This madness

Some day kids in a business class may study this time. Economy stalling. Markets roiling. Jobs wanting. Debt swelling. America stumbling. Austerity spreading. Growth slowing. And despite that, never before have the people around you – family and colleagues at work – spent or consumed so much, saved so little or taken on such risk. It’s a case study in denial. Remember these times.

Jane will, because of her sister. She just wrote:

I’ve been following your blog for a couple of years now, but have never plucked up the courage to comment (still haven’t!). Today, however, your entry hit home in a big way, because not long after I read it, my sister contacted me to say they’d won a bidding war against a bunch of people for a 3 bedroom detached house in the 416. Granted, it’s in a good location, but it was listed for upwards of $700K and they won the ‘war’ by offering over $800K…

The crazy thing is that they currently own a 3 bedroom semi, on a much smaller mortgage, probably make less than my husband & I do (which is only somewhat above average income), plus they have young children which my sister is on mat leave for. I have absolutely no idea how they plan to cope with the increased mortgage payments, meanwhile they haven’t even put their current house on the market yet.

I realise you get a lot of emails every day and I honestly expect mine to end up in the junk mail folder along with the hate mail from the flippers, speckers and real estate agents, but I couldn’t help myself. I am absolutely stunned at how expensive a choice they’ve made, but the hardest part of it all? I have wished her well on getting this house, which they are deliriously happy at having secured. I am hoping against all the odds that this ends well, because as much as my sister often drives me crazy, I love her very much.

So please keep up the blog, sometimes it’s more than just financial advice, it’s a help line for dealing with all the fall-out from this madness.

I will, Janey. For I sense we’re entering a new phase in the lives of countless people.

This week the TD Bank’s economics guys issued a stunner. Their forecast for economic growth going forward: zero. In fact the odds of the US entering recession have increased (they say) to 40%, while Canada “can easily” follow suit. In fact, as I told you a few days ago, our economy actually contracted in the last quarter, which was a stunning reversal from 4% growth earlier in the year.

Stock markets have stabilized, but largely on the expectation the Fed will open its chequebook again and start a new round of stimulus. Good thing. US new home sales just dumped again, resale prices fell and manufacturing has cratered. This matters a whole lot because the best B&B establishments in Victoria are now for sale and the real estate market on Nova Scotia’s south shore is starved. With the renaissance of America delayed a few years, all kinds of people in Canada – from tourism operators to loggers and auto parts workers – have tough days ahead.

It’s just as impossible for the Canadian economy to grow without a healthy US as it is for house prices to keep rising without inflating incomes. Why people like Jane’s sister cannot see that is the mystery of our days. How can smart, educated, urbane people think that spending $100,000 more than the sellers of a $700,000 house want is cause for celebration?

How blind have we become? If it walks like a duck, and quacks like a duck… it’s no eagle.

At the same time sis was doing this deal a story appeared in the Wall Street Journal on the growing danger in Toronto real estate. Yeah, even the Yanks are bemused. ‘Toronto wary of condo correction,’ the story announced, then detailed the “ominous comparisons” to the condo boom in Miami, which ended with spectacular losses for investors and owners.

More mindlessness. There are 40,000 condos under construction in the GTA, including the 16,000 that will come to market in 2011. Last month alone almost 2,000 sold, with the lion’s share going to speculators and flippers. “Prices still are rising faster than rents, hurting buyers who lease their condos to renters rather than live in the units,” the WSJ reported. “If too many squeezed buyers decide to sell, even more supply would spill into the market.”

Worse, of course, is that Toronto’s not Vancouver. Family income is higher in the GTA and yet real estate prices are 40% less. According to RBC, it takes ‘only’ 53% of a family’s pre-tax income to afford a house in T.O., as opposed to an impossible 92% in Van. But I can’t help thinking anyone today devoting even half of their take-home cash to a house is assuming a surfeit of risk.

The economics of sustained real estate prices do not exist. Mortgage rates can hit zero, and it won’t matter – even though we all know the opposite will happen (as this week’s increase shows). It’s an impossibility that people like Janey’s little sister can pay $800,000 for a house, and have it all – young kids, one income, a cushion for higher rates, college funds, investments and a retirement cache.

This wretched blog is nothing if not tedious. But obviously the message hasn’t spread widely enough – even though it’s now repeated by mainstream economists, the Bank of Canada and foreign media waiting for the train wreck.

They’ll get it.

And Jane’s mom will think it’s so unfair.

172 comments ↓

#1 Timing is Everything on 08.24.11 at 9:25 pm

Garth, are you getting up earlier these days? Or was there a time change I missed? Your posts are an hour earlier than usual. Your messing up my circadian rhythm.

Isn’t that a birth control strategy? — Garth

#2 rocko on 08.24.11 at 9:26 pm

The most frustrating part is being the responsible one; sitting on the sidelines waiting for things to correct so that you can merely afford something within your means while the rest live it up.

#3 City Slicker on 08.24.11 at 9:44 pm

You know what it is Garth, the rat race thing, people mindlessly competing for materialism. You know, who has the biggest house, the nicest car, supposedly better paying job. All ego and pride driven. The same mentality that got the whole world in debt in the first place!

“but happiness is not found in the abundance of things!” – The Holy Bible

#4 Samson on 08.24.11 at 9:49 pm

After reading this post something unusual happened – I felt real pity. I mean, my heart went out to these people, but in a tragic sort of way, like it did for Desdemona in the last scene of Othello. The madness is finally starting to hit home.

#5 Painted Toenails on 08.24.11 at 9:49 pm

Fantasyland is a great place. You can drink the best wines, eat the finest food, fly to exotic locales at the drop of a hat. Fantasyland surrounds everyone with endless loops of HDTV Cable and surround sound and mood lighting and fancy wood coloured refrigerators. There are no bill collectors in Fantasyland. There are only happy, endlessly wealthy and stress free people.

Just ask MY sis. She’s just like Jane’s.

I honestly don’t think ANYTHING will deter her. Nothing penetrates her veil of pinky-rose ‘everything is awesome’ glasses. Certainly statistics don’t matter! They’re ‘skewed’ and ‘not applicable’.

One day I’m going to have the whole fam-damily living with me, ’cause apparently I’m the only one of 5 ‘kids’ who think there is any cause for concern economically at all.

#6 Timing is Everything on 08.24.11 at 9:52 pm

…probably make less than my husband & I do (which is only somewhat above average income) – Jane

Define ‘somewhat’. What ballpark are we talking about, Janey?

#7 Markey on 08.24.11 at 9:56 pm

I saw the WSJ article. The comments that followed were equally as interesting, with one real estate apologist spewing absolute nonsense about how “different” we are in Canada. See http://online.wsj.com/article/SB10001424053111904279004576524893838118716.html?mod=WSJ_article_comments#articleTabs% .

Quite a storm blasting out there tonight.

#8 2deep on 08.24.11 at 9:59 pm

How on earth can the yahoos at the CMHC announce today that there will be no correction because the US is holding their base rate low and thus Canadian mortgage rates will stay low.

Did they not hear that Canadian banks raised their mortgage rates this week (oh gee, and the BoC rate didn’t change either). The timing is laughable (yet not).

#9 Utopia on 08.24.11 at 10:04 pm

Great post. I was away yesterday and did have time to respond to any of the posters. Took the usual drive and threw my timing belt. I didn’t notice trouble brewing because the tunes inside were cranked so loud I did not hear the warning noises. Only noticed that my power was suddenly declining which I thought very odd. For about three minutes only….. and then…….boom! Actually put a piston through the side of the engine block and was stuck on the side of the highway trying to hitchhike back to civilization. Stupid truck. It is going to cost me a fortune. Thank God I am debt free. But still, what a wreck of a day……I just hope the tires are still there when I go to pick it up tomorrow.

Anyway. I am back.

#10 ts harpoon on 08.24.11 at 10:09 pm

Garth,

Allow me to continue with the Madness topic. The link below is Madness defined.

Realtors In Cars. And it’s really baaaaaad.

http://realtorsincars.tumblr.com/

OMG — Garth

#11 JP on 08.24.11 at 10:09 pm

Hi Garth,

From Australia here, have been following your blog for a month or so.

I noticed some similarity between Canadian and Australian real estate problem. However Australians has started saving and repaying debt before an actual crash happens.

What’s your opinion on the Australian market?

Thanks Garth

#12 Mr. Lee on 08.24.11 at 10:11 pm

You alluded to the premise yesterday as you do today Mr. Turner. Moshe Milevsky asks the a similar question to yours. In essence, what are the fundamentals that contribute to the housing inflation we are seeing? The answer is psychology, and as you have said so many times, the psychology can work in the opposite direction as well.
How in the world people can celebrate at the fact that they spent a 100k more that the asking price should send a shiver of fear down all of our backs. I agree, depression…no, Gold @ $5000 no, 2012 Armageddon…no. New reality of living with in one’s means…..yes, debts to pay incurred due to reckless spending…..yes, reality bites…..yes.
Bravo Greater Fools

#13 not 1st on 08.24.11 at 10:15 pm

Garth, please try to use correct terminology. Depression, not recession is the keyword. Its coming home to roost in the good ol U.S.A.

#14 SCalgary on 08.24.11 at 10:17 pm

Garth,

Whats your bet on QE3? It would be great if you could write a blog on that.

Great post as usual…

Warm regards…

#15 roy stacey on 08.24.11 at 10:25 pm

Utopia- Sad to hear of your Truck puking its engine. These things DO happen.

Short the US Banks for a while, you’ll have enough dough for a re-manned engine in no time.

I wouldn’t short the whole market however, Banks, ok, mortgage re-insurers good bet also.

Don’t ya love a lil panic in the markets, lets ine grab good stuff onm sale, and short the known leakers, too.
RE still dead here. Expect to see 8% more melt by years end then TAX season sales, for those with something called “CASH” it can be fun, those other consumers of debt are starting to puke up on their debt feasts. Almost feel sorry for them…naw….they also aw it coming, just didn’t expect to lose their jobs, too.

Can the humble Bankers be next??

#16 HouseBuster on 08.24.11 at 10:30 pm

It’s done. It’s over.

You are in the crash.

2003 house prices will be here soon.

#17 Q on 08.24.11 at 10:32 pm

#13 …re; QE3 (or more appropriately Titanic 3) it….will be announced next Friday by Bendover Barnanke. The giveaway….he said that he wouldn’t do it…and he’s as straight a shooter as the rest of the old Bush crew. Too many friends on Wall street to give a damn about Main street.

#18 Claudia on 08.24.11 at 10:36 pm

Hopefully, Jane’s sister made the offer conditional on their own home selling first!

A friend of mine had a great apartment within walking distance to her downtown office in Victoria, but gave it up to buy a condo on the other side of town. Her mortgage payments, strata fees and property taxes add up to more than three times what she was paying in rent. Oh, and she now has to drive to work.

The kicker? At 40, she was on her way to retiring debtfree with a good pension at 55. Thanks to her new condo, she’ll be making mortage payments until she’s 70.

Crazy.

#19 Cory on 08.24.11 at 10:48 pm

How de fook do people in Vancouver think they are ahead when 92% of PRETAX income is going to their house? I did a double take when I saw this on the news the other day. What do they eat??? the grass in the front yard?

wtf is wrong with people???????????

#20 Calgary Job Market on 08.24.11 at 10:50 pm

I was recently the hiring manager for two positions at our large comany in Calgary. The first position paid $50k and elicited 50 applicants. The second position paid $40k and elicited 130 applicants. I was able to shortlist and interview several excellent candidates. Given the Calgary Real Estate Board’s recently published average SFH selling price of $455,849 for July/11 I doubt that either recent hire will be buying, given a cost to wage ratio of 10:1. Nor will the 178 unsuccessful applicants. Nor will our recently laid-off VP. I suppose our company’s 2 year wage freeze won’t help much either….

