Catastrophic

Sometimes you have to wonder. Lots of smart people bought into bundles of US residential mortgages seven years ago because these securities earned an AAA grade from the big ratings agencies. We now know most of them were sinkers. The agencies made fat fees to rank them, and did as they were told.

When things blew up, the securities turned into junk. Big Wall Street banks holding them collapsed or had to be rescued. Markets swooned. House prices collapsed  by a third. The economy sank into recession. Eight million people lost their jobs and today $6 trillion in middle class equity has disappeared.

Could that happen here?

Of course not. No worries! A Canadian rating agency says everything is cool. In fact, claims Dominion Bond Rating Service (DBRS to its friends), Canada could actually withstand a real estate meltdown greater than that which hit the hapless Yanks, ripping away 40% of your house value.

Just to put this into context, a 40% price drop would mean about $2 billion less changing hands in Toronto alone – every month. This would put every 5%-down buyer since 2008 under water, and (of course) also plunge anyone with less than a 40% stake in their homes into negative equity. The economic impact would be immense, and the psychological hit even bigger. The endorphic wealth effect that rising house values give would be gone, and you would see the impact on consumer spending within weeks. Then, jobs.

Condo projects would become uneconomic overnight, and construction would cease. Trades would be hammered. The net worth of most families would be hollowed out in a country with a staggering 70% home ownership rate.

But, DBRS says, no big deal.

“A catastrophic 40-per-cent property value drop would reduce household net worth by $93,000 and lower the average equity ratio to 44.8% from the current 66.9 %, but would be unlikely to cause immediate, large universal mortgage defaults,” says the study, whose lead author is Kevin Chiang, a senior vice-president.

This is the trouble with ratings guys. They don’t get humans.

Worse, DBRS is using a US measure of real estate distress (defaults) in a country were very few people consider that option. This is partly cultural (we hate it when people get mad at us), partly due to the monolithic nature of the banks (no mortgage, no car loan, no HELOC, no RESP…) and partly because of recourse mortgages, since defaulting on a mortgage doesn’t mean you stop owing the money.

Way more significant is the concept of negative equity, which creates a self-reinforcing cycle of falling property values. Just because some formerly horny young property virgins find they owe more on their condo than they own is no reason to believe they’ll walk. Chances are they have jobs, credit ratings, Vespa loans and student debt. Bankruptcy just isn’t an option, nor is having a RBC lawsuit up their butt. Instead, they’ll either try to wait out the crash, cutting back on spending in the meantime, or (far more likely) give up, sell and bring a cheque on closing day. It will be  rainy day in hell before they buy again.

This is the real danger of a sudden price plop – it triggers a wave of listings. At the same time, because people are generally idiots, buyers retreat when prices are falling. It’s a market phenom which never fails. We covet things getting more expensive. We recoil from stuff getting cheaper.

Thus, widespread negative equity would be the start of a real estate collapse, not the conclusion. In addition, DBRS is blowing smoke since a 40% decline cannot happen in isolation – such a quick event would come with immediately higher unemployment and a government revenue crisis. Then more declines.

Okay, so am I saying this is impossible?

Nope. There are some markets (that begin with ‘V’ and are moist) where a 40% price plop is not only possible but warranted by the local economy and average incomes. But it won’t be sudden or catastrophic. Way more likely is a drop of 15% or 20% in the next year or so, followed by a shrinking, starving market as supply swamps demand and buyers flee, unwilling to catch a falling knife.

The damage will not be equal, so the DBRS soothing chatter about average equity falling from 66% to 44% is meaningless. Some cities will be massively impacted. Within cities, some hoods will be nailed. And certain types of housing will leave owners wishing they never tuned in to Tube Top Sandra.

But, hey. This is the second reference in a week by a major financial company to the potential of a 40% collapse in Canadian real estate. Draw your own conclusions. Then do something about it.

223 comments ↓

#1 TurnerNation on 05.24.12 at 8:44 pm

2nd.

#2 BeachBoy on 05.24.12 at 8:48 pm

when iz your new book coming?

#3 s on 05.24.12 at 8:50 pm

Garth or anyone else, this is not related to your blog posts, but what’s the issue with the derivatives I’ve been reading about for the last several years. Supposedly there’s 25 trillion in derivatives or some insane number that’s yet to hit the market because of all the trading the banks have been doing during the US housing bubble… is this real or is it just scaremongering?

If real will this ever hit the economy or has the US gov’t already taken care of this?

#4 MJG on 05.24.12 at 8:54 pm

@#1, wrong again.

#5 disciple on 05.24.12 at 8:58 pm

Only 40%? Well, they’re getting closer and closer to my magic number of 50% followed by 80%, then reversion to the mean which could end up to be 40% overall. I wonder what Warren Buffet would do? Well, we shouldn’t care anymore what he thinks now that he’s been exposed as an actor. Now that is what you call catastrophic! Is that the sound of some jaws that just hit the floor?

http://xdisciple.blogspot.ca/2012/05/warren-buffet-and-ross-perot-are-frauds.html

#6 capi casso on 05.24.12 at 9:04 pm

8th ! when will this gta bubble ever burst things just keep going up were all priced out ! damm garth you false prophet!

#7 50% correction predictor on 05.24.12 at 9:06 pm

40% drop is coming, like it or not. Condo and Surburb first.

After that, you will not be able to recognize your beloved Canada. (To paraphrase Garth’s words).

#8 Toronto_CA on 05.24.12 at 9:06 pm

I thought this exact thing when I read the article from DBRS; it is not defaults that would be so damning in a 40% equity drop but that consumer spending would grind to a stand still without people thinking their housing “investment” was rising 10% year over year but rather worth 40% less. No HELOC money, either. Also, the real estate agents and construction workers and mortgage brokers and everyone else directly involved in this massive credit bubble would be out of work; which would make us all suffer.

Just wish it would happen already…so we can begin to recover based on productivity and not real estate bubbles.

#9 Spiltbongwater on 05.24.12 at 9:09 pm

top 10?

#10 zeeman on 05.24.12 at 9:10 pm

hi garth

i heard the other day that condo builders are offering agents 5% commision to bring in buyers to their sales office. this is unheard, normally they offer 2%. have you heard any of this

#11 KingBubbles on 05.24.12 at 9:11 pm

40 percent drop over time sounds about right

#12 Raj on 05.24.12 at 9:16 pm

DBRS analyst is out of his mind.
Read my comment about this analysis in GM

“This is nonesense.I don’t know know what model this analysis is based on but
I know that 40% decline can wreak havoc to any country with very sound economy and
financially less leveraged population.
Maybe Canada is different :)”

#13 Spiltbongwater on 05.24.12 at 9:17 pm

With all the heat that must be down there, being able to have it rain on you sounds refreshing in a way.

#14 carlos on 05.24.12 at 9:20 pm

-40% in Calgary? It indeed would relflect true value of city’s RE. However, I am planing to buy more property, invest some work/money in it and resell it at profit. Those who believe me to be naive – let’s talk in a year :-)

#15 Mortgage brokers in an all out panic on 05.24.12 at 9:28 pm

40% crash in housing in Toronto and vancouver is 100% going to happen and the realtors in a panic know it. Why else would realtors and mortgage broker’s be posting on this blog everyday?

#16 John Ratadlin on 05.24.12 at 9:29 pm

5 year GIC rates today are at best 2.70% and long term provincial strip bonds are at best 3.60%, long term provincial bonds are 3.40% at best. Since 1995 the last peak of interest rates of 9.50% on GIC’S,Long term provincial bonds and strips a slow robbery day by day of 71.50% for GIC’S,62% for provincial strip bonds, 64% for long term provincial bonds. The 40% drop in real estate prices are still peanuts compared to the peanuts left to interest income investors. Garth, don’t think that preferred shares are going to escape. They will drop their rates as well in due time. Preferred shares dividends are closely related to market interest rates of Canadian benchmark bond yields. Everyone will get the Japanese economic malaise peanuts for your money!!!!!!!

Buy preferreds with fixed dividends. Simple. — Garth

#17 Westernman on 05.24.12 at 9:31 pm

ffffffurssssssst

#18 Jon on 05.24.12 at 9:34 pm

Roubini and Krugman are sounding the alarm. Things are not good in the world. If you think so look at the Baltic Dry Index charted with the price of crude. Trade is grinding to a halt, which isn’t good for an export economy. Oil is going to go down further as Europe goes into chaos and China continues to slow. The loonie needs to devalue to increase export profits and decrease cross border shopping which probably tops $4Billion a year. It’s my belief that a large percentage of small businesses in Canada are insolvent and are surviving off of home equity.

BDI means nothing these days. — Garth

#19 Smoking Man on 05.24.12 at 9:37 pm

Garth back in the fall I called that GTA re would be insane in the sping. I also said that the machine will do everything in its power to talk down the markets with out rasing rates

The big guns are out and nothing but stronger sales.

You may think that a slide in prices will make the herd capitulate and list in mass

Well prices slid in 2009 and the herd with all the gloom and doom everywhere simply took inventory of the market.

Our track 6ers here are stuborn and dumb the key ingriedent to a prosporus thriving growing economy

Now the herd is just smart enought to know that as long as Europe is broken rates won’t move and if so slightly.

Sorry but Toronto has a long way to go

#20 NoName on 05.24.12 at 9:38 pm

went to apply for EI today, meet some interesting people there.

An Architect (x1)
City Clerk (x1)
Mrtg Broker (x1)
Surveyor (x1)
Excavator (Concrete/foundation person, driveway) (x3)
Framer (x2)
Drywall (x2)
HVAC (x1)
Electrician (x1)
Plumber (x1)
Brick layer (x3)
Roofer (x2)
Floor layer (carpet, tile, hardwood, vinyl) (x2)
Carpenter (trim work and door installation) (x1)
Painter (x1)
Landscaper (x2)
Kitchen Installer (x2)
Window guy (x2)
Guy who sels faucets, el. Switches and appliances (x1)
Lumber jack (x1)
Not in EI line but made fun of:
Guy in India who handles warranty claims (x1)
Guy in China who makes faucets, el. Switches and appliances (x1)

This is going to be disaster of biblical proportions…

#21 Canned Goods and Buckshot on 05.24.12 at 9:40 pm

Garth said
“BDI means nothing these days.”

You have referenced this benchmark in the past. Please elaborate why you feel this measure means less nowadays.

More to do with too many ships than too few cargoes. — Garth

#22 sluggo on 05.24.12 at 9:42 pm

According to Bob Hoye of Institutional Investors, during the 1980’s crash, the British Properties in West Van went to 1/3 of their pre crash high. Post credit bubble contractions are a bitch. Enough to turn those artificial wealth shat eating grins into brown frowns almost over night.

http://moneytalks.net/topics/timing/7024-article-coming.html

“1. Real Estate:

In short Hoye thinks that real estate is not going to recover in this post bubble economy. Worse, very high real estate in places Vancouver are going to experience a fall in pricing like US Real Estate. Hoye points out that after the 1980 boom “British Properties in West Vancouver and high end properties in Toronto fell to 1/3 of their 1980 highs. Hoye again cites history to support his post bubble real estate argument by looking back to a farm price index after the 1873 bubble in England. That index of farmland values hit 58 at the height of the bubble in 1873 then fell consistently for the following 20 years down to 38. In other words it was just a long bear market in land values after a typical post bubble economy.”

#23 shanks on 05.24.12 at 9:43 pm

hey Vlad,
i checked out your link from like 2 days ago regarding fuku and in the comments section i found this tidbit of info:
basically, the commentator said that the collapse of sfp4 would not be announced (or at least covered by media), and that if a thinking person were to think about it, to watch the Nikki index for sudden big drops, as the insiders would sell their stocks and short the market.
thanks for the links, ever hear of a country called Uruguay?

#24 T.O. Bubble Boy on 05.24.12 at 9:44 pm

Suburbs like Milton (with almost all houses built in the last 10 years) will be 90% underwater — buyers either came in with 5% down, or have HELOC’ed up to cover the renos on that unfinished basement from Mattamy.

#25 AG Sage on 05.24.12 at 9:45 pm

#172 Triplenet (previous thread)

Unless you underpaid back in 2001, then inflation adjusted the house is now worth 206k soaking wet.

Houses gain value to track inflation over the long term. True structural changes that cause deviation from this (like the move to two income families) are rare.

#26 Frank the skank on 05.24.12 at 9:47 pm

Who’s paying the rating agencies to lie?

#27 mid-Ontario on 05.24.12 at 9:48 pm

A 40% drop would be catastrophic.

A 10% drop would start the ball rolling in a cutback on spending up to one’s self wealth feeling. If your major asset is depreciating, you pull back in spending to try and maintain a feeling of wealth. This pull back reduces activity in both the service and retail sectors which in turn pull back and down the drain we all go…slowly at first but down nevertheless.

No one here should ever hope for a 40% drop even in Vancouver. Canada never likes to be outdone by any other location. If Vancouver crashed and 40% is a crash, we are all in for very hard times.

#28 TRT on 05.24.12 at 9:54 pm

So overseas, there was a story that Canada is undergoing Austerity measures…just like Greece, etc.

Yet, Canadians are unaware…maybe not Quebecers. Media concentration problem?

#29 Aizlynne on 05.24.12 at 9:56 pm

Garth, where on earth did you find a picture of my cat Reggie??

Oh, and I also have sold my home already, at a nice little profit thank you. Renting never felt so good!

#30 dd on 05.24.12 at 9:57 pm

Real estate makes up almost 30% of GDP in this country. 40% drop in prices would kill it.

#31 Smoking Man on 05.24.12 at 9:59 pm

Frank the shank

Who dosent lie. Its a form or art the better you master the skill the richer and happier you become. We all do it some of us are good some bad.

Every human has an agenda so don’t even know they do.

If only we could get the art of lying in canadian schools our economy would rock. Art of lying is reserved for the ruling class kids. The rest your being trained to serve and tell the truth

#32 Djb on 05.24.12 at 10:00 pm

Funny how all markets are the same. Momentum chasers up and down. The issue why people do not see the downside in real estate is the liquidity of the market. Unlike tulips or stocks that can drop 40% in a day r/e takes longer to make the price adjustments lower

#33 Bill on 05.24.12 at 10:01 pm

Garth, have you ever noticed that blog comment sections are mostly inhabited by Charlatans who pretend to know a great deal, yet who are exposed as the dilettantes that they are with every new comment they make? I just thought it worth noting that, while I read your blog for sound financial advice, anyone who follows the advice of your peanut gallery does so at their own risk…

#34 Djb on 05.24.12 at 10:03 pm

What happened to the fat cat in a box? Did the cat lovers throw a wet blanket on your sense of humor?

