’s tough to tell where you are in relation to the average, and circumstances can change for everyone. But is paints a pretty scary big picture.
If average housing prices expand faster than per capita GDP, this means that the $800k number is shrinking. This means less consumer spending over time, which usually means more unemployment, which further reduces per capita GDP.
If any asset inflates in value without an equal amount of real production to match, it is a bad sign. The housing price index should mostly follow the wage index, and land values should follow population growth. Anything above that is a greater fool wasting his $800,000.
#139 Mr. Plow
No you did not say that, and I do not want to put words in your mouth, but you certainly seem to be implying it, otherwise you would note that while it is always better in the LONG run (for SOME definition of ‘long’) to own vs rent, that at current price vs rent the financial benefit of owning does not show up until well after the house is paid off.
Additionally, ‘long term’ is hardly for everyone. Each time you sell and move, you will fall behind by 5% at least due to transaction costs (realtor fees, transfer taxes, HST, etc).
In a scenario where costs of owning are much closer to rents, the benefits of owning, even after property taxes and maintenance, show up earlier, typically before the mortgage is paid off, as rents do tend to go up over a period of 10-20 years, although in the last 10 years not so much. If incomes do not go up, neither will rents.
When the difference between renting and owning is so large, this gives a benefit to renters who are willing to take that difference TODAY, not 50 years from now, and invest it, taking advantage of growth and compounding.
Go Hugo go! Chavez repatriates gold:
http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/traders-brace-for-venezuela-gold-transfer/article2134031/
robert james
smoothing the “cliff effect”
Figure 3.1 shows that over three quarters
of all private-label residential mortgagebacked
securities issued in the United States from
2005 to 2007 that were rated AAA by S&P are now
rated below BBB-, that is, below investment grade.1
While downgrades are expected to some extent, a
large number of them—in particular when they
involve several notches at the same time or when the
downgrading takes place within a short period after
issuance or after another downgrade—are evidence
of rating failure
======
liars loans from the lying lenders had their own name for them liars loans/ toxic waste
austerity – Mr Carney mentioned in an earlier speech that he would allow inflation to rise 4-5
…”Crisis intervention policies have strengthened bank
balance sheets at the cost of a transitory weakening of
public balance sheets.”
“Bizarrely. Because money’s made cheap to encourage borrowing.”
Only for certain few!
========
those potential do baders
reckless redefined … 1998 manipulation of energy dragged out ten years! How long this time?
#139 Mr. Plow
Regardless, I’m falling into your trap of assuming a person is a life-long renter, which for most people is not the case. The point of renting is to save money. You minimize the expense of housing. At this time, each year you rent, you save money over owning. If your belief is house prices will face a significant correction, even though buying now would have you better off than renting AT SOME POINT, buying later at a lower price and higher downpayment will have you better off EVEN SOONER, and in much better financial shape.
Most people want to buy, eventually. For most that means saving money and finding an entry point they are comfortable with.
So you’re just stating the obvious. But the key to your point is affordability and the payoff period, during which you are worse off (sometimes significantly worse off) and at more risk than a renter.
155 Edmonton Jim
I read over your post. On the surface it sounds like you ran the numbers right but when looking at it closer you missed some crutial points that increases life time earning. Using current GDP only gives you current life time earning, to accurately calculate life time earning you must consider future GDP increases over ones life. Also GDP does not include money from foreign investments ie stocks from US etc. Also you did not account for inflation. Nice try though but don’t assume those numbers they are wrong.
#154Kitchener-It is certainly starting to look that way.
#145Arc-You are possibly discrediting those who understand oil depletion with your comments. You make it sound like a crazy idea (25 to 50 million survivors) instead of a readily verifiable reality.
#144Johnny-Leave it to Sherry to deliver the kiss of death to the Canadian banks.
http://beta.tweet.st/2011/08/18/spectre-of-a-new-credit-crunch-haunts-frightened-markets/
“when banks & deposits arent safe & govs are bankrupt time to buy canned food, spam, guns, ammo, gold bars & rush to your mountain log cabin”.
lol, a little over the top but worth the read
the only way BOC will raise rates is not because Carney wants to tame the housing bubble. It’ll be because of other factors such as inflation.
Its a classic case of the piper leading the mice to the slaughter. And there will be no mercy once the execution finds them.