#21 Priced Out in Toronto on 08.24.11 at 11:00 pm

I have kept watching the Toronto prices over the past few years. Closely, very closely… as I’ve wanted to buy a simple place for me and my wife. However I’ve watched as prices have gone crazy and become out of reach for the majority of people actually living in Toronto.
I can honestly tell you, the first signs of the popping have begun. The listings are starting to flood… not increase…. flood.
Mind you, I’ve been looking at condos only. But I just can’t believe the increase in the sheer number from last month to this month.
Anyone else notice this?
Prices may begin to head south sooner and harder then we’ve discussed here on this blog.

#22 Timing is Everything on 08.24.11 at 11:09 pm

#19 Cory asked “What do they eat??? the grass in the front yard?”

No. They smoke it.

#23 OttawaMike on 08.24.11 at 11:16 pm

#9 Utopia on 08.24.11 at 10:04 pm

Sorry to hear about your horse Utopia.

There is however something called preventative maintenance.
Change the timing belt when the manufacturer tells you to!
Some have non interference engines so you only stall out but others(like Honda) ram the pistons into the valves when the belt breaks.

At least you were not stranded on the highway during a lovely Saskatchewan February evening.

#24 Ralph Cramdown on 08.24.11 at 11:16 pm

Here’s a beaut from Greenspan’s autobiography, published 2007:

“Today, nearly fifty years later, the ratio of household debt to income is still rising, and critics are still wringing their hands. In fact, I do not recall a decade free of surges in angst about the mounting debt of households and businesses. Such fears ignore a fundamental fact of modern life: in a market economy, rising debt goes hand in hand with progress. To put it more formally, debt will almost always rise relative to incomes so long as we have an ever-increasing division of labor and specialization of tasks, increasing productivity, and a consequent rise in both assets and liabilities as a percentage of income. Thus, a rising ratio of debt to income for households, or of total nonfinancial debt to GDP, is not in itself a measure of stress.”

There you have it — ever increasing leverage is no problem at all, says The Maestro himself. Yeah, THAT ended well.

#25 rory on 08.24.11 at 11:17 pm

Garth, this is the part I do not get from you …you said:

“Stock markets have stabilized, but largely on the expectation the Fed will open its chequebook again and start a new round of stimulus. Good thing.”

A good thing!!!! For who? Investors – yes, fixed income seniors – no, Countries – no, people that need to eat – no and on and on …

When does it stop, when do we fix what is wrong …you keep giving the impression we can just keep extending & pretending in the equity market. I thought you were a fixer.

When & how do we take our medicine. ‘Cuz the sicker you get the harder the comeback.

#26 Bottoms_Up on 08.24.11 at 11:18 pm

…..have it all – young kids, one income, a cushion for higher rates, college funds, investments and a retirement cache.
—————————————————–
Garth, it’s true that it’s essentially impossible to have it “all”.

I’ve done the calculations.

I figure with two kids, two cars, a modest house in a top 5 Canadian city and properly stowing away money for RESPs, TFSAs, vacations, weddings, rainy days etc. a family needs to net out monthly at about $10,000.

So basically one needs to be married to a neurosurgeon, or have two incomes each significantly higher than the average Canadian family income.

This tells me that most families are sacrificing something, whether it be their children’s education funds, family vacations, future savings etc. Something tells me not a lot of people choose to sacrifice the size or location of their living quarters.

#27 JSS on 08.24.11 at 11:25 pm

^ #20 Calgary Job Market

I call BS on this post.

Apparently from what I’ve read, the Calgary job market is really good.

Are you making this up?

#28 Bottoms_Up on 08.24.11 at 11:26 pm

Did anyone see P.S. on BNN today? He made sort of an off-handed comment that ‘we would be somewhat OK/better off up here in Canada than the US’. Was he being serious or incredibly facetious?

#29 Utopia on 08.24.11 at 11:29 pm

#116 Helicopter Ben on 08.24.11 at 6:22 pm

“Putting margin requirements on gold doesn’t change the fact they are doing QE’s around the world, all they are doing is putting band aids on an open wound with these hikes”
————————————-

Putting margin requirements on Gold tells us that the precious metals market is badly oversold and that some corrections are now in store for devotees of that yellow metal.

Try to understand that the folks at Comex are more in tune with fundamentals than the average man on the street.

The future is clear to them and this is their core business. They are not demanding higher margins for shits and giggles. The real purpose is to ensure a strong functioning market and not allow buyers to become over-leveraged in that commodity at a time when a correction is imminent and overdue.

We have in fact been given a strong signal that gold will fall and that represents a shorting opportunity. As Garth has warned the Gold bugs here many times, it is time to harvest profits. Few listened as usual.

He could not have been more right though and we are witnessing that action now. Keep in mind too that this suggests the US dollar should rise in the coming weeks.

That has been my contention for quite some time now.

A rising dollar will push down both commodities and precious metals prices. Ergo, there will not be QE3 as so many predict and thus no major stimulus to drive inflationary pressures further.

The hyperinflationist’s have been wrong all along.

As unexpected as it may seen we are now on the verge of a very bullish outlook for equities and especially for quality companies with a global outlook. Defensives remain high on my agenda as do select tech stock that will win in any economic environment.

This is welcomed as the confidence in stock markets will be preserved while input costs decline and thus ensure positive earnings going forward.

I have no doubt about this anymore and am in fact very bullish now on equity markets (generally speaking). The naysayers and nervous Nellies will only learn this after the fact. They will learn it after it is too late to get invested at the lows that are still coming.

Stay tuned. A HUGE buying opportunity is coming once the current correction has completed its down leg.

The action is far from over. Gold may yet surprise though.

#30 Mister Obvious on 08.24.11 at 11:35 pm

Jane’s sister is a victim of functional innumeracy. Sure, she can probably add up lists of numbers or perhaps recite times tables. For all I know she can even do long division in her head. But that would come under the heading of arithmetic proficiency, not real numeric insight.

For that you need to be able to conceptualize a model of the real world in the abstract. Our education system is loath to spend much time on this type of analysis. Many of the so called ‘math teachers’ in the early grades are themselves quite weak in this regard.

It is not necessary for everyone to be Einstein. It is only necessary to understand, for example, that perpetual motion machines are impossible and then get comfortable with the reasons why this is so.

Most things eventually come up against natural limits and simple models are available to explain why these hard-stops of life exist.

Too bad the Garth Turners of the world get flagged as stern party poopers when they point out the inescapable nature of the end game.

#31 oslec on 08.24.11 at 11:37 pm

That is some scary stuff.
It is time to exorcise the RE market!!!
The power of recession compels you…

The power of recession compels you…

#32 foothills freedom on 08.24.11 at 11:43 pm

Funny that Td economists are saying that on the same day the TD Bank sent me a letter offering me a HELOC. I guess the banks wont be happy until everyone is mortgaged to at least 99% of appraised value (not to mention potential drops in property values).

My dad once told me to be afraid of bankers offering easy credit and never trust a banker to decide how much you can afford.

#33 Vishy on 08.24.11 at 11:54 pm

I love your pictures they go so well with the topic. Absolutely amazing pictures. How do you find them???

#34 debtified on 08.24.11 at 11:55 pm

Two siblings bought recently despite my warnings on the perils of today’s real estate market. At least one did “downsize”.

A co-worker who had been bugging me (“Why waste your money on rent? I made $100K on my last house after less than a year!”) called a couple of days ago asking if I could lend him some cash. His monthly mortgage payments for a big house (he should not have been allowed to get) is more than twice than what I pay for rent for a place that he could have comfortably housed his family in.

Everybody feels they must have a big house – more than they need and certainly more than they can afford. The banks are more than happy to lend them the money.

Sometimes the people around me make me feel miserable. I must admit I come to this blog for some comfort. I guess misery loves company. It’s nice to know someone else out there sees what I see.

#35 The Emperor's Clothes on 08.25.11 at 12:12 am

I’ve seen 3 rescessions over 40 years. We’re overdue. And this one is getting scary.

#36 Stupid Newfie on 08.25.11 at 12:12 am

There’s more to Canada than Vancouver to Halifax, don’t forget us poor Newfs. we’re sucked into this shit storm too. I see more trucks with contractor magnets on the sides than I do regular trucks. When insurance agents are building houses to make a buck you know it’s time to run screaming for the hills. This will end as expected bend over and pretend you like it.

#37 Burnt Norton on 08.25.11 at 12:12 am

#4 Samson on 08.24.11 at 9:49 pm

Pity. Ya, me too. In fact, if it were not for dumb luck leading me to this blog a couple of years ago I might well be cooked like Jane’s sis. You know, the one thing, for me the one most important thing about Garth’s daily columns is the real sense of compassion for people and families who are at risk without knowing it. I count myself among those who have expressed sincere gratitude in the comment section here.

As far as blame is concerned, I’m not so sure that denial is the issue as much as the lack of transparency and integrity within our leadership and in the media. But then when everything is a confidence game can you really blame the individuals or are they simply the naked emperors stuck running a Franken-system that benefits those in charge at the expense of those it pretends to serve. I think that is what kids will be studying when this is all history. As far as the media is concerned it all comes down to Choamsky and Manufacturing Consent. As far as our leadership is concerned it comes down to the wolf of corporate kleptocracy dressed up as the sheep of social democracy. It will be interesting to see how we & our system tolerate the coming austerity on this side of the pond. Living within one’s means and with liquidity seems a reasonable insurance strategy against coming headwinds. People commenting here about how ‘unfair’ that is need to grow a set and realize how lucky they are to be in a position to consider the alternative, as opposed to most others, oblivious like frogs in a pot of water slowly coming to a boil.

#38 Junius on 08.25.11 at 12:20 am

#11 JP,

You said, “However Australians has started saving and repaying debt before an actual crash happens.”

Good luck with that mate. The only “Western” country with a bubble situation that is still waiting to burst as bad is Canada is Australia. Your chances of avoiding it are about as good as a koala crossing the desert on two legs. (OK – not the best metaphors!)

Aussie Roy will probably show up today and tell you how bubbly Australia is.

Give your economist Steve Keen a good read. He is really excellent and does much of the same work in Australia that Garth does in Canada.

In any event, your market is cooked. Your economy is heading into recession. Welcome to the end of the bubble with all of us Canada.

#39 Bill Gable on 08.25.11 at 12:21 am

Holy canoli – you have anecdotal reports of cars full of HAM in White Rock, yet, YVR is starting to do a full Ignatiefff, and it’s really getting interesting.
Open House? ( yawn).

#40 Stupid Newfie on 08.25.11 at 12:21 am

I was at the bar the other night and mentioned higher interest rates and the bartender said it can’t happen, as if the fact it will screw everyone is enough reason for rates not to rise… But yet no one can afford a house ying and yang are telling each other where to go. Wax on wax off…

#41 Junius on 08.25.11 at 12:27 am

#19 Cory,

The 92% stat on Vancouver is pretty shocking. Some people have theorized that the only way it is possible is with a huge amount of people tapping into their HELOCs. I personally know a large number of people who routinely use their homes at ATMs. Because “Vancouver Real Estate never goes down” they think they will be fine because rising prices will bail them out.

Of course, we all know what happens next. When the market drops and they are in negative equity the cycle stops.

It will be ugly.

#42 Jed on 08.25.11 at 12:32 am

What’s wrong with this paper? Has anyone investigated the owners/editors of the Vancouver Sun? I’m sure they must be weekend realtors; they sure are full time anxiety flunkies. Every day another piece of solipsistic, head in the sand piece on how great real estate is comes out. It is like the think self-psychology movement–logical positivism; if you think hard enough that real estate is wine and roses it should actually be that way. Ha ha, very entertaining reads, daily.

