Who cares?

Four weeks ago a ten-year Canada bond was yielding 2.96%. By today it had plunged by six-tenths of a point as investors stampede into the loving bosom of fixed income. US bonds, by the way, have seen their yields tank 30% – to the lowest point since ever. (The more demand, the higher the price and the lower the yield.)

So what? Well, if you own bonds, maybe as part of an anti-stress balanced portfolio, you’ve made money even as people with equity mutual funds throw up more often. The real benefit of bonds is not collecting interest, of course, but scoring capital gains.

Also, the rush into bonds probably means a drop in long-term mortgage rates (since that’s where five-year home loans, for example, are funded). The realtors still among us think this will revive a slagging housing market. They’re wrong.

By the way, a five-year mortgage can be had for as little as 3.24%, if you like borrowing from the back of a mortgage broker’s used Jetta. At the major banks, expect something a tad over 5%. And all of this could be headed down by as much as two-tenths of a point. More if this week sucks as bad as the last one.

Cheap rates are supposed to make folks horny to borrow and get stuff happening – that’s called ‘monetary policy’. But there comes a point when it doesn’t matter what the price of money is any more. And we’re there. (By the way, this is not good.)

If you care to look, we have evidence of this aplenty just to the south.

Mortgage rates in the States have hit a 50-year low, helping make houses the most affordable on record. Borrowers can get a loan at 4.1% with a rate which will remain frozen for 30 years, or a 15-year guaranteed rate of 3.3%. Not only are these cheaper than our banks are charging, but borrowers never face a renewal at higher levels and can deduct all the interest from their taxable incomes. And did I mention that houses cost, on average, half what we pay?

Imagine that. Cheap, deductible, non-renewable cash to buy real estate on sale. So what has this windfall done to motivate buyers?

Right. Nothing. Sales of previously-owned homes tanked last month, falling 3.5% to the lowest point in almost a year. Weak demand helped push prices lower, as well, off another 4% from last summer. Said one economist: “The low rates are doing absolutely nothing to stimulate the market for existing homes.” Or new houses, for that matter.

This is interesting – the mirror opposite of what we’ve been fed in Canada. Here the conventional wisdom is that so long as cheap money’s available, people will pig out, pay any dumbass price a greedy vendor asks and happily launch into a bidding war with an Asian dude or a crazy couple jazzed on house porn.

So why has cheap money failed there and not here – yet?

Most people living outside of this delusional dominion understand the tidal wave into bonds is the epitome of fear. Since Canadians have been relatively less impacted by the post-2009 meltdown, they seem to think we escaped. Big mistake. There’s no place to hide now as the global economy brakes and we enter years of crappy growth, structural unemployment, salary slump and debt rot. Americans realize this is no time to be borrowing. Will we?

Meanwhile USA families have seen the extent to which real estate can chew your butt off. It’s hard not to, when your house falls in value by a third and all of your wealth’s in it. Outside Chicago, in the distant suburb of Hampshire, building of 1,300 acres of new luxury homes stopped when real estate values crashed. But the town had already borrowed and spent $185 million for a new high school to accommodate the residents. Now the school board’s slashed its budget and shuttered classrooms in a place where plunging property values have destroyed the local tax base. Middle class America, mugged by housing.

The lowest mortgage rates in fifty years? Who cares?

In Canada, families are consistently and methodically misled about the strength and health of the real estate market and the nation’s ability to slip the noose of economic malaise. GlobalTV pimps for developers and realtors. F and Carney give Parliament no hint of storms ahead. CREA raises its estimates for sales and prices. Nowhere are average families, saving nothing, spending all, expecting normal, given distant warning of change. As Americans did in 2004, they feel their risk-free path in an uncertain world runs smack through a kitchen full of granite and stainless.

They don’t know what a bond yield is. But when mortgages shrivel by ten basis points, they hear about it on TV in a clip with a confident realtor and a smiling anchor babe.

But even that wears thin. The rising tide of volatility around us will take a toll. More people will reflect on what lies ahead, should wages or houses fail to climb without end.

The cost of debt, they’ll see, is not interest. It’s freedom.

101 comments ↓

#1 TurnerNation on 08.21.11 at 9:49 pm

2nd?

#2 bsallergy on 08.21.11 at 9:54 pm

Have no debts and all your money is yours. Keep trying to tell people that, but they keep telling me how they can “afford” the payments. Sigh . . .

#3 T.O. Bubble Boy on 08.21.11 at 9:55 pm

The real benefit of bonds is not collecting interest, of course, but scoring capital gains.

At this point, bonds pay near-zero interest, and there isn’t much more room for them to go up… time to harvest some of those gains?

#4 Industrial Guy on 08.21.11 at 9:57 pm

‘Bully bids’

Panic buying when there is no panic ……….

http://www.moneyville.ca/article/1042408–bully-bids-symptom-of-housing-market-gone-mad

It’s the financial equivalent of Head Smashed In Buffalo Jump.

http://www.head-smashed-in.com/

#5 T.O. Bubble Boy on 08.21.11 at 10:02 pm

Is it a sign of the time when realtors get more and more gimmicky?

Today I noticed the $1 house (is this posted outside of a Dollarama parking lot?), and yet another lucky 8’s house for those targeting offshore buyers.

#6 phinny on 08.21.11 at 10:09 pm

“The cost of debt is not interest, it is freedom.”

Now that’s a good one to live by.

#7 Utopia on 08.21.11 at 10:18 pm

“The cost of debt, they’ll see, is not interest. It’s freedom” ~~ Garth Turner
————-

Man, is that ever a good line.

Man of man, have we ever dug ourselves into a hole in this country. My biggest worry is not defaults of mortgages, although I know they will be more serious than in any prior recession….my worry is that this debt binging will absolutely put a stake through the heart of consumption and put a serious drag on government revenues at every level.

We are especially vulnerable in this country now and as you have clearly pointed out the evidence of the riskiness of debt is apparent to everyone but us.

We do think we dodged the bullet as you mentioned and too many are still complacent about the very real outcomes. We did not dodge anything, in fact.

The projectile has just not arrived here yet.

I am amazed every time I ask someone if they think real estate will see a downturn (it will). I do this often and in an off-hand way. Like in the supermarket at the cashier stand. I will just say casually..” do you think house prices are too high?” or “when do you think the housing bubble will burst?”.

Well of course, almost nobody ever talks in checkout lines (except crazy people) but as soon as somebody starts a surprise conversation out of the blue then everyone in line starts chattering like crazy.

I just love that part.

Anyway, I rarely ever find someone who thinks we are on or near the precipice of the downturn and correction. They almost all insist housing is solid and secure. They are making money on it still as prices in so many regions are still rising.

It just blows my mind that so few are really paying close attention to this market despite all the bad news lately out of the US, Europe and America .

It has got to be that their minds are so consumed by all the crap on TV that there is no room left for analytical thought and introspection.

Nobody is scared. But they should be.

#8 bcc on 08.21.11 at 10:19 pm

10 years ago, i lived in a crappy city i don’t like. I refused to buy a place. Stupid enough to spent the $ on cars instead of saving.

5 years ago, I wanna buy, but the price was already too high. Not that I could afford but I thought the correction was coming. Didn’t buy.

And maybe 2 years ago, I started reading doomers’ blog and somehow found this one. I think this blog makes more sense than those RE bubble blogs. and have been reading greaterfool two times a day, when the post come out at night and when there’re enough comments in the afternoon. Still haven’t buy a place. Have been saving a lot these days. Although I can hardly invest into something that is not losing book value, let alone 7% or even just 4% or 2% annual return.

But today’s post make me rethink.

if the gov want to keep a low interest rate, that’s a sign for people to spend. it’s is their ‘monetary policy’. So why should I refuse to do so? Am I trying to defy economic theory? or if following everyone’s step is stupid. or listen to the gov is stupid? what’s the rationale? why shouldn’t I buy asset (RE or others) when interest rate is low??? why?

