The dilemma

“I have been following your blog for quite some time now,” says James, “and I am in a bit of a dilemma.”

Fire away, reader boy. This is the blog of last resort.

“I bought a town home in 2008 in the western suburbs of Toronto for 250K. I put 20% down with a 25yr amortization. I have a 5 yr open variable rate (prime minus 0.75). Over the past 4 years I have been paying off the mortgage at an accelerated pace, now the mortgage outstanding on the house is 90K.

“I am 38 and my savings are, 20K in TFSA, 100K in RRSP and 15K in Savings account. No other debt, no loans or HELOC. I maxed out my RRSP last year and used the tax refund to pay towards the mortgage. So the Question: My initial plan was to pay off the house by 2015 and be mortgage free. I have been reading your blog and wondering if paying off the mortgage is a good idea and instead to bank the money and invest it.”

It’s a damn fine question, Jamie, and if you ask it of almost any financial advisor, they’ll give you the textbook answer: mortgages should be paid off as quickly as possible. This is because (a) mortgage interest is not tax-deductible (unless you know to make it so), and (b) building up equity in a house is a form of forced savings. The theory is that by making all those mortgage payments you’ll spend less on general debauchery. So when you get wrinkly and boring, you can die with a pot of money. This, of course, is the goal of living.

But I disagree. For a few reasons.

First, the age of asset inflation is over. Maybe for a long, long time. It changes everything. Centuries ago, when your parents were growing up, real estate values perpetually increased along with economic growth, wages, benefits, interest rates and consumer prices. So pumping money into a house made sense because the capital value of the property was increasing fast enough to represent a good real return on the equity being built.

But not now. Real estate is starting to flatline everywhere, and will soon be in decline in almost all markets. Meanwhile the S&P has gained 15% this year, bank preferreds pay 5.2% with minimal tax and investors with balanced portfolios should be ahead by about 8% since January. In other words, money shoveled into real estate is dead cash. Its only economic value is as rent replacement, and we all know renting is cheaper than owning. So why not lease the same house and invest in assets which have better odds of growing in value?

Second, James, you have a mortgage rate of prime minus .75%. So, at just 2.25% it is actually less than the current inflation rate (which is 3.1% in Ontario, for example). This means the bank which gave this loan is subsidizing you, and your mortgage interest payment is depreciating at a faster rate than your income. So why would you fix their mistake by paying off the loan quicker?

Third, you need more balance. Assuming the townhouse has appreciated to over $300,000 since 2008, in the Horny Years now ending, you have over two hundred thousand in equity, and just $135,000 in liquid assets. Granted, that’s a far better ratio than most people today, but it’s still real-estate heavy. Given you age, and my Rule of 90, the house should top out at 52% of your net worth, not the two-thirds which it currently represents. Your financial goal should be to concentrate on financial assets, and let the mortgage languish.

What happens if interest rates rise?

Of course they’ll increase, but if the bank analysts are correct, the prime will be higher by only a half point next year, and a further half (at least) in early 2014. With just $90,000 borrowed, that’s hardly crushing. Besides, as mortgages inch higher, so will inflation along with your variable rate. And if you wimp out, you can always lock the home loan in with a phone call.

In short, James, this is a weird time. Mortgage rates are at levels not seen since the late 1930s. Real estate’s turning into a non-performing asset. And investors can earn double the inflation rate without taking significant risk. These days are unique in modern history, and yet most people still think banging on the mortgage is the best possible financial strategy, when it could be among the worst. Do you really want to dump more money into something which could be worth less next year, and you can’t sell?

Nope. Rent what depreciates. Buy what appreciates.

The goal’s no longer to own a house. It’s to be financially independent and liquid. They are now mutually exclusive.

186 comments ↓

#1 TurnerNation on 09.19.12 at 9:27 pm

In other news, the GO Transit security is looking for a middle aged, balding, portly man who was spotting fiming patrons closely in the vicinity of Union Station’s Tracks 5 and 6. Those on Track 6 described the man’s attitude as mocking, contempteous. Several cigarette butts were recovered at the scene, and tests are pending.

#2 i.am. on 09.19.12 at 9:36 pm

second..s#@t

#3 superman on 09.19.12 at 9:43 pm

Another furst by TurnerNation. I wonder if that is him in the front page photo? Sitting by his computer all day long hitting refresh waiting for Garth to make a post?

#4 GTA Girl on 09.19.12 at 9:51 pm

TurnerNation; so does that mean Smoking Man won’t make the seminar?

#5 a prairie dawg on 09.19.12 at 9:52 pm

@ #1

Dude that’s epic.

#6 Rainman on 09.19.12 at 9:52 pm

3rd……

#7 TurnerNation on 09.19.12 at 9:52 pm

Geez – I finished my evening chores (washing dishes, and so on), sat down at PC and typed up the post that made me LOL to myself yesterday, refreshed my tabs and there it was a new post. Timing, couldn’t have tried. I can’t count the # of times this has occired
9-10pm is when I wind down, check on investments, real estate links, catch up on emails, and so on.