Nobody has been more wrong than Harry Dent NOBODY. Well maybe David Foote telling Canadians to sell their homes in the 90’s because boomers would be selling their homes enmasse. Dead Wrong.
******************************************
Opus on 08.18.11 at 11:35 am
American,
Interesting observation in Idaho, lakeside.
I get what you are saying about the cheapest real estate in US being less desireable. I am not sure about buying in Vegas, the whole desert, no water thing kind of worries me…However, I remember when I read one of Harry Dent’s books about demographics, he quoted Vegas as being a good place to invest in. I do not believe he is just wishful thinking, he seems to know a lot about this. Any knowledge on the matter? Is there any place you would buy in? Perhaps you would feel more comfortable to invest in a more expensive place for stability like the places you mentioned….
any thoughts appreciated.
.
Homes could cost 50 grand and Junius would be slagging ownership. Few renters have the ability to invest the difference as there is no money to invest after rent. People rent because they are poor or looking for short term accomodation.
***************************************
146 Mr. Plow on 08.18.11 at 3:53 pm
#126 Junius
I did take that into account, that’s why the renter pays $1,500 a month and the owner pays $2,000 a month in my scenario. But even if you run the numbers at $2,500 a month for the owner for the first 25 years the owner still comes out ahead. (I actually made a mistake the first time, at $2K a month the owner will pay $810,000 for shelter, $960,000 for the owner at $2.5K a month)
You are correct about investing the difference that the renter would save by not owning, and the benefit to them for that. I didn’t take that into account as I was simply looking at it as a straight cost comparison. But you could also say that the owner could then invest the savings from having a paid mortgage for the last 35 years. Too many variables that I wasn’t willing to consider.
Again, like I said to Devore. I’m not advocating purchasing, that is something that people have to decide for themselves in terms of what is right for them. But Eric was comparing costs of renting vs ownership. My point is that comparison tends to be made over the short term, but when looked at over the long term (as everyone will need to pay $$ for shelter one way or the other) ownership comes out on top.
In my opinion.
.
The Canadian economy is in recession already. He can’t keep raising rates and drive the dollar up even further. Whether it is smart or not is not the matter at hand here. He would face extreme resistance if he tried to raise rates any time soon and it would be very bad for the economy in general in the short-run.
The economy expanded in the first quarter and contracted slightly in the second. That is not a recession. Wait. — Garth
#150 Mr Plow
You forgot to add my savings of $480K and still owe $0, and the fact that my neighbor will have paid almost $330K just in interest over 25 years at a fixed rate of 4.94% with 5% down on a $450K house. That’s also excluding the property tax of $120K ($2,000) and maintenance costs of 1% per year ($4,500). Buying should only be considered when the P/E is about 16, my current P/E is 20, which means the house i currently rent will have to drop about 70K or 20%.
“And he raised rates three times last year. Were you asleep? — Garth”
2010-09-08 was the last time there was a rate increase. And since 2008 only a .75 increase, so yah, a little sleepy.
As I said, rates were raised three times in 2010, as I suggested they would be. — Garth
#108 Mr. Plow said “ATB – A big bank in Alberta…”
ATB is a Crown Corp…ATB is not a chartered bank…
Ya I know…Just another Wiki link…
http://en.wikipedia.org/wiki/ATB_Financial
contrast and compare
tax evader looters are not sent (probation or pay a fine ) and this guy still gets his million dollar pension!While the British looter girl gets six months in jail for stealing bottle of wine.
Zumwinkel, 65 — who was forced to resign as Deutsche Post’s CEO in February of 2008, was convicted in January, 2009, of evading nearly one million euros in taxes by hiding the sum in a secret trust in the Alpine tax haven of Liechtenstein. A German court penalized Zumwinkel with a one million euro fine and two-year prison sentence, which he has yet to serve.
http://www.spiegel.de/international/business/0,1518,537137,00.html22 Feb 2008 – One executive is on his way to jail while another, who threw lavish sex parties for works council members, was also sentenced. … has been sentenced to almost three years in prison for his role in a bribes, … Deutsche Post CEO Klaus Zumwinkel was forced to resign last week after he became ..