#9 Brain DeFranco on 08.21.11 at 10:24 pm

Oh, so, rates are dropping now?

Not the BoC, prime or VRMs. — Garth

#10 Tim on 08.21.11 at 10:24 pm

If Canada lags the US cycle by two years, then how come five years after the US started to tank, we’re only down a few percent?

#11 Mr Buyer on 08.21.11 at 10:27 pm

I am starting to consider building an apartment building. Am I insane? It just burns my ass when I am costing everything out and have to factor in the ridiculous property, building and service costs. The financing costs are certainly lower presently but they have been overshadowed multiple times over by the unreasonable prices asked by vendors and service providers. On top of that, I can see property taxes going up much faster than in the past. Any rules of thumb would be welcome. It was my basic plan since I was a kid. Get enough cash together and build an apartment building. Simplistic yes, but in the past reliable. Now I am faced choosing from a host of unfamiliar and unreliable options. While we could purchase a house without incurring debt presently, we would have to finance a multi-unit dwelling. The wife is absolutely against debt of any sort so the chances of proceeding with plans to build are slim. I will not be making any moves with respect to real estate for now.

#12 vatoDETH on 08.21.11 at 10:28 pm

@bcc Well that depends on where you live and how much you project prices to crash. You could take the money you’ve saved and invest that into your TFSA. You can max out your TFSA, invest wisley and then use it to buy in when the market further adjusts. Another factor to consider is your jon stability. Is your job safe in the event of a recession? If not, the mortgage can tie you down from quickly moving to an opportunity in another city.

#13 Dorothy on 08.21.11 at 10:32 pm

Prices have fallen, and continue to fall, in most real estate markets in the country. However, we are still far from the market crash experienced in the States and, unless something really dramatic happens, I don’t see any reason why things should get anywhere NEAR as bad here as they’ve got there.
I’ve lived long enough (and so have you Garth) to see real estate markets rise and fall over the years, and I believe this current down cycle will eventually run it’s course and pass, just the same as all the other times.

For those wanting to buy, it’s probably best to keep an eye on the market and try to catch bottom. But that said, trying to time the bottom in a falling market can be a bit like catching a falling knife, whether in real estate or stocks. So it can be a bit of a mugs game if you’re not careful.

For those wanting to sell, it’s probably best to wait a while unless you have absolutely no choice. And if that’s the case, then all you can do is swallow your lumps and accept the best offer you can get. On the bright side, if the new home you buy to replace this one has also fallen in price, then at the end of the day you not really any worse off.

But if you don’t really HAVE to sell, then why sell into a down market? Buying high and selling low isn’t just a bad idea when dealing with stocks, it also applies to houses.

#14 Kurt on 08.21.11 at 10:33 pm

“The cost of debt is not interest. It’s freedom.”

Thank you.

#15 Kurt on 08.21.11 at 10:34 pm

@ bcc

If the government wants you to do it, it’s good for them and bad for you. Do not bite.

#16 2MKid on 08.21.11 at 10:40 pm

@bcc

You are buying an over-inflated asset which will eventually devalue. Why pay a mortgage for years that’s going to be worth 25% less?

#17 Killer Chicken or Imploding Boomer? on 08.21.11 at 10:41 pm

We’ve been told low interest rates stimulate spending but punish savers. In addition the negative effect to
people living on fixed-income, there is a another
backlash to the greater economy.

Obviously savers look for a return on their money. If it earns a reasonable rate all is well. But right now the rate is very low, equity markets are super volatile, and there is little if any left room for cap gains on bonds.

So what is a saver to do? Simple. Save more. Instead of 10% of income, save 12% etc. Result – less money spent into the economy.

Surely some economist has studied this and given this effect a name.

#18 Smoking Man on 08.21.11 at 10:44 pm

Difference between Canucks and yanks

The yanks, most of the loot is in a few hands, in Canuck land its a little more spread out for now…….

Markets are insane because of guys like me who write high frq trading and stat arb algos. 75% of trading is done in black pools with the type of systems this drunken dyslexic writes….hence BONDS away….The mortals don’t understand what is going on….so they by bonds…..

However I too like you bubble heads wonder how my kids with out my help will ever buy that little place with the white picket fence…..truth is they wont.

In fact kids in Canada and the USA would be burning down parliament, and Washington like they are everywhere else had in not been for parents like us boomers always subsidizing their little celebrity worship, and climate change crusades.

The enemy is oil companies and people who use real weed killer on the grass………….

But I see the future again….I have stopped posting on my blog months ago, going to take it down soon. The feds are taking notes and are serious about building lists of people not afraid to say it like it is…… The guys winning the big world wide game of poker know that the losers are coming for their heads in the not to distant future…

Harper is owned buy the best poker players in the world, and he is one scary dude I don’t want to f with when sh!t hits the fan……

#19 vyw on 08.21.11 at 10:44 pm

#8

I guess it’s the imminent downturn that we sense intuitively. The Govt is lowering interest rates to fight deflation and boost business investment and private job creation. We think that it’s not a good time to borrow. When the Govt boosts interest rates to say 5% or more to fight inflation, we rush in to borrow and spend.

It’s a paradox – debt is not good for individuals and families but it’s actually what drives the economy. We have a trade deficit, private savings (surplus) so it needs to be balanced with Govt deficits. If Govt spending continues to decline, then consumers have less to spend, resulting in bigger Govt deficits, and more Govt austerity leading to less consumer spending ie. correction, contraction, deflation, recession.

Someone on this blog said that “it won’t end well.”

#20 Mark on 08.21.11 at 10:51 pm

The real benefit of bonds is not collecting interest, of course, but scoring capital gains.

Sure sounds like a Ponzi scheme to me… Besides, why would a RE bear invest in something that actually helps the performance of residential real estate?

#21 dave in Victoria on 08.21.11 at 10:54 pm

More and more I hear normal people mention that CREA information is to be taken with a grain of salt. Victoria has beyond stalled, very common for places to be 100K below assessment and sit. Last two days places below 500K have sat, no movement. This hasn’t happen in the three years that I’ve been tracking real estate.

I’m very curious to see what municipalities do with assessments come January, as house values fall will they be able to follow with assessments, or will they remain stagnant or even grow to continue the cash grad on property owners to fund municipal expenses?

The feds have downloaded to local governments and most of em’ are scrambling.

Things smell very, very bad for anyone greedy enough to think they can milk an extra %20 on a property. It’s becoming easier to see %25 come off this market.

#22 timo on 08.21.11 at 10:56 pm

Fantastic Garth, a great read and I totally agree 100% in what you posted tonight.

keep it up

#23 Killer Chicken or Imploding Boomer? on 08.21.11 at 11:04 pm

Re – previous comment – I guess it’s a liquidity trap of some kind, but is there a specific name when it results from ZIRP?

#24 Deliverator on 08.21.11 at 11:04 pm

What’s the matter with a Jetta? Best care I ever had. Miss the old girl…

#25 Paully on 08.21.11 at 11:08 pm

I was out looking at houses for rent in Willowdale this week. Saw a place on a good sized lot, that looked nice on paper. Inside however, it was old, tired…actually it was hideous. It was worse than any place that I lived in as a student. Rent was listed as $1800/mo. It has been on the market for two months at $2000/mo, with obviously no takers, so they have reduced the asking rent by 10%.

Here is the kicker. My realtor tells me that this place was for sale in February of 2011. The asking price was $749k and it sold for $949k, a whopping $200k over list! Yet, today, mere months later, it cannot be rented for $2000 per month. Someone paid almost a million bucks for a dumpy dive, worthy only of being a teardown. If that doesn’t say “crazy bubble,” then I don’t know what does.

The fly in the ointment of the “sell, and rent until the market settles down,” is that the available rental stock can be mighty scary.