Anyway this weblog is about RE. Today’s and yesterday’s TO Solds Toronto SFHs in C01, 02, and Leaside, Annex et al are all at 100-120% of the asking price.
What 416 slowdown?? And are these people pre-approved on existing 30 year amorts?

#8 Suede on 09.19.12 at 9:52 pm

Decisions, decisions…

This castle?

http://www.proprietesdefrance.com/annonces/chateau-mayenne-pays+de+loire-france/29090001/photos/?offset=16

or this castle?

http://www.realtor.ca/propertyDetails.aspx?propertyId=11642885&PidKey=-1199517800

#9 Retired Boomer - WI on 09.19.12 at 9:53 pm

James,

You’re in a good place. 90K mortgage spread say over 15 years, with equal inputs to savings = secure geezer bliss!!

Make it worthwhile investments! When its paid for, buy that new car!!

#10 Tim on 09.19.12 at 9:53 pm

“Nope. Rent what depreciates. Buy what appreciates.

The goal’s no longer to own a house. It’s to be financially independent and liquid. They are now mutually exclusive.”

Repeat, repeat…

The essence of this blog…Well said…

#11 Kenken on 09.19.12 at 9:55 pm

I have to say I am quite disappointed by the advice in today’s post. I was expecting a ‘cash-in’ on the house (at least try) and reap the benefits and invest the proceeds while waiting for the bottom…. since you said rent is cheaper than owning.

#12 T.O. Bubble Boy on 09.19.12 at 9:58 pm

The chair in the picture is having a dilemma.

#13 Hoof - Hearted on 09.19.12 at 10:00 pm

PPuuuurrssstttt !

#14 Renting and loving it on 09.19.12 at 10:01 pm

In other news… I think I may have broken through the pompousity (is that a word?) of someone we’ll call a friend. He and his wife ask me “how are you enjoying renting?” with a hint of derision every time they see me. They own a house that has appreciated considerably but frankly, is a dump of a semi in a good area that needs a ton of work, above and beyond what would be considered normal housekeeping skills)

I wish I’d had a camera to memorialize the look on his face when I told him that the monies I cashed out of the house and have invested mean that I’m living rent-free and then some, with money left over for living expenses. Plus, I still have easy access to the equity pulled out of the house. Liquidity.

I think that may have rattled his pedestal.

I mentioned your books Garth and offered to lend him one. We’ll see if he takes me up on it.

#15 confused on 09.19.12 at 10:04 pm

If James’ equity was only $100k, with $200k in outstanding mortgage, wouldn’t he then “pass” the rule of 90, coming in at under 50%?

#16 Realtor #1 on 09.19.12 at 10:07 pm

I have been working in RE since 87
My biggest regret is that I didn’t buy more real estate in the 90’s, when everyone thought it was dead. Those who did and I will admit some had to use their own cash to cover expenses for a few years are laughing straight to the bank. RE over a 10 to 20 years will always average to roughly 2-3% yearly increase.
My advise to James use your saving and buy a rental property , like Garth said now is the time rent so buy a rental. I would rather be the one collecting rent than paying.

Garth I heard the advise in the mid 90’s , RE was over never again , the only thing that was never again were those PRICES, damn I wish I bought more!!

#17 Nemesis on 09.19.12 at 10:08 pm

HWY 3 ‘CrowsNest’ MajorSectionsRe-Paved between Princeton and Keremeos… I have never felt sorrier for a BayStreetBlogger. Or a HarleyBoy.

Well, OldPol… At least your view is sweet… [just between the two of us, it’s SweeterByFar from FirstCanadianPlace. BiggerVault, too.]

#18 Question on 09.19.12 at 10:10 pm

“Rent what depreciates. Buy what appreciates.”

Would you say this also applies to cars, Garth?

Should we lease rather than buy a car?

Of course. Unless a beater. — Garth

#19 };-) aka D.A. on 09.19.12 at 10:12 pm

#148Form Man on 09.19.12 at 4:55 pm
#129 DA

it is telling that you neglected to mention that total listings are increasing faster than sales. I repeat, prices will continue to fall until MOI is below 6 months. We are a long way from there……..

But Form Man, prices haven’t been falling, they have been relatively stable for the better part of four years now. In some areas of the city they have been going up (Kelowna South hospital area). And now unit sales volumes are increasing – even condo sales are up, more than SFD, and eroding that excess inventory. It’s looking more and more like a typical economic cycle and less and less like that economic Armageddon people feared four years ago.

Get the Windex out man – that crystal ball of yours is in need of a good cleaning.

#20 Rainman on 09.19.12 at 10:14 pm

I’ve been reading for a few months and must say I enjoy the blog… in saying that, the same characters coming up with the same crap is somewhat boring…. Smoking man.. sorry, you seem like a wanker friend I used to have??? smart but dumb… yes I know that will not make sense to you… Common sense is saying the market is going down… problem is, most people don’t have it… Garth – you like to be right… gobble it up…

#21 Smoking Man on 09.19.12 at 10:24 pm

The pic reminds my of a thought that I had after the fourth glass last night.

Is it not probable that our universe is just an electron orbiting a big ass atom.