They rendered me catatonic. — Garth

#35 Paolo on 05.24.12 at 10:13 pm

Why all this talk about drops?

Why even start rationalizing a worst case scenario?

What do some know and are slowly admitting?

Is the train wreck finally upon us?

#36 Chaddywack on 05.24.12 at 10:13 pm

With markets now correcting I’m sure there will come a time in Vancouver to buy again. The question is how do you know the time has come? Any quick and easy ratio or calculation for the young and horny?

#37 John Johnston on 05.24.12 at 10:15 pm

OSFI Super Julie Dickson destroys a lot of the estimates like the one done by DBRS in her May 9 speech. The analysis fails to pick up the dynamics and second round effects that Garth discusses. In doinf so she casts considerable doubts on the stress testing done by the banks, which shows how solid they are. A 40% decline would be a disaster, and of we see 40% then 60% would be long in following. I’m really negative, but the thought of a national decline in the 40% range scares me. This would likely see GTA condo prices down 75-80%.

#38 99% on 05.24.12 at 10:16 pm

I can’t speak to the rest of Canada, but here in Vancouver and the Lower Mainland, the drop will not be slow. We are already feeling the effects of it. There’s word on the street that houses are not selling. Everywhere I go, that’s what people are talking about, and there is a mad stampede rush out the door as we speak. Price reductions on active listings are very aggressive lately. I believe in Richmond, we have already exceeded a 10% price reduction, and will pick up speed faster than you think.

#39 Bottoms_Up on 05.24.12 at 10:17 pm

#160 JB
————————————–
http://www.nbf.ca/en/tomensonturner/

#40 lil RoNiE on 05.24.12 at 10:18 pm

DELETED

#41 Cory on 05.24.12 at 10:20 pm

I am telling you, Calgary prices will nto drop and the condomania in an urban sprawl town (sarcasm here) continues on and on and on and on……..

I think this is a complete fabrication:

http://www.calgarysun.com/2012/05/24/condo-fetches-9m-breaks-record

I live right across the street from this “desirable” development. If it really truly sells out and gets built, I will literally lose all of what little respect I have for human beings. How stupid can people be?? Houses, worth less than what this developer is trying to sell these severly overpriced condos for, right across the river, are not selling.

Lies lies lies and people fall for it every time. Construction is already delayed on these by 2 months. Lets see if it continues.

#42 Onthesidelines on 05.24.12 at 10:24 pm

BDI means nothing these days. — Garth

Why? And why these days? Surely it’s part of the bigger picture?

#43 John on 05.24.12 at 10:24 pm

Ratings agencies follow the “economic strategy” of Obama’s owners. As a mouthpiece for them at the European meeting this week, he suggested that the European Central Bank buy Italian and Spanish debt.

That was it.

And as reality sinks in, CNN reports that “European leaders don’t make major decisions”. Uh…whaaa? Is it clear now that sovereign governments aren’t in control. That their best is to react to the money junkies above them?

Ok, so…that’s…not clear. Whatever.

Goldman Sachs et al wealth transfer is aided by putting a brick on the accelerator as the vehicle approaches the debt-saturation cliff. It’s not complicated.

Anyone not think that the cheap digital money sell-off to Canadians isn’t connected? Who’s leading Canada anyway? What are they saying right now?

Exactly.

#44 coastal on 05.24.12 at 10:25 pm

40% ? Holy tamolee, someone better call Bob “Baseball Card” Rennie, he’s “in the know” right ? Let’s party like it’s 1981 !

#45 furst on 05.24.12 at 10:26 pm

Why’d the picture change from the FURST one? FURST!!!

#46 CrabsInMyPants on 05.24.12 at 10:34 pm

Smoking Man,

Your delusional (but I love your posts).

Toronto is starting to stink at the edges now.

Hey, what do you and John Travolta have in common – any confessions you want to share on this anonymous blog?

#47 John G. Young on 05.24.12 at 10:34 pm

#190 Westernthing on 05.24.12 at 9:40 pm

“Turner Nation @ # 189,
…“Victims” in Canada are groups like ” French Canadians”, ” Women “, ” Homosexuals ” ” Native People ” etc. etc. etc.
In short – just about everyone except people like you and I …”

As always, it’s the only one playing the victim card — over and over and over again.

That’s how it rationalizes its abuse.

#48 Aussie Roy on 05.24.12 at 10:35 pm

Garth, what you describe is what has been and continues to happen here in Australia. Those who read my Aussie links will recognise the same pattern.

I would also add that much of the spending done over the past few years is “home equity withdrawal”. Rising house prices and this withdrawal of equity has added to spending and added to GDP. Remove this bonus (rising house prices) and spending (GDP) will fall.

Falling spending then pressures business who have built businesses thinking that the current level of expenditure is normal then react by reducing costs (read laying off workers).

This reduced employment than flows into even less comsumer spending.

It’s the reverse of the 1990 onwards (in Aust until 2008) of the positive feedback loop. House prices rise leading to more spending and more debt. The reverse a negative feedback loop, falling house prices, less spending and deleveraging.

The economist above is stuck in a world where private debt doesn’t matter and this delusional belief is defended to the death. Even though as we look around the world it’s been private debt that kicked off the US melt down.

Common sense seems to have been replaced by neo classical economic thinking, those that can’t see that this delusional thinking has bought us to where we are today are NOT worth listening to.

Bursting house bubbles cause rising unemployment, deleveraging and falling GDP. I dare anyone to prove this statement wrong with examples and data not just wishful thinking and hype.

Garth thanks again for shinning the light of common sense on this common delusional neo classical economic belief.

#49 50% correction predictor on 05.24.12 at 10:36 pm

#22sluggo

According to Bob Hoye of Institutional Investors, during the 1980′s crash, the British Properties in West Van went to 1/3 of their pre crash high.

____________________________

He knows what he is talking. Lots of respect for him.

#50 Einzatgruppen kanada on 05.24.12 at 10:40 pm

What does the RBC want with water..?

#51 CrowdedElevatorfartz on 05.24.12 at 10:42 pm

@ # 3 ‘S’

$25 Trillion in Derivatives?

AHAHAHAHAHAHAHAHAHAHAHAAHA

Try $600 TRILLION in shakey, “insurance” loans backing all the WORLDS’ banks bad loans.

Can you say Panic?

$600,000,000,000,000.00

Why worry about Billions of dollars going to Greece?

Thats Soooooooo Boring compared to derivatives

#52 Leonard on 05.24.12 at 10:43 pm

Garth what do you think of mortgage reits, for example ARR which pays a 17% dividend? A good addition to a diversified portfolio?

#53 CrowdedElevatorfartz on 05.24.12 at 10:47 pm

@#33
Thanks for your support “Bill”

Is that the only mail you get?

#54 Ydnew on 05.24.12 at 10:50 pm

So the DBRS believes that Canadians can manage a 40% price drop.

A mere bagatelle!

No possible downside to that.
No danger of people not being able to renew their mortgage or cut back on spending. No likelihood of anyone losing jobs. We could also handle a 40% drop in the TSX while we’re at it.

Nothing to see here.

Move on.

#55 Canadian Watchdog on 05.24.12 at 10:54 pm

– NO DOWN PAYMENT – VIP ACCESS – FREE VIEWING – WATCH THE SPECULATORS SCRAMBLE LIVE – 投机者 VIP

As a continuation from yesterday’s post, here are today’s Red Pin speculators head for the exit door listings. http://i47.tinypic.com/est8gk.png

This time I plotted the default area to monitor consistent listings on a daily basis. Stay tuned.

#56 Junius on 05.24.12 at 10:56 pm

Just knowing that these are the sort of idiots running our bond agencies tells you all you need to know. You have to wonder what bright bulb at the agency decided to run this economic model anyway. Just nuts.

Now we know who BPOE works for!

#57 BC Bring Cash on 05.24.12 at 10:57 pm

“They rendered me catatonic-Garth”
I had to look this condition up on wikipedia.
http://en.wikipedia.org/wiki/Catatonic

#58 Westernman on 05.24.12 at 11:00 pm

John G. Young @ # 47,
There’s no ” abuse ” being proffered : just frank, straightforward truth telling… sorry you can’t take it – maybe you should just sit down and have a good cry…

#59 helpful on 05.24.12 at 11:02 pm

what the hell……….furrrrsssssttt!!!

#60 Observor on 05.24.12 at 11:09 pm

Off -topic What is the Value of a Dollar?

1. It’s total wealth in dollars divided by the total dollars in existence? (So more dollars created by banking system lowers cvalue of a dollar)

or 2. It’s the Total amount of wealth as measured in dollars doivided by that self same total value of wealth measured in dollars? (which equal’s 1)

or 3? (something else?)

2

#61 Jimmy on 05.24.12 at 11:14 pm

Hey Garth,

After reading your blog for a couple years and agreeing with most of what you have to say, I have signed a 1 year lease for a condo in downtown Toronto. Im new to downtown living and want to try it out . They sell for about $430,000 where Im moving to , and rent is around $2000 with parking. I was gonna buy originally but the amount of condos being built downtown right now freaks me out and in my opinion signals a correction just waiting to happen.

Some friends think im nuts , some don’t . I’m self employed and my income varies year to year. Not by a lot, but I have to be careful. I also have money in the stock market and didn’t want to cash it out yet to buy a condo, which may fall 10-20% very easily in the next couple years. That’s also my backup money in case the shit hits the fan with business income.

It’s amazing how many people still use the “your paying someone else’s mortgage” line on me. I say to them , go do the math of what a condo will cost you to buy. CMHC fees, land transfer, legal, downpayment, etc. and then a nice 20% correction and who’s the dumbass now?

It’s amazing how many people don’t realize that in the 1st year of a $400,000 mortgage at 30 yr am and 3.29% rate, you only payoff about $7000 in principal. So if you don’t like the condo and area you moved to after the 1st year and want to sell, you’re screwed if the prices stay the same or drop. You lost lots of money. If you want to rent it out, you’ll have a tougher time getting you’re next mortgage as well, especially if the rental is CMHC insured. CMHC will give you a harder time on your next mortgage , guaranteed. I know as my friend is a mortgage broker and tells me CMHC is laying the smack down now on new applications. They used to be friendly, not anymore.

I hope i’m right about this decision. We’ll see in a year or so :)

#62 Steven Rowlandson on 05.24.12 at 11:26 pm

Sooner or later paper burns or goes to zero.

#63 Canadian Watchdog on 05.24.12 at 11:26 pm

Remax Condo Plus: There’s a lot to like about the condo market: http://www.remaxcondosplus.com/blog/there%E2%80%99s-a-lot-to-like-about-the-condo-resale-market-in-toronto/

“Finally all the naysayers who say condo prices are going to crash and you should rent instead, need to ask themselves: where? There are no new apartments and our two downtown universities have stopped building residences. I guess the answer is condos. Rents right now are a bargain and with vacancy rates under 1%, there is only one way for rents to go –up!! And they will have to rise faster than condo prices to bring investors back into the condo market!!”

Now even the professional bulls are getting personal. This is going to be a fun summer.

#64 T.O. Bubble Boy on 05.24.12 at 11:31 pm

@ #61 Jimmy: you’re doing the right thing. The fact that you’re comparing the $2000/month rent to a 30-yr mortgage @3.29% means that you’re WAY ahead.

Just look at the math… $430k with 5% down = $408,500 mortgage. @3.29%/30-yr that is $1782/month just on the mortgage payment alone. Add on property taxes ($250/month) and condo fees ($400/month), and you’re up close to $2500/month.

So, forget about that $7000 in principal that you said you’d be paying off in year 1 — you’re losing $6000 on the mortgage+taxes+condo fees. AND – I haven’t even touched on the CMHC fees or the lost earnings on your down payment!

#65 Phil Indablanque on 05.24.12 at 11:33 pm

“…not only possible but warranted …”

And the Emperor has no clothes.

I think the big thing that people miss is the speed (or lack there of) that these events occur at. S L O W M O T I O N. The youngsters are all about instant gratification and the oldsters can’t admit its right around the corner. Patience is a virtue for a reason.

#66 wes coast on 05.24.12 at 11:36 pm

Garth said: Condo projects would become uneconomic overnight, and construction would cease. Trades would be hammered.

There is no place I can think of where the above statement is more true then the big moist ‘V’ on the wet coast. Just like Windsor Ontario put all its eggs into the auto sector and paid the price when economic reality kicked it in the ass – Vancouver will suffer the same misfortune with the housing sector. No economic diversity here. Land prices and housing sector inflation are crowding out other investment. We’re Pheonix. We’re Spain. We’re [email protected]@ked. 40 percent drop in Van? No problem. I’ll bet the correction overshoots that amount because although people can’t walk away from a mortgage on its own- when there is no job to pay the bills you can still go bankrupt and the bank gets the house. Everyone here needs 2 income just to get by. Even if 1 spouse loses a job that’s enough to trigger bankruptcy for many. No HAM. No Olympics. No cheap credit. No jobs. What will stop the free fall?

#67 TRT on 05.24.12 at 11:38 pm

A telling sign will be if OSFI will introduce a max 65% LTV ratio for Heloc’s next month.

Think. Why would they do that?

#68 Aussie Roy on 05.24.12 at 11:51 pm

Aussie Headines

When STATS don’t tell the whole story

There’s something weird going on in South Australia. According to the Australian Bureau of Statistics (ABS) housing finance statistics, the number of owner-occupied housing finance commitments (excluding refinancings) in South Australia are tracking near decade lows, some -26% below the five-year moving average.

http://www.macrobusiness.com.au/2012/05/whats-up-with-adelaide-housing-by-leith-van-onselen/

Up, down and around and around we go.

A detailed Sunshine Coast breakdown of the Noosa area shows that the volatility over the past 12 months in median house prices has fed through into March – with increases or dips depending where you live.