#43 Einsam Solo on 08.25.11 at 12:37 am

I could only be ecstatic about getting the house for $800,000 if the seller just bought it last year for a million.

#44 Hosehead on 08.25.11 at 12:38 am

Hi Garth – those are pretty alarming numbers for GTA condo supply.
Makes me wonder how you justify putting the T-dot on the list of 5 or 6 Canadian cities less likely to lose value.
You probably have the number of condo builds in Vancouver but they sure are not in the downtown core because you
Don’t see many new condo developments in downtown vancouver. They’ve already been built for the most part.
sure this is madness and sure rates will rise but when and by how much is anyone’s guess. The rate rise and price crash was supposed to
Happen years ago.

#45 Jody on 08.25.11 at 12:43 am

“Realtors In Cars.”

All the ones in Alberta are delusional morons. Isn’t talking to a camera while driving illegal, oh I hope the cops nail these nitwits.

“I know what it takes!”

Yea, after taking that weekend course you just so smart you are. I couldn’t possibly sell something without your wisdom about the market. I rank realturds about as high as I rank politicians and economists, not even as high as the shit on the bottom of my shoe.

Oh Gawd I hope the market plummets off a cliff. So many people need a smack upside the head it ain’t even funny.

#46 Fool me once... on 08.25.11 at 12:49 am

#19 Cory
It’s exactly why Canadians are carrying amongst the highest personal debt load in the world. The higher the value of their house goes the higher their borrowing power. Larger LOCs, more credit card debt. Everytime these folks walk into the bank to renew their mortgage the banks point out they have greater equity in their homes and recommend rolling in their cc and LOC debt into the mortgage and walla, debt free again. It’s how they afford two new cars, fancy dinners, exotic trips all with 92% going to home payments.

#47 Jon B on 08.25.11 at 12:55 am

This affordability index thing is pretty stupid. Obviously nobody hip deep in Vancouver RE debt is shelling out 92% of pretax income on a mortgage. This statistic is what results when proceeds of crime and other criminal businesses in general are tolerated. They skew the numbers and make it look like the average honest home owner is somehow putting every earned dollar towards paying down the mortage. I bet the figure would be less than half that amount if we had an accurate picture of what people really take home in this province.

#48 Marnic on 08.25.11 at 1:01 am

$800,000, makes you weep. Who the hell would lend them that sort of dough? I mean, what sort of lender would expose themselves to that kind of risk? Oh…right.

#49 Scott in Gibsons on 08.25.11 at 1:19 am

Vancouver RE Prices and Gold Price Related?

Why are gold prices leaping? People are afraid; and there’s a saying about gold being the best ay to transfer wealth from one side of an economic crisis to the other. Once safely on the other side, it can be sold to buy real assets at deflated prices.

Its possible that Canadian real estate is like gold. An escape hatch for foriegners nervous about the ability of their own governments to protect what they have accumulated. Maybe Canadian real estate will stay bubbly in the primo locations as long as people are still afraid. Maybe if we watch the price of gold, we know the price of bubbly Canadian RE.

#50 GTA Girl on 08.25.11 at 1:21 am

I was under the illusion that if bidding hire for a house, that the amount was done in cash, or a loan already in place. Thought the banks wouldn’t loan on any a house overbid, and that a property appraisal was needed…?

But after reading flipper/appraisal fella from yesterday, maybe everyone is in on the take.

#51 reality guy on 08.25.11 at 1:23 am

19. cORY

Cory on 08.24.11 at 10:48 pm

How de fook do people in Vancouver think they are ahead when 92% of PRETAX income is going to their house? I did a double take when I saw this on the news the other day. What do they eat??? the grass in the front yard?

wtf is wrong with people???????????
========================

When you hi on Crack Cocaine and smoke Mary Jane, you don’t need to eat

#52 Ozy -Today post made me realize. Please S-T-O-P. on 08.25.11 at 1:31 am

Today post made me realize how this whole Canadian post-colonial social fabric really works. Sheep follow the sheep falling of a steep hill and there is absolutelly absolutelly no way you can wake them up. Note how happy they are after the fact, no buyer remorse.

So, please stop your efforts Garth and let them face the future they deserve.
Hundreds of years of brutal colonial rule, back-bending exploatation for immigrant and bloody / murderous exploatation of native population has reduced the current population (not the 0.5% upper-ruler-class) to zombies exposed to whatever easy marketing tricks are thrown to them (for the sheep are smarter)

There is absolutelly no way you can wake them up.
They unconsciently are begging Garth, S-T-O-P, so let them have their Las Vegas day-dream for a while, as they do not want to be awaken. We should take advantage of that, not waste time educating them, for as it is has been proven impossible.

#53 Utopia on 08.25.11 at 1:35 am

“This wretched blog is nothing if not tedious. But obviously the message hasn’t spread widely enough – even though it’s now repeated by mainstream economists, the Bank of Canada and foreign media waiting for the train wreck” ~~Garth Turner
—————————————–

Well, this wretched blog has made new milestones as the essential message has finally sunk in with the doubters and even the major media are now picking up the story.

Our stories have gone mainstream. Pat on the back dogs.

This site has always been the go-to place for journalists who are horny about the truth and for those who come to get their daily “fix” of reality and a healthy dose of our own lonely darkness.

It is not all sunshine and lollipops after all, now is it? (what the hell does that mean anyway??!!)

We might just be a pathetic band of losers here, fellow Dawgs, but the media is watching and they have taken note of this site for many, many months now.

They are listening to us.

Your research into regional statistics, the anecdotes you offer and the data you provide have proven a tremendous fountain of wealth and trove of easy resources for our journalist community.

They use this site daily. They source from your insights.

Keep up the good work everyone. The truth is out there. Even the Wall Street Journal is here now. They are watching, reading, noting and recording……

And how do I know that?

Trust me. I know.

#54 Ozy -Today post made me realize. Please S-T-O-P. on 08.25.11 at 1:38 am

Spelled:
Today post made me realize how this whole Canadian post-colonial social fabric really works. Sheep follow the sheep falling of a steep hill and there is absolutelly absolutelly no way you can wake them up. Note how happy they are after the fact, no buyer remorse.

So, please stop your efforts Garth and let them face the future they deserve.
Hundreds of years of brutal colonial rule, back-bending exploatation for immigrant and bloody / murderous exploatation of native population has reduced the current population (not the 0.5% upper-ruler-class) to zombies exposed to whatever easy marketing tricks are thrown to them (for the sheep are smarter)

There is absolutelly no way you can wake them up.
They are unconsciently begging Garth ” S-T-O-P”, can you let them have their Las Vegas day-dream for a while, as they do not want to be awaken? We should actually take advantage of their state, not waste time educating them, for as it has been proven impossible.

#55 doc on 08.25.11 at 1:53 am

The Madness of which you speak on this blog is endemic. I used to counsel my patients to simplify their lives as part of resolving stress. I eventually realized I was talking to myself. At least I took my own counsel and gave up psychiatry along with my highly mortgaged lovely home on the west side of Vancouver. Now I live in a tiny bungalow of 1120 square feet in a “depressed” area of the Okanagan. I’m learning to garden and planning a chicken coop and enjoying life immensely despite all the doom and gloom which shows up even on this enlightened blog. I have drifted away from the madness. There is still a lot of room in this country for those who choose simplicity. Recovery from delusion is possible. No drugs required.

#56 Michelle on 08.25.11 at 2:44 am

@ #9 Utopia-

I thought your little truck story was a clever analogy for the many oblivious Canadians heading towards a financial blow-out :)

#57 Peter B on 08.25.11 at 3:42 am

Speaking of Condos. Garth what do you think bedbug infestations will do for the rental and resale value of a place?

They are (assuming they can find enough suckers) going to build high rise dense condos called University City in Brentwood a suburban neighbourhood in Calgary.

These monster buildings can house as many as 700 people and each person brings furniture, blankets and other stuff that can contain bedbugs from their last residence.

I bet dollar to donuts that it won’t take long for such buildings to become infested with bedbugs. Will that make it hard for the suckers who plan to make money investing in condos rent them out?

I think the only suckers who will benefit from these high rise condos are the bedbugs.

#58 waterloo Resident on 08.25.11 at 3:53 am

Don’t worry so much Garth, it will give you gray hairs. Jane can simply declare PERSONAL BANKRUPTCY and walk away from all her debt, so she doesn’t have to worry.

#59 waterloo Resident on 08.25.11 at 4:03 am

My GOD !!!
You’ve got to read this story, its about a man who kept making his mortgage payments to BANK OF AMERICA, and yet for some strange reason they FORECLOSED on his house !

http://consumerist.com/2011/08/man-pays-bank-of-america-mortgage-on-time-still-ends-up-in-foreclosure-has-credit-ruined.html?source=patrick.net

If Bank of America cannot even figure out where / whom is paying their mortgages or not, then that company is DEFINITELY going under (BANKRUPT) soon !

My advice to the home owner: SUE Bank of America for hundreds of millions for personal damages, mental distress, and for damage to his personal credit rating

#60 Aussie Roy on 08.25.11 at 4:33 am

Ausben on 08.24.11 at 9:19 pm

Here is a TV interview with Satyajit Das, an Australian-based risk analyst, discussing the current economic malaise of too much debt and what it means for for us in the future… increased taxes, less government spending on health, increasing and moving savings into income generating investments;

http://www.nakedcapitalism.com/2011/08/satyajit-das-on-the-botox-economy.html

He has a similar outlook to our Garth and some of the issues tackled in Money Road.

AusBen, Satyajit Das, one of my top three comentators, us Risk Managers have to stick together (although I’m retired). He also writes for Prudent bear, I would suggest to all to google him and read some articles pre 2008 US bust, he was right on the money.

JP on 08.24.11 at 10:09 pm

Hi Garth,

From Australia here, have been following your blog for a month or so.

I noticed some similarity between Canadian and Australian real estate problem. However Australians has started saving and repaying debt before an actual crash happens.

What’s your opinion on the Australian market?

Garth allow me, house prices have risen 212% on a national median basis over the past 10 years, wages have risen 43% in the same period. Do I need to say more?.

Clearly house prices have not been driven by rising incomes or rising rents but good old fashion emotion and debt. Sold my investment properties 2 years ago, some silly fools paid me prices equal to 3.2% annual rental yield and thought they got a bargain and a hot investment – LOL.

Aussie Update

Channel Nine’s flagship property spruiking show ‘The Block’ ended in spectacular fashion this week. For those of you living on another planet, The Block is a ‘reality’ television show run every few years by Channel 9. Four contestants pit their wits, interior design skills, and bickering prowess against each other for several weeks, transforming unwanted half-derelict dogboxes into ‘desirable’ homes, then selling them for a tidy profit. Or at least, that’s the idea. Let’s find out what really happened this year.

http://www.differenthere.com/2011/08/real-estate-in-crisis-block-auction.html

http://theage.domain.com.au/blogs/talking-property/the-block–thats-reality-20110823-1j7qg.html

No bubble here, says the biggest mortgage broker in Australia – really?

http://www.news.com.au/money/property/first-home-buyers-coming-back-says-mortgage-choice/story-e6frfmd0-1226121739666

Unions turn to demand lower interest rates for the debt slaves.

http://www.news.com.au/business/unions-demand-rba-cuts-interest-rates/story-e6frfm1i-1226121856710

#61 Aussie Roy on 08.25.11 at 4:39 am

Aussie Update

Satyajit Das, interviewed on “The Drum” interview is last segment of this episode, sorry.

http://www.abc.net.au/news/2011-08-24/the-drum-wednesday-24-august/2854356

#62 not asian on 08.25.11 at 4:43 am

“In fact, speaking of Vancouver, RBC figures (even with 25% down) that the average family must fork over 92.5% of pre-tax income to own a bungalow. The average household income in that city is $83,113. And 92.5% of that is $76,879. Of course, if you earn $83,113 in BC, you bring home only $64,128 which tells us the average family is nowhere near being able to own the average house.”