#26 Best place on meth on 08.21.11 at 11:23 pm

#9> If Canada lags the US cycle by two years, then how come five years after the US started to tank, we’re only down a few percent?<

Simple, the financial crisis.

We were tanking quite nicely in 2008 when TSHTF and interest rates went down to the lowest level since the invention of fire.

Now we have a lot of catching up to do, and catch up we will.

#27 Utopia on 08.21.11 at 11:25 pm

#8 bcc asked….

“why shouldn’t I buy asset (RE or others) when interest rate is low??? why?”
———————————
Because housing prices are badly overinflated bcc, that is why. And the reason that prices are so high is because of low interest rates.

Had rates been higher, home prices would still be within reach of most buyers and there would not be systemic risk once the great deleveraging begins.

If you are saving and in a good financial position you had best stay there now. I am convinced that our bubble is in the process of bursting.

We await more hard evidence but some very serious cracks are already showing.

Toronto prices down 17% in one single month.
Vancouver seeing off-the-charts-parabolic-price increases is a huge red flag.
Victoria posting some of the most dismal sales in the country.
Calgary and Edmonton flat-lining.
Small towns under water already……

The list goes on. Only a fool would buy in this kind of an environment. If you have been waiting for a correction then it looks to be pretty much a certainty now.

With consumer confidence numbers in this country falling off a cliff, as large scale layoffs are announced by major companies, with manufacturing falling into the gutter and the country slipping into a larger trade deficit amidst negative growth numbers, well you can rest assured…..

…Trouble is already here. Stay on the sidelines. Wait.

#28 chris on 08.21.11 at 11:32 pm

Seriously, when is this correction going to happen. I have been reading this blog and waiting for the correction for the last 3 years. I have been waiting on the side-lines in Vancouver while my friends and family enter the market and make good $, while my investments make diddly and I can’t save at a rate to keep up with home appreciation. Everyone mocks me for waiting and preaching the coming correction, that never happens (after 3 years, I have lost credibility). “Oh, it’s coming” I keep saying and everyone laughs at me. Now the Feds have pledged to keep rates at zero for the next 2 years, which all but guarantees rock bottom rates in the BPOE. The herd won’t consider what this means on a macro level, they will treat it as the gift it is and go out and buy, buy, buy. I really hope I am wrong, but I am not counting on it. I have now decided to give myself a deadline to buy. If this market doesn’t correct by 2013, I will jump in. That will be 5 years of waiting.

So buy. See what happens. — Garth

#29 45north on 08.21.11 at 11:40 pm

Paully: Someone paid almost a million bucks for a dumpy dive

I’m apaulled! (Smoking Man that’s a joke)

so according to the mortgage calculator at InvestorsGroup, assuming 10% downpayment, 30 years amortization gives a monthly mortgage payment of $4,803.22

or conversely if you bought it for $200,000 there would be a cash flow (I refuse to make cash flow into a verb)

#30 Markey on 08.21.11 at 11:53 pm

Residential construction activity in Ottawa plunged 49.5 per cent in July as starts for all housing types fell sharply from the same month a year earlier, according to the latest data from Canada Mortgage and Housing Corp.: http://www.obj.ca/Real-Estate/Construction/2011-08-09/article-2698283/Apartment-construction-drops-in-July,-pushing-down-Ottawa-housing-starts/1?date=2011-08-10-09&newsletterid=3

#31 Utopia on 08.21.11 at 11:55 pm

#18 Smoking Man

“But I see the future again….I have stopped posting on my blog months ago, going to take it down soon. The feds are taking notes and are serious about building lists of people not afraid to say it like it is…”
————————

Not sure it is the Feds, but you are not crazy.

The day is coming when every single word that every person wrote in the blogosphere will be indexed, cross referenced, recorded and put in inventory. It will identify you by IP, by references, by habits and even your writing style.

The computing power is awesome, the programs, lightening fast and relentless and the storage dirt cheap. You know it is coming.

Nobody can hide anymore if they use a laptop, a hand held device or even a mobile phone for texting. Al the date can be connected and it is a certainty it will be in time. Computers never forget either. Most of the data is stored.

It sits latent awaiting the time when there will be a crisis of some type and all of it can be connected together as national security interests (for example) are threatened.

The walls of anonymity are being broken down already and it is not just conjecture to suggest that everyone is already public whether they know it yet or not.

Unfortunately for many, this is not from the realm of conspiracy theory. It is a reality we all face and Americans in particular have already been treated to a wide range of privacy invasions as the internet and its many service providers open their log books and records to the data mining capabilities of government.

“You have zero privacy, get over it” ~~ Sun Microsystems, January 1999
http://www.wired.com/politics/law/news/1999/01/17538

Some of you crazies had better think twice before leaving remarks that are threatening or dangerous to the state.

I am not kidding.

#32 vyw on 08.21.11 at 11:57 pm

#28
You have to watch for an explosion of listings and declining demand.
I think Vancouver has another leg up – 30% by next spring followed by 30% down.
2013 might be the time to start looking. In the meantime – take the mortgage amount divided by 1000; that’s the weekly mortgage payment at 2.2%; subtract your rent; you need to bank and invest this amount and NOT spend it.
Oh and remember that prices may fall but the mortgage debt stays and interest rates will eventually go up. Good luck.

#33 Noname on 08.22.11 at 12:16 am

When the bulls go down:
http://prikolka.ru/wp-content/gallery/foto1/Foto__19.jpg

#34 piker on 08.22.11 at 12:30 am

Let’s jusy quote Anne Drewa, weekend anchor for Global BC, 6:58 pm on Sunday, August 21 newscast:
“We don’t like to ask questions around here”.

#35 Romeo Jordan on 08.22.11 at 12:32 am

Garth,

A bear market in gov’t bonds is set to begin (albeit slowly). Money will rotate out of bonds into blue chip dividends and other investments with a return (on and of capital), rates will inch up in time.

Keep the faith.

Romeo Jordan

#36 Nostradamus Le Mad Vlad on 08.22.11 at 12:36 am


“They’re wrong. (By the way, this is not good.) So what has this windfall done to motivate buyers? Right. Nothing. this delusional dominion understand the tidal wave into bonds is the epitome of fear.”

There is nothing to fear but fear itself (or words to that effect). At least (in the US), it is becoming clear that real people rent. The rest just go into debt, thus ending up on Dr. Phil. He will be busy for the next two or three centuries!
*
#18 Smoking Man — “Harper is owned buy the best poker players in the world, and he is one scary dude I don’t want to f with when sh!t hits the fan……”

To use the headline tonight, “Who cares? (about Harper) — H is truly a legend in his own pathetically tiny little mind. He can only smile for cameras, then watch the lies pour out of him. It would be funny if shitbombs dump all over the CPC first!
*
12:51 clip The US Fed is in the process of some naughties, apparently to do with bonds, and Russia playing with bonds.
*
2:52 clip Anyone recall The Spencer Davis Group “Gimme Some Lovin’ “? Cure for MS? 1:38 clip NATO has begun the slaughter of the innocents, but what comes around goes around; London Calling The riots were orchestrated from outside; What A Week! Never mind finances, we’re talking WAR! (That’s what TPTB want anyway, but we can always choose to step aside); Monsanto targets consumers; Drones Earlier, a link said drones would be targeting us from above. This one swims; Sympathy Obama is running for prez., not Satan. Yet she (Satan) gets blamed for everything; 8:57 clip Telescope and rather large UFOs. Hmmm, maybe there is intelligent life out there. Ain’t nun down here!

Small Towns being hammered by the rise of the Swiss franc vs. the Euro; Lotteries Not sure where the magazine originates from, the the researcher is Cdn.; Achievement Looks as if TPTB are gaining a stranglehold; Manipulating, but the person was caught, so maybe this was one reason.