Sunshine Beach has had a 12-month surge in median prices – up almost 60% from $772,000 to $1,235,000 while popular holiday destination Peregian has seen an almost 19% drop in median prices ($642,500 to $522,000).

Median prices at Noosa Heads were up by more than 16% ($645,000 to $750,000) but in Tewantin the median price declined by 13% ($450,000 to $390,000).

Overall, the Sunshine Coast’s median house price increased by 0.6% to $430,000 over the quarter compared to the Brisbane increase of 1.2% to $505,000 over the March quarter.

http://www.noosanews.com.au/story/2012/05/25/property-industry-wins-hope-noosa/

House PORN Aussie style

Although NOT on their website to view yet – an ep broadcast on 24th May. Property GURU admits.

“What goes up, doesn’t always stay up”.

A polite way to say a property featured last night purchased in 2003 did not reach its original purchase price (in 2003) after prices fell more than 30% over the past 3 years.

http://channelnine.ninemsn.com.au/hotproperty/

Remember my links last year to the Aussie house porn show “The Block”. Where every property made a loss.
Well, it’s back, I wonder what the out come will be?, dont worry I’ll keep you informed.

A sneak peek at the Aussie house porn icon.

http://homes.ninemsn.com.au/theblock/

#69 John G. Young on 05.25.12 at 12:00 am

#58 Westernman on 05.24.12 at 11:00 pm

“There’s no ” abuse ” being proffered : just frank, straightforward truth telling…”

If you say so.
BTW your use of “proffered” is incorrect. A dictionary can help.

“sorry you can’t take it…”

If by “it” you mean you– oh, I can take it all right.

“maybe you should just sit down and have a good cry…”
Laughably lame.

#70 Mister Obvious on 05.25.12 at 12:07 am

#48 Aussie Roy

“It’s the reverse of the 1990 onwards (in Aust until 2008) of the positive feedback loop. House prices rise leading to more spending and more debt. The reverse a negative feedback loop, falling house prices, less spending and deleveraging.”
—————–

I hate to be a nitpicker Roy because I know you’re a good guy and long time contributor from down under.

But technically, the feedback loops of which you speak are in fact positive, both going up and going down. Negative feedback loops are stable, positive are unstable.

Otherwise, you make some sense.

#71 Carpe Diem on 05.25.12 at 12:09 am

BDI … More to do with too many ships than too few cargoes. — Garth

To translate Garth`s thought (BigG let me know if I`m wrong here)

1. Read this.

http://en.wikipedia.org/wiki/Baltic_Dry_Index

2. Read this to understand Garth`s comment.

In summary, there are new big ships (supply) causing this index to drop.

http://articles.marketwatch.com/2012-01-27/markets/30690860_1_global-trade-baltic-dry-index-shipping-rates

#72 XKR on 05.25.12 at 12:11 am

@ #16 John. What are you talking about? As those interest rates have fallen the value of those long dated strips and bonds has literally exploded over the past decade. Not to mention the added benefit of sliding down the yield curve as one approaches maturity, further adding to the valuation gain.

Garth proposes fixed rate preferreds, a good idea as there are a few out there with yield to maturity (YTM) of 5%, however, the universe of these is slowly disappearing as they are replaced with rate reset preferreds where the yield is now typically in the 3.5% to 4% range.

For what its worth, take a look at some of the convertible debentures trading on TSX. There are many with YTM of 5%, 5 to 7 year maturities and a conversion premium (to the common) of 20% or so. Corporate strips are also available with yields at 4% or better.

#73 Nemesis on 05.25.12 at 12:15 am

BDI means nothing these days. — Hon. GT

Not if your last name is Onassis. Or your homies in Manila are counting on the remittances… Or you work a crane at VanTerm… Or Babysit a RoRo up the Fraser… Or…. Fill in the blanks, OldPol…

As for too many ships… Yes, some vessel categories are struggling… But not all. Hint: VLCC China

#74 XKR on 05.25.12 at 12:16 am

@ #60 Observer. The value of a dollar is whatever you are willing to ascribe to it, ie whatever you are willing to part with them for. We accept them, and part with them, based upon our faith in their value. We establish that value, collectively, over time, by observation.

#75 Mr Buyer on 05.25.12 at 12:19 am

A soft landing requires catching a falling knife and thus there is likely less than a 1% chance of that unicorn walking through the door. The stars are now coming into to focus for many and quite suddenly.

#76 45north on 05.25.12 at 12:27 am

here’s a link from the NY Times that shows % decline from peak of major US cities. It’s frightening. For example NY City declined 26% from the peak. The smallest decline I could find was Dallas at 10%.

http://www.nytimes.com/interactive/2011/05/31/business/economy/case-shiller-index.html?ref=business#city/NY

(sorry for the long link mcafee is down)

I just saw a news article on Yahoo that said Timkin is pulling out of southern Ontario – something like “to align more closely with the US market”.

No Name: talking about who was in the EI line. pretty darn scary.

T.O. Bubble Boy: Suburbs like Milton (with almost all houses built in the last 10 years) will be 90% underwater

yeah they will and so will Brampton even though Tony said prices would never drop in Brampton. Tony and I used to play soccer in Scarborough. Well Tony, I got to tell you, Brampton is going down. The politicians know this and they are scared. Politicians like Harper and Mulcair. Yeah and like Dalton McGuinty.

99%: I can’t speak to the rest of Canada, but here in Vancouver and the Lower Mainland, the drop will not be slow.

I don’t think it will be slow. BPOE is already catatonic.

Garth: the Baltic Dry Index is significant, maybe not that significant but still important

Canadian Watchdog: wow, the listings are doubling every day. This could be the cat-a-lyst for the collapse.

#77 Saskatoon Housing Bubble on 05.25.12 at 12:32 am

40% loss in real estate? It’s happened before in Canada.

Adjusting for inflation this is how some cities did in the 80’s.

Vancouver lost 44.4% peak to trough
Calgary lost 40.9% peak to trough
Edmonton lost 32.6% peak to trough

In the 90’s.
Toronto lost 32.4% peak to trough

http://3.bp.blogspot.com/-0fv8c4Fyidw/T67YlpFseVI/AAAAAAAADho/zS3RqdrYQcg/s1600/real+house+prices+canada.jpg

Here are Canadian house prices from 1980 to 2011 adjusted for inflation. Prairie cities took a beating from the peak in 1981.
http://1.bp.blogspot.com/-kxYA-3rzSsk/T67YH_hJXaI/AAAAAAAADhg/kJ5x7JAE5hQ/s1600/Canadian+Cities+Average+Annual+House+Prices+In+Thousands+%28+Inflation+Adjusted+in+1980+$%29.jpg

Here are Canadian house prices adjusted for inflation from 1990 to 2011. If someone bought in Toronto in 1990, they sure took a beating.
http://3.bp.blogspot.com/-afzwSMMVY04/T72522wT17I/AAAAAAAADk0/8jh4E5aC15g/s1600/Central+and+Eastern+Canadian+Cities+Annual+House+Prices,+in+thousands+%28real+terms+%281990+dollars%29%29.jpg

As for those who buy in the Canadian cities where housing bubbles are obvious, I just hope they are planning to stay there for awhile ( like over a decade or two), because buying at the peak of a bubble never turns out well.

#78 maya on 05.25.12 at 12:45 am

Even with 40% price drop, are we still having robust buyers? It will be interesting to watch…..

#79 Carpe Diem on 05.25.12 at 12:46 am

So I was on the soccer pitch today. The entertainment was no the kids but the soccer MILF talking about her husband complained about the cost of heating the pool.

I would do some awesome things to this MILF and then simply drop her.

These days people need a good correction to remember where we should invest our money. I sure isn’t heating an outside pool in May.

I had a pool. I sold that home. I rent a mansion on an acreage for less. I also have a hotel gym (with pool) membership for me and my family for less that that pool I had. And we can go to that pool for 1

#80 Carpe Diem on 05.25.12 at 12:48 am

Who press a key to submit???

And we can go to that pool for 12 months versus 5 months.

From what I can see. Renting is much better than buying these days.

#81 CalgaryBoy on 05.25.12 at 12:58 am

It’s true! A lot of my co-workers who bought in 2007 and beyond are in negative equity in Calgary. I’m hearing about $50 – $70K. So imagine when it corrects even more! We’re probably looking at doubling that number! Ouch!

#82 s on 05.25.12 at 1:00 am

@ CrowdedElevatorfartz

So what’s going to happen the 600 Trillion in derivatives?

I’ve been hearing about this for years prior to the 2008 GFC and nothing seems to have happened with it yet.

I was thinking it was some conspiracy theory…

#83 50% correction predictor on 05.25.12 at 1:04 am

Just finished watching CP24 Hot Property Show re-run.

Host: Al, what do you think the property price will be in next ten years (in GTA)?

Al St. Clair: you know, in the past, every three to five years, the price doubled. In next ten years, I expect it will appreciate about 70%.

Note: to Al’s credit, he did not use the word “guaranted” this time

#84 Nostradamus Le Mad Vlad on 05.25.12 at 1:06 am


“The agencies made fat fees to rank them, and did as they were told (by TPTB). Could that happen here?” — Quoting Blazing Saddles, “You bet yer ass!” And PDQ, too.

“. . . $2 billion less changing hands in Toronto alone – every month.” — Hey, wait up! Smoking Man and I can split that right down the line to boost our local economies!

“Then, jobs and you would see the impact on consumer spending within weeks.” — Not forgetting the student riots in Quebec or the CP strike, which the dictatorial CPC will legislate away next week.

One only has to wander around a town or n’hood to sense the palpable fear / tension among sheeple that there is something wrong, but no one can put their finger on it.

Ask Kevin Chiang what happens if plants lose orders, shut up shop and lay off staff who are expected to meet their mtge. obligations on EI. Then again, Wall St. and big banks were bailed out, as was the auto sector without our consent. Time for a people bailout?
*
“No worries. CMHC insured it. — Garth” — That would make a damn funny headline, sans pic, for one of your columns. Where were you when Second City came by? You would have been a natural! Here’s a couple of Harleys for you.

#19 Smoking Man — “Sorry but Toronto has a long way to go”

Noted, but it will be TROC that eventually drags the Big Smoke down, possibly 2014.

#23 shanks — “. . . ever hear of a country called Uruguay?” — Hi shanks and yes indeed, one of the Top Ten Countries to escape to from the current morass the west is (predominantly) in.

Doesn’t surprise me about Fukushima, and no one can do anything about it anyway. One person recently said the northern hemisphere should be emptied and we can fit about eight bln. into the southern half (then a polar shift?).

But, whatever. I’m too old and decrepit to be bothered by the stuff of the world. The Ten Happiest Countries In The World and Ten Worst Countries In The World. Take your pick — Cheers!

#26 Frank the skank — “Who’s paying the rating agencies to lie?” — Same ones who control the m$m — they’re all a bunch of liars.
*
3:07 clip In case it happens, here is how hyperinf. takes shape; The Law of the Sea Treaty will blow the NAmerican economy to kingdom come, but The Silent Revolution will put us right; Recession – Depression Some parents going without food to feed their children, and Being There — a hurricane-type recession; Catastrophic Cameron The headline also covers David Cameron, and ‘Owzabouddis? Interesting if the EZone and the EEC breaks up — similar to the USSR when it disintegrated; New Iron Lady worth a ton; Ten Ways to bring down the control freaks; Oz company hiring US workers for mining; Pushy is The Fourth Reich; Income Inequality and Financial Engineers; Recession in 2013? Holy sheepshit, they’re on to something! Van Rompuy Wants deeper EU economic union (while they’re breaking up), and The End (not really); Rabbit Hole How deep does it go?

Nice Portfolio if you can get it; Oblastit US$5 trillion (actual deficit). You found out! TPTB may take a five day bank holiday to finish off the Euro; Spain Makes sense; Blown Sky High; Flying Pigs? The Floyd have them; FB was my mistake; ECB in one para.; Scary China; Economics and the anti-Christ; If Parents Can’t Pay Bills, kiddies have to pick up slack; Plastic Is it worth it? Not really; Trends changing the world; Extreme Overcrowding in Hong Kong.
*
2:37 clip ‘Net control by Build Your Burgers; NZ and Japan have had and will have a few monster mega-quakes, as well as the NMF and west coast of NAmerica; In less than 24 hours, an entire lake in Chile vanished; UK fines people who don’t vote; Harper the RE Agent Pic is good; Axis, Bold as Love Yahoo’s! new browser; RFID Chips in school uniforms, Brazil; Mayor Bloomberg of NY Like Harper, a “Do as I say, not as I do” control freak.

#85 Johnny on 05.25.12 at 1:07 am

So when does Victoria bust? 15+ years with no down turn (A few months sideways in 2008) and the smug Lexus driving yuppies are getting oh so tiresome.

#86 Devore on 05.25.12 at 1:09 am

#22 sluggo

In short Hoye thinks that real estate is not going to recover in this post bubble economy.

It is fair to even make a case that real estate will NEVER recover. Previous recoveries were aided by falling interest rates which steadily expanded available credit. This gives us that famous RE price curve that seems to always go up over time, once you smooth out the booms and busts. Why exactly will real estate resume an upward trend once prices bottom out? No one is being flooded with credit (except favoured banks who use the carry trade (borrow cheap short term from central bank, lend long term to government) to re-build their assets sheets). Demographics suck. Populations of virtually all western countries are naturally shrinking, and many developing countries are leveling off too as their standard of living, and costs of living, continue to inexorably climb. Malthusians are nowhere to be seen. A reasonable case scenario has continued long term very slow growth with very low rates. Best case scenario. Worst case, sovereign debt troubles due to exploding public debt from poorly performing economies, declining tax base, and social programs bleeding cash.

I know Garth is probably much more optimistic, but a molasses-like economy for decades is entirely conceivable.

#87 bluethunder on 05.25.12 at 1:12 am

“Tube Top Sandra”
Hahahahahahahaha.
Gold Jerry! Gold!

#88 Devore on 05.25.12 at 1:41 am

#46 CrabsInMyPants

Toronto is starting to stink at the edges now.

Toronto is where Vancouver was about a year ago. Hot hot hot in the core, with very publicized bidding wars, while the edges were visibly crumbling. But of course Toronto is different.