As much gut instinct as anything else. So there is no “elaboration” I can offer which might compel you to follow. What I can say is I do believe so to the point that I am personally contemplating getting back into that game from which I withdrew some three years ago in anticipation of what happened shortly there-after, all-be-it not nearly to the degree we all thought it might. It’s been three long years. If it was going to happen to the degree we thought it would have happened so by now. There may be another that lies in wait but we’ll deal with that different beast then. What are you going to do; hide in a dark basement the rest of your life to avoid… “life”?
I’m willing to bet that the will to survive and make a better place for themselves will outlast and overcome any setback the economy throws at people. Beyond that if and when they fail nothing else will matter any way.
I am sick-and-tired of hearing about how a low dollar is good for exports. Why don’t we hear a higher currency makes imports cheaper – effectively a pay raise for the population. Welcome to the twilight Zone.
#167 BPOE,
You said, “Homes could cost 50 grand and Junius would be slagging ownership.”
Not true. I am looking at buying a place now. Just a long, long way from Vancouver where it is closer to $50K.
Meanwhile you will still be blowing sunshine up peoples butts long after the bubble has burst.
#162
#145Arc-You are possibly discrediting those who understand oil depletion with your comments. You make it sound like a crazy idea (25 to 50 million survivors) instead of a readily verifiable reality.
Sigh……
I understand what you are saying.
I am simply stating the realistic outcome of the situation as it truly stands.
With the current VAST overshoot of the human enterprise (massive population, rapid climate change,
a petro based food production system poised to implode with oil depletion) the scenario I paint is actually optimistic if one understands population dynamics and ecological overshoot mathematics.
I am not trying to be dramatic or to even antagonize…I simply don’t care anymore.
We humans (outside of the third world at least) simply cannot see the world as it really is….if we did we would be paralyzed.
We look to see things as we want them to be….Garths faith in bank stocks (when several Canadian banks are actually functionally insolvent when the derivative fiasco unravels), gold bugs faith in PMs (and they will explode in “fiat value” over the next few years..but you cannot actually eat them), belief that human induced climate change is not real or at least not fast…(when we will have an ice free arctic inside this decade now), the list is endless…and true.
Would it sound better if I said that the world population will shrink over 95% to fit the carrying capacity of a oil depleted, greenhouse world in this century?
I reccomend anyone who doubts this to study what “wet bulb temperature” means and see what the projections are for human survival over most of the planet in the next 50 years….
But not to worry…maybe I am wrong (and yeah BP stopped the GOM leak last year….wait/watch/learn)
World Made by Hand will occur….I am an optimist…
#134 Form Man,
Great post. Tells it like it is. So sad we have such poor leadership right now…..and no one decent on the horizon to change things.
#146 Mr. Plow,
Fair enough. There are lots of studies out there that discuss the merits of each. There are also some pretty good calculators that can show you when it is better to rent or buy. In the US right now the numbers have swung pretty heavily in favour of buying in many areas. Whereas in Canada the choice is obvious. For now.
A Huge Housing Bargain — but Not for You
By Roger Arnold
NEW YORK (RealMoney) — The largest transfer of wealth from the public to private sector is about to begin. The federal government will be bulk-selling the massive portfolio of foreclosed homes now owned by HUD, Fannie Mae and Freddie Mac to private investors — vulture funds.
These homes, which are now the property of the U.S. government, the U.S. taxpayer, U.S. citizens collectively, are going to be sold to private investor conglomerates at extraordinarily large discounts to real value.
You and I will not be allowed to participate. These investors will come from the private-equity and hedge-fund community, Goldman Sachs(GS_) and its derivatives, as well as foreign sovereign wealth funds that can bring a billion dollars or more to each transaction.
In the process, these investors will instantaneously become the largest improved real estate owners and landlords in the world. The U.S. taxpayer will get pennies on the dollar for these homes and then be allowed to rent them back at market rates.
On Wednesday, the Federal Housing Finance Agency (FHFA), the Department of Housing and Urban Development (HUD) and the U.S. Treasury Department issued a Request for Information (RFI) concerning the disposition of the inventory of foreclosed homes owned by the federal government.
#169 Rich Renter…
Well said, here in the Okanagan our price to rent ratio is 25!!
#167 BPOE…
“Few renters have the ability to invest the difference as there is no money to invest after rent.”
Only one of the 35 or so people I know renting isn’t investing, and she is a senior living on CPP/OAS/GIS. The rest are doing quite well, the younger ones will have enough for a reasonable D/P in 2012/3 when RE has bottomed out here.