#37 dd on 08.22.11 at 12:38 am

Bond yields going down? There might be another explanation –

http://www.youtube.com/watch?v=ZnZnkaq8Nf8&feature=player_embedded#!

You’ve lost it. — Garth

#38 timo on 08.22.11 at 12:39 am

#28 Chris,

http://en.wiktionary.org/wiki/he_who_laughs_last_laughs_best

success is better after having previously endured ridicule.

#39 Househunter on 08.22.11 at 12:51 am

I don’t buy it that people don’t care about rates. The Canadian market is STILL not going down. Rates going down again? More people will jump in. No correction. This website is interesting but off the mark in it’s correction predictions. Realtors and Global Tv has been more correct. No one knows jack EXCEPT, this Canadian market is gonna correct when rates move upwards. Carney will be keeping it real for the realtors for another 12 months minimum.

#40 Devore on 08.22.11 at 12:59 am

#19 vyw

It’s a paradox – debt is not good for individuals and families but it’s actually what drives the economy.

It’s not a paradox at all, because debt is not bad. Debt is fine when it pays for itself.

#41 BC Bring Cash on 08.22.11 at 1:03 am

More evidence that the residents of the USA are becoming part of the Third World. Canadians are right behind them. F & C are lying to us about how rosy things are here in Canada. If and when the World economy tanks there will be no demand for our recourse based economy.
http://dollarcollapse.com/articles/welcome-to-the-third-world/

#42 Freedom 85 on 08.22.11 at 1:03 am

Garth,
Your post today was excellent! Unlike your bashing of Zero Hedge (to defend Canada’s honor of course – I would not expect anything less from you, but sometimes we need wake up calls and instead of rushing to defend, maybe we should consider an outside opinion).

“The cost of debt is not interest. It’s freedom” is exactly correct and the comment confirms great understanding of the subject.

Canada is working its way into a similar position as the US – a liquidity trap. When lower rates stop working and the efforts of government to induce consumption through greater indebtedness loses its effectiveness. We’re close, very close.

The problems we have cannot be solved with the policies of today. Debt has to be repaid, either by the borrower or written off by the banker, or inflated away through inflation and the destruction of those who keep things afloat (in reality) – the savers of this country. Which would piss me right off…

The mortgage market only has to fall apart at the margin. That’s all. By that I mean maybe 10-15% of the most egregious over-borrowers who just don’t get it and keep borrowing to maintain their fake lifestyle. If you are reading this and you relate, the train is barrelling down on you and it will run you over sooner than you think. Maybe another couple of years to get your @*it together, if that!

30% of the population doesn’t borrow, 30% is in good shape, 20% is in tough and 20% are on the edge. It’s those last 20% who freak me out and in my view, that’s all it’s going to take to start the mayhem.

The 40% who are extremely leveraged can bring the entire economy to a screeching halt, but it’s only 10-15% who will get the ball rolling.

Time to tighten the belt and get your house in order. Do it now!!

#43 Jon B on 08.22.11 at 1:37 am

OK so the Yanks ain’t buying. Anyone care to suggest when a bottom on US real estate might be coming?

#44 Aussie Roy on 08.22.11 at 1:40 am

Aussie Update

Tasty HAM.

http://www.theaustralian.com.au/news/world/accidentally-released-report-reveals-embarrassing-extent-of-chinese-corruption/story-e6frg6so-1226076938605

Australia is Different – Video

http://www.youtube.com/watch?v=CroTAVVcr9k

Unemployment rising and set to go higher

http://www.theage.com.au/business/jobs-under-pressure-20110820-1j3ls.html

Aussie TV house porn – goes SOFT.

http://www.heraldsun.com.au/entertainment/tv-radio/the-block-finale-becomes-no1-show-of-the-year-as-polly-and-waz-win/story-e6frf9ho-1226119172823

http://www.smh.com.au/entertainment/tv-and-radio/reality-bites-for-nine-as-tv-homes-attract-only-one-buyer-20110821-1j4qw.html

House price crash predicted in Melbourne – Look above its already happening.

http://www.heraldsun.com.au/news/victorian-housing-crash-tipped/story-e6frf7jo-1226118822190

First home buyers – all porned out.

http://www.adelaidenow.com.au/property/news/first-home-buyer-numbers-drop-by-half/story-e6frefgc-1226099301010

Top 10 discounts for the week.

http://www.propertyobserver.com.au/residential/southbank-luxury-apartments-on-most-discounted-list/2011081951225?source=flicker2

It’s different here – LOL

Yes, we have even more mortgage debt per person than the US.

#45 wes_coast on 08.22.11 at 1:44 am

#28 Chris – if you are going to buy – make a business case for it. Don’t do it cause your dip shit friends are making ‘$’ as you put it. Unless they are wiling to sell and move to another market where prices are lower they didn’t make anything after realtor fees – because they don’t have the balls to sell and rent. The ‘$’ they think they made is all on paper and makes a good excuse for local government to raise taxes on them. Point is this: if you can find a property that has a long term break even or better: go buy already. But if you do it cause your friends are pressuring you then you may as well go do some heroin on the downtown east side now – cause when your finances get wiped out in the correction your new friends that like to deficate in thealleys at Main and Hastings will be pressuring you to joing their needle injected escape. Stop whining. At least you are not in Lybia, Syria or Somalia. Poor baby doesn’t rent from a bank and now questions his own manhood.

#46 Bill Gable on 08.22.11 at 1:47 am

Smoking man is off his Meds again.

Look, bottom line – if we ad not had QE1 and 2 – we would be flatlining.

John Mauldin published some David Rosenberg charts that have pointed out that the bubble money has kept the folks spending what they never had, and the Banks are totally complicit.

Debt is death.

Remember house porn addicts – Mort Gage: French for death contract.

#47 Nonplused on 08.22.11 at 2:00 am

Good post tonight Garth. People need to understand how unusual (and short lived) the situation is / will be.

#48 immigrantvoice on 08.22.11 at 2:08 am

Garth, please see this video of James Turk interviewing Canadian billionaire Eric Sprott if you have time. I don’t understand how you can see one aspect of the declining world economic state without noticing the correlation with p.m. (specifically gold).

http://www.youtube.com/watch?v=CtuBVru2XNw

#49 Green Acres on 08.22.11 at 2:10 am

@chris

The market can stay irrational longer than you can stay solvent.
John Maynard Keynes

Your sentiments are over a hundred years old.

#50 MB on 08.22.11 at 2:17 am

Sorry Garth, I agree with a lot of what you write on this blog, but you’ve been preaching that bonds are one of the safest and smartest places to put ones money. From your own research, bonds are at at 50-year lows, 2% (or less for 10-yr) in the US. That is a) lower than inflation and b) risky, as your bond loses value once interest rates (inevitably) go up. Corporate bonds aside, Garth can you admit that there are definite issues involved with owning these assets over the medium and long-term?

You should have taken this advice when it was first given here. Today you’d be selling for big gains. — Garth

#51 Mr Buyer on 08.22.11 at 3:55 am

An aside
A note regarding English Usage with respect to it, its, it’s…
I googled the following…
Until the 19th century, in fact, “it’s” was usually considered the possessive of “it” — in the Fall, a tree shed “it’s” leaves. The usual contraction of “it is” was “’tis.” Only when “’tis” came to be regarded as an archaic form in the 19th century did the use of “it’s” as a contraction of “it is” push out the use of “it’s” as a possessive.
The Modern usage of it, its, it’s is clearly demonstrated in the following sentence (harvested from the same googled result)…
“It’s (it is) a nice day for sailing, but my boat has lost its (the boat’s) rudder.”
A living language (one that is used daily) is constantly evolving resulting in its grammar being a moving target and its usage even more so (this is part of the reason Latin was and is used in science as it is a dead language and as such less prone to change). Long story short, the usage of apostrophes for possession in some cases coupled with the past use of an apostrophe for the possessive form of it goes a long way towards explaining the persistence and somewhat widespread use of it’s as the possessive of it. In closing, I wonder how long it will take for the verb google to make it into the dictionary (if it hasn’t done so already)

#52 Sam on 08.22.11 at 3:55 am

I have been reading this blog for a few years now, and am one of those people that does not post very much. I just wanted to say thank you Garth. Thanks for taking the time to write an opposing and realistic view on housing and the economy. Please keep up the great work, as a lot of people (like myself) appreciate it very much.