#89 pablo on 05.25.12 at 2:04 am

#7 50% correction predictor
condo’s and suburbs! not in my backyard. with the proposed 407 extension being announced by mrs mcguinty’s boy dullton, today; my executive detached a la enclave estate dwelling can only go up in price according to such notable authorities as local m.p.’s and cp24’s hot property host and guests (surely none of them is a real estate pumper) one being a mortgage broker and the other being a developer of residential real estate and of course the knowledgable anne rohmer.
so i’ve got nothing to worry about, my future is assured. assuming i can survive underemployment, rising taxes, utilities, personal debt and other minor inconveniences.

#90 Aussie Roy on 05.25.12 at 2:20 am

Aussie Headlines

Forced home sales rise as slowdown bites.

National figures on repossessions are hard to come by. Still, the trend adds to other evidence that the housing market is heading lower in most capitals even as interest rates slide.

House prices in Melbourne slid 6.6 per cent in the year to March 2012, according to official Australian Bureau of Statistic data, following a rapid increase in stock in recent years.

In Sydney, where planning constraints have long stymied the market’s growth, house prices posted a more modest 4.6 per cent fall for the period.

“When you get the real estate industry fudging figures and you get banks doing the same, well, what’s real and what isn’t?”

MMM, perhaps it takes some not so common, common sense. We have had a house price boom built on emotion and a mountain of debt. Like all ponzi schemes when the pool of GREATERFOOLS runs out it’s time to face reality.

http://www.smh.com.au/business/forced-home-sales-rise-as-slowdown-bites-20120525-1z9k3.html

#91 daystar on 05.25.12 at 2:54 am

http://ca.news.yahoo.com/dbrs-says-canadians-withstand-housing-downturn-debt-concern-144206634–finance.html

I thought the news piece was a little off myself. I’m not quite sure what they intended to accomplish. (maybe we can add a whole lot more D’s to the list, lol)

http://www.ctv.ca/CTVNews/Canada/20120524/household-debt-DBRS-study-120524/

“The agency said a 40 per cent drop in prices or rising interest rates would put pressure on Canadian households, but not have a large impact on mortgage defaults.” – DBRS

Thats a pretty major disconnect, alright. Is it a propaganda piece? Seems to me it could only work on stupid (so it qualifies) and who better expertized than a ratings agency to deliver (chuckles). Media is better off not saying anything at all about housing for a while til’ the numbers come in if they really are worried about “household debt warning” and “housing bubble” overshoots. I so have to chuckle at the paranoia taking place in terms of F & H & C and main stream media fearing overshooting the message, I really do but what doesn’t have me laughing is just how controlled it is throughout the entire media industry.

Its hard not to be surprised and in some ways alarmed by the outright concerted media hush that has pervaded anything negative with RE since CBC aired their RE/bubble story a couple weeks ago. If there was ever evidence of media collusion in this nation, its in spades with stories of Canada’s RE bubble pulled overnight and scrubbed from every major media outlet in this nation unless it minimizes and denies. It really is telling.

F and Carney went from talking down housing at every turn to becoming mimes at business luncheons with the subject of RE. It really is a tell all in terms of just how messed up RE has become in Canada when media blackballs anything that can dampen RE markets in the way of a negative story in virtually every news outlet known to Canadians.

Thats power of the press when a story as big as Canada’s real estate/credit bubble gets the silent treatment universally. Makes a person wonder just how many other stories are buried just like this one. What we are witnessing, fellow dogs, is what is called “silent propaganda” in a nation that supposedly prides itself as first world and it shouldn’t make us sleep easier at night. Its not unexpected but… its not comforting either.

#92 Sebee on 05.25.12 at 3:31 am

Now we have to save images for archive purposes?

I was about to show the wife the puss-in-a-box and sadly, gone. At least you don’t submit on message as easily as on images.

#93 new-era on 05.25.12 at 3:40 am

Talk at the dinner table at grandma today.

For months /years she’s been yapping at us on buying another place after we sold several years ago.

Telling us how housing will never go down and can only go up.

We’ll guess what, she’s thinking of putting her place on the market now. Shes officially scare, because every where you look in burnaby bc, theres are high rises being built, old building torn down, holes in the ground prepping up for a build.

Only problem buyers are holding back.

This will be “EPIC!!!”

#94 Jody on 05.25.12 at 3:48 am

Hey! What’s wrong with Tube Top Sandra? She can rub the nuts on the back of my truck anytime. I’ll tell her I have an up and coming neighbourhood she should see.

“My that’s a lot of home equity you have.”

“Mmmmmm, granite.”

“Oh yes! Buy now! Buy now! Buy now! Prices go up foreeveeeeerrrrrr!!!!”

Anyway, here in Cowtown the local news rags continue to whore themselves to the real estate industry. Lot’s of we have recovered talk, now is a great time to buy. All this with record public service cuts coming. Harper’s gonna cut the CRA, what a dolt, then the government will collect less taxes, typical government stupidity. No union can go on strike anymore as they are all vital, the facist state rears it’s ugly head more and more.

Here’s a goody:

http://www.youtube.com/watch?feature=player_embedded&v=bBx2Y5HhplI

#95 Linda Pearson on 05.25.12 at 5:46 am

Westernman, Turner Nation and now, sadly, John G Young, are pushing the envelope with their referring to other individuals or different groups of humans as ‘things’ and ‘its’. To deny someone his/her humanity is the final insult and one step closer to being able to justify any indignity, any assault.

I appeal to all of you to pull back from the edge on this. If you can’t muster a coherent reply or cogent argument without descending to this level then move on to another subject. Please.

#96 Kip on 05.25.12 at 5:58 am

“Condo projects would become uneconomic overnight, and construction would cease. Trades would be hammered.”

The building trades always get hammered. When times are good, they’re great. When times are bad, we get hammered. Hardly earth shattering news.

#97 neo on 05.25.12 at 6:26 am

More to do with too many ships than too few cargoes. — Garth

So you choose to ignore the fact that coinciding with the precipitous fall in the BDI in late december is a real fall in global trade expressed not only in trade deficit numbers in aggregate but PMI’s in BRIC countries that are suppose to be fueling this “recovery” and Europe which is a mess and so is Japan the third largest economy. Germany which is the engine of Europe just printed a 45 PMI (below 50 is signals economic contraction). The worse since 2009 and that trend is accelerating. I agree you can’t just look at the BDI in isolation but macro data is supporting a slowdown globally.

It’s just a lousy indicator. Keep your shorts on. — Garth

#98 maxx on 05.25.12 at 6:53 am

“Eight million people lost their jobs and today $6 trillion in middle class equity has disappeared.”

It makes me want to cry. When you think about how many days of sweating it out at work it took to accumulate that lost (forever) equity, it’s a fiscal disaster of epic proportions…..not just for the investor/taxpayer, but also for the nation’s economy. It’s like having flushed years of your working life down the toilet. This is wealth that will never be utilized in the real economy.
I have friends who lost about 50% of their wealth in that mega-scam. An investment “”advisor” one of them was using, just up and disappeared.
A couple of years prior to this fiasco, we went into a bank and the advisor we spoke to suggested investing in real estate “products”, because RE “will never go down” and if it did “the whole country would fall apart, haw-haw”- these were his exact words. Well, we smelled a rat and stayed conservatively invested. We sleep and are stress-free (mostly).
I had trouble trusting big finance then, but today I want it clearly in my sights so as to avoid it, because I’ll never, ever trust it. Nor do I trust the accompanying enablers such as the legislators that “relaxed” lending standards and created a freight train of lunatic RE horniness without brakes.
No, trust doesn’t live here any more.

#99 Steven Rowlandson on 05.25.12 at 7:16 am

RE: #66 wes coast

No HAM. No Olympics. No cheap credit. No jobs. What will stop the free fall?

Answer: Very little will stop a free fall except institutional resistance and even that will have limits.
and at some point realtors, banksters,governments and people with a home to sell will have to bow to the enevitable.
I seriously doubt a free fall in prices will stop at a 40% drop.
Try a 90% drop plus or minus 5% or at least as bad as the drop in silver prices between 1980 and 1993.
Between the financial incapacity of potential home buyers, nuclear contamination from Fukushima and the approach of the next big ice age,
I think the value of canadian real estate as an investment will be poor to nonexistant.

#100 maxx on 05.25.12 at 7:18 am

#8 Toronto_CA:

“…real estate agents and construction workers and mortgage brokers and everyone else directly involved in this massive credit bubble would be out of work; which would make us all suffer.”

Wouldn’t make me suffer one bit, not at all.

#101 48.8888% correction on 05.25.12 at 7:20 am

#36 Chaddywack on 05.24.12 at 10:13 pm

“With markets now correcting I’m sure there will come a time in Vancouver to buy again. The question is how do you know the time has come? ”

…when it is cheaper to buy than rent providing you have 25% down

#102 Just Park It on 05.25.12 at 7:27 am

Okay – the one thing that makes me laugh when I read this blog are those who whip out the comparison book on renting vs. buying…

Of course owning is more expense in the near term – that’s a given, it’s the long term that eventually pays off. My know it all brother-in-law keeps chirping why leasing a vehicle is cheaper than buying – and at the end of the lease, no worries about major repairs and expenses that are associated with older vehicles. Yes, monthly payments are cheaper – but, but – but…. if you maintain your vehicle and with abit of luck, you can have that car paid off within 3-4 years and you ride the next 7-8 years free and clear – with of course the issue of unknown car repairs.

The house can be easily viewed in the same context – I’ve rented for 6 years – hated every minute of it. (Did anyone catch the program on the slum lord called Transglobal that owns hundreds of buildings across Canada. Even with fines imposed on them because of health issues – they still view it that it’s cheaper to pay the fine then do the actual repair – yeah, how’s renting working for you on that one!)

Anyways – I have a mortgage – it’s has only a few years left on it – so that took me 12 years to have that paid off in full – of course I would have saved a snot load of cash if I had rented – but I look at the long term. And soon I will be only covering your normal housing expenses but will be able to buy some nice toys – my $1400 per month mortgage payments are gonna buy me some nice trips – bikes – boats – and a nice savings account. Yep – long term wins all the time!!

And for those who cheer a 40% price drop – oh yeah, like a housing fallout will be contained to just housing – come on people, if this ship goes down – we all go down with it – nice to see how some take pleasure in other’s misfortunes…what comes around goes around..

#103 Regan on 05.25.12 at 8:09 am

@ maxx 100 – if everyone involved in this credit bubble was out of work, it wouldn’t make you suffer?
Ever heard of a food chain? Hungry lions feed when they kill a deer, but starve if all the deer die out. The economy works pretty much the same way.

#104 shanks on 05.25.12 at 8:22 am

#84 Nostradamus Le Mad Vlad
its important to keep in mind that its all just for right now :)

#105 Liar's Paradox on 05.25.12 at 8:42 am

#31 Smoking Man

“If only we could get the art of lying in canadian schools our economy would rock.”

Yep, as I always say, dishonesty is the best policy! If only everyone in Canadian society could understand this vital truth about not telling the truth!

#106 timbo on 05.25.12 at 8:47 am

http://www.reuters.com/article/2012/05/25/us-banks-deposits-idUSBRE84O0L520120525?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28Business+News%29

“What we are seeing in the euro zone is a slow-motion bank run,” said Michael Riddell, fund manager at M&G International Sovereign Bond Fund.”

Stuffing money in the mattress is the last resort…

http://www.nytimes.com/2012/05/25/business/global/chinas-once-hot-economy-is-turning-cold.html?_r=1

“Clearly the economy is much, much weaker than most people thought until recently,” Ms. Choyleva said. “They have a real mess on their hands.”

China is the world’s largest importer of a long list of commodities, like iron ore and copper. It has also been a big buyer of European factory equipment and luxury goods. The United States economy is much less exposed to a slowdown in the Chinese economy, with exports of goods to China representing less than 0.7 percent of American economic output last year. ”

Interesting piece. Thank goodness we are an island….

#107 Mr. Lahey, Sunnyvale Trailer Park Supervisor on 05.25.12 at 8:47 am

#83 50% correction predictor

“Al St. Clair: you know, in the past, every three to five years, the price doubled. In next ten years, I expect it will appreciate about 70%.”

Yes Al past returns in the real estate bubble of all bubbles are an indicator of future returns. Thanks for educating the masses on the fact that this real estate bubble is not like any other bubble in history Al baby!

#108 Mr. Lahey, Sunnyvale Trailer Park Supervisor on 05.25.12 at 8:50 am

In view of all the barbs that have been traded between Westernman and John G. Young, I think it only fair that we set up a contest of sorts like the ploughing match between Westernman and Form Man at the FASTGFBDCParty. Any suggestions would be appreciated for this contest to be held at the SASTGFBDCParty.

#109 Jamaican_Gal on 05.25.12 at 8:55 am

Aussie Roy:

Thanks for your contribution to this blog. It’s really appreciated.

#110 CP on 05.25.12 at 9:02 am

For those lamenting Garth’s choice to change the picture:

http://bit.ly/Konoz4

#111 CrowdedElevatorfartz on 05.25.12 at 9:05 am

@#82 “S”

Derivatives; basically a scam where the banks need to “insure” their investments so they wrap up good mortgages/loans with shitty mortgages/loans and offer them on the market for sale.
Then THOSE loans get re bundled and wrapped up into other packages and resold again and again and again. With little to no govt. scrutiny
$600 TRILLION is the equivalent of the entire planets’ GDP for 16 YEARS.

in 2008 NO ONE looked at the 800 Pound “derivatives” gorrilla sitting in the corner.

Investment banking is intentionally overcomplicated for a reason.

Even the Regulators cant keep a grasp on these fricken Ponzi scams.

That house of cards is yet to collapse.

and when it does, Beans , Buckshot and soft toilet paper will be the currency de jour

#112 Mackie on 05.25.12 at 9:07 am

Just park it: No question buying in the long-term pays off. But that only holds true if you buy for a reasonable price, pay it off quickly rather than adding more debt through HELOCs, buy in the right neighbourhood, live in the house after paying it off rather than selling and moving up …. right now is not the time to buy a first home.