“People rent because they are poor or looking for short term accomodation.”
You need to read (or re-read) Greater Fool!!!
A – Pick a job if you can in markets that will weather the long term downturn in the market.
B – Find that job in the lowest taxed country.
C – Make sure that country will accept you.
D – Make sure it has a very low cost of living.
E – Divest of all illiquid assets NOW anyhow!
F – Be prepared to take time away from your enabling family and friends who are emotional RE idoits!
Debt Free, taking home what you earn, portable, liquid! There is nothing like it!
The economy expanded in the first quarter and contracted slightly in the second. That is not a recession. Wait. — Garth
It may not meet the official definition of a recession yet but the economy is contracting.
–
#42 reality guy — “Debt will keep on growing until it can’t any long. Then you going to see the domino affect….” — That is a great time to use the term “The Tipping Point”, when the see-saw swings down as there is nowhere else for it to go.
#83 Iconoclast — “So who knows what they will do?” — and — #64 Moneta — “All roads lead to Athens.”
Garth talks about ‘panic’ and ‘volatility’, which is correct as there is no such thing as normal anymore. The good ol’ days were the 50s-70s, then the “Greed Is Good” decade (80s) came in, and after that, we kept electing zombies so society kept stagnating after that.
Moneta, like Iceland, has it right. Until sheeples tell TPTB to go f*^k themselves, along with their carbonazi and every other tax they impose on us, nothing will change (in this respect).
So the onus is upon us to facilitate change that we want to see, which is for the betterment of the whole. We don’t need massively-inflated pensions to live Freedom 55 lives, we do need just enough (sufficient) to live slightly better lives.
Currently, with criminals being put in office by TPTB along with the change in cycles, it does not appear this will happen.
*
Headline is correct, and this is what I meant when I said criminals are running the show all across the planet; Michelle Bachmann Oh Dear #2. She is currently building her own presidential library, ‘tho she ain’t prez yet; 10:03 clip Libya update; Relations deteriorating Turkey – Israel; Monsanto In charge of hell (here).
3:54 clip History repeats (some not-so good images); Blackwater In charge of Verizon’s security; Fukushima Exporting radiation (unwanted here); Big Brother 2.0 10 new ways govts. will be spying on us; Framed? Cops are Big Brother employees; Germany Riots Could be the reason for The (incoming) Fourth Reich; 5:26 clip London (Fulham) social meltdown; BP and the GoM New leak, different year; Iran That was easy to figure out, but figuring China’s and Russia’s responses are not so easy.
2012 Economic apocalypse? SEC Real reason for shredding documents for decades; US$4 trillion Real cost of wars; Five min. clip “At 1:47 in this video, Katherine Mangu-Ward makes the statement, ‘Ron Paul Is Getting A Tremendous Amount Of Coverage For Someone That’s Never Going To Be President!’. wrh.com, so it’s already been fixed.
US debt Downgraded again; Tokyo stocks close under 9K, France and Sweden taking elevator down; New High Delinquent mtgs. top 6.5 mln. plus other links.
A couple posts today made reference to the Philly Fed report (Philadelphia Federal Reserve Bank’s index).
This may not be a familiar term to many of the readers of this site. Some of you might have just skipped past the reference and wondered what the heck the post was talking about.
I thought I might just make a few comments about it.
Each month the Philly Fed gives a report which provides a partial snapshot of the state of manufacturing in the US economy. The report which forms the index is based on a survey of regional manufacturers and is called the Business Outlook.
Some consider it a sentiment reading. It attempts to offer a forward looking view of business conditions, inventory, orders for goods, employment prospects and a variety of related variables. These bits are combined to create an index.
Today the Philly Fed released a bombshell. Their index has fallen from positive territory to lows not seen since the Global Credit Crisis.
A massive 33 point drop.
Stock markets responded to the dismal news with ferocity and a sell-off ensued despite the fact the Philly Fed report is somewhat regional in nature.
Despite that, it hit frayed nerves on the markets. To suggest this was a piece of bad news might be the understatement of the year as this particular decline represented one of the sharpest ever seen.
From todays Los Angeles Times…a little daily analysis.
http://latimesblogs.latimes.com/money_co/2011/08/economy-recession-philly-fed-index-stock-market-plunge.html
And yes, Dorothy, this is deflationary.