Okay, everyone keeps talking about this 92.5% of income. Most of the time people are trading their existing homes to buy another. They take the ginormous profit of $700,000 from their home that they bought for no more than $200,000 and buy a cheaper place, or a better place with a smaller lot at equal price, or make up for a small difference with a larger mortgage. It’s the 1st time homebuyers who will never be able to afford a home in the Vancouver area. The ponzi scheme is built to the point where the the price is unreachable at 92.5% of an average income (in Canada). How about the non-Canadians that swoop in to buy 10 properties at once? Or just 1 big one for $6 million. I bet prices aren’t 92.5% of their income. How about the drug trade who needs to clean their money? This game can keep up for a long time.

#63 yulyyz on 08.25.11 at 6:37 am

To #2 Rocko:
You are not alone in your frustration, hang in there !

#64 Cow Man on 08.25.11 at 6:57 am

Sir Garth:

You may think that your blog is tedious; but your pictures certainly are not. Thank you for providing the daily prescribed laugh, for good health.

#65 Imstupid on 08.25.11 at 6:59 am

#10 ts harpoon

I goes to show you how stupid people are. The only thing that realtors can do for someone is list on mls and they have the info on sale price of any home. if the public had access to that info realtors would be as relevant as asbestos sales men. The fsbo way doesn’t work now only because the sellers expect the 5% commission to be their benefit and not the buyers. It should be shared. Also sellers have no real way of knowing how to price a property without information.

The realtors that visit will probably disagree as usual but let’s look at the facts

1 Open houses don’t actually work to sell a property. Realtors do it to attract new business and sell themselves rather than the property.

2 For sale sign does the same thing

3 That junk mail you get with properties listed in area does the same thing

I would say that the mls system sells 90% of the homes and the combined total of all other advertising accounts for 10%. If you want to sell your home quickly the best way to do it is to pay commission. Instead of the 5% equal split between listing agent and cooperating agend do a 1.5/3.5 split. That will get posted on the mls system that agents use not the one we see. I can bet you every agent will bring every client and their mother to get sale.

#66 David B on 08.25.11 at 7:04 am

Kinda have to believe Jane’s story is a more bull than fact, hello …. I love my sister? yeah right her sister is about to go over Niagara Falls in a broken barrow and wishes her well!

Any rate …. nothing changes, nothing changes …

#67 gladiator on 08.25.11 at 7:06 am

What a deceiving picture… At first, I thought that the duck’s nostrils are its eyes and it has an Elvis-like “hairdo” – just look at the nostrils for a little while, imagine those are eyes, and you will understand what I am talking about :)

#68 House on 08.25.11 at 7:09 am

In stead of studying current times in the future I think business schools should be disbanded. Junk bonds in the 1980’s. Income before depreciation, interest and taxes in the late 1990’s. Securitized mortgages, derivates and high speed trading in the first decade of the 2000’s. If the geniuses teaching at these schools get their way there may never be an economy in the future. We will have to go back to bartering.

#69 bigrider on 08.25.11 at 7:24 am

Garth please insert a link in your blog today to the wall street journal article. I cant seem to find it and would like to read it.

#70 Timbit from Timmins on 08.25.11 at 7:31 am

#31 oslec

I was drinking my morning coffee while reading your dissertation.
You owe me a new keyboard!

#71 bigrider on 08.25.11 at 7:39 am

#117 Bobby yesterday said. ” I am only selling my condo because I want to invest in something else..it’s rented and it carries itself”

No way ANY condo in T.O currently carries itself without a HUGE downpayment and this is where the fallacy in the whole ‘rent out RE to riches’ mentality falls apart. People such as bobby do not properly calculate the opportunity cost of the money they have put down nor do they factor in higher interest rates, sometime into the future ,which could seriously hurt there prospects in the ‘road to riches’ associated with their dreams being a landlord.

#72 mbg on 08.25.11 at 7:47 am

Not many things bother me about Garth’s advice – I tend to agree with most of it. But the continued mention of parents saving for their children’s education is a bit annoying.

I paid for my degree (both of them) as did my spouse. Part of the joy of raising children was seeing them become autonomous adults, not dependent ones. Student loans carry a burden, sure, and one that will increase in future. But, if you teach your children how to plan for this and organise their affairs properly, it isn’t one that they cannot handle.

#73 Guan-Di on 08.25.11 at 8:09 am

Everyday I come to this blog to remind myself that two and two makes four, thanks Garth!

“The heresy of heresies was common sense. And what was terrifying was not that they would kill you for thinking otherwise, but that they might be right. For, after all, how do we know that two and two make four?”

#74 Incubus on 08.25.11 at 8:31 am

In fact, they are not smart people, they are financially poor and illiterate. They live in their own bulle and they will fail.

Appreciation is Income

There is a noticeable difference between the behavior of rich and poor when it comes to home price appreciation. The rich view home price appreciation as adding to their net worth. If lower interest rates allow them to refinance, they will restructure their debt to pay off the loan more quickly in order to increase their wealth. Poor people view home price appreciation as income; free money for them to spend. If lower interest rates allow them to refinance, they will restructure their loan to pull as much home equity as possible and reduce their payment as much as possible so they can spend more. If any net worth happens to accumulate, they obtain a home equity line of credit and spend the appreciation as quickly as possible–it makes them feel rich even though it really makes them poor.

Credit is Savings

So how do the rich and poor deal with credit? The rich do not carry consumer debt. Why would they pay interest on a credit balance when it almost always costs more than the income they earn on their savings? The rich will use credit sparingly and most often pay off any credit balances each month as the bill comes due. In contrast, the poor carry as much consumer debt as they can afford to service. Whenever they receive an increase in a credit line, they believe they have more money to spend, just like it was savings. In a strange way, a credit account is like a savings account, only it has a negative balance. In a savings account, the saver earns money; in a credit account, the spender pays money. Again, the rich have savings, and the poor have credit.

Debt is Wealth

There are a great many homeowners who live in big houses, and they believe that makes them rich. To them, the possession and use of an expensive house makes them wealthy even if they have no equity in the property. The rich buy less home than they can afford and work to pay off the debt in order to maximize their net worth. The poor stretch their finances to possess more home than they can afford with loan terms which never retire the debt, or in the case of negative amortization loans, actually increases their debt held against the property. This ensures they never gain any equity or only gain it by appreciation, and as mentioned previously, if prices appreciate they quickly withdraw the gain to fuel more consumer spending.

http://www.irvinehousingblog.com/blog/comments/bubble-market-psychology-part-2/

#75 David B on 08.25.11 at 8:33 am

And now this news ….

Gold falls $200 from Tuesday’s record high
JAN HARVEY
LONDON— Reuters
Published Thursday, Aug. 25, 2011 7:12AM EDT
Last updated Thursday, Aug. 25, 2011 7:16AM EDT

—————

Time to buy RE and then buy gold to make even more easy cash …. how could y’all possibly loose?

#76 disciple on 08.25.11 at 8:44 am

#2 rocko…I hear you, man.

But as someone who always thought home-ownership was a goal, I no longer think this way. I have changed my mind. If you have the cash to buy, and you think it would be important for your family’s future, then I see the logic, but as you and your family get older, you realize that there are more important things than “owning” your own home. It’s just an organized pretty pile of concrete, lumber, etc…don’t get so obsessed with it. Instead, I recommend using your productive energy to build your fortune through a wealth-creating business enterprise of which there are thousands of possibilities. The tax codes were written for entrepreneurs especially in Canada. You will be helping not only yourself, but everyone else. You can always buy your castle later on, with cash in hand.

Often quoted from the movie Wall Street, “greed is good”, this tends to eclipse the most prescient words of wisdom in the same movie, “Stop living off the buying and selling of others, and instead create something”.

Too many people in this country rely on the State for their fortunes, and I think the coming apocalypse will change that thinking right quickly enough…

#77 Calgary Job Market on 08.25.11 at 8:54 am

To #27

No I’m not making this up. This happened on Monday. Your call of ‘BS’ is illogical as you state that you base your opinion on what you’ve read. You read my post didn’t you?

I base my opinions upon my personal experience.

#78 Love this Blog on 08.25.11 at 9:03 am

Also to Rocko #2, I hear ya, I am in the same boat. It is getting to where I will laugh out loud when the foreclosures and toy repossessions start…………..then I will be vindicated.

#79 Willa on 08.25.11 at 9:06 am

I did some math after reading today’s post. My hubby and I pay a whopping 8% of our take-home pay on our mortgage (12 years old). We have a 5-bedroom house in a top neighbourhood of a desirable medium-sized city, whose employment rates are the same as any of the major cities.

It’s the illusion of more jobs in the big cities that makes people think the houses are worth a lot. But there often aren’t more jobs, just more people. It’s a circular thing. All you’re paying for is the opportunity to spend hours of your day in a rush hour.

Put it this way: If my family moved to Toronto, we would have to earn almost 3 times as much income to afford the same quality of life as we have here.

The best mortgage math advice I can give to big-city young people is…. MOVE.

#80 The American on 08.25.11 at 9:11 am

#41: Junius, you stated, “The 92% stat on Vancouver is pretty shocking. Some people have theorized that the only way it is possible is with a huge amount of people tapping into their HELOCs. I personally know a large number of people who routinely use their homes at ATMs.”

Junius, I think you and I see eye to eye on a lot of things. I too have twelve sets of friends (singles and couples) in Vancouver. Of those twelve sets, NINE have HELOCs on their properties, ranging from as little as $43,000, and as high as $382,000. No joke. They’ve all been robbing Peter to pay Paul. Its called “living on borrowed time (and money).” Absolutely ZERO difference (actually its worse in Canada) than that which happened in the U.S. The bubble popping will be excruciating.

#59: Waterloo Resident, if you think that is bad… Well, did you know a home owner foreclosed on Bank of America a couple months ago? B of A had tried to foreclose on the house (a house for which the bank NEVER had connections), and as a result the home owners had to pay court costs to fight the legal battle to prove they shouldn’t have been foreclosed on (they didn’t even have a mortgage as the home was 100% paid off). Well, the judge ordered B of A to reimburse the couple for their court costs, but the Bank never paid up to the home owners. So, the home owners decided to foreclose on the Bank. True story!!! This is f*cking hilarious, so watch the video! NEVER forget your rights as a consumer.

http://www.huffingtonpost.com/2011/06/05/homeowners-foreclose-on-bank-of-america_n_871540.html

#81 The American on 08.25.11 at 9:24 am

#69: Bridger, your link…

http://online.wsj.com/article/SB10001424053111904279004576524893838118716.html

#82 Helicopter Ben on 08.25.11 at 9:29 am

#29 Utopia “Putting margin requirements on Gold tells us that the precious metals market is badly oversold and that some corrections are now in store for devotees of that yellow metal.”
Less then 1% of all north americans own any gold assets. Out of all the financial assets in the world. PM makes up 0.75 % of them. all the Gold in the world that has been mined and recycled can only fill up 2 olympic size swimming pools, and silver is 86 times more rare above ground. if every one wanted to own physical gold or silver, every person in the world could only own 1/3 of an ounce of Gold and 1/14 of an ounce of silver. so no it’s not over bought it is impossible, and it isnt a bubble as nobody owns it. they put margin hikes cause they want confidence in their fiat currency when they are devaluating their dollar. Lets see what ben says today.