#113 timbo on 05.25.12 at 9:10 am

http://libertyblitzkrieg.com/

“If I am correct, and the U.S. economy itself is now in the early stages of what will probably turn into a serious economic slowdown, then it will not be easily stopped with incremental Central Bank policies. The fact that they have waited this long and the fact that the global economy is in the midst of a serious slowdown tells me one thing. They are way behind the curve and by the time they realize this it will be too late to stem the momentum. That said, I do expect them to respond and the fact that things will have gotten much worse than they expected will mean a major response. I’m not talking operation twist part deux. I mean a serious print. Potentially the BIG ONE.”

damn doomers, and here I was about to buy…..

#114 Aussie Roy on 05.25.12 at 9:12 am

Mister Obvious on 05.25.12 at 12:07 am
#48 Aussie Roy

“It’s the reverse of the 1990 onwards (in Aust until 2008) of the positive feedback loop. House prices rise leading to more spending and more debt. The reverse a negative feedback loop, falling house prices, less spending and deleveraging.”
—————–

I hate to be a nitpicker Roy because I know you’re a good guy and long time contributor from down under.

But technically, the feedback loops of which you speak are in fact positive, both going up and going down. Negative feedback loops are stable, positive are unstable.

Otherwise, you make some sense.
…………………………………………………………………………

Sorry but totally disagree.

A postive FBL has a postive effect on prices.
A negative FBL has a negative effect on prices.

Sorry but your statement “But technically, the feedback loops of which you speak are in fact positive, both going up and going down. Negative feedback loops are stable, positive are unstable”. is wrong.

Without being too technical, you might what to tell all the ham radio guys (like myself) that positive feedback loops are unstable and then try to explain how a Colpitts osc works and is very stable.

http://en.wikipedia.org/wiki/Colpitts_oscillator

QUOTE “Feedback is commonly divided into two types – usually termed positive and negative. The terms can be applied in two contexts:

1.the context of the gap between reference and actual values of a parameter, based on whether the gap is widening (positive) or narrowing (negative).

2.the context of the action or effect that alters the gap, based on whether it involves reward – higher prices (positive) or non-reward/punishment – lower prices (negative).”

http://en.wikipedia.org/wiki/Feedback_loops

Sorry Garth a bit off topic here.

#115 joe larue on 05.25.12 at 9:20 am

some wise words from Al Sinclair on the GTA Hot Property show (he’s an expert dontcha know)

-house prices will rise a “minimum 70-75% over the next 10 years”
-regarding where to invest money “the real estate market is the safety way to go”

Remember kids, if the guy on tv says it, it must be true.

#116 Can it be? on 05.25.12 at 9:23 am

Sitting back enjoying the for sale signs popping up everywhere. I see prices listed higher then ever for some people… Others desperate are dropping like crazy. Makes for interesting times. I’m sitting back waiting patiently. Starting to contemplate renting myself. House is paid for… But upcoming repairs for many things will be needed. I’ll see how the next couple of weeks go, and start to look more seriously into it. Fun times ahead. I feel the tide is turning real estate is definitely slowing! Patience people.. Patience!

#117 KL on 05.25.12 at 9:24 am

#95 Linda Pearson on 05.25.12 at 5:46 am
Westernman, Turner Nation and now, sadly, John G Young, are pushing the envelope with their referring to other individuals or different groups of humans as ‘things’ and ‘its’. To deny someone his/her humanity is the final insult and one step closer to being able to justify any indignity, any assault.

I appeal to all of you to pull back from the edge on this. If you can’t muster a coherent reply or cogent argument without descending to this level then move on to another subject. Please.

——————————————————————-
One of the best and most thoughtful comments I have ever read on this blog.

#118 Toronto_CA on 05.25.12 at 9:33 am

#102 – if you invested the same money you spent on interest and principal on your mortgage into, say, a high yield preferred bank stock, the dividends could pay your rent indefinitely. If you own, you are still on the hook for property taxes, home insurance, roof repairs, when the pipes need plumbing, etc.

So I challenge your notion that in the long run, it’s cheaper to own. You have forgotten opportunity cost of your investment, even if once the house is paid for the rent expense *may* be less than taxes, insurance and maintenance. It’s not quite that simple.

#119 earlybird on 05.25.12 at 9:35 am

That 40% price drop shouldnt exist anyways, its false equity fueled by “emergency rates” It would be crazy not to take a windfall and run, that opportunity doesnt come around often. The US housing is re-aligning with what people are earning, I suspect Canada will eventually have do the same, unless wages go through the roof to catch up with home prices ; ) Cowtown is the worst for using the resource card, and the Greece issue is fluff, too small, little ripples…Rip the band-aid and raise the dam rates already!

#120 Kam on 05.25.12 at 9:36 am

TD, BMO join RBC in lowering mortgage rate; 5-year fixed falls to 5.34%

One tenth of a point because of bond market prices rising and yields dropping. It is not reflective of long-term trends. — Garth

#121 gladiator on 05.25.12 at 9:41 am

Vespa loans… LOL! Now, I have to wipe my screen.

Having one of these is the ultimate way to say “I’m a complete financial idiot”

Can’t stop laughing. Thank you, Garth.

#122 Form Man on 05.25.12 at 9:42 am

#108 Mr Lahey

In view of the fact that I easily won the ploughing match ( due to westernman’s feeble, bigotted team ), I propose John G be handicapped so as to give sad and angry westernman at least the ghost of a chance…..

#123 Keith on 05.25.12 at 9:59 am

Garth,

To be fair. DBRS isn’t saying a 40% drop isn’t a disaster. Just that there won’t be as many defaults at that level as people think. This matters to DBRS’ clients who buy mortgage backed securities. It does not speak to how homeowners will fair.

#124 Daisy Mae on 05.25.12 at 10:00 am

#27 Mid-Ontario: “If your major asset is depreciating, you pull back in spending to try and maintain a feeling of wealth….”

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

This is happening already as CBC states: “cash conscious consumers are cutting back on their lattes in favor of plain old cups of Joe…”

#125 eaglebay - Parksville on 05.25.12 at 10:04 am

#71 Carpe Diem on 05.25.12 at 12:09 am
“To translate Garth`s thought (BigG let me know if I`m wrong here)
1. Read this.

http://en.wikipedia.org/wiki/Baltic_Dry_Index
_______________
To add to this info, due to the increased cost of fuel used, it becomes more competitive and cheaper to produce large and heavy goods locally in North America.
As we increase our production locally, the demand for shipping is decreased along with a surplus of ships.

#126 eaglebay - Parksville on 05.25.12 at 10:11 am

#73 Nemesis on 05.25.12 at 12:15 am
“Not if your last name is Onassis. Or your homies in Manila are counting on the remittances… Or you work a crane at VanTerm… Or Babysit a RoRo up the Fraser… Or…. Fill in the blanks, OldPol…”
_______________
Too many ships doesn’t mean less work. The same number of ships, actually an increase in ships, has happened in the Port of Vancouver.
Put your thinking cap on and get your facts straight.
As for the Greeks, Onassis, useless.

#127 John Ratadlin on 05.25.12 at 10:21 am

Garth, fixed dividends are only for your past investments and not your new investments.This is not a short term problem. Interest rates will go lower and stay low for at least 10-15 years. The 30 year benchmark Canada is 2.36% now at 10:17 a.m. May-25-2012. It is down 45 basis points in about 7 weeks or 17% drop in interest income. Interest rates are going to the moon Garth, ya right.

Rates will not drop, and will assuredly be higher in 12 months. Fixed dividend payments on preferreds stay fixed until the issue is called (a rare event), at which time they are redeemed at par. Learn, then speak. Safer. — Garth

#128 Mr.Lee on 05.25.12 at 10:25 am

The greatest fool is you chicken little, all you and your boomer doomer friends should build a ark.

#129 disciple on 05.25.12 at 10:31 am

#94 Jody… Hanauer is not genuine. You’re being duped. Of course big business creates jobs, to suggest otherwise is foolish or intentionally misleading. Like many others on this blog, you have one foot in the matrix and one foot out. In this type of situation, you are a most useful conduit for your real rulers because through you they can spread their confusion.

Take my hand and come out and see the illusion for what it is. Money does not exist. It is a figment of our collective imagination. Most people are chasing phantoms. Be change. Be free.

#130 Tony on 05.25.12 at 10:33 am

The coming 40 percent drop would equate to something more like a $250,000 drop in net worth since only the major cities will see the drop greater than 40 percent. Quebec and those type of cities where no one lives don’t count just the true major cities. The average drop in the major cities will probably balance out to around 40 percent. Toronto down about 40 percent Vancouver down about 70 percent and the rest of the major cities to a lesser extent.

#131 Chris on 05.25.12 at 10:35 am

On the Lang and O’Leary ExChange yesterday some Top TD bank bigwig said they expect RE to drop 15% and that cdn consumers are massively indebt. Wow.

O’Leary is also changing his sentiment. A few months ago (if that) he was claiming even the condo market in Canada has nothing to worry about. Now he’s saying the condo market, esp. in Toronto where there’s 60,000 new units on the horizon is going to get slaughtered.

MSM is finally starting to shift their views. I predict that the average Cdn sheeple won’t jump on the “RE values are declining” bandwagon until they personally witness a friend of relative losing money on their “investment”. Until then, it’s still different where they live. It’s already beginning in BC, but give it another year in most other regions

PS. Thanks Aussie Roy for the links you provided me in yesterdays post.

#132 AG Sage on 05.25.12 at 10:37 am

>#102 Just Park It on 05.25.12 at 7:27 am

So, by my estimate, you bought in 2003/4 when the market was still at par relative to metrics of rent and incomes. Congratulations. Now that prices are 75% higher than those underlying measures how does your personal experience apply to potential buyers today?

#133 Tony on 05.25.12 at 10:42 am

Re: #36 Chaddywack on 05.24.12 at 10:13 pm

Just take thirty percent (100 – 70, a 70 percent correction) of the peak values for houses and 20 to 25 percent (100 – 75 or 80 percent correction) of the peak values for condos and apartments to get a pricing point to buy in Vancouver.

#134 disciple on 05.25.12 at 10:43 am

102 Park it… You are confusing real wealth (roof over your head/car to drive), with savings in the form of currency. These are not necessarily the same thing. And with a 1400 dollar a month mortgage payment for 12 years, your original mortgage must have been a little over 100K for which you’ve paid double that; in effect, you’ve paid out over 100K in interest. Your situation would not apply to 99% of the people that a 40% correction would affect, so your concern is disingenuous, but thanks anyway…

#135 Tony on 05.25.12 at 10:46 am

Re: #14 carlos on 05.24.12 at 9:20 pm

Get your bankruptcy papers now so sense in waiting until next year.

#136 J.I.M. on 05.25.12 at 11:00 am

Garth:
Any comments?

http://www.thestar.com/business/article/1185384–bankia-shares-suspended-ahead-of-rescue-details?bn=1

Of course, our banks here in Canada are too big to fail.

How does a second-tier Spanish bank which specialized in high-risk construction and real estate financing hold any lessons for us? – Garth

#137 Mr. Lahey, Sunnyvale Trailer Park Supervisor on 05.25.12 at 11:01 am

#112 Form Man

“I propose John G be handicapped so as to give sad and angry westernman at least the ghost of a chance….”

Thanks for the magnanimous, as always, suggestion Form Man.

#138 refinow on 05.25.12 at 11:03 am

40% drop and all will be fine. Are you freaking kidding me???

Lets look at a $450,000 house (today’s value)

Hack off 40%…

Now only worth $270,000…..

And keep in mind the maximum mortgage as a refinance will sit at 85% of that $270,000 or $229,500.

So your $450,000 house’s maximum borrowing power will shrink to $229,500 after the 40% correction.

Now introduce qualifying renewals by the Bank’s… Do you think most people who own a $450,000 house today have a mortgage less than $229,500???

I am sure there are some but they are not the norm….

Now just imagine if you have a $400,000 mortgage on that same property, now only worth $270,000…

And you locked into that 10 year mortgage at 3.78% and would have an additional $13,500 penalty to break it.. So actually you would owe $413,500..

You are now sitting on $143,500 negative equity???

With no way to sell the house, still feel like we can all survive a 40% drop in value ???

If I still owned a house I would have just soiled myself…

PS…Official policy of 10 year mortgage penalties, in the first 5 years greater of IRD or 3 months Interest.

After 5 years, maximum penalty is 3 months int…

So if you were 4 years 11 months into it, you will still have 5 digit penalty….

But if your house in the example above drops by 40%, a 13,500 penalty really won’t matter a whole lot, will it ….???

This is starting to get really scary….Don’t you think ??

#139 Canuck Abroad on 05.25.12 at 11:08 am

There is no need to worry about the hundred of trillions in derivatives outstanding. The US taxpayer now has our backs. THANKS US taxpayers, you’re the best!!!

http://jessescrossroadscafe.blogspot.co.uk/2012/05/us-decides-to-backstop-anglo-american.html

#140 J.I.M. on 05.25.12 at 11:10 am

WRT renting vs owning.
My sister pays 2700/month all in for her large bungalow in the Upper Beaches of Toronto. Her landlord lives next door and cuts the grass. Oh , and when the fridge died, she called, he delivered a new one. The house could sell in the 650 – 800 range. So the landlord should be charging 2 – 3 times what he is, but, 2700 is the going rate so that ;s what he gets.

Because, we buy with someone elses money, we rent with our own money. And that tells us what a property is really ‘worth’ at that moment in time

#141 Can it be? on 05.25.12 at 11:13 am

Talked to a friend today. House listed for a couple of weeks and no bites yet, only a verbal low ball offer. This in a hot HAM neighbourhood. Interesting times ahead. I don’t think I will attend any more open houses until the end of June.

#142 refinow on 05.25.12 at 11:14 am

Still think we have 5-6 months for new OSFI policies to kick in???

Guess again.

Looks like announcement could be July 1st 2012, effective date ???

National Bank just announced that effective May 28, 2012 even conventional mortgages with terms less than 5 year fixed or all variable rate mortgage must now qualify based on the Bank of Canada’s 5 year prescribed rate, currently 5.44%, following the same policy of all high ratio mortgages….

This is one of the items that OSFI was proposing on their future announcement, and look…… it is already policy for National Bank effective this Monday…

These changes are coming and its not going to take 5-6 months to take affect, we are likely looking at 5 – 6 weeks at most….