#53 In Edmonton on 08.22.11 at 4:07 am

Great article (as usual). Next year if we get a commodity surge in prices the over indebt Canadain WILL see huge rises costs, many may not be able to afford their mortgages.

And YES we are in a housing bubble…
ANother spin on this…
http://www.youtube.com/watch?v=giv7ZcVoEx8&feature=player_embedded#!

#54 george on 08.22.11 at 4:28 am

Oh Garth. Don’t worry about debt.
Remember the saying.
“If I owe you a dollar then I have a problem. But if I owe you a million then the problem is yours.”

#55 Onemorething on 08.22.11 at 4:53 am

#10 Tim on 08.21.11 at 10:24 pm

If Canada lags the US cycle by two years, then how come five years after the US started to tank, we’re only down a few percent

Quite simple young Timmy, the US flooded the market with an unprecidented amount of new money to paper of the problem which took just under the 2 year time frame and propped up the total mess which was about to hammer the CAN RE market initially.

Now, Like the AUS RE marketplace, the extra ride up will be a much longer and deeper ride down.

Look around you my friend, do you honestly think Canada Aus and China (HK & SING) are going to remain in magicland for much longer!

#56 Aussie Roy on 08.22.11 at 4:55 am

Aussie Update

If a property bubble pops but no one reports it, does anyone know it has happened?

“The Block,” an Aussie show in which four couples compete to renovate and then sell their houses at auction aired its finale on Sunday August 21. In previous seasons, the action on The Block has mimicked the real-life fever-dream that is the Australian real estate market of the last five+ years. Houses sell fast and high, credit is cheap, auctions make people crazy, and most people who don’t yet have a house are driven by terror that they never will. Underlying all of this is the religious belief that property always goes up.

But last night The Block unintentionally revealed on national TV that property-as-pathology is over. In a crowded private auction where bidders had to pre-register (and were sworn to silence for 24 hours), only one of the four houses was sold.

http://www.christinekenneally.com/weblog/2011/08/speech-bubbles.html

Aussie houses biggest in the world that is why housing is sooo expensive – LOL.

http://www.smh.com.au/business/property/australian-homes-still-the-worlds-biggest-20110822-1j5ev.html

Just as well they are big, as number of persons per house increases. Ooops there goes the make believe shortage.

http://smh.domain.com.au/real-estate-news/crowded-house-is-packed-to-the-rafters-20110821-1j4st.html

#57 betamax on 08.22.11 at 5:06 am

On another, yet related topic: my wife’s relatives in China are telling her that Chinese RE sales are tanking.

These people are not bears and they’re not making predictions; they’re heavily invested and merely reporting what they’re seeing first-hand on the street.

Sales have been tanking for a while now, long enough that many realty offices (which are everywhere there) are going out of business — literally closing up shop.

Apparently this is occurring in several cities that they know of. My wife’s uncle just sold a house and is ecstatic that it sold; he was worried that it might take several months more to sell.

I haven’t read anything in the media about Chinese sales flat-lining, and this info from the relatives is admittedly anecdotal, but it seems that the Chinese bubble might be finally peaking — with a wild ride on the downside ahead.

#58 Paully on 08.22.11 at 6:52 am

In Toronto, thanks to our tax-loving former Mayor Miller, the total land-transfer tax bill on the above mentioned $949,000 “investment property” would be $30,160! So at only $1800 per month, it would take over 16 months of rent just to cover the LTT!

#59 Ex-Cowtown on 08.22.11 at 6:54 am

# 10 Tim on 08.21.11 at 10:24 pm
If Canada lags the US cycle by two years, then how come five years after the US started to tank, we’re only down a few percent?

A few reasons:

1. Interest rates were crashed to emergency lows BEFORE the problems started in Canada. That means that we have yet to face the pressure that the U.S. consumers did. Note that our debt to income ratio is 147%. The U.S. started melting down at 120% under higher interest rates. If rates were even a bit higher we would be melting down as well.

2. Oil sands.

3. Potash

4. Oil sands

5. Potash

6. Oil sands

7. Potash

8. China and India buying all the oil and potash they can find to support thier growth, no matter the price.

9. China misrepresenting GDP by building ghost cities, corruption and wasteful infrastucture. What is the payout on ghost city? 2 years, 5? 125?

Canada has been living on borrowed time. Just like the U.S. shelters us with their military umbrella so that we can spend our $$ on health care etc, their intentional crashing of interst rates have allowed us to live in la-la land for a while longer.

But, to quote the furry jowled GT “This will not end well.”

#60 Victor on 08.22.11 at 7:31 am

Cost of home ownership in Vancouver driving local buyers away: RBC

The Canadian Press, On Monday August 22, 2011

TORONTO – RBC Economics says the cost of home ownership in Vancouver soared in the second quarter, making it by far the country’s most expensive city to own a house or condo.

The quarterly report says detached bungalows in Vancouver were especially expensive, with the cost of mortgages payments, utilities and property taxes equivalent to 92.5 per cent of a typical household’s monthly income.

By contrast the measure for the second-most expensive major city, Toronto, was 51 per cent and the national figure was 43.3 per cent.

The report says there’s growing evidence that the cost of home ownership is keeping local buyers out of the Vancouver market.

http://ca.finance.yahoo.com/news/Cost-home-ownership-Vancouver-capress-2222181460.html?x=0

#61 Moneta on 08.22.11 at 7:54 am

Yesterday we had a debate on the health of our Cdn banks…

In the US, when the real estate market rolled over, bank profits initially soared. This happened because rates from ARMs were resetting higher and even if many households started to become strapped for cash, banks were still booking interest income as earned income even if they were not receiving the mortgage payment because that’s what GAAP says to do until the loan is considered lost.

On top of booking these unpaid amounts, they were also charging late fees and all kinds of other penalties that borrowers were not paying either, also boosting profits. This was happening while provisons for losses still were not going up.

It will be interesting to see if this also happens to Cdn banks when real estate weakens and more households become delinquent.

#62 bigrider on 08.22.11 at 8:15 am

Garth – “you’ve made money even if people with equity mutual funds throw up”

And people with equity ETF’s keel completely over.

MER on equity mutual funds: 2.0-3.0%. MER on equity ETFs: 0.1%. — Garth

#63 LAST on 08.22.11 at 8:28 am

[email protected] #28 problem is that you waiting to buy your first place that it is going to cost you far more to buy than to rent. Doubt you downpayment savings have keep up with the growth in houses.

This is the whole problem with a housing bubble, it goes like the energizer bunny keeps on going, prices will eventually return to the mean but it will take time

#64 Moneta on 08.22.11 at 8:37 am

I was at a soccer party this weekend. All parents were Gen-X.

The concern of all parents was how to disentitle our kids. We realize what is happening but just don’t know how to change it. The consensus is that we are not teaching them how to cope with failure and this will hit hard in their 20s. If you only knew how often over the last decade, I’ve voted against dust collecting trophies and got silenced… They all see a problem but most have no clue as how it ever got this way!

But many said not to worry too much for them because they would be rich since they’ll be inheritng all of the boomers’ wealth. I thought this was interesting since many work for government and pensions don’t get transfered to grandchildren.

Another consensus was that unilke in the US, loans were only made to Canadians who could pay. When I asked how this fits with the fact that Cdn households now have more debt than US households at the peak, I only got blank stares.