If the trend is confirmed by other markets it guarantees recession for the US. Please consider that this bad news is coming at a point when unemployment in the US is already in double digits, interest rates are already near zero and housing prices are still falling.
Stimulus and Fed intervention have been employed generously already…and still we face declines in growth.
More importantly though is what this is telling us about the strength of foreign orders for US goods and the clear suggestion that the global economy is slowing quickly.
That may now be confirmed.
I’ve read this blog for over two years and thought I’d read it all. Now, a FIRE agent/broker that presumes to lecture on cognitive dissonance? And with nary a hint of irony.
“The ultimate result of shielding men from the effects of folly is to fill the world with fools.” –Herbert Spencer
All the debtslaves like low interest rates but a 3300 level Dow Jones and a 50% drop in house prices stings.
Here’s a large (commercial) buy!
OMERS to buy Metro Toronto Convention Centre
The Canadian Press Posted: Aug 18, 2011 6:13 PM ET Last Updated: Aug 18, 2011 6:18 PM ET
Oxford Properties Group, the real estate arm of the Ontario Municipal Employees Retirement System, says it is finalizing the purchase of the Metro Toronto Convention Centre.
Financial terms of the deal for the 7.4 acre mixed-use property, a transaction announced after markets closed Thursday, were not disclosed.
The federal government owned downtown Toronto complex has 260,000 square feet of meeting and ballroom space and houses dozens of conventions each year. It is also home to a hotel, office building and parking lot.
The deal is set to close in mid September.
“The [convention centre] is a sizable, well located mixed-use asset with attractive risk-adjusted income returns and our investment in the property reflects our confidence in both the asset itself and the City of Toronto,” Blake Hutcheson, president and CEO of Oxford, said in a statement.
Canada Lands Company, a federal arms-length Crown corporation, said it began looking for a buyer for the convention centre in April
I just don’t get how much longer the world is going to accept U.S dollars as a medium of exchange for real goods ,when all the U.S dollar is basically is a promise to pay. Accepting paper money as a medium of exchange requires the ‘faith’ of those receiving it that it can be exchanged at a later date for goods.
I mean, maybe gold is not a real currency or maybe it is but I think the willingness of those to accept depreciating paper currencies, may start to wane.
History is repleat with fiat currency failures.
It does now appear that the US dollar may see a surprising surge come September. Some will have noted it trading sideways this past while however the pennant pattern suggests to me that it will break out to the upside.
Some will disagree. That is usual.
When I consider though that German elections are in September though and that the policies of Angela Merkel and her government are being roundly criticised by the electorate there I have serious reservations about the ongoing strength of the Euro.
Bad news for the Euro typically results in a rebound for the buck. It is quite clear that a breakout pattern is coming very soon though and it may be that early polling results will determine the direction of the dollar and be priced into markets vigorously.
And conversly, the direction of the Euro will be determined due to it’s heavy weighting. Thus far, the Euro has stubbornly refused to fall as I know it must. All in good time though.
I have long suspected that the European Union would hit an iceberg over the issue of bond issues and transfers from the Northern countries to the Southern.
Public sentiment is not onside with the direction chosen by leaders of the major supporting countries. First amongst these is always Germany.
Elections will decide the fate of many. This is coming soon so get prepared. As is now being suggested by others, a credit freeze may also be on the horizon.
I do not mean to leave these comments to sound alarmist but it is also clear to me that the connection that exists between the vast liquidity now entering US markets is also an acknowledgment by the Fed that democratic processes may soon trump reason when it comes to bailing out weak economies.
Preparations now appear to be underway to keep domestic and international banks functioning, come what may. Just suggesting you all get your house in order.
And quickly.
#174 Math is Fun on 08.18.11 at 6:37 pm
I am sick-and-tired of hearing about how a low dollar is good for exports. Why don’t we hear a higher currency makes imports cheaper – effectively a pay raise for the population. Welcome to the twilight Zone.
——
Because the bulk of many Canadian employers expenses are wages and in order for us to remain competitive wages would have to fall nominally and nobody likes a pay cut and the gov doesn’t like the smaller numbers because it screws up there extortion… cough… I mean tax system.
On the other hand, a falling currency purchasing power is like giving everyone a pay cut as their wages buys less. They’re all fooled into thinking they have prosperity but in reality they are now the ones working for peanuts. So as the US dollar falls, they will become the third world working class poor.