If you need to get your financial affairs in order…..do it now………

That little white light at the end of the tunnel……..is a freight train!!

#143 Snowboid on 05.25.12 at 11:21 am

#85 Johnny on 05.25.12 at 1:07 am…

Sorry you missed it, but the peak in Victoria is long gone and prices haven’t recovered for over 3 years.

Or are you talking about Australia?

#144 Balmuto on 05.25.12 at 11:21 am

The million dollar crack shacks in Vancouver could easily see see a 40% drop, and soon; I think the GTA correction will be more muted, and slower to arrive. At least the condo market in Toronto still has some support from a strong rental market. I know from first hand experience – I recently sold my Toronto condo, made money, got completely out of debt – then I had to find a place to rent. I was surprised to see units similar to the condo unit I sold were renting out for the same amount of money per month as the carrying costs on my condo. So I’m not really saving money; but being out of debt I can afford more. My point is that the rental market is still strong, vacancies are low, and you’re not really saving money by renting in Toronto right now. Until that changes, I think you’ll have the “might as well buy” factor propping up prices.

#145 disciple on 05.25.12 at 11:24 am

There are often references to “drinking the Kool-Aid”, so it’s useful to keep in mind that the actor that plays Newt Gingrich also played Jim Jones. Here is Newt Gingrich debating Ron Paul (Sir Ian McKellan, http://tinyurl.com/d8g6b5r) and pay careful attention to Ron Paul’s fake eyebrows. They blamed this on allergies. Covering up one lie with another. Smoking Man would be proud…http://tinyurl.com/d76a6gs

#146 Nervous on 05.25.12 at 11:24 am

Can you give us a sense of real estate decline across the country.

We all hear you about Vancouver , Calgary and Toronto. Can you provide more insight into the rest of the country.

#147 J.I.M. on 05.25.12 at 11:25 am

How does a second-tier Spanish bank which specialized in high-risk construction and real estate financing hold any lessons for us? – Garth

When it’s failure brings down the first tier!

Gee Garth, what financial entities are financing Canada’s high risk construction (condos) and sub prime (5% down and cash back) mortgages

#148 disciple on 05.25.12 at 11:40 am

Ed Harris plays John McCain (remember those ridiculous instances of pieces of his face literally falling off?). LOL. Here is photo forensics proving that Hillary Clinton and Obama were ADDED to this famous photo when Osama was captured and killed: http://tinyurl.com/6tw3u8a

#149 Snowboid on 05.25.12 at 11:45 am

#102 Just Park It on 05.25.12 at 7:27 am…

Without exception, all the rent vs. buy calculations done for Okanagan properties come back without any advantage to buying – even over a 25-30 year period.

Although most of your arguments are shallow, I agree that buying may be better over the long term – but not at the present time.

Count me out as a cheerleader for the 40%, but that doesn’t change the inevitable outcome one bit.

Now get back to that open house, will you?

#150 blase on 05.25.12 at 11:58 am

J.I.M. said: “Because, we buy with someone elses money, we rent with our own money. And that tells us what a property is really ‘worth’ at that moment in time.”

That’s beautiful man. Those two sentences are the most succinct explanation for the housing delusion that I have come across on this blog.

#151 stickler on 05.25.12 at 12:02 pm

@ #144 Balmuto
“I was surprised to see units similar to the condo unit I sold were renting out for the same amount of money per month as the carrying costs on my condo.”

Lets re-state what you said a little differently for fun…because the point of your post appears to be

“…you’re not really saving money by renting in Toronto right now”

You sold your condo & realized some equity in it. Now you can rent the same unit for the same monthly cash outlay you used to pay out…but your down payment and appreciation are no longer locked into your condo.

If prices stay the same you are better off, if prices go down you are better off…but if prices go up you *may* be worse off (depending on several factors)

I would say you are most definitely saving money by renting right now…especially if you compared it to buying the same condo at the current price.

#152 stickler on 05.25.12 at 12:05 pm

…as your carrying costs (on the condo purchased some time ago) were similar to rental rates (today)…and you admit your condo increased in value…i think you just made the case that prices are likely to fall.

No??

#153 Buy? Curious? on 05.25.12 at 12:15 pm

Let’s all go out to open houses this weekend and talk to agents about what they really think about the housing market. When they’re done their sales pitch, reply, “Well, according to Garth…..” Then video their response on your phones. If you email it to me, I’ll make a video montage to the theme song of Benny Hill layered with a laugh track.

#154 Jesse Livermore on 05.25.12 at 12:34 pm

Hear ye, all CONDO and HOUSE ZOMBIES stalking this fair land of ours:

“Market crashes are not randomly occurring lightning bolts; they are the consequences of the madness of crowds (as the bearded mystic oracle who writes this mother of all blogs keeps pointing out) who are busy avoiding the last mania as they participate in what will turn out to be the current one.”

#155 curious! on 05.25.12 at 12:35 pm

I dont think it will be 40% ever…mississauga would be a blood bath if that ever comes to pass.

But the federal govt/CMHC cant be this stupid…they have it covered…

#156 broadway skytrain on 05.25.12 at 12:38 pm

TORONTO (Reuters) – Canadian home prices climbed 5.2 percent in April from a year earlier, boosted by strong gains in the Toronto market, as well as increases in Vancouver and Calgary, the Canadian Real Estate Association said on Friday.
The rise in the industry group’s home price index for April, compared with a 5.1 percent year-on-year gain in March.

and re-#144 Balmuto

My point is that the rental market is still strong, vacancies are low- yes yes – VERY strong and VERY low vacancies inside van city limits too – 80% (est) of the rental stock in nicer E van areas that was in detached houses has been LOST as families have moved back in and many of us don’t need the basmt apt rent payments and do like the xtra space.

#157 penpal on 05.25.12 at 12:44 pm

@ # 144 Balmuto

“…and you are not really saving money by renting in Toronto right n

I disagree as I have just rented a 2 bdrm $ 600 K condo for 2,200.00 (includes parking, utilities,etc.; everything but phone / cable) per month in a great area in a brand new bldg for a family member.

Today in Toronto, renting is cheaper for anything above a 300 to 600 sq foot shoe-box. So, as a renter you save each month.

But the really big savings come in renting in the next few years where people will lose their equity as prices drop.

I agree that vacancies are low, but that will change as sales volumes and prices drop.

You did the right thing in selling, don’t look back and don’t second guess.

To paraphrase the BNS;

“You are smarter than you think!”

#158 Mister Obvious on 05.25.12 at 12:50 pm

#114 Aussie Roy

“Without being too technical, you might what to tell all the ham radio guys (like myself) that positive feedback loops are unstable and then try to explain how a Colpitts osc works and is very stable.”

————————–

You have compared apples to oranges and I must protest. If you want to bring the ‘Colpitts’ oscillator into the discussion you must be referring to the first definition of feedback you supplied.

1.the context of the gap between reference and actual values of a parameter, based on whether the gap is widening (positive) or narrowing (negative).

A Colpitts Oscillator (and indeed any electrical oscillator) is known generically as an ‘astable multiviabrator’. It is the very definition of instability.

When someone claims the Colpitts to be ‘stable’ they are referring to its propensity to stay on frequency with variations in time and temperature and not to the inherently unstable positive feedback loop that causes it to oscillate in the first place.

So, having cleared that up, and keeping with your electrical oscillator analogy, your assertion that RE markets went up too far too fast due to the effects of positive feedback is perhaps true. If markets fall in the same way it will also be due to positive feedback, not negative feedback which would tend to limit the effect.

Falling economies may be seen by the public as a ‘negative’ occurrance but that does not correctly describe the feedback involved.

#159 Mixed Bag on 05.25.12 at 12:51 pm

#140 J.I.M. on 05.25.12 at 11:10 am

“Because, we buy with someone elses money, we rent with our own money. And that tells us what a property is really ‘worth’ at that moment in time.”

Nice. Interesting observation, must make note of it.

#160 Canadian Watchdog on 05.25.12 at 1:06 pm

#156 broadway skytrain

It’s all pre-construction sales that adds dollar volume to the average price. Over the years developers were selling out units from their sales office (offline sales) whereas now, they are using MLS to sell properties.

The market is probably crashing while nobody is reporting it.

#161 Devore on 05.25.12 at 1:07 pm

#159 Mixed Bag

Nice. Interesting observation, must make note of it.

It’s not an observation, it’s a fact ;)

An investment is valued in terms of the income it generates, even if all the income is reinvested back into the company/investment (ie, investors see no dividends, etc).

For real estate, this is the rent you can collect. Even a house you own generates income, which is the RENT you are not paying to live there. At the end of the day, cashflow is the lifeblood of investments, and capital appreciation due to factors other than income growth is in the fantasyland of speculators.

#162 Cautious on 05.25.12 at 1:10 pm

#16 – Buy preferreds with fixed dividends. Simple. — Garth

and #72 XKR – rate reset vs. fixed rate preferreds

Even though the initial rate may be higher with fixed preferreds, I would think that rate reset preferreds offer better protection against loss of share value in a rising interest rate environment and may also reset at a higher rate than the fixed pref. Is this true and which type should we be looking to buy?

Untrue. Rates are not rising, and will do so slowly over some considerable time. Besides, you buy preferreds for income, so why now opt for a stable flow? I hope you are not DIY on this. — Garth

#163 John G. Young on 05.25.12 at 1:14 pm

#95 Linda Pearson on 05.25.12 at 5:46 am

“Westernman, Turner Nation and now, sadly, John G Young, are pushing the envelope with their referring to other individuals or different groups of humans as ‘things’ and ‘its’. To deny someone his/her humanity is the final insult and one step closer to being able to justify any indignity, any assault.”

Linda, I absolutely agree:

#77 John G. Young on 05.23.12 at 12:11 am

“Referring to a human being as a “thing” is far, far worse than what you [Beach Girl] wrote…”

I decided to give Westernman a taste of his own medicine, but I didn’t feel good about it. I will not be continuing this.

Thank you for continuing to advocate for a basic civility on this blog.

Cheers,

John

#164 Lostinthewilderness on 05.25.12 at 1:26 pm

Here’s a feature piece from the Burnaby Now , local paper, that could have been written by Garth.

When it all implodes………

http://www.burnabynow.com/business/House+cards+will+implode/6677183/story.html

#165 Buck Turgidson on 05.25.12 at 1:29 pm

Hi all…

With all these comparisons to the US collapse, I’d like to share a recent experience. We have just relocated to the NYC area – about 50 km west in a nice, NJ town. Having arrived here, we thought we’d be in a good position to grab a nice property for a couple years but here is what we were told by the mortgage guy. Prices in this area (one of the nicest in NJ, believe it or not, they exist) are expected to stay flat, at best, for 5 years as a result of the ‘shadow’ inventory that no one talks about. We were advised not to bother buying and stick to the high rent instead. With taxes running up to $8-10K/yr and prices still falling in many habitable parts of the area, we are staying far, far away.

#166 Steve on 05.25.12 at 1:31 pm

“Because, we buy with someone elses money, we rent with our own money. And that tells us what a property is really ‘worth’ at that moment in time.”

Sorry, they both look the same to me. In the former, we ‘rent’ the money through a mortgage (with interest) to buy (and become in servitude to) a place, and in the latter we just rent the place directly. It is always our money, our cash flow, that is being spent – although the comittment period is different. I suppose we also manage to deceive ourselves about what we are really doing when we buy. Rent is rent, mostly an all-in proposition. Buying includes other costs (e.g. Financing costs, Property Tax, All utilities, maintenance, etc. ) and buying brings into play the issue of opportunity cost. Smart people consider more than the rent vs mortgage payment comparison.

Few are able to do a robust comparison and reach a sound decision on which is best, although there have been one or two notable attempts on here this year. Seems like the complexity of the comparison is beyond average comprehension, especially with the din of MIL, etc., raising the emotional ante above tolerable levels.

Way to many just give in to the decisions imposed by other’s perspectives – I am guessing it feels easier, following the path of least resistance. Those taking that path will find themselves in dire circumstances at retirement, and not just because they may not have managed their RE optimally.

Today’s blog entry talks about how tolerant we would all be to a big drop in values, so let’s skip the debate on how much and when – those are entirely regional/neighbourhood numbers anyways. The coming drop will have significant impact on the people who are in RE and are over-leveraged or become so, and who are lacking income, or lose income. I agree with Garth, and not just because he is our host, that we will (continue to [in some markets]) see an intial drop in RE prices, with a follow-on slow fade that could easily burn up a decade before even looking like a recovery. It looks like there will be too few buyers with too little financing, and too many sellers eager to liquidate (includes new builds) with a steady supply of these as mortages come up for renewal, jobs are lost, speculators drop inventory and don’t buy new, and Boomers cash out.

For those with clarity on an alternate viewpoint, where is the data to show that there are trends indicating otherwise? Worldwide and domestic factors and historical examples are all pointing to this drop and fade before recovery. Anyone?

#167 Can it be? on 05.25.12 at 1:45 pm

We all know the house of cards is crashing down. The sellers who have been sitting on their properties for months, years… They know it too. If anyone is buying and owns a home, either sell yours first… Or make the purchase conditional on the sale of your home. Be smart.

#168 truth hammer on 05.25.12 at 1:52 pm

The last real estate correction in VanDumpo that started in 1989 was like a slow train coming…..it wasn’t like a tsunami of listings hit the market….rates hadn’t jacked up to 20% as in ’81…..it just ‘petered out’ and slopped around until ’92 when new homes couldn’t be sold and sales dried up in the burbs. It was differant then…people had skin in the game…..25% down was average…no zero down deals….lower prices…higher wage to price ratio….as the market slowed…average joes held on….speculators( builders inc) got whacked…..and so it should be. The slow depression in real estate sales lasted for 12 years.

Not this time though….it’s joe average that has taken over as ‘the speculator’…prices have been hyperinflated by the ZIRP…no one has 25% equity and overbuilding has become the norm…..this time around, everyone will get whacked. The up market was coordinated by Ottawa to juice up tax revenues to spend on ‘programs’…the withdrawal will be painful as prices come down……since the ZIRP was initiated in 2000 we’ve had the expense of running government hyperinflate…I mean c’mon….skytrain cops making $200,000 to write tickets….and these examples as we all read in the papers are not isolated accidents of rogue agencies.