And that every electron is its own Universe.

Time to catch up to last night, and see what I discover next.

#22 Ashley Khadir on 09.19.12 at 10:24 pm

“Rent what depreciates. Buy what appreciates. ”

Do you lease the Hummer Garth?

#23 Walter Safety on 09.19.12 at 10:26 pm

Sure James follow Garth’s advice that way in 2015 instead of the simple life in a paid home you can chase T slips at tax time, correct the incorrect slips,open lots of mail from all your new financial relationships, login/logout, try to compete with the Tradebots and do make sure you cover that pesky pre authorized mortage payment.

#24 Korean Auto Manufacturers on 09.19.12 at 10:26 pm

Garth, why you mock our KIAs?

Koreans know that real estate always goes up, and that KIAs are better than Ford or GMC.

Check out video, Gangnam Style, by artist Psy, who is Korean born dancing machine. He has prowess that you lack Garth.

#25 charlong on 09.19.12 at 10:26 pm

Any insight into the Stratford, Ontario market? Prices are noticeably higher than nearby Kitchener / London. Does the law of supply and demand still come into play in niche markets? And when inevitable correction you are forecasting transpires will certain markets be less vulnerable due to demographic demand? (ie: older refined people enjoying theatre…)

#26 mid-Ontario on 09.19.12 at 10:28 pm

“when you get wrinkly and boring, you can die with a pot of money. This, of course, is the goal of living.”
-Garth
—————————————————————

If this isn’t the end goal, what is life all about Garth??

#27 Angel on 09.19.12 at 10:29 pm

(Re the photo) And that’s how online file storage was born.

#28 TRT on 09.19.12 at 10:33 pm

CBC National Housing Story….

Patricia Crof — lying thru her teeth

Amand Lang — deceiving because she wants to work for the Big Banks.

CAW guy — gives kudos to gov re CMHC etc (wants future handout??)

Pree banerjy — Gives in to conscious and says there is possibilty of a crash.

Based on this, It will not end well at all. How do these people get their jobs…by lying everyday??

#29 Mark on 09.19.12 at 10:35 pm

When one pays down a mortgage they’re not investing in RE, they’re investing in retiring a debt obligation. Essentially paying off a bond that they issued.

The advice should thus be framed around paying off a bond that does not have tax deductible interest, *or* investing in something else.

If the alternative is to buy preferreds or bonds/GICs/cash in an investment portfolio, or to pay off a mortgage, *clearly* paying off the mortgage is a better thing to do.

If the alternative is to buy common equities, or other investments that are expected to have much better performance than bonds, then the advice can be somewhat different providing that leverage is not extreme.

The Smith Manouevre or similar is probably where such an individual should be heading, with the caveat of an admonishment not to be too aggressive, for fear that such an individual will find themselves facing spiralling funding costs in a generalized market downturn.

Smith Manouevre = danger. — Garth

#30 TRT on 09.19.12 at 10:36 pm

#21 Smoking Man:

Dude, an electron is not an object…it exists everywhere simultaneously on the periphery of N’s and P’s. Dots drawn in books are only that.

Stick to what your good at: Psychology

#31 Form Man on 09.19.12 at 10:36 pm

#19 DA

according to stats provided by OMREB, you are dead wrong.

Are you suggesting that the local real estate board is making things look worse than they really are……..that seems rather unlikely ( perhaps they are chasing away the undesirables ).

I have been right for the last several years. We will chat again in a year and see who is the winner once again.

#32 Jay Currie on 09.19.12 at 10:37 pm

#8…to be fair. The nicer castle is priced in Euros.

#33 JRance on 09.19.12 at 10:40 pm

I agree that James should not be accelerating payments, but only because his mortgage is damn cheap. For anyone with a rate of over 4% or so, paying off the mortgage is a better investment than adding low risk bonds to your portfolio.

Paying off the mortgage guarantees the equivalent of a 4% return after taxes (the payments are not “dead cash” as Garth suggests, unless you are considering defaulting on the mortgage). Bonds pay much less, and while they have the potential for capital gain, capital losses seem more likely over the medium to long term.

For those with a higher mortgage rate, I would suggest replacing the low-risk fixed income portion of your portfolio with accelerated mortgage payments. The rest should be in equities.

Bad advice. Dumping more into an asset likely to depreciate and lose liquidity is not investing. — Garth

#34 Consdier This on 09.19.12 at 10:40 pm

That’s not a CD, it’s a flattened donut.

Just like the flattening real estate market.

Deflation comes in all forms … and usually it is accompanied by profound disappointment.

#35 Wally Wingnut on 09.19.12 at 10:45 pm

It’s different here in Vancouver than anywhere else. Or is it?
http://whispersfromtheedgeoftherainforest.blogspot.ca/2012/09/its-different-here-we-have-culture-of.html

#36 Smoking Man on 09.19.12 at 10:52 pm

#4 GTA Girl on 09.19.12 at 9:51 pm
TurnerNation; so does that mean Smoking Man won’t make the seminar?

Oh I will be there, Laughing at all of you checking out every poor