#83 Marty on 08.25.11 at 9:30 am

Garth, I don’t know about you, but I’m getting a case of anatidaephobia…

Anyway, what’s your take on buying property and building? Do you think land is currently also subject to this bubble and overpriced? What about home building? Do you think the increased costs of building reflects the increase in their costs, or are they just cashing in on the bubble as well?

It seems like in the US new construction has dried up just because the resale of existing houses is so much cheaper than the cost of building brand new…

New build = pay too much. — Garth

#84 Utopia on 08.25.11 at 9:33 am

#56 Michelle to #9 Utopia-

“I thought your little truck story was a clever analogy for the many oblivious Canadians heading towards a financial blow-out :)”
——————-
Nope. I’m not that smart. Actually, OtawaMike sniffed out the truth in ten seconds flat. It was the preventative maintenance that was being ignored so I am paying the price for not feeding the horse at the right time of day, so to speak. I really have to get one of those non-interference type engines next time.

Learn something new everyday. Thanks Mike.

#85 Noracharles on 08.25.11 at 9:36 am

Jane’s story is very familiar. I tried yesterday to have a conversation about housing in Toronto with a friend who felt she has to get into the market before prices go up too much. She also feels that in 5 or so years she’ll be able to sell for higher. I tried to tell that prices don’t rise forever, and selling for higher isn’t guaranteed, but it was like talking to a brick wall. She thought I was crazy wrong. That downtown Toronto is “different” (the only difference would be that maybe some areas may not fall as much as others), and that in the last 6 years prices have risen a lot. Even mentioning the last dip in the late 80s left her un-moved. I agreed that in the last couple years prices have risen, but that nothing can go up forever. Nothing I said made any impact. She just agreed to disagree with me.

I think examples like Jane’s and the conversation I had with my friend will be the case with a majority of people. Their blinders are on and re-inforced by the Real Estate cartel, MSM, and the pressure/opinions of friends and family.

#86 Utopia on 08.25.11 at 9:45 am

#21 Priced Out in Toronto on 08.24.11 at 11:00 pm

“I have kept watching the Toronto prices over the past few years….I can honestly tell you, the first signs of the popping have begun. The listings are starting to flood… not increase…. flood.
————————-
Really? How big is the supply getting? I don’t follow that market too closely. I have to tell you I am surprised though that the countries biggest housing market may actually turn out to be ground zero for the correction. It sure is starting to look that way and it changes the outcome for the worse in my mind.

Real estate may be local but when our biggest city is first on the block it becomes obvious the trend will percolate through to the rest of the body pretty quickly.

Toronto is after all our financial center. There are not any smaller markets that could have immunity if Toronto goes down. Yikes. This correction might be sharper and faster than I first suspected.

More like a big punch in the head that results in a concussion than a skinned knee or twisted ankle if that makes any sense at all.

#87 bridgepigeon on 08.25.11 at 9:52 am

13 not 1st
The word depression is rarely used in the US due to media restrictions. The MSM has agreed to the term deep recession. The control of the language used controls the debate and keeps the status quo.

There is no depression. — Garth

#88 Form Man on 08.25.11 at 9:59 am

#83 Marty

I have been a builder for decades. I agree with Garth. One will almost always get better value buying an existing building over constructing a new one. This is not because builders make a large profit ( often the net profit on a new build is less than 5%), but because the existing structure represents construction costs from years or even decades ago. Of course, if one attempts to do major renovations to an existing building, it is easy to soon surpass even new build costs……..

#89 Bobby on 08.25.11 at 10:12 am

For #71 Bigrider, who said I bought it in Toronto. Yes, this unit carries itself because it was purchased at a realistic cost in the first place.
A long time ago someone once told me that a viable rental property should rent for 1% of the purchase price. Here in Victoria, there are condos that are listed for 350k and therefore should rent for $3500 a month. I’m sure some financial halfwit will see great value if he can purchase and then rent it out for $1200.
I think Garth calls them Greater Fools.

#90 rosie on 08.25.11 at 10:14 am

#82 Helicopter Ben

Gold is a speculative trade, nothing more. I know because of the following: Purchased gold Oct. 08 $861 U.S. Sold yesterday morning $1868. Gold may climb or may collapse as it did post 1980. You got to know when to hold em’ know when to fold em’…

#91 Diana on 08.25.11 at 10:25 am

@55 doc

I find it cute you refer to a 1120 sq ft house as tiny.

It does a good job of illustrating how wildly different people’s perceptions can be on what’s needed, what might be considered a starter home vs a move up home, and general differences of opinion.

When I hear ‘tiny’ I equate it to a house less than 700 sq feet living space.

#92 Peakoilist on 08.25.11 at 10:30 am

#19 Cory on 08.24.11 at 10:48 pm
The grass on the front lawn is much greener and tastier when you feel so rich in a million dollar shack….just guessing cuz I don’t live there..nice place to visit though.

#93 Peakoilist on 08.25.11 at 10:42 am

# 76 disciple on 08.25.11 at 8:44 am
well put my friend , I may need that wisdom soon and thanks for the link about the bees yesterday..very interesting.

#94 vreaa on 08.25.11 at 10:44 am

Vancouver’s Mayor Gregor Robertson: “People come here with money and they want to be part of this. That creates challenges for my kids and the next generation to live here. It’s not affordable to live here now.”


The mayor is deducing that Vancouver RE prices are high because his “green” policies are perceived as successful. We believe that he is sincere in his logic, but also that he is simply wrong. Housing prices have ballooned to “unaffordable” levels in Vancouver because we are in a very large debt-driven speculative mania, not because we have any particular desirability as an environmentally friendly city.
Many of the apparent problems of unaffordable housing will be ‘solved’ by a simple market crash. Of course there will be all sorts of bad effects for the community from such a crash, but that is now unavoidable. You may say that such an outlook is an example of a “perceived inevitability of calamity”, but this outlook is not pessimistic, it is simply realistic. Ask any student of speculative manias. It’s already woven into the fabric of the market; it’s a completely natural consequence of the speculative mania.

http://wp.me/pcq1o-2Q8

#95 Nemesis on 08.25.11 at 10:47 am

…”the best B&B establishments in Victoria are now for sale…” – Hon. GT

And, as it happens, there are more than a few of those on offer in the ‘Nagan, too. The original ask [2+ years prior] on this one was, I believe, nearer 4BigOnes… Today?

http://tinyurl.com/42oedax

#96 Peakoilist on 08.25.11 at 10:51 am

#78 Love this Blog on 08.25.11 at 9:03 am

It is getting to where I will laugh out loud when the foreclosures and toy repossessions start…………..then I will be vindicated.
====================================
that is so true..and I hear the REPO buz is very good down south these days…hmmmm. how does one train to be one of those guys? It may be time for a new profession and get ahead of the curve so to speak (not that I would revel in someone else’s misfortune, but somebody has to do it :))

#97 Devil's Advocate on 08.25.11 at 11:02 am

#35 The Emperor’s Clothes on 08.25.11 at 12:12 am

I’ve seen 3 recessions over 40 years. We’re overdue. And this one is getting scary.

Newsflash; this IS a recession. Amid any recessionary period there are still people buying new cars, going on vacation, eating out and generally appearing to enjoy life. They can and do and so too could you. Open your eyes to the opportunities.

#98 Devil's Advocate on 08.25.11 at 11:04 am

#35 The Emperor’s Clothes on 08.25.11 at 12:12 am
I’ve seen 3 rescessions over 40 years. We’re overdue. And this one is getting scary.

Newsflash; this IS a recession. Amid any recessionary period there are still people buying new cars, going on vacation, eating out and generally appearing to enjoy life. They can and do and so too could you. Open your eyes to the opportunities.

#99 JohnnyBravo on 08.25.11 at 11:08 am

“How blind have we become? …obviously the message hasn’t spread widely enough…”

I’m not surprised at all. Whenever I talk to family, friends and acquaintances abut the economy, the markets, or real estate, I find most of them have absolutely no clue about what’s really going on. Let alone why, or what it could mean for them.

As long as they have their jobs, they carry on their lives in a steady-state reality, completely oblivious to the risks, and with no sense of financial planning, affordability or debt management.

Let’s face it, the people who follow this blog are the exception, not the rule. Most Canadians,––as evinced by my own experiences, this blog, and other sources––are like sated little pigs being led to slaughter. Let’s hope their ignorance is not resolved with a sudden, fatal shock.

#100 maya on 08.25.11 at 11:12 am

What a funny reverse prediction by CMHC
http://www.canadianrealestatemagazine.ca/news/item/766-house-prices-will-remain-stable-through-2011-then-rise-in-2012-cmhc

#101 Utopia on 08.25.11 at 11:33 am

#82 Helicopter Ben on 08.25.11

Not sure what your point was Ben. All I was stating was that gold was overbought and due for a correction. Actually, if you read my posts of a few days back you will see that I called for the correction exactly one day before it materialized. Right on cue the big drop started. This is just a corrective action though. I also expect Gold will return to its long term trend fairly soon.

Anyway, no worries.

#102 EdmontonJim on 08.25.11 at 11:34 am

People are short-sighted with short memories, meaning they neither learn from the past nor see the big picture.

What makes it worse is that there has arisen a disconnect between our lifestyle and our labour. Technology has made us wealthy beyond the wildest dreams of our great-grandparents, but it’s also made most of us oblivious to the value of things.

The fact that Jane’s sister seems to consider spending $800,000 on a small house a bargain boggles the mind.

Sure people can value things differently, but it’s all relative. If $800,000 = 1 house, that means:

1 house = 30,000 hours of an average Canadian’s labour
1 house = 26 new cars
1 house = 115 years of federal expenditures per Canadian
1 house = 700,000 litres of gasoline

But people have a hard time conceptuallizing big numbers. To most people there is no emotional difference between $400,000 and $800,000 because both numbers are inconceivable.

So when the bank says “You can borrow $800,000”, people don’t think “Wait – that’s a lot of money, do I really want to spend that much?” – They think “Cool – I have $800,000, where can I spend it?”

It’s like someone who walks into a store to buy a $500 TV, and then lets the salesman talk him into buying a bigger TV for $500 down and 36 easy payments of $42. It never even crosses his mind that he just paid 4X as much for a TV that he didn’t even want 5 minutes ago.

Just remember that when someone tells you that you can afford something, what they are really saying is “Sure you could spend your hard earned money on that thing, but wouldn’t you rather spend it on this thing? That I’m trying to sell you?”

When a bank tells you that you can afford an $800,000 mortgage – guess what? They are trying to sell you an $800,000 mortgage. Go figure.

#103 plain_janey on 08.25.11 at 11:42 am

#66 David B on 08.25.11 at 7:04 am
Kinda have to believe Jane’s story is a more bull than fact, hello …. I love my sister? yeah right her sister is about to go over Niagara Falls in a broken barrow and wishes her well!
Any rate …. nothing changes, nothing changes …

Sorry, but the story is true, although I wish it wasn’t. I honestly didn’t expect my email to Garth would see the light of day after I sent it, so please believe me when I say I’m not gloating over the situation my sister is in, nor is there any false sentiment behind the statement that I love my sister. At the end of the day though, she and her husband are adults who make their own decisions, all I can do is try and offer a different point of view to what they’re hearing. When that fails, all I can do is worry from the sidelines.

#6 Timing is Everything on 08.24.11 at 9:52 pm
…probably make less than my husband & I do (which is only somewhat above average income) – Jane
Define ‘somewhat’. What ballpark are we talking about, Janey

I was using an average from a City of Toronto briefing note where household income is just shy of $100k (page 2 of: http://www.toronto.ca/demographics/pdf/2006_income_and_shelter_costs_briefingnote.pdf )
We earn a bit more than that, nothing astounding, so ball park it around that amount I guess.