I forecast life in BC and Craptario to get a lot worse for homeowners….both in value and taxation……smart money says …get out.

Imagine being a smarmy fat government pensioner looking to benefit from Adam Smiths logic of ‘take the and run’……this would be the time.

#169 John G. Young on 05.25.12 at 2:11 pm

#108 Mr. Lahey, Sunnyvale Trailer Park Supervisor on 05.25.12 at 8:50 am

“In view of all the barbs that have been traded between Westernman and John G. Young, I think it only fair that we set up a contest of sorts like the ploughing match between Westernman and Form Man at the FASTGFBDCParty. Any suggestions would be appreciated for this contest to be held at the SASTGFBDCParty.”

Would love to attend and meet the blog dogs in person.

With regard to Westernman: I may be wrong about this, but my sense is that his assaults — at least those directed towards me — have a personal and malignant quality to them (and that doesn’t include the many that our host has deleted). They do not feel like good-natured barbs about differing political views; I sense real hatred.
I have no desire to have any direct contact with the man, now or ever.

Cheers,

John

#170 John saccy on 05.25.12 at 2:15 pm

How does a second-tier Spanish bank which specialized in high-risk construction and real estate financing hold any lessons for us? – Garth

Second-tier??? – as big as CIBC.

Bankia (Spanish pronunciation: [ˈbaŋkja]) is a Spanish banking conglomerate that was formed in December 2010, consolidating the operations of seven regional savings banks.[1] Bankia reports a total business volume of €486 billion with total assets of €328 billion.

I’m well aware of its formation and stature as the 4th-largest Spanish bank. But it is, and has been for months, a basket case. There is no comparison. — Garth

#171 Aussie Roy on 05.25.12 at 2:18 pm

Mister Obvious on 05.25.12 at 12:50 pm

1.the context of the gap between reference and actual values of a parameter, based on whether the gap is widening (positive) or narrowing (negative).

Think, house prices expressed as a multple of annual household income. Reference is the long term historical average (4?) and the actual is todays prices expressed in the same units (8?). If the gap is widening (a bigger multple) then it’s PFB the reverse, narrowing ( a smaller multiple) is negative feedback.

Over the past few years the gap has been widening, say 4 to 8 in my example, clearly positive feedback. IMO over the next few years the gap will be narrowing, trending towards the reference (my example 4) from it’s current 8, this will be negative feedback.

MO thanks for the comments, we will have to agree to disagree that a negative feedback loop is always unstable.

Anyway that’s me done on the subject. I think wikipedia (1. above) has it right but feel free to submit your thoughts on their page. Thanks again.

#172 Inglorious Investor on 05.25.12 at 2:31 pm

Is Greece about to spew rancid tzatziki on Canada’s housing market? Zeus only knows.

http://www.cbc.ca/news/business/story/2012/05/25/greece-euro-exit-canada.html

“A European financial calamity would be bad news for Canada’s housing market[…] A global financial crisis could be a major catalyst for a sharp housing market correction,[…]”

#173 new_era on 05.25.12 at 2:34 pm

Just like in the 80’s housing crash, it only took about 1 month for human emotions to change from positive to negative.

Can’t feel it in the Air !!!
http://www.youtube.com/watch?v=YkADj0TPrJA

Housing bubble will implode!!

http://www.burnabynow.com/business/House+cards+will+implode/6677183/story.html

#174 Jesse Livermore on 05.25.12 at 3:08 pm

#165 Buck Turgidson

Thanks for the great insight into the market in the New Jersey area. I suspect this is the situation in many more US markets. The property taxes are very high. What are the values of these homes with $8k-$10k property bills?

#175 Jim Lahey, host of the FASTPGFBDCParty on 05.25.12 at 3:12 pm

#169 John G. Young

I appreciate your comments and observations and sadly, I have to agree with your conclusion. Keep up the great posts, you bring some great intellect to the blog!

#176 cramar on 05.25.12 at 3:40 pm

#118 Toronto_CA on 05.25.12 at 9:33 am

So I challenge your notion that in the long run, it’s cheaper to own. You have forgotten opportunity cost of your investment, even if once the house is paid for the rent expense *may* be less than taxes, insurance and maintenance. It’s not quite that simple.

——————————

There are so many factors, so whether cheaper to rent or own is like comparing apples and oranges. For example, how long does one define as “in the long run”? In my case I have lived in the same house for 35 years. I guess that qualifies for “long run!” In that time, it has increased in value about 8X. But we put an incalculable amount of sweat equity, not to mention money into it. Much maintenance, but mostly improvements. My wife has a penchant for patio doors and bow windows.

Suppose I rented for 35 years. Suppose I actually saved money over the decades by renting an apartment (I would not have saved by renting a house). What would I have done with the savings? Invest it and been further ahead today, even with paying tax to the Feds every year? Only if I was that smart and disciplined over the decades. There is a real possibility I would have used the additional income to buy a new car every three years, or buy a cottage, or taken expensive vacations (out of boredom of living in an apartment).

All I know for sure at this moment is that my monthly expenses for taxes, utilities, and house insurance is 2/3 of what I can rent the cheapest small apartment for, and a fraction of a house rental. Sure I have wealth tied up, which could be used to generate income to pay the rent, but other intangibles come into play. How do you put a value on your own land? What is it worth if you entertain a lot to have an enclosed outdoor oasis for family and friends? Or if you want to relax or sunbathe by yourself in an enclosed yard. I like to grow my own veggies and landscape. I lke lots of plants and flowers. There is room for the dog to roam in a fenced yard. There are no extra parking fees for several vehicles. There is room for grown kids to stay when they are in town. The list goes on and on.

When you rent, only the maintenance is usually covered. If my wife is tired of the kitchen taps, they get changed. If we decide on major renovations, contractors get hired and changes are made. If we decide to plant fruit trees and years later cut some of them down, no problem. These are just some of the things that make home ownership better than renting for many people. And you cannot put a financial price on these very personal quality-of-life issues. That is why home ownership will always be more desirable for most people. Even GT owns, and I suspect it is not a condo!

The question is not renting versus owning. That’s simplistic. Rather it is the portion of your net worth real estate occupies, and the impact on your cash flow. Stop bleating about fruit trees. — Garth

#177 Arshes on 05.25.12 at 3:42 pm

#166 Steve on 05.25.12 at 1:31 pm “Because, we buy with someone elses money, we rent with our own money. And that tells us what a property is really ‘worth’ at that moment in time.”

Sorry, they both look the same to me. In the former, we ‘rent’ the money through a mortgage (with interest) to buy (and become in servitude to) a place, and in the latter we just rent the place directly. It is always our money, our cash flow, that is being spent – although the comittment period is different.
———————————————————
Renting is generally based on how much you can afford, buying is based on how much you can borrow, and if they lend you more than you can afford……………

#178 John G. Young on 05.25.12 at 3:51 pm

#175 Jim Lahey, host of the FASTPGFBDCParty on 05.25.12 at 3:12 pm

Thanks Jim!

Who know, maybe some day I’ll actually be able to contribute something of value to Garth’s post of the day.

Cheers,

John

#179 J.I.M. on 05.25.12 at 4:00 pm

@156 Steve
Because, we buy with someone elses money, we rent with our own money. And that tells us what a property is really ‘worth’ at that moment in time.”

Sorry, they both look the same to me.

-You then procede to write a full paragraph explaining why they are different! In part, I understand what you are saying about perceptions, and i’m glad you did. It helps me understand what Garth means when he says ‘house horny’. We say Real Estate as if it is real, which it isn’t (in fact Real here is not the English ‘real’ but is the Spanish word for ‘royal. ). It’s hopes, dreams emotions,; ours and the people’s around us.

Yes , in a way we are ‘renting’ the money we borrowed to buy the house, but it still wasn’t OUR money. Somebody else, who wasn’t obliged to , gave it to the previous owner of the house ,on our behalf. We never saw the money, we never sweated or did with out to get that money.

Ask yourself this.
What would it take for you to save say, $500,000.

If I then said, give me that 500k and I will give you this 800 sq. ft. box in the sky, on which you will still have to pay 1200/month, with a good possibility that cost will go up. Would you hand over that cash?!? Not bloody likely! Unless I convinced you that in a few years you could sell it for 750k or maybe even 1,000k !!!!!! or you convinced yourself that buying this condo made you ‘better’ or special or whatever. Or your wife wailed and gnashed her teeth.

Preceptions and emotions.

#180 shawn Allen (The Arrogant One) on 05.25.12 at 4:01 pm

A LOTTA’ PEOPLE DO GOT A PENSION

Membership in registered pension plans (RPPs) in Canada amounted to 6,065,750 in 2010, an increase of 42,000 or 0.7% from 2009. Membership increased in public sector plans, but declined in private sector plans.

http://www.statcan.gc.ca/daily-quotidien/120525/dq120525a-eng.htm

This does nothing for those without pension or much RRSP, but it does provide a lot of cash to sustain the economy as geezers retire…

A modicum of support for house prices perhaps? (But not enough to sustain today’s lofty levels)

#181 Anoymous on 05.25.12 at 4:01 pm

Crap, meant to use my new handle…

#182 Westernman on 05.25.12 at 4:19 pm

DELETED

#183 eaglebay - Parksville on 05.25.12 at 4:27 pm

#172 Inglorious Investor on 05.25.12 at 2:31 pm
“Is Greece about to spew rancid tzatziki on Canada’s housing market? Zeus only knows.”
_______________
Canada has nothing to do with Greece.
Even the local Greek immigrants, and first generation, wouldn’t dare send any money to Greece.
Why in the world would it affect Canada’s housing?
CBC, nothing but the truth.

#184 eaglebay - Parksville on 05.25.12 at 4:29 pm

#175 Jim Lahey, host of the FASTPGFBDCParty on 05.25.12 at 3:12 pm
#169 John G. Young
“I appreciate your comments and observations and sadly, I have to agree with your conclusion. Keep up the great posts, you bring some great intellect to the blog!”
_______________
You’re such a funny guy.

#185 John saccy on 05.25.12 at 4:30 pm

http://www.bloomberg.com/news/2012-05-25/dallara-says-greek-euro-exit-may-exceeed-1-trillion-euros.html

Greek exit has not been priced in.. atleast NOT $1 T.

#186 AprilNewwest on 05.25.12 at 4:51 pm

#167 – Can it be. How are we supposed to “get out” of Canada when we need to live here 6mths of the yr. If one is taking CPP it’s stopped if one is out of Canada for more then 6mths. Then there’s the medical. I’d like to do it but don’t see how it can work in my favour.

#187 Derek R on 05.25.12 at 5:34 pm

Two days ago Garth covered the story of Aggie. A lot of people made supportive comments, and quite right too. She has now replied to them all with a very nice comment of her own. It’s worth flipping back to read it.

#188 Westernman on 05.25.12 at 5:45 pm

John G. Young @ # 177,
” Maybe someday I’ll be able to contribute something of value to Garth’s blog”
Maybe, but so far all you have to offer is fake moral superiority…

#189 Can it be? on 05.25.12 at 5:53 pm

You know who else is selling off their towers… Standard life is… Downtown right beside the scotia tower and others. Hmmm seems like everyone else has realized that markets have peaked. Every other commercial tower is for sale or lease… Interesting times

#190 I'm stupid on 05.25.12 at 5:53 pm

#3 S

All doomers use the amount of derivatives to scare people. The unfortunate truth is that most have no idea what a derivative is and the 600trillion doomers use to scare people means nothing.

#191 Can it be? on 05.25.12 at 5:56 pm

@april? Are you referring to my
Post or someone else’s?

#192 Devore on 05.25.12 at 6:07 pm

#176 cramar

(out of boredom of living in an apartment)

Huh?

Maybe planting fruit trees and then cutting them down is an endless source of entertainment for you. To each their own.

#193 Johnny on 05.25.12 at 6:13 pm

143 Snowboid on 05.25.12 at 11:21 am

We’ve seen the peak certainly, but prices aren’t coming down much. They’re still 10x income. We haven’t seen any sort of significant correction at all since the early 1990’s.

#194 Devore on 05.25.12 at 6:22 pm

#176 cramar

In my case I have lived in the same house for 35 years. I guess that qualifies for “long run!” In that time, it has increased in value about 8X.

Aha! Nearly every “earnest” home owner posting here about the wonders of home ownership and horrors of renting has bought when prices were relatively low and rates relatively high. Lots of people usually in the late 1990s/early 2000s. This just hilites that there is a time to buy real estate, and time to not buy real estate. It is amusing when, merely due to good fortune, coincidence and blind luck, having bought their house at a “good” time, they smugly generalize to “always a good time to buy”. That’s cheesey realtor salesman talk, come on, you can do better.

Had you bought your house a mere 3-4 years later, it would only be worth 4x the price you paid for it instead of 8x. Considering the amount of money you poured into it, and the property taxes and mortgage interest you “threw away” during this time, that would have been a spectacularly poor investment by any measure.

Like it has several times in the last 35 years, the time to buy real estate will come again. No, it is not different this time.

#195 Canadian Watchdog on 05.25.12 at 6:25 pm

#176 cramar

One chart you should get familiar with showing why the past thirty-five years won’t be the like the next two decades. http://i48.tinypic.com/6ezzp5.png

#196 Boomer on 05.25.12 at 6:34 pm

186-Aprilnewest. You are incorrect, you can receive CPP outside of Canada for as long as you like anywhere in the world. It is OAS that you cannot receive if out of the country for more than 6 months, at least legally!

#197 timbo on 05.25.12 at 6:39 pm

http://www.independent.ie/business/personal-finance/property-mortgages/over-10pc-of-mortgages-now-in-arrears-a-new-high-3119004.html

http://www.finfacts.ie/irishfinancenews/article_1024395.shtml

“LATEST figures from the Central Bank published today confirm that almost 78,000 residential mortgages are in arrears of more than 90 days.

The figure compares to almost 71,000 at the end of December, and represents over 10% of all mortgages in the State.”

“Overall Decline: House prices in Dublin are 55% lower than at their highest level in early 2007. Apartments in Dublin are 60% lower than they were in February 2007. Residential property prices in Dublin are 57% lower than at their highest level in February 2007. The fall in the price of residential properties in the Rest of Ireland is somewhat lower at 47%. Overall, the national is 50% lower than its highest level in 2007.”