#65 bridgepigeon on 08.22.11 at 9:12 am

31 Utopia
Yes…

#66 Utopia on 08.22.11 at 9:26 am

#30 Markey on 08.21.11 at 11:53 pm

“Residential construction activity in Ottawa plunged 49.5 per cent in July”
———————-
Speculative money is sucking in its gut and belt tightening faster than Oprah these days. The numbers keep getting more dramatic all the time. I am almost getting used to it now. Perhaps the message got through that Ottawa is no fantasy land with all the bureaucrats getting the axe lately and so many more to come.

But a 50% plunge!!? And apartments down 76% too!

How long before we hit 100% like a few places in the States. This is actually getting worrisome now.
—————
#17 Killer Chicken said….

“So what is a saver to do? Simple. Save more. Instead of 10% of income, save 12% etc. Result – less money spent into the economy. Surely some economist has studied this and given this effect a name.
——-
You bet they have. It is one of the reasons we do not have a Gold standard anymore. During the depression their was a wave of saving and gold hoarding that choked the economy to asphyxiation and almost brought the country to a halt. The US government did not have the tools necessary to get liquidity back into the system and stimulate consumption as the nation went in retrenchment mode. The money supply could not be expanded and so monetary policy came under serious review as a result of bank runs and their subsequent failures. Of course it made perfect sense to also hoard cash then because it was gold-backed but because of human nature which turned to extreme thrift during that period of contraction, the depression lasted much longer than it needed to. That is one of the reasons we have a pure fiat system now although it is clear that pendulum has swung too far as well.

#67 jerry on 08.22.11 at 9:32 am

When to sell those bonds? I have realized potential increase in gains almost each week. It just seems to be going up with every world hiccup.

Then when they are sold, what to do for a fixed income retired portfolio.

#68 bridgepigeon on 08.22.11 at 9:35 am

RIP Jack Layton

#69 The InvestorsFriend (Shawn Allen) on 08.22.11 at 9:37 am

THE WORLD ACCORDING TO GAR(P)TH

Garth has strange ideas about Bonds and preferred shares and whether they are for fixed income and whether the capital gains / losses thereon matter.

He says today:

“The real benefit of bonds is not collecting interest, of course, but scoring capital gains.”

Yesterday at 79 he responded to me “nobody is buying bonds to collect interest.”

And yesterday at 147 I said “It is illogical to accept 2% for ten years” (which buyers of 10-year U.S. bonds are doing) and Garth responded:

That’s why nobody does. — Garth

And yesterday at 215 he responded:

Your last post just defended long-term bond purchases by citing pension funds and insurance companies as major buyers who hold to maturity. You sure do not understand bond strategies. — Garth

So what to make of this? First any sentence that claims “nobody” does a certain this is suspect.

Bonds are classified as fixed income. It is a given that MANY bond holders have bought for the interest. Yes, many buy to speculate on interest rates, but certainly, mutual funds, pensions and insurance companies buy bonds for the interest.

Buying government bonds today for capital gains is a bet that interest rates keep falling. Could be, but there is a big risk they will rise. Who would want to hold a U.S. 10-year bond to maturity and collect 2%?

Meanwhile Garth often tells us that preferred shares are for income and not to worry capital about capital losses there.

So to summarise, Garth seems to be saying, Bonds are not for income but for capital gains, preferred equity shares should be treated as fixed income with no worry about capital losses.

I find this strange. (Many finance texts may need to be re-written)

Long term bonds are in a bubble!

Stange Days Indeed!

You are indeed a difficult person to coax past your own misinformation. Bonds move more in price because of demand than due to rates. Holding bonds in a balanced portfolio gives a hedge against equities, since they are often negatively correlated. When equity markets sell off, investors often storm bonds, driving prices higher and offsetting stock losses. It is this which most often triggers capital gains, despite prevailing rates. Higher prices bring lower yields, but only as a corollary of bond market values. In a low-rate world, then, bonds are generally never held for interest, but for stability in a portfolio which can (and often does, as you show yourself) become dangerously dependent on equities. — Garth

#70 Utopia on 08.22.11 at 9:47 am

#41 BC Bring Cash

“If and when the World economy tanks there will be no demand for our resource based economy”.
————————
Actually, it is the fact that the US dollar has been devaluing that there is less demand for our manufactured goods. That was already predicted back in 2007 by McKinsey Global Institute in a paper that modeled a few scenarios of a 30% USD devaluation and how it would affect Nafta. In short though, we are going to get hit pretty hard in this country if America cannot get its act together. Seeing as the dollar keeps falling I think we had best make plans to open some new trade routes quickly.

If you are curious what the egg-heads and accountants read you might try MGI. It is enlightening and a good break from the Doomer sites even though they are discussing all the same topics. The articles are terrific and a bit more balanced.

http://www.mckinsey.com/mgi/reports/pdfs/US_imbalancing_act/MGI_US_imbalancing_act_chapter_5.pdf

#71 bigrider on 08.22.11 at 9:58 am

#62 Garth response to bigrider- “MER on equity mutual funds 2-3% mer on equity ETF’s .1% ”

Chance of outperforming index on equity ETF , 0%. Chance of outpeforming on equity mutual fund > 0%.

ETFs are not all just index clones. Surely you know that. — Garth

#72 Sky on 08.22.11 at 10:04 am

I nominate Utopia as president of the Garth Turner fan club .

#73 The American on 08.22.11 at 10:07 am

At #10: Tim, I have the answer to your question, “If Canada lags the US cycle by two years, then how come five years after the US started to tank, we’re only down a few percent?”

Canada does not, nor has it ever, lagged U.S. economy by only two years with respect to major economic turns. Canada lags the U.S. by about five years (in some cases up to seven years) when reviewing trends. Canada was about five years behind the U.S. in its beginning of the housing boom, and now Canada is starting to show some pretty major cracks and instability in its housing also five years after the U.S. started its housing collapse.

By these measures, it would mean that Canada’s year of undeniable and notable housing price melts is 2011. Well, that’s happening now. If trends follow as stated (and they do for the most part), 2012-2014 are going to be some extremely tough years as the melt will gain much momentum after 2011.

#74 Utopia on 08.22.11 at 10:17 am

Very sad news that Jack is gone. He was a terrific leader and a guy that was well loved across the country. He will not be forgotten. The images of him madly waving his cane during the election as he battled his opponents were really unforgettable.

#75 Jody on 08.22.11 at 10:21 am

Jack Layton, the guy really cared and now he’s gone, that sucks. Friggin cancer. I thought he’d beat it. Even though the guy was totally opposite of almost every opinion I had he was a true Canadian. I thought he actually gave a shit about the little guy, and we needed that, he’ll be missed.

#76 BrianT on 08.22.11 at 10:34 am

#75Jody-That sums it up.

#77 Moneta on 08.22.11 at 10:54 am

So what to make of this? First any sentence that claims “nobody” does a certain this is suspect.
———-
Nobody goes there anymore, it’s too crowded.

– Yogi Berra

#78 disciple on 08.22.11 at 11:01 am

Over a hundred grand drop in price for a SFH in Toronto? In one month? Yeah, I know it’s only the metric of an average, but what was the median decline?

Hate to tell you I told you so, but my prediction of 80% price declines based on nothing but my flippant opinion (and historically observed violent mean reversals) seems to be shaping up…

I understand that this usually happens in the outlying areas of a large urban centre first, and then gravitates towards the centre….could this time be the opposite?

I was speaking with a man in Stouffville about his semi-detached purchase for 319K. I commented about how peaceful Stouffville is (actually, the word I was thinking in my head was more bluntly rude so I checked my tongue), and how pleasant the 90-minute drive to Etobicoke for work must be every morning, since the start time from driveway was 6:30am, and theoretically there should be less traffic. He informed me otherwise. He also seemed to be prepared with the answer to my question of how long does it take you every morning to get to work, like he has swished it around in his head for quite a while, justifying it everyday to himself based on rising home prices, ready to give his answer to anyone who asks the question, mystified at why he would sink himself in such a mountain of debt for a house so far from civilization when he depends on civilization for sustenance. If he was drilling for water in his backyard and growing wheat then it would be more understandable, but….