# 77 Cory
Points to consider;
Waterloo has a population of about 85,000 I believe.
Allegedly there are 9,000 RIM employees in the Waterloo area.
RIM is in downsize mode, most of the manufacturing in Kitchener and Waterloo has been drastically reduced and there are only so many jobs at UofW and WLU.
#173 Devil’s Advocate…
Are you not already heavily into RE as investments?
#174 Math is Fun on 08.18.11 at 6:37 pm
But yeah, I totally agree. Watching the media for the past few years and all you hear is the same stupid fallacy, as if it’s a good think, even Switzerland is crying that their currency is rising! Crazy stupid idiots. There is some truth to it but they need to dig down just a little for the solution. Overall it’s a good thing. Anyone can have a weak currency, having a strong currency is what’s difficult.
#188 bigrider on 08.18.11 at 8:43 pm
Exactly that’s why gold is money because people will accept it as payment, in trade, because they know it will be accepted or used to trade again later. Money only facilitates trade by being a fungible store of value. Gold is money. It has all the necessary qualities.
Medium of exchange.
Unit of account.
Store of value.
Scarce.
Inert.
Fungible.
#185 Seven Stars and Orion
Ya, don’t ya just hate it when they do that? Geesh, some people eh?
#153 SRV ES339
“It’s different here…
For those lollipop and rainbow lovers out there, this is a list of the most at risk (big) banks in the world, based on Tangible Common Equity Ratio (TCE)… losses a bank can take before shareholder equity is wiped out… < 4% puts them in the danger zone".
—————————————–
Gobble it up you fool. Those simple numbers do not even come close to representing why Canadian Banks have strength and prestige.
Hope you enjoyed that worthless ZeroHedge article though. It seems to have you smitten with it so-called "truths". Why not short our banks then? You will make a bundle.
Laugh my ASS OFF!!!!
Just had a discussion with a friend (MBA in Economics) about this story in the Globe & Mail: http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/chinese-faking-divorce-to-buy-more-homes/article2132059/. I maintain that this is classic bubble mentality. He says it is just the opposite because it illustrates the great demand for home ownership. Then again, he also tells me there is no housing bubble here in the GTA and that I am “throwing money away” by renting. Sigh!
Chinese Protest $5B Losses Tied to Reverse Mergers
Sold some I never should have sold and didn’t buy that which I ought to have while I was waiting for the economic Armageddon to take place. My folly ;-)
NostraDamus… psst… as you may recall, in the not terribly distant past, we briefly discussed [here] ‘luck’ & ‘fortunetelling’… Do you remember what I told you?
I’ll give you hint, on tonight’s NBC Nightly News, Brian Williams said, and I quote, “The Summer of Our Discontent”… [and no, I don’t write for Brian – but every now and again I do illustrate for GT].
;)
#188 bigrider
“History is replete with fiat currency failures”.
———————————————–
History is also replete with people who lose because they misplace logic, substitute emotion, and fail to understand how social systems actually work. Gold might be money but the day it rules our daily lives is not a day you will want to be part of the human race anymore. That is world where brutality and force will rule, credit is destroyed, debt never-ending and the power of taxation only concludes in tyranny and eventually, revolution. A world of serfdom where the few control the masses and freedom is extinguished. Even governments will not be safe then.
Do you really want Gold as money again?
Better think it through. That outcome is very bitter indeed.
#200 Utopia on 08.18.11 at 9:53 pm
OMG! You’re losing it man.
What you said is completely backwards, the collapse of gold backed sound money is what leads to social chaos. Gold brings honesty and stability to money, that does not lead to chaos.
Get more help.
#198 Devils Advocate…
That was fast, on July 22 you said:
“I love the sound of renters money in my piggy bank”
Was that a sarcastic remark? I originally took it to be serious!
#201 Cookie Monster to #200 Utopia said…..
“OMG! You’re losing it man”.
————————————–
Losing it??! You must be kidding me pal.
People like you, representative of the new Gold trade, would have all of us in bondage in no time flat. Your alternative to fiat is to destroy the power of taxation, to shut down growth and to end the the leverage of governments to function in todays world.
Do you not think how this might affect your Mother who is soon to get a pension? Your Grandparents who live by income benefits alone ….or even how the entire social security and safety net themselves might face a catastrophic failure as metal controlled our daily lives?