Irish eyes are not smiling so far in 2012….

#198 stevenson on 05.25.12 at 6:45 pm

In case you missed it Toronto RE is still full steam ahead.

Be careful who you follow. You may have missed your ride.

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/home-buying/how-are-housing-markets-in-calgary-montreal-and-ottawa-holding-up/article2441170/

#199 Balmuto on 05.25.12 at 6:48 pm

#151 Stickler & #157 penpal

Stickler, you’re right that my carrying costs would be greater if I bought today. My costs including mortgage, condo fees and taxes were @ $1500 a month. I were to purchase that unit today, based on the price I sold it at, it would be closer to $1800 a month. But still, I’ve found that many units renting in the $1800 range are of similar size and overall desirability to my old condo (which was @ 600 sq feet 1 bedroom). So I don’t see much value there for renters, just in terms of carrying cost.

However – and this is where you’re dead-on penpal – what I did notice is that once you start looking for units in the 750-900 sq feet range, you do see more value in renting. I actually ended up renting an 830 sq foot 1 bedroom condo for $2200 a month, which is much more than I intended to pay, but I’m happy because it’s a great deal. I’ve seen similar sized units in the same building listed at $580,000 to buy. Based on that price, at prevailing rates, the mortgage payment alone would be @ $2,400 a month. Add on condo fees and taxes and you could be looking at $3,000+ a month, which would be out of my affordability zone. So I’m now renting something that I couldn’t afford to buy, so I am saving money in that sense (and I think I got a bargain, too). It’s just that the savings weren’t there had I opted to rent out a unit similar to the one I sold, which surprised me. It motivated me to upgrade because I couldn’t stand to just rent more or less what I had previously for the same monthly costs or more.

#200 Nostradamus Le Mad Vlad on 05.25.12 at 6:53 pm


100 mln. Americans without jobs; Greece Out of cash so, switch to barter and dump the Euro; Real or Unreal? Obomba’s taking the US to pieces; Legitimizing Tyranny toward a one-world govt.; FB and NASDAQ Going, going, gone? Plus FB Oops, we screwed up royally; Detroit’s Streetlights Half being turned off? JPM US$7 bln. and growing. Bailout! 01 January 2013 Greece exits the Euro, and The Real McCoy; 12:01 clip US putting a (failing) empre before a (failing) economy.
*
Germany – Iran Offering nuke help for Iran’s power plants, like Three Mile Island; 1:58 clip I see dead bees; USDA Redefines organic for Monaarrgghhho and friends; 2:36 clip Fearmongering injected into cyber terrorism; 22 min. clip Thorium, soon to replace uranium in nuke plants; Russia “To attain their goals these forces are trying to stoke tensions among various Lebanese political and sectarian forces, the ministry added.” The west has failed to topple Syria, so now it’s moving on to Lebanon; Italy’s ‘quake Was HAARP involved?
*
8:48 clip disciple — TV = mind control.

#201 Toronto_CA on 05.25.12 at 7:14 pm

“Canada has nothing to do with Greece.
Even the local Greek immigrants, and first generation, wouldn’t dare send any money to Greece.
Why in the world would it affect Canada’s housing?
CBC, nothing but the truth.”

You did read the article, right? Greece wouldn’t directly affect Canada’s housing, no. But Greece exiting the Euro would probably very likely trigger a recession in Europe, which would have Global economy impacts, including a corresponding Canadian recession, which could be the pin that pricks the housing bubble. My company is headquartered in Germany, and while very solid, if there is a Euro recession, they will probably cut our raises like they did in 2009 here in the Canadian branch.

#202 bill on 05.25.12 at 7:28 pm

”Maybe, but so far all you have to offer is fake moral superiority…”

western man it is certainly far better than the moral drivel you espouse

#203 AprilNewwest on 05.25.12 at 8:06 pm

#196 Boomer – Thanks for the correction. It makes more sense.

#204 AprilNewwest on 05.25.12 at 8:09 pm

#191 Can it be. I was referring to your’s but someone has corrected me. It’s OAS that is held beck if one is out of the country for more than 6 months.

#205 Daisy Mae on 05.25.12 at 8:10 pm

#98 MAXX: “It makes me want to cry. When you think about how many days of sweating it out at work it took to accumulate that lost (forever) equity, it’s a fiscal disaster of epic proportions…”

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

Yes, it’s very sad. The equity/asset accumulation cannot be recouped. Now, we must pull ourselves up short. And start flying right.

#206 Stupesing in Cabbagetown on 05.25.12 at 8:39 pm

John G Young, I agree with Mr. Lahey #175. Western Man is indeed hateful. Homophobic. Sexist. He is deliberately provocative. You fuel him when you respond. Take the high road and ignore his posts. There’s an old saying “when you wrestle with a pig you’ll only get covered in shit and the pig will probably enjoy it.”

#207 John on 05.25.12 at 9:04 pm

Saskatoon Housing Bubble wrote:

“40% loss in real estate? It’s happened before in Canada.

Adjusting for inflation this is how some cities did in the 80′s.

Vancouver lost 44.4% peak to trough
Calgary lost 40.9% peak to trough
Edmonton lost 32.6% peak to trough

In the 90′s.
Toronto lost 32.4% peak to trough.”
—————

Unfortunately you can’t look back for information on this one. The economy of the times you refer to disappeared long ago and isn’t coming back. Strangely, this idea doesn’t belong in a debate, it’s simply data. A collection of facts.

If you want to make the kind of comparison you’re making, you’d first need to be real about what the ecojomy is and how it works. If not? Then there is no difference between that and buying a way over-priced house in Saskatoon, just as the world game starts to shift…and brings down housing with it.

Start by matching all forms of fraudulent central bank liquidity, outsourcing of manufacturing to slave pools and the growth of derivatives. Notice how housing prices match it all pound for pound? All available on the net.

And you’re comparing today’s situation with your posted data? You can see how that isn’t going to work.

#208 disciple on 05.25.12 at 9:07 pm

#200 Nostra… Cool link, thanks. It mentioned Edward Bernays. He was the same actor who played Edvard Benes, President of Czechoslovakia…They love to play name games, to help them remember all their roles…

#209 John G. Young on 05.25.12 at 9:09 pm

#188 Westernman on 05.25.12 at 5:45 pm

“…so far all you have to offer is fake moral superiority…”

It’s most definitely not fake.

#210 Tony on 05.25.12 at 9:24 pm

Re: BDI means nothing these days. — Garth

You don’t seem to get it the baltic dry index reflects the real world the world we live in. The index reflects no lies no cheaters and no corruption. What we see today are illusions brought about by lies, corruption and snow jobbing the public. Like i said before no country ever lied and cheated their way to prosperity the world is headed for a repeat of the dirty thirties.

#211 Westernman on 05.25.12 at 9:24 pm

John G. Young @ # 209,
Of course it’s fake, completely inauthentic and phony.
You use it as tool, crutch to try to put yourself above any possible criticism – an old trick but this isn’t ol’ Westernman’s first rodeo and so it fails to work on me…
I’m sure it works on the vast majority of the brainwashed, bleeding heart liberal sheeple you associate with though…

#212 cramar on 05.25.12 at 9:36 pm

#192 Devore on 05.25.12 at 6:07 pm
#176 cramar

(out of boredom of living in an apartment)

Huh?

Maybe planting fruit trees and then cutting them down is an endless source of entertainment for you. To each their own.

Some of the fruit trees got too big (and wormy) so had to be cut down. You missed the point that if something like this has to be done, an owner can do so while a renter cannot.

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

#194 Devore on 05.25.12 at 6:22 pm

Had you bought your house a mere 3-4 years later, it would only be worth 4x the price you paid for it instead of 8x. Considering the amount of money you poured into it, and the property taxes and mortgage interest you “threw away” during this time, that would have been a spectacularly poor investment by any measure.

Like it has several times in the last 35 years, the time to buy real estate will come again. No, it is not different this time.
———–

You indirectly pay property tax through your rent anyway and mortgage interest was minimal since we paid the principal off within 10 years. Even today my property tax is less than many people pay in condo fees. Now condo fees are throwing money away as you call it since you get little benefit in return and still have to pay insane property tax anyway.

I did NOT in anyway, shape, or form imply that NOW is a good time to buy. I totally agree that there is a time to buy and a time to sell just as Solomon wrote three thousand years ago (Eccl. 3). My point was over the extreme long term RE has been a great investment—through the ups and downs. Better than renting especially when you add in the intangible benefits of home ownership.

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

#195 Canadian Watchdog on 05.25.12 at 6:25 pm

Yup that is the same argument that I use for people that say that stocks (or mutual funds) have been a great investment over the last half century. It HAS been a great investment over the long run, but now is not the time to buy stocks or RE at the top since the economy itself is starting to come unglued.

#213 Snowboid on 05.25.12 at 9:37 pm

#193 Johnny on 05.25.12 at 6:13 pm…

The small area I follow in Vic West saw it’s peak in January 2010, and without exception prices are down since then. Friends and former neighbours also provide anecdotal information that prices have come down since we sold last spring – but still aren’t selling. This is an area of about 100 SFHs and 200 condos/townhouses.

You can believe what you want, but Victoria is not going to escape the downturn.

#214 John G. Young on 05.25.12 at 10:11 pm

#206 Stupesing in Cabbagetown on 05.25.12 at 8:39 pm

“John G Young, I agree with Mr. Lahey #175. Western Man is is indeed hateful. Homophobic. Sexist. He is deliberately provocative. You fuel him when you respond. Take the high road and ignore his posts.”

Thank you for your comments. When others (such as you and Jim Lahey) step up to confront Westernman’s hate, I feel less alone in my battle with him; I suspect that this support will, in time, help me to be able to “take the high road”.

Cheers,

John

PS I don’t like the word “homophobic” because I think it lets people like Westernman off the hook. I don’t think it’s fear that drives these people — I think it’s hatred, pure and simple, and should be labelled as such, not softpedaled as some sort of psychological malady.

#215 John G. Young on 05.25.12 at 10:28 pm

#211 Westernman on 05.25.12 at 9:24 pm

“Of course it’s fake, completely inauthentic and phony.”

Coming from someone who hides behind an alias, that is indeed rich — and using three synonyms to say the same thing doesn’t make it any more correct.

“You use it as tool, crutch to try to put yourself above any possible criticism – an old trick but this isn’t ol’ Westernman’s first rodeo and so it fails to work on me…”

If you were ever to read other posts on this blog, you would see that I am not above criticism, and — unlike you — I do not ignore or reject it when it is expressed. In any event, your comment smacks of an insulated paranoia — You can’t fool ol’ Westernman! — which says much more about you than me.

“I’m sure it works on the vast majority of the brainwashed, bleeding heart liberal sheeple you associate with though…”

More false assumptions on your part: my politics, and those of my friends and family, tend towards the conservative — of course, minus the racist/sexist/homohating/police state part.

#216 Stupesing in Cabbagetown on 05.25.12 at 10:48 pm

#214 & #215 – John, please. I wasn’t trying to give you more ammunition to carry on, I was asking you nicely to please change the subject. This is turning into the JGY and Westernman show. Let’s focus instead on the intelligent, well researched and brilliantly written words of our host, Mr. Turner, and share information in that spirit.

#217 Snowboid on 05.25.12 at 11:12 pm

#216 Stupesing in Cabbagetown on 05.25.12 at 10:48 pm …

Amen!

#218 Gun Boat denier on 05.26.12 at 2:30 am

Aussie Roy- Mr O has it correct. In your example, the increase from 4 to 8 is positive feedback, if it then
switched to negative feedback, the value would then be
constant near 8.

#219 El on 05.26.12 at 11:35 am

#196 Boomer on 05.25.12 at 6:34 pm

‘ ….It is OAS that you cannot receive if out of the country for more than 6 months, at least legally!’
Anyone know why this is?
I’m a retired Canadian in Asia, and Canadian taxes are deducted at Canadian source from my pension monthly at 25%. I do not live in Canada but yet pay high taxes for a Canadian lifestyle I no longer use: surely the fact that I am a tax-paying Canadian should entitle me (as others) to OAS.

#220 Devore on 05.26.12 at 4:25 pm

#212 cramar

That’s great, but virtually no one intends to rent long term. Nor should they if they are middle class. Historically, average households are able to afford to buy the average house. Determined families who can spell “financial plan” and save money, can buy a house at a reasonable price. They cannot do so today, but that time will come around again. In the meantime, they should stay out of the market if they are not yet in, and they should not upgrade (ie, trade in for a much larger mortgage) if they already own.

Comparing renting for 35 years to owning for 35 years is meaningless. Red herring. Strawman.

Long term anything could happen. Consider the people who bought a house 5 years after you did. Through to today, that house has only appreciated 4x, on average. Consider you are comparing to prices today, which are at their peak and rolling over. If the house price chart for this bubble will look like other bubbles (and why shouldn’t it) the people who buy today with 5% will be underwater for a decade or more. And since they have clearly demonstrated their inability to save money, they will be unlikely able to sell at a loss and cover the difference out of pocket, so they will be stuck. Probably able to make payments, fortunately for the bank, but still stuck.

#221 TurnerNation on 05.26.12 at 4:54 pm

#95 Linda Pearson on 05.25.12 at 5:46 am
Westernman, Turner Nation and now, sadly, John G Young, are pushing the envelope with their referring to other individuals or different groups of humans as ‘things’ and ‘its’
….

Example?? I don’t know what you mean. I trust our forum host and his moderation. You, not so much.

#222 John G. Young on 05.26.12 at 6:49 pm

#221 TurnerNation on 05.26.12 at 4:54 pm

“#95 Linda Pearson on 05.25.12 at 5:46 am
Westernman, Turner Nation and now, sadly, John G Young, are pushing the envelope with their referring to other individuals or different groups of humans as ‘things’ and ‘its’
….

Example??”

Yes, I noticed that too. I looked back at past comments and did not find any post where you objectified people. I was going to indicate that but other issues arose, as they always do.

#223 TurnerNation on 05.26.12 at 9:24 pm

210Tony on 05.25.12 at 9:24 pm

Check recent news for stock symbols GNK.US and DSX.US – two dry bulk shppers. Stock prices are in the tube due to poor results.