#34 debtified
I agree with you, because I probably read this blog for a bit of comfort too.

# 85 Noracharles
Like you commented, yes, this mentality is very familiar, I’ve come across it a more times than I care to count.

#104 neo on 08.25.11 at 11:47 am

#90rosie on 08.25.11 at 10:14 am
#82 Helicopter Ben

Gold is a speculative trade, nothing more. I know because of the following: Purchased gold Oct. 08 $861 U.S. Sold yesterday morning $1868. Gold may climb or may collapse as it did post 1980. You got to know when to hold em’ know when to fold em’…

You fold it for when either interest rates return to some semblance of normalcy and returns aren’t negative. NOT happening anytime soon.

There is strong structural austerity that actually reduces spending NOT reduces the rate of spending. Also, NOT happening anytime soon.

Third, Central Banks stop printing money in a weak attempt to devalue their currency to spur growth and reduce long term debt obligations. Definitely NOT happening anytime soon.

Just because you got on and off on this 11 year train trending higher from $250 in 2000 doesn’t mean squat for the next ten years with no changes to my poitns above. The sooner everyone realizes this, theh better understanding people will have about not only Gold but the indictment Gold has made about fiat currencies and Keynesian fools running our industrialized economies.

Lastly, leverage produces speculation my friend. Therefore, how many assets would we truly be left with without leverage in the first place and what would their underlying true value be without leverage?

Take this very Blogs position on housing for example….

#105 Utopia on 08.25.11 at 11:51 am

So is this a housing bubble? The Globe offers a short video today with their perspective….

http://www.theglobeandmail.com/globe-investor/investment-ideas/features/investor-roundtable/video-is-this-a-housing-bubble/article2141235/

I love watching a reporter interview two reporters. — Garth

#106 Kevin in Winnipeg on 08.25.11 at 11:57 am

I see a lot of discussion on how debt is taking purchasing power from the future. I have now come to the conclusion that this thinking could be incorrect.

In the current economy, it is not uncommon to see 0% financing on just about every purchase. For example, if I need a car, I could save for the next 5 years and pay cash then or buy it now with 0% financing. I get a new car now for less costs (the same car will be more expensive in 5 years, interest rates higher) then if I wait 5 years. What would most people do?

The thinking is the same in real estate. Everyone needs a place to live. It made sense for most to buy at low interest rates, longer amortizations and 5% down-payments, even at inflated prices.

For spending habits to change, the way we buy has to change. Demand for products has become artificially inflated. In the 80’s and 90’s, most could buy a car financed over 36 months. Now lengths have changed to 84 months and studies have shown adjusted for inflation, vehicles are cheaper than they ever have been.

What will be tipping point? High interest rates, shortened amortizations, higher prices, lower incomes? As long as amortizations stay fairly long, prices can increase to a tolerable level before demand decreases. That level is still quite far away.

#107 Nemesis on 08.25.11 at 12:08 pm

@DOC/#55… “I’m learning to garden and planning a chicken coop”…

Will that particular PD be covered in DSM-5?… ;)

#108 Math is Fun on 08.25.11 at 12:24 pm

A few years ago my bank offered me a huge HELOC – which I refused. Today, on BIG red sign, the same bank was promoting insurance for HELOC’s. You could smell the fear permeate the place as soon as you reached the ATM line.

#109 City Slicker on 08.25.11 at 12:36 pm

Garth could a 22% avg home price drop in Calgary happen any month like in GTA considering we have the oil business thing going?
Do you know if that is ever happend in this town during the boom and bust cycles it’s know for?
Thanks

Oil price is not a determinant of Calgary house prices. The only effect is psychological since the average income is largely unaffected. If anything, higher oil prices mean more expensive gas, and a drop in household disposable income, hurting real estate. — Garth

#110 timo on 08.25.11 at 1:10 pm

#106, kevin,

I understand your points but by drawing all demand forward who will buy next year? All that you will have left are unqualified buyers if interest rates go up.

on another topic:
Good hurricane link if your interested.
http://www.wmur.com/hurricanes/index.html

#111 The InvestorsFriend (Shawn Allen) on 08.25.11 at 1:11 pm

STOCKS ARE RISKY… SO IS LIVING…

I never advise people on what percentage of stocks versus bonds to hold. I think the asset allocation decision is a hugely personal matter.

Some people go 100% fixed income. Some go 100% equities. Some even borrow money and are effectively 300% or more in equities.

Most people go with some balance between equities and stocks and that is probaly wise in most cases.

In my own case I have been roughly 100% equities for many years. This has worked out well for me given the particular stocks I have owned.

Today I see stocks looking cheap and bonds (particularly long-term government) look to be in a bubble situation.

I am personally comfortable with a 100% stocks approach. But that is due to my circumstances of having essentially no debt, strong income flows and a defined benefit pension plan not dependednt on stocks.

#112 Debtfree on 08.25.11 at 1:18 pm

vancouver island is turning into financial alcatraz . No wonder housing is getting more affordable .
http://www.cbc.ca/news/canada/british-columbia/story/2011/08/25/bc-ferries-service-cuts.html?ref=rss

solution would be to make the federal government live up to it’s 137 year old promise .
http://www.waymarking.com/waymarks/WM1YT1_E_N_Train_Station_Victoria_BC

read the history part islanders . You held up your part of the bargain every time you paid your taxes to the federal government . There are 600k of you on the islands . You could make a lot of noise.

#113 Debtfree on 08.25.11 at 1:27 pm

btw P.E.I has 141,000 population . Maybe if you had fewer people and more mccains potatos on vancouver island you too could get a bridge.

#114 Bill Gable on 08.25.11 at 1:28 pm

*I bet the Gold Bugs are going…huh?

Quote of the day:

“”There’s a reassessment of risk across the planet,” says Jonathan Miller of New York-based real estate consultancy Miller Samuel.

“Volatility breeds uncertainty, and this is intimidating for consumers.”

DOH!! We have been in Recession since 2000, when QE1 was thrown into the liquidity bin and QE2 kept the punchbowl full at the stupid Banks – but now we are in a “right pickle”, as Norman Wisdom used to say.

Slowing growth, enormo debt overhangs, broke Banks and a middle class that hasn’t had a real raise since Mulroney was singing with Ronnie Reagan, is not a pretty picture.

#115 doc on 08.25.11 at 1:31 pm

#91 Diana. You are absolutely correct. Everything is relative. Going from over 3000 square feet to 1120 seems like a huge change but of course it is still a spacious home even with four grown children coming and going periodically. Thanks for pointing out the inherent bias in my use of the word tiny to describe my current palace. Your post is insightful. Thanks for that.

#116 timo on 08.25.11 at 1:32 pm

Consumer confidence in Canada declines significantly in August

http://www.vancouversun.com/business/Consumer+confidence+Canada+declines+significantly+August/5300481/story.html#ixzz1W3vpWzRs

Canadian corporations’ operating profits drop 4.9 percent in Q2

http://www.vancouversun.com/business/Canadian+corporations+operating+profits+drop+percent/5306283/story.html#ixzz1W3vzEQzw

Calgary drivers face new gas price shock at pumps

http://www.calgaryherald.com/life/Calgary+drivers+face+price+shock+pumps/5302681/story.html#ixzz1W3xGI4rg

but..r/e always goes up….

http://www.calgaryherald.com/business/Calgary+region+house+prices+forecast+rise/5299941/story.html

#117 Devore on 08.25.11 at 1:38 pm

#48 Marnic

$800,000, makes you weep. Who the hell would lend them that sort of dough? I mean, what sort of lender would expose themselves to that kind of risk? Oh…right.

But we read here in the comments section all the time about how Canadian banks are different (yeah right), and are so much stricter (nope), and evaluate borrower risk (obviously not), and how there’s no subprime in Canada (by definition every CMHC mortgage is subprime).

You want to see how banks would really behave without CMHC? Go get a business loan. Well, try to, anyways.

#118 Victor on 08.25.11 at 1:49 pm

…bidding wars…
check the condo at 22 southport. maybe 14% lower is not very impressive, but 42K looks not bad

http://www.torontomls.net/PublicWeb/CL_CF.asp?link_no=38627268.175000&t=l&fm=F

#119 Parry Sound—Muskoka on 08.25.11 at 1:51 pm

For those waiting for QE3, consider the following statement made by BoC Governor Mr. Carney last week in Ottawa concerning the Federal Reserve Boards decision to pursue its near-zero rate policy at least until mid-2013:

“The guidance they [the Fed]…gave last week had an important impact on interest rates further out the rate curve, which is quite stimulative for their economy. And, I wont be overly precise, because it’s not an exact science, but, it is akin to hundreds of Billions of additional quantitative easing.”

#120 Devore on 08.25.11 at 1:52 pm

#59 waterloo Resident

You’ve got to read this story, its about a man who kept making his mortgage payments to BANK OF AMERICA, and yet for some strange reason they FORECLOSED on his house !

That’s nothing, Bank of America (Blight on America?) foreclosed on someone who didn’t even HAVE a mortgage:

http://www.bloomberg.com/news/2010-10-08/man-who-had-no-mortgage-faced-foreclosure-anyway-ann-woolner.html

But there’s a way to fight back! Here’s a man who foreclosed on his bank instead (also, unsurprisingly, Bank of America), as court order in hand and sheriff in tow he begun confiscating branch assets: cash, furniture, computers.

http://moneyland.time.com/2011/06/06/homeowner-forecloses-on-bank-of-america-yes-you-heard-that-right/

#121 bill on 08.25.11 at 2:12 pm

This Wretched Blog …..
a new daytime soap in the classic mold. a depressing tale of house lust and love leavened with tragedy of biblical proportions.
who could we get to ‘act’ in this epic story ?
an evil finance minister and his scheming boss….
brainwashed citizens mortgaged to the hilt…
a heroic man of the people trying to warn the rest….

#122 bill on 08.25.11 at 2:14 pm

oh I left the ‘u’ out on purpose.

#123 Devore on 08.25.11 at 2:21 pm

#71 bigrider

From their perspective, the idea behind crappy yield on a rental, or even being cashflow negative, is that at some point they will own the place clear, and it will be worth much more, which is the only way this makes sense. For them, if they have to shovel $400 every month into the property, it’s costing them only $400 a month to buy the place, which is obviously an awesome deal. It’s a long term investment that will provide “passive income” when they’re retired.

You just can’t argue with people like that.

For me, if you can find a place that will rent cashflow positive, all costs in, including management (1 month’s rent), including vacancy contingency (1 month’s rent), including maintenance budget (1 month’s rent) AND provides 5-8% yield, I would look at real estate.

#124 Anonymous on 08.25.11 at 2:33 pm

Garth, here’s a great photo for a future post. And it’s not even Photoshopped.
http://www.cbc.ca/news/canada/british-columbia/story/2011/08/25/bc-dangerous-fridge-load.html

#125 Totalchaos on 08.25.11 at 2:47 pm

#106 Kevin

The 0% financing on cars is misleading. If you pay in cash, they give a discounted price. You are in fact paying interest, it is just added into the purchase price.

#115 Doc and #91 Dianna

In my ‘hood, the old houses are between 900 and 1100 sq ft. As they are 80 and 90 years old, you know that families with 3 or 4 kids or more grew up in them. Now,over the last 10 years, when they sell, they are raised, a top floor is added and an addition is popped out the back and/or side(you can’t pull down “heritage”). These houses are now 3500 square feet, with a garage bigger than the original home, all for Mum, Dad, (who work constantly and are never home) one kid and the nanny.

#126 Devore on 08.25.11 at 2:48 pm

#74 Incubus

In contrast, the poor carry as much consumer debt as they can afford to service. Whenever they receive an increase in a credit line, they believe they have more money to spend, just like it was savings.