There would be no functional credit system in your small world (which is exactly what has enabled a middle class to exist in the first place) and there would be no hope as a barter system replaced normal transactions.
Who living in a condo in any major city today (for example) has the resources or ability to conduct their daily lives with barter anyway? There are few farmers today. Fewer still have handy resources to trade for essential goods.
Your system would condemn millions of normal people to abject poverty and deprive the global economy of the grease the turns the wheels.
It is why I have called for an end to the Gold bubble and it is why I have both encouraged and demanded more Central bank holdings of that metal to counteract what are essentially anarchistic tendencies amongst a small group of “financial terrorists”.
Gold bugs are a threat to the system. They need to be watched.
You think I am crazy only because your small selfish vested interests are threatened. Others, much more powerful than you, agree with me though.
Witness the very high levels of sovereign Gold repatriations and Central Bank buying over the past months as examples of this new trend.
Realize too that once the lions share of Gold is back in the hands of sovereigns that this small [currency veto] trade can be controlled effectively and suppressed at will.
Take note that new margin requirements for Gold on Comex are on the rise and that there are serious non-conventional efforts afoot to break the rising trend in the yellow metals valuation.
It’s strength will soon be broken.
You can call me crazy. But you don’t know anything at all.
#202Snowboid on 08.18.11 at 10:41 pm
#198 Devils Advocate…
“Sold some I never should have sold and didn’t buy that which I ought to have”
#198 Devil’s Advocate
“Sold some I never should have sold and didn’t buy that which I ought to have while I was waiting for the economic Armageddon to take place. My folly ;-)”
—————————————-
I always loved your honesty Devil. Glad to see you back.
#142 BrianT
Where did I say Realtors set interest rate policy? They just work in the framework the Big Boys make for them, and try to sell houses. That’s their job.
Sounds like BoC wants a return to 20% down, pronto.
“What I don’t understand is why Jim Flaherty doesn’t raise the down payment and lower the amortization on a house, say to 10/25. ”
Perhaps doing this would make him look really bad. It would be like admitting he made a huge mistake.
Instead the Conservative Party wants to eradicate the CMHA. The Liberals created the CMHC and the Conservatives broke the machine which was working fine. The CMHC is set to implode when people default on their mortgages. The tax payers will be on the hook for these defaults, while the banks walk away unscathed. The Conservatives want the
Once the CMHC implodes the Conservatives will begin to dismantle the machine and blame the Liberal Party for putting it in place. The machine worked fine before the Conservatives tampered with it. They made a mess out of everything! They can’t go back, because that would make them look like complete idiots, so they have to go about it another way. Don’t forget that this isn’t only about the people and the economy, but about politics too.
For more info on the CMHC: Canada’s Mortgage Monster
http://www2.macleans.ca/2011/03/23/a-mortgage-monster/
“What I don’t understand is why Jim Flaherty doesn’t raise the down payment and lower the amortization on a house, say to 10/25. ”
Perhaps doing this would make him look really bad. It would be like admitting he made a huge mistake.
Instead the Conservative Party wants to eradicate the CMHA. The Liberals created the CMHC and the Conservatives broke the machine which was working fine. The CMHC is set to implode when people default on their mortgages. The tax payers will be on the hook for these defaults, while the banks walk away unscathed. The Conservatives want to privatize the CMHC, partially so that they can redirect the political criticism.
Once the CMHC implodes the Conservatives will begin to dismantle the machine and blame the Liberal Party for putting it in place. The machine worked fine before the Conservatives tampered with it. They made a mess out of everything! They can’t go back, because that would make them look like complete idiots, so they have to go about it another way. Don’t forget that this isn’t only about the people and the economy, but about politics too.
For more info on the CMHC: Canada’s Mortgage Monster
http://www2.macleans.ca/2011/03/23/a-mortgage-monster/
Garth, there was a small omission in comment #207, which I correct in #208. I’m curious to know of what you think about my hypothesis. I’ve been thinking this for a while. If you have anything to add or criticize I am all open ears. Thanks buddy!
I also see a lot went down today! F and Carney are stating the same message with more urgency, but trying to come off as chill about the whole deal. Really they want to say “Holy $&^%! We are in one for a hell of a storm! Everyone take shelter!” But they can’t be too vocal about it… they gotta paint a confident sunny picture. Understandable…