Entries from June 2012 ↓

Strong & free

…and after…

Once upon a time, feeling patriotic, I raised a million dollars to fund a revitalized version of the national anthem sung by people who were famous before Justin Beiber was even swimming upstream. That Canada Day night the Queen was in attendance on Parliament Hill when it was performed live, so I met her. Randy Bachman played my Telecaster during the show (better than me), and then we hung out all night with Gino Vanelli, Luba and others. I was an MP at the time, so I got the prime minister to rub shoulders.

But this Canada Day will be just as good. Riding.

Hi Garth, I seek your advice on a situation I trust is a bit different from those of the fools who usually write in. I’m a happy renter in Vancouver, renting a large downtown condo for half of what a mortgage on it would be.  My sister, on the other hand, is looking to buy a 2-bedroom $390,000 pre-construction condo in Burnaby, to be completed in 2015.

Now, she acknowledges the existence of the bubble and the likelihood of it popping right after she buys.  The kicker though is the pre-sale ‘discounts’ they’re offering her, totaling some $60,000 (so I presume the ‘regular price’ would be ~$450,000).  Even if prices drop the 15% TD Bank predicted in their report, which I quoted to her, that would put the presale price around the same level as the value of the place when it’s actually built.

Now while it’s certainly pointless to commit to a place three years in advance rather than buy it when it actually exists, for the same price, that isn’t enough to dissuade her.  My question is then simply, how unwise would going forward with this purchase be?  It’s in the suburbs and is a condo, so I would expect it to be less overvalued than other areas of Vancouver.  Is that $60,000 cushion sufficient to soften the crash or will the unit be hit even harder? Thank you for your time, Garth.

What do you do when your sister’s an idiot? Ignore her. After you fully document it, of course. This hard evidence will be useful in later life when she starts to even remotely dispute anything you say or do. YouTube is good. If she should come back to visit reality for a while, tell her there’s an excellent chance the building will never go up and if it does, even better odds she’ll lose a wad. The condo is not ‘worth’ $450,000 and is being miraculously offered for $390,000. Has sis ever heard of ‘marketing’? Does she also believe that yoghurt has Regularis or that age-defying cream can visibly diminish lines and wrinkles while skin is refreshed, hydrated and revitalized? Oh, I see.

Hi Garth. A little about me, early fifties, divorced ten years ago, had to start over, just finished paying off my mortgage in a modest house outside Toronto in Acton, no debt, a somewhat okay defined contribution pension from my employer, that I am maxing out (certainly not a gold plated defined benefit pension.) Some small savings however no RRSPs to speak of, a few shares in the banks, and now no mortgage payments.

A month ago my mother passed away and I stand to inherit anywhere from 75-100K after the estate is settled. Obviously I have lots of contribution room in my RRSP…what do I do now???

I have no plans on selling or moving in the foreseeable future and I think I can withstand a drop in real estate values, been through it a few times in the past (the house I bought in 1989 took to 2000 to recover what I paid for it)..just how much is the great question. I’m a lot like the boomers your talk about here…my residence will someday be a part of my retirement plan though still quite a few years from now (I’m on the so called freedom 105 plan)…..so what now?

Sorry about your mom, but I’m sure she didn’t leave you money so you can give it to the government. So why would you register it with F, by sticking it in an RRSP? Sure, I know you’ll get a tax deduction for doing so and you can grow the money tax-free, but all that inheritance will become taxable – not a happy situation when you need it to retire on. Better that you stuff twenty of it in a TFSA, dividing it between three or four ETFs to give some balance and growth potential (equity, bonds, dividend). The rest keep in a non-registered investment account, adding in some preferred shares for solid, tax-efficient dividend growth, as well as a few good REITs. And ditch the stocks. Too much volatility. You’re behind the curve already, dude, play this one smart.

Garth, I just turned 30 and have $155,000 liquid in the bank and am considering a condo or townhouse in the $70K range in the West Palm Beach area, I rent in Calgary ($860 for 1 bedroom built in 2004), I am a car nerd and own a 2006 Corvette Z06 LS7 (paid for) to attract amazons, also have a Mini Cooper for our harsh winters. Wanna use the Florida property as a vacation spot as I go once a year now and maybe twice if I get this place, hold for 10 years maybe rent it, if I can get a good mgmt company to do it for me. I chose Florida because I love the water and the west coast is too pricey despite the calapse in prices. Do you think it’s a good financial move? Please respond as I greatly value and respect your opinion, I’ve been reading every single one of your entries for about 3 years (even when I am on vacation) and have reffered many to your site. The attached pic is my sexy amazon gf which harrassed me for reading your blog daily on our Honolulu vacation. Joe.