Disturbingly, we’re seeing this trend now taken to the extreme, with products like the Manulife One account, where credit is savings and savings is credit.

The general thrust of the article is right. The wealthy do not become so through consumer credit. They live within their means. The difference between income and expenses is accumulated and invested. They will often borrow and leverage, but not for consumer spending. They will lease, when renting is cheaper than owning something.

The not-so-wealthy seek to become wealthy, but they don’t want to do it the hard way, they want it the easy way. So they imitate. Maybe they believe that is good enough. If they behave like they are successful, they will become successful. In some ways they are right, but imitating superficial things (living large) will get you superficial results. Eventually, they come to believe living the way they do, beyond their means, is normal. They are entitled to this lifestyle. They deserve it. When they fail, they do not blame themselves. After all, they did nothing wrong.

And on and on it goes, each generation left to discover the nature of things for themselves.

#127 Cory on 08.25.11 at 2:50 pm

Must be organic lanw they’re eating then. I don’t even know what to say to such stupidity…..92%???????? Completely unsustainable even if RE values were increasing.

Banks are just as guilty but the only difference is they have the nice taxpayer behind them t eliminate any risk. Thank God they were forced to stop insuring HELOC’s.

#128 doc on 08.25.11 at 2:54 pm

#105 Nemesis It can’t be a PD as it does not cause significant distress. I’m sure the academic committee that invents diseases could find space for it in the V codes however. It could even sound serious with a latin name–perhaps esuriophobia for gardening and gallus domesticus domus architectus for builder of chicken coops. More sinister implications could be covered with gallus domesticus philia.

#129 westopia on 08.25.11 at 3:09 pm

@ #29 Utopia

“As Garth has warned the Gold bugs here many times, it is time to harvest profits. Few listened as usual.”

Garth warns, but never provides any reasoning for his predictions. The only explanation I’ve ever seen from Garth for not liking metals is that they are speculative. What isn’t? Why is it OK to speculate on bond prices based on market fundamentals, interest rates etc, but not gold?

The markets are reacting now in anticipation of new fed stimulus which will boost equities (and put downward pressure on gold) in the short run. In the long run, nothing has changed or getting better. Monetary policy is unlikely to have an affect on long run growth (even if you’re a Keynesian). Can somebody explain to me how the the fed throwing money at the problem is not inflationary? Long run fundamentals for gold are still VERY bullish, and even more so for silver. This pull back from record highs is going to be (yet another) good buying opportunity for metals. Wait for this blog to start slamming PMs – that is your buy indicator.

Bonds pay interest. Preferreds pay dividends. Equities pay dividends and possibly capital gains. GICs pay interest. REITs pay income. Gold pays nothing. It’s a pure speculative commodity and when it advances to give you a profit, the smart investor takes it. The pig gets slaughtered. — Garth

#130 Junius on 08.25.11 at 3:12 pm

#126 Devore,

Great post. Sad but true.

#131 OttawaMike on 08.25.11 at 3:21 pm

Here is a little math exercise sent ot me from a friendly local used house salesman.
Too bad it is in the “Cracktown” section of Ottawa.
I like how he leaves out the building maintenance and vacant apartment contingency:
__________________________________________
Estimated carrying cost (For planning purpose only)

374 Enfield Avenue
MLS® 805039

Mortgage: 80% of $629,000 = $503,200 (Cash down: $125,800)

Total Mortgage: $503,200 @ 3.49% over 25 years = $2,510.00
(Every $1,000= $4.99 per month)

Operating expenses: $930.00

Total operating cost: $3,440.00

Minus income: $4,300.00

Carrying cost/profit: +$860.00

N.B. The average capital payment over 5 years: $1,245 per month
Estimated property value increase at 3.0%: $1,150 per month

Buying cost

Cash down (20%): $125,800.00

Land transfer tax: $9,050.00

Lawyer’s fees: est. $2,000.00

Taxes adjustments: $1,800.00 (or approx. 6 months reserve)

Inspection: $1,000.00

Cash requirements: $139,650.00

N.B. Including capital payment and excluding property value increase:
(+$860 + $1,150 = $2,010 X 12) = $24,120 over $139,650

Or 17.27% average return over 5 years

#132 BrianT on 08.25.11 at 3:41 pm

Pretty good article by Kreiger on that old Omaha grifter-he is right about the problem with the USA economy being the total lack of DOWNWARD mobility by the elite due to the lack of a free market http://www.zerohedge.com/news/wolf-sheeps-clothing

#133 Sumadartson jr. on 08.25.11 at 3:52 pm

“”Now, with worries about another U.S. recession mounting, along with a growing realization that Canada’s economy would probably be pulled under should that occur, rate increases are out the window for 2011 and much of 2012.

Significantly, considering how recently so-called inflation hawks were fretting that the recovery was proceeding quickly enough that Mr. Carney was at grave risk of losing his grip on price gains, there is even some early talk his next move could be a cut.

A rate cut is certainly far from inconceivable.””

…Close down your blog!

Canadians listening to your sage advice and selling their homes….will lose out on guaranteed future equity gains.

#134 Davey Boy on 08.25.11 at 4:02 pm

Re: Doc #55

Comforting to hear someone like yourself view simplicity as a healthier lifestyle. People seem to be in a constant search to “fill in the hole” with material acquisitions no matter the cost. Quite sad really.

#135 Mr. Lahey Trailer Park Supervisor on 08.25.11 at 4:14 pm

Just sitting back on the porch of my trailer with Randy and sipping some scotch as we watch the real estate fireworks beginning, lead by the Janes of the world. “Randy, pour me some more. This is going to get real interesting.” “What’s that noise I hear in the sky Mr. Lahey?” “Shithawks Randy, economic shithawks and they’re getting real close”.

#136 tran, Calgary on 08.25.11 at 4:19 pm

http://sixtyminutes.ninemsn.com.au/stories/8281823/the-big-squeeze

Is Canada any different?

#137 betamax on 08.25.11 at 4:26 pm

#106 Kevin in Winnipeg: “I see a lot of discussion on how debt is taking purchasing power from the future. I have now come to the conclusion that this thinking could be incorrect.”

When total debt to income becomes exorbitant, debt repayment affects purchasing power, even at low rates. Canadian debt/income is now at an all-time high.

#138 LAST on 08.25.11 at 4:26 pm

Great Pic Garth:):):):):) loved it

#139 Rich Renter on 08.25.11 at 4:32 pm

#109
If oil is linked to RE, then how come Dallas and Houston are different to Calgary.

#140 betamax on 08.25.11 at 4:39 pm

#112 Debtfree: “Maybe if you had fewer people and more mccains potatos on vancouver island you too could get a bridge.”

Van islanders already got a highway to nowhere. As for a bridge, the vast increase in length and depth of the Georgia Straight (vs. PEI) causes grossly exponential costs, not to mention engineering nightmares. Anyone thinking the bridges would be comparable hasn’t thought it through very far.

#141 Helicopter Ben on 08.25.11 at 4:42 pm

#101 Utopia. #82 Helicopter Ben on 08.25.11

“Not sure what your point was Ben.” My Point was that i disagree with you that Gold is over bought. #90 rosie. #82 Helicopter Ben

Gold is a speculative trade, nothing more. I know because of the following: Purchased gold Oct. 08 $861 U.S. Sold yesterday morning $1868. Gold may climb or may collapse as it did post 1980. You got to know when to hold em’ know when to fold em’… You did well to make a pretty good profit, I think you Folded a Royal Flush still though.

#142 westopia on 08.25.11 at 4:43 pm

“Gold pays nothing. It’s a pure speculative commodity and when it advances to give you a profit, the smart investor takes it.”

This will come as a shock Garth, but I disagree with your strategy. Gold is too volatile in the short term. You gotta be long. Even if you’re lucky enough to buy at the bottom and sell at the top, then what? Put it into a GIC that pays 1%, or bonds that erode your capital. Gold has given a return of over 200% over the past 5 years. It should be looked at for long(er) term growth.

Then you spend it building your life. That’s what money is for. — Garth

#143 Moneta on 08.25.11 at 4:46 pm

see a lot of discussion on how debt is taking purchasing power from the future. I have now come to the conclusion that this thinking could be incorrect
———
Nope.

The problem is that if people bought what they could really afford, they would not spend as much and keep some spending for the future.

For example, without leasing, people would not go over 25K. With leasing, many go for 40-60K cars. They’re spendign today what they could have for tomorrow.

It’s the same thing with houses.

#144 Ausben on 08.25.11 at 5:01 pm

Aussie Roy on 08.25.11 at 4:33 am

AusBen, Satyajit Das, one of my top three comentators, us Risk Managers have to stick together (although I’m retired). He also writes for Prudent bear, I would suggest to all to google him and read some articles pre 2008 US bust, he was right on the money.

Roy,

I’m an Australian living (renting) in Toronto.

I seem to remember a post where you referred to Mandelbrot and trading… sounds like pretty easy stuff!

Das is a class act. I listen to him on ABC Light Night Live and PM from time to time. I will look for him on Perma Bear. I also enjoy reading and listening to Jim Rickards and Niall Ferguson.

#145 timo on 08.25.11 at 5:04 pm

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

http://www.reuters.com/article/2011/08/25/us-bankofamerica-idUSTRE77N4J420110825

Isn’t that sweet of uncle Buffett to loan
$5 Billion to Bank of America.

After reading this I am certain that there are no problems whatsoever with the banking system. Still it should be interesting to watch when most underwater homeowners send the banks jingle mail after prices drop another 5%. Knowing how the system works Warren will be first in line for his bailout.

what a ponzi scheme…..

What have you bailed out lately? — Garth

#146 Dan in Victoria on 08.25.11 at 5:12 pm

[email protected]

I’ve built quite a few houses over the years.
We just sold a few months ago and were going to build.
Do most of it myself and sub out the crappy jobs.
Change in plans, we’re renting this market is turning over, we’ll see what types of deals can be had in awhile.

#147 Snowboid on 08.25.11 at 5:23 pm

I did some digging on the OMREB and VREB sites for stats since January 2010 (picked the month we should have put our home up for sale).

I compared the sales price average and median for both Kelowna and Victoria for the highest month since Jan 2010 with the July 2011 figures.

The Kelowna SFH drops were only 3.9% average and 4% median with Condos dropping 10.4% and 18.1% respectively.

Victoria SFH drops were 27% average and 29% median with Condos dropping 11% for both categories.

It will be interesting to see what lies ahead for August.

#148 Patiently Waiting on 08.25.11 at 5:34 pm

#26Bottoms_Up on 08.24.11 at 11:18 pm
…..have it all – young kids, one income, a cushion for higher rates, college funds, investments and a retirement cache.
—————————————————–
Garth, it’s true that it’s essentially impossible to have it “all”.

I’ve done the calculations.

I figure with two kids, two cars, a modest house in a top 5 Canadian city and properly stowing away money for RESPs, TFSAs, vacations, weddings, rainy days etc. a family needs to net out monthly at about $10,000.

So basically one needs to be married to a neurosurgeon, or have two incomes each significantly higher than the average Canadian family income.

This tells me that most families are sacrificing something, whether it be their children’s education funds, family vacations, future savings etc. Something tells me not a lot of people choose to sacrifice the size or location of their living quarters.
____________________________________________

Bottoms Up – you are pretty much bang on. I have done the math as well in budgeting for my own family (wife & I plus 3 kids ages 18, 16, & 13). At $10,000 per month we are break even. I believe that many of families that we know are making up the difference to suport their lifestyle by going deeper into the Home Equity Line of Credit (HELOC) because house values are still shy high so they feel rich, and the low interest rates make it easy to make the payments. Eventually there will be a reckoning and the debt F__cktards will be screwed . . .