I should have referred him to greaterfool.ca but just didn’t have enough time easing him into it, because he had to attend to his 3-year old who seemed to be going through a phase of crying too much lately. I thought to myself, I know the likely reason for the cry for lack of attention…but I checked my tongue…again…

because I dislike upsetting people. The exact opposite of my wife, that’s why we make a good tag team during negotiations for such things haggling over a new car. The old good cop, bad cop routine, works every time. Mind games…I think I’ve mentioned those before…

Where does a predator obtain the greatest percentage of its prey? At a location where the predator knows the prey will gather…”homeownership” is that location…and predators abound there…town/city hall tax offices, utility companies, contractors, builders, lawyers, real estate brokers/agents, and of course, let’s not forget banks, insurers, and debt consolidation middlemen.

If you want to be financially free in a few years, sell your pile of bricks, lumber, plastic and glass, take the proceeds and invest in something else. It doesn’t have to be a well-balanced diversified portfolio as long as it’s not in a declining asset like real estate is in now. But you have to live somewhere…so rent…I guarantee you that the pickings will be like a Mandarin buffet, or Tuckers if that’s your style…

#79 disciple on 08.22.11 at 11:11 am

OMG…I have to add some more predators to my list above:

Big Box Retailers, Consumer Products and Services companies (geez who does that leave out?) I guess Hollywood and Bollywood, the Music Industry, and Church. Oh yeah, Big Oil and Big Pharma…how did those two slip my mind, I wonder…So, let’s build a society built on the illusion of homeownership, saddle the citizenry with insurmountable debt based on consumerism, leaving no time for anything else worthwhile, while steering the globe into a monoculture based on the above. Who’s idea was this, anyway?

I already know the answers to these questions, there are other questions I am working on, but I fear, there are people who have NEVER pondered such things walking among us. Could someone please help me today to open one of their minds?

#80 bigrider on 08.22.11 at 11:13 am

Garth to bigrider at #71- “ETF’s are not all just index clones-surely you know that”

Yes I do and surely you know that all mutual funds are not index huggers.

Garth you continue to put mutual funds down because of costs yet you continue to ignore the fact that some are well worth the additional costs.

An individual investor can rely on a planner such as yourself to make buy/sell and rebalancing decisions on their respective portfolio’s ETF’s and the like, or they can rely on the proven track record of some of the best mutual fund/hedge fund managers running some very fine mutual fund/hedge product available to Canadians.

Both options are good and both have a place. Stop negating the second.

#81 Beach Girl on 08.22.11 at 11:36 am

#75 Jody. Your sentiments exactly. While I found it amusing when Jack said he wanted to live in subsidized housing to mingle with the simple folk. Always liked him, his wife as well. Their views and mine are different. But he was an original, hardworking, activist. Sad day for Canada and the Layton, Chow families.

#82 disciple on 08.22.11 at 12:01 pm

Where are all the children?

On a bright, shiny weekend, driving through Suburbia, I don’t see children playing in the little parkettes provided for the subdivisions. FYI – I roll around the GTA burbs quite often, I see things, I compare communities anecdotally (OK I made up that word and concept), sorry Bottoms Up I won’t reveal the nature of my work or you’d recognize me right away…and I’d rather remain anonymous…for now…suffice to say, I am helping to create the future, OUR future, glorious and true, by uncovering the past, and filling up the gaps in our gaping holes of knowledge. Like a genuine scientist would.

Most often what I encounter in my struggle, are conspiracies. BTW, The number one activity in your local precinct is fighting conspiracies of a more local economic nature – white collar stuff, but your occasional small-business services fraud pops up as well. No, I’m not a cop and not affiliated with policing in any way. I just know. Like I tell my kids, I know everything…:)

#83 Keith in Calgary on 08.22.11 at 12:07 pm

At the dealership where I work we are seeing a lot of financing applications from people in their late 50’s to mid 60’s………..

They commonly have mortgage debt in the mid 6 figures, on homes that I know are only worth mid 6 figures. This debt is often amortized over 30 + years.

Yet, they have lived in said home for 10-20 years……..

3-6 years ago they would have written a cheque from their HELOC to buy the new vehicle, but now the HELOC is tapped out and gone.

Can you say “we’re f**ked” boys and girls ?

#84 Markey on 08.22.11 at 12:11 pm

#75 Beach Girl – Jack did not live in subsidized housing, he lived in a housing co-op. Different animal all together. See http://www.coophousing.com/about/about_housing.asp and http://www.oakstreet.coop/overview.html. Not sure what you mean by “simple folk” (sounds condescending to me) but many of the people I know who live in co-ops are academics, artists, medical personnel social workers and retirees.

#85 The InvestorsFriend (Shawn Allen) on 08.22.11 at 12:33 pm

ABOMINABLE BOND RETURNS?

In his 1984 letter, Warren Buffett addressed the sheer stupidity of investing in long bonds at low rates:

In that 1984 letter:

http://www.berkshirehathaway.com/letters/1984.html

He said:

“Our approach to bond investment – treating it as an unusual sort of “business” with special advantages and disadvantages – may strike you as a bit quirky. However, we believe that many staggering errors by investors could have been avoided if they had viewed bond investment with a businessman’s perspective. For example, in 1946, 20-year AAA tax-exempt bonds traded at slightly below a 1% yield. In effect, the buyer of those bonds at that time bought a “business” that earned about 1% on “book value” (and that, moreover, could never earn a dime more than 1% on book), and paid 100 cents on the dollar for that abominable business.”

For more, read the letter

#86 Live Under Your Means on 08.22.11 at 1:06 pm

#74 Utopia on 08.22.11 at 10:17 am
Very sad news that Jack is gone. He was a terrific leader and a guy that was well loved across the country. He will not be forgotten. The images of him madly waving his cane during the election as he battled his opponents were really unforgettable.

…………..

Totally agree. May not have agreed with all of his policies, but he was a relentless fighter for what he believed in. Canada lost a great Canadian today.

#87 from kits on 08.22.11 at 1:44 pm

@chris (#28 post)

honestly what do any of us know but one thing I firmly believe in is this change in the real estate market could take another 5 years, maybe 2, maybe 8? these things don’t just happen over night. The US was in a speculation market for over 5 years before things started to go south…From speculation starting in 2000 to today, where are you at but if you sat on the sidelines for the last 11 years, piled away the cash I’ve gotta think there is a good chance you could buy a house for cash right now rathe then being underwater.

my thoughts, stop trying to justify to other people why you don’t own a house.

also, there are deals out there 25% under market value today, you just have to be patient and be on the hunt. distressed sale, couple getting divorced and need to pay lawyers, just want to end the situation and will take a stink bid on their place.

my friend did it in in Toronto last year. sold in Vancouver, moved his 4 kids to Toronto and took him almost 15 months to find a place that made sense to him. asking. 1.4million, purchased for 1 million. couple getting divorced…wanted out fast.

it’s out there, so if you are going to be living in this house for the next 20 years, buy but don’t be concerned when things go south because you paid 25% less and it’s a house, not your retirement plan/investment!!?!? it’s a house …

just food for thought, but what do I know…

cheers

#88 new_era on 08.22.11 at 1:54 pm

Wheels on Canada’s real estate gravy trains is beginning to wobble

http://www.youtube.com/watch?v=Fb4HlycS4z8&NR=1

http://www.youtube.com/watch?v=7bSb-V-tCqY&NR=1

Million dollar crap:
http://www.youtube.com/watch?v=SoxbrP-yfV8&NR=1

#89 Live Under Your Means on 08.22.11 at 2:01 pm

Two houses for sale on street below us. One house behind us was on sale for 3 mos with realty co, then I saw a SBO sign for a few mos. Now there’s another RE co. trying to sell it. Young chap has lived in it for a few years. Was told by a neighbour that his Dad (banker) bought it for his son while he was going to university here. House has been vacant for months.