No. Bad idea. A seventy-grand condo in WPB will be a piece of junk (things are cheap for a reason) and tenants likely to be biker security guards. You’ll have to file two tax returns if you rent, and don’t ignore the carrying costs – higher property tax, hurricane insurance and condo fees (be careful the building is not semi-occupied or the fees alone could slay you). The deal will need long-distance legals and title insurance to close, probably be cash-flow negative, plus how can you rent out a condo and still go there to hang out for vacations? Better than you take some of that money burning up your bank account and buy your poor girlfriend some clothes to match her helmet. Or not.


Jim and Sheila are both engineers at RIM. They’ve been debating buying a house in Waterloo. Jim’s home town. “We’ve been watching this very closely,” Sheila told me when we met ten days ago, “and prices have been coming down. There are some great deals.”

No wonder. And beginning this weekend, there’ll be one helluva lot more motivated sellers.

As you know, Thursday was the middle of the end, or maybe the end of the end, for Research in Motion, once a Nortel-like Canadian wonderco, inventor of the iconic Blackberry. The company lost more than $500 million in just 90 days. It does not have the resources to launch a saviour product. Company stock lost about 20% of its value last night, on top of the 70% decline it’s already suffered. Worse, another 5,000 people – a third of its remaining workforce – will be axed. I have no idea if that includes engineers, but I bet.

RIM is a massive presence in the K-W area of Ontario. The impact of these job losses – high-value-added, high-wage, high-knowledge positions – is inestimable. The company is the city’s largest employer, with about 8,000 people (at least at noon on Thursday) on its local payroll. It owns the most offices of any company in town. It donates the most. It generates the most taxes. It’s become the region’s very future. And it’s about the only reason a decent house is tough to find for less than $450,000.

But this is not about RIM, K-W or Jim and Sheila. It’s about jobs.

This week telecommunications giant Rogers laid off a few hundred. The big newspaper chains are shedding employees like lint. The federal government sent out termination notices on Thursday to about 5,000 employees in 13 departments. The unemployment rate is stuck at 7.3% and 22,500 private-sector jobs vanished in May. Southern Ontario west of RIM’s head office is an employment wasteland. Meanwhile oil at $78 has brought the bankruptcy of dozens of oil and gas companies in Alberta and threatens the sands themselves. If it weren’t for about 26,000 people forced into self-employment last month, our national numbers would be even worse.

Of course it wasn’t rising interest rates or falling banks which ultimately leveled US housing and kept it pinned for the past six years. It was unemployment, which topped out about two points higher than our current level. When people lose confidence in their jobs, they don’t buy houses. In fact, they sell. Kitchener-Waterloo will learn that in a few months.

As you know, this spate of tough news comes just as the feds finally move to deflate a housing bubble their own policies helped gasify. Dropping the mortgage amortization maximum, outlawing cash-back down payments and raising borrower requirements will make houses less affordable and thereby reduce prices. Now this.

It all makes a joke of the news we continue to be fed. For example as RIM was falling on its sword, CREA was feting an increase in national house prices and sales – and forecasting a 4% jump in 2012 as a whole.  “National activity over spring months was stronger than anticipated,” CREA president Wayne Moen said. “This shows clearly how the continuation of low interest rates is keeping homeownership affordable and within reach.”

However rates don’t matter. I’m sure Wayne knows that, but he gets paid to spin.

Whether our housing market has a hard or a soft landing is yet unclear. But land it will. So far I’ve written 1,102 posts on how to get ready, which probably indicates I should get a life.

Anyway I have not heard from Jim and Sheila in the last few hours. Don’t even know if RIM has identified the people that will soon be ex-employees. But I’m sure they’re thinking a lot more about the discussion we had about house versus financial investments. Buying anywhere in RIMland right now would be a fail. Over the next year and beyond, the 401 leading out of town will be busy, and many families will understand what a risk it is to have the bulk of their net worth sitting in one, illiquid and unmovable object.

As I have said so many times, love liquidity. It will save you.

When Jim calls, by the way, I’ll ask if he dumped the vested stock in his company’s DPSP. When we met I told him to sell it the next morning. Not yet, he said. “We’re waiting for a rebound.”

Well, I try.