#149 Brad in Cowtown on 08.25.11 at 5:36 pm

Oil price is not a determinant of Calgary house prices. The only effect is psychological since the average income is largely unaffected. If anything, higher oil prices mean more expensive gas, and a drop in household disposable income, hurting real estate. — Garth

That is absurd. I can’t bite my tongue when something so blatantly false is being spewed.
The psychology in Calgary is directly linked to the price of oil. Ergo, oil price is certainly a determinant, even if it isn’t the only psychological factor to consider.
The charts clearly show a correlation.

#150 Devore on 08.25.11 at 5:49 pm

What have you bailed out lately? — Garth

As a net taxpayer? GM and the banks, for one.

#151 rosie on 08.25.11 at 5:55 pm

141 helicopter Ben
I sold half after doubling, what’s left is profit.
142 westopia
Garth is right. You make money to do stuff. We wanted to update our modest little castle. The profit we made will pay for a new kitchen, dining room, a couple of appliances, and an update for the living room. We will keep some aside to cover the capital gains. It worked out much better than we thought it would when it looked like the end of the world as we know it.

#152 Stinky the Fish on 08.25.11 at 6:16 pm

Don’t count on it honey. House prices have been deviating from incomes for years..

#153 Paul Collins on 08.25.11 at 6:42 pm

Hi Aussie Roy,

There’s much more on The Block story here……

http://australianpropertyforum.com/topic/9010435

Seems the agents responsible for selling the houses were actually investigated for underquoting, and there is something fishy about the two latest buyers – speculation they may be bankrolled by the Real Industry!

Paul.

#154 Peakoilist on 08.25.11 at 6:46 pm

#135 Mr. Lahey Trailer Park Supervisor on 08.25.11 at 4:14
thanks for my LOL moment for today

#155 Daisy Mae on 08.25.11 at 7:08 pm

Diana on 08.25.11 at 10:25 am @55 doc

“I find it cute you refer to a 1120 sq ft house as tiny….”

**************************

There are Vancouver condos as ‘tiny’ as 300 sq ft, I understand.

#156 Nostradamus Le Mad Vlad on 08.25.11 at 7:22 pm


This explains a lot!

The English language has some wonderfully anthropomorphic collective nouns for the various groups of animals.

We are all familiar with a Herd of cows, a Flock of chickens, a School of fish and a Gaggle of geese. However, less widely known is a Pride of lions, a Murder of crows (as well as their cousins the rooks and ravens), an Exaltation of doves and, presumably because they look so wise, a Parliament of owls.

Now consider the baboons. They are the loudest, most dangerous, obnoxious, viciously aggressive and least intelligent of all primates. What is the proper collective noun for a group of baboons?

Believe it or not ……. a Congress.

I guess that pretty much explains D.C.!
*
Well, I wuz out to lunch for a coupla days, and it was quite strange, as my life generally is.

4:11 clip “Gaddafi made this speech after the corporate media reported the rebels claimed to have him trapped. They are wagging that dog so hard it’s gonna PUKE!” wrh.com; Punish The Crooks! Rest of short article is good too; For those who listen to Warren Buffett . . .; Lloyd Blankfein Possible jail time? 7:58 clip Ex-Iraqi minister calls out JPM; Gold Is the mania here? Is grass green? Is tomorrow Friday? Govt. spending rises each year, except they are spending taxpayers’ money.

Fukushima on the Mississippi. This is what the NMF will cause when it erupts; 3:31 clip Opulence and Vanity — They name is Donald (GoldenNuts) Trump; Smoking Gun in succulent strawberries; John McCain loves uprisings, violence and seeing people in poverty, so sign him (and his family) up! Rush Limbaugh is freaking out because he’s a freak; Netsukuku An alternative? (Computers).

5:59 clip A Libyan in London; Libya Mistakes. Same old, same old; FDA Loonies gone wild with food; Monsanto This is interesting if it develops further; Put these two together, and it isn’t hard to figure out. 9:50 clip — Obama’s change is very good for the WH.

#157 maxx on 08.25.11 at 7:51 pm

#24 Ralph Cramdown on 08.24.11 at 11:16 pm

Sounds as though he’s making a case for irrational exuberance……”maestro” indeed………rofl.

The “maestro” has evidently composed quite the symphony of misery.

#158 Puzzler on 08.25.11 at 8:06 pm

Been traveling to the south shore in Nova Scotia for almost 20 years now — usually 2 weeks or so in a rental cottage. This summer was different; we noticed at least 1/3 less tourist traffic than usual, and saw only 5 US car plates in 13 days. Looked at some places for sale and met quite a bunch of weary sellers. “Nothing is moving” we heard repeatedly. Attitudes more subdued than we’ve ever seen; lots of somber-faced folks. Something new is going on…

#159 Chuck D on 08.25.11 at 8:09 pm

Jane didn’t say how much equity her sister had in their current home. This is an important factor. If they have owned in Toronto for a while then their home may have doubled in value. It’s not like they bought a home for 800k as first time buyers. It may only cost 100k more than their current house. We don’t know.

#160 Nostradamus Le Mad Vlad on 08.25.11 at 8:17 pm


BoE, Libya and Gold “So the money-junkies steal Libya’s gold, then start QE3 to crash the dollar, which makes their stolen gold worth 100 times as much!” wrh.com; Insider Training Madoff says it is rife; Unsustainable System = Warning of collapse.

Comex Ups the ante; Chile pix Economic riots there as well;

Irene She is not a nice hurricane; Before NATO Libya was an African Switzerland; Russia Good question. The west will answer that by imploding first; Libya NATO doesn’t have a clue.

China As usual, they are correct. The US is the aggressor, trying to trick everyone into WW3; Cancer Chemicals in the dryer; John McMouth There isn’t much, if any difference between him and a plugged lavatory (although the latter can be fixed); CC here it is. Al Gore is Fraud Unlimited.

#161 maxx on 08.25.11 at 8:19 pm

#155 Nostradamus Le Mad Vlad on 08.25.11 at 7:22 pm

Re: Monsanto, lord only knows what it’ll come up with as a counterattack on the beetle…..

#162 timo on 08.25.11 at 8:23 pm

#150 Devore on 08.25.11 at 5:49 pm

What have you bailed out lately? — Garth

As a net taxpayer? GM and the banks, for one.

lol, spilled my coffee :)

to add:

I have a feeling we will all be bailing out Vancouver.

#163 bigrider on 08.25.11 at 8:35 pm

#123 Devore to Bigrider.

I agree with all your parameters for when to buy real estate rental properties. Problem is the parameters you set out are nowhere to be seen in the GTA, therefore RE is acutely overvalued

#164 Ken5421 on 08.25.11 at 8:53 pm

keep up the good work Garth

#165 MarcFromOttawa on 08.25.11 at 9:06 pm

http://www.torontorealtyblog.com/2011/08/the-most-over-saturated-condos-in-toronto/

#166 jess on 08.25.11 at 9:10 pm

Vlad you are funny!

I guess that self policing didn’t work out so well …so the 30 billion and lets call it quits along with a promise to clean up their practices isn’t sitting so well with the New York AG. Apparently, whistleblowers from the bank’s inventory management operations have come forward claiming that Bear Stearns mortgage executives instructed them to mislabel faulty loans to make them appear to be prepaid or performing.

Elizabeth Warren, warned that government agencies may not have sufficiently investigated claims that borrowers’ homes were illegally seized.

Attorney General: My View: New York state’s attorney general aims to fight fraud, corruption

…”Our regional public integrity officers represent the “boots on the ground” in communities — from Poughkeepsie to Buffalo. They are smart, tough-minded, impartial lawyers who will give whistle-blowers in every region of the state a place to go with information about local public corruption where they can be assured that local politics will not influence the outcome of any investigation. Many calls are already coming into our regional offices, and we’re committed to pursuing these cases.

In this period of fiscal crisis — when we need every dollar to spend on critical services such as education, health care, and helping our fellow New Yorkers get back to work — we simply can’t afford to lose a single penny of taxpayer money to waste, fraud and corruption. That’s why delivering on this unprecedented, comprehensive approach to public integrity will continue to be one of the top priorities of my administration. ”

http://www.ag.ny.gov/media_center/2011/jul/jul29a_11.html

======
Rhode Island – bondholders are ahead of other creditors, including pension recipients. and “city officials who intentionally fail to pay bondholders can be removed from office or held personally liable for the payments.”

Illinois has some of the strongest bondholder protections anywhere, $3.8 billion in unpaid bills from last year – and whose pension system has less than half of the money it needs –irrevocable and continuing appropriation’ of tax revenues into a special fund every month that can be used only to pay bondholders.”[5]

The State and Local Budget Crisis
August 23, 2011
By Michael Hudson

#167 Timing is Everything on 08.25.11 at 9:17 pm

#158 Chuck D

Could be. But the point is….$100k over asking..???
Hello, McFly!!

#168 Timing is Everything on 08.25.11 at 9:46 pm

Totally off topic, but important. Gag order?
Garth, Can you explain the PCO in a short sentence or two? This just ain’t right. Is it (?)

http://tinyurl.com/3nvkfrc

#169 Devore on 08.25.11 at 9:49 pm

#162 bigrider

I agree with all your parameters for when to buy real estate rental properties. Problem is the parameters you set out are nowhere to be seen in the GTA, therefore RE is acutely overvalued

The parameters I set out pretty much require that owning be cheaper than renting ;) but I think just getting decent yield on your purchase is pretty good. However, real estate would still represent an uncomfortable portion of my net worth, unless it’s a cheap condo, and I don’t believe in owning those, too much risk and hassle due to the structure of fractional ownership.

That it’s so hard to generate good return on residential real estate shows that it’s plain overpriced and a playground for speculators and dreamy-eyed occupiers. I’m unlikely to own any investment real estate directly anyways, REITs are like indexes.

#170 Priced Out In Toronto on 08.25.11 at 10:10 pm

#86 Utopia on 08.25.11 at 9:45 am

There are certain sections of Toronto where the condos have been overbuilt. They have hundreds of them on the same few blocks. Mind you they are high demand areas, but the sheer number just astounds (yes, I said hundreds). And they just sit there, half of them empty, prices not really being reduced significantly.
Look them up on the MLS website. Try anywhere on Yonge street north of Sheppard. Try Sheppard near Bayview and Leslie. Downtown, Markham, Richmond Hill, Mississauga, everywhere…
Some buildings I was interested in actually have 20-30 units for sale all at once now, where as last month they had maybe 2 to 5 units (again, not very scientific – just my observations).
Seems to me like the specers/investors are starting to slowly back out of the room – but all at once.

#171 Utopia on 08.25.11 at 11:26 pm

#141 Helicopter Ben to #101 Utopia.

Not sure what your point was Ben……
————————————————————
My Point was that I disagree with you that Gold is over-bought.
————————————————————
OK. Then why did Gold fall by over 200 dollars Ben? Because the market thought it was a bargain at those prices perhaps (sarcasm off).

You don’t seem to appreciate that the US Dollar is set to stage a surprising rally and that Gold will likely fall back as a result. Nor do you “get” that I am actually bullish on Gold long term and that I also believe prices will rise further in the future.

What I am actually talking about is short term price movements of significance and we just saw one. That was a major selling opportunity. I told you about it and you missed it anyway.

Gold-Huggers like you are always blind to the big dips and changes in market sentiment. You only ever see “buy and hold” blindly and so you always miss the big opportunities to profit on the short side of the trade.

It’s not my problem anymore, Ben. It is yours.

#172 Daisy Mae on 08.26.11 at 2:51 pm

CBC – “Elections B.C. announced on Friday morning that 54.73 per cent of the 1.6 million British Columbians who cast a ballot in the mail-in referendum voted to roll back the tax…..”