As an aside, house is being sold by an agent who sold all the homes on the extension of our street. When they were being constructed, we received a complaint by the municipality that we had to remove our double ‘tempo’ in the driveway as someone complained. Of course, they wouldn’t say who. We had it up for 2 or 3 winters before & removed it in the spring and never had a complaint. We’re quite certain the complaint was filed by this lady as she likely thought potential buyers would be put off by a ‘tempo’. They are extremely common in P.Q. We don’t have a garage and most people that do use their garage as a storage area. So now during the winter we start our cars remotely, wasting gas and causing more polution. Stupid legislation.

#90 Devore on 08.22.11 at 2:12 pm

To keep things out of the JL thread.

For some reason I was thinking of excess reserves (maybe a virtual Dark Sad Person was tapping me on the shoulder). Last time I checked this figure, it has shot up to nearly $1T and started declining somewhat. But wait!

http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=EXCRESNS

Redraw the graph from 2000 to better see the detail. Excess reserves have doubled since the peak of the crisis. Fed still pays interest on this.

This is banks not lending money. Recovery? Not until banks are lending again and jobs come back.

#91 Schroedinger's Bull on 08.22.11 at 2:52 pm

I bought a place.

Now you’re all crazy. :P

#92 Aussie Roy on 08.22.11 at 3:06 pm

Aussie Update

A year ago in Australia–there was optimism that the economic and financial crisis that began in 2007/08 was over.

One year later, that optimism is evaporating around the world, in the face of persistent bad news. Economic growth in America, Europe and Australia is anemic, unemployment is rising, and stock markets have gone from a sustained rally back into near Bear Market territory.

Meanwhile, the neoclassical economists who didn’t see the coming have nonetheless remained in charge of economic policy, and still overwhelmingly dominate the academic profession. Having failed to anticipate the crisis, they are now failing to overcome it. Clearly, if we leave the economics establishment to its own devices, it will continue to espouse failed theories, and apply failed remedies. If change is to come to economics, then it has to come from outside the mainstream of the academic profession, and outside the traditional bastions of economic policy.

That is the objective of CfESI.

Membership is open to anyone, anywhere in the world.

Prof. Steve Keen

http://www.debtdeflation.com/blogs/
http://www.centerforeconomicstability.com.au/
http://www.cfesi.org/

#93 TorontoBull on 08.22.11 at 3:30 pm

buy the dip (pause)…..NOT
http://www.bloomberg.com/news/2011-08-22/baby-boomers-selling-shares-may-depress-stocks-for-decades-fed-paper-says.html

#94 betamax on 08.22.11 at 3:30 pm

#64 Moneta: “But many said not to worry too much for them because they would be rich since they’ll be inheritng all of the boomers’ wealth.”

Boomer’s wealth. There’s an oxymoron. Most will run out of money long before they check out. These grandkids will be lucky if they inherit anything more than grandma’s plateware.

See Keith’s post @ #83 for an example why.

#95 betamax on 08.22.11 at 3:35 pm

re. Chinese bubble popping in my post #57 above — my wife found collaborating Chinese media coverage on some Chinese websites, so it’s not just her family reporting this phenom.

I don’t have any links and it’s in Chinese anyway. But it’s happening, though we’re hearing nothing of it on Global TV.

So much for house-rich Chinese supporting the Canadian RE market. More like cascade failure.

#96 timo on 08.22.11 at 4:11 pm

http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html

Regulators are “not going to go far enough to prevent this from happening again,” said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard University.

Reforms undertaken since the crisis might not insulate U.S. markets and financial institutions from the sovereign budget and debt crises facing Greece, Ireland and Portugal, according to the U.S. Financial Stability Oversight Council, a 10-member body created by the Dodd-Frank Act and led by Treasury Secretary Timothy Geithner.

“The recent financial crisis provides a stark illustration of how quickly confidence can erode and financial contagion can spread,” the council said in its July 26 report.

http://www.google.ca/finance?client=ob&q=NYSE:BAC

Ben is trying to find the keys to the helicopter and hopefully it has enough range to shore up the US banks and Europe..

tsk.tsk…..

#97 Condo Sucker on 08.22.11 at 4:16 pm

#93: Toronto Bull

The counter argument to this though is that once the Boomers sell their houses/McMansions with the hope of downsizing and cashing in on that equity to help finance their retirement, a lot of that money will first be thrown into equity markets, making them rise.

#98 Live Under Your Means on 08.22.11 at 4:50 pm

Hubby was just telling me about a secretary at a school & her husband who bid on a large, totally renovated house, 1 acre property in Fall River (not far from Hfx/Dartmouth) for $250K and won. They couldn’t go inside, but looked through the windows and questioned neighbours and were told the renos were beautiful. Sellers apparently went bankrupt. Buyers have a small house in town to sell, but even if they don’t get their asking price, they feel they’ll still be ahead. We originally looked at a couple of homes on the lakes here, but they were beyond our budget (based on one of us losing our job) & didn’t have enough land for me to garden back then. Hubby’s boss has a beautiful property on a lake.

#99 BrianT on 08.22.11 at 9:01 pm

This isn’t fair-Goldman pays good money to politicians so they don’t have to put up with any nonsense http://www.dailykos.com/story/2011/08/22/1009580/-Goldman-Sachs-CEO-Lloyd-Blankfein-Lawyers-UPHires-Top-White-Collar-Crime-Defense-Attorney?via=tag

#100 Daisy Mae on 08.22.11 at 9:05 pm

Live under your means: “We don’t have a garage and most people that do use their garage as a storage area….”

Actually, I think the garage is terrific living space. What a waste of square footage to ‘house’ a vehicle and store junk. It could easily be made into a rec room or another bedroom — whatever — in these times when alot of us are being forced to adopt austerity measures…

#101 Utopia on 08.22.11 at 11:40 pm

OK, I can’t get past it.

I have been watching the USD trade sideways in a narrowing band for too long now and I am convinced it will break to the upside very soon.

Troubles in Europe and with the Euro itself in conjunction with German political will at odds with the electorate there tell me that a sharp short-term trend rise is forecast in the near future.

Could I be wrong?

Well yes I could. We do not yet know what is in store for us with the coming Jackson Hole address by Mr Ben Bernanke.

I feel it could represent a turning point though in how investors view the future. There is a lot riding on his coming address and the anniversary of QE2.

Whatever happens ensures action leading into September and the start of another Gold season. Should the US Dollar break up as I expect and the Euro break down then precious metals will take a brief (possibly sharp) pause before continuing their long term upward trajectory.

We are not out of the woods yet by any means.

I worry a lot about the necessary yet destructive fiscal and monetary intervention that is surely on the horizon. I admit, it is difficult to understand how the US will escape its debt trap without another round of devaluation.

Surely it would help alleviate the stress if the Chinese would remove the dollar peg and allow their currency to float. The intransigence of that empire is baffling because our loss is not their gain.

We all lose if they do not relent. Canada especially.

Perhaps Mr Bernanke will finally let loose with all barrels and drive the dollar down thus forcing a Yuan revaluation and simultaneously bursting the Chinese property bubble as inflation there again rockets ahead.

I feel certain he will make the correct decision. We cannot be beholden to one loud creditor ruffling feathers every time there is a change in currency relationships and worthless ratings.

In any event, the Chinese are not as important as many postulate when it comes to the ownership of US debt. They may be the largest creditor but they do not command the lions share of Treasuries. Not even close.

US citizens do and it is they who will decide their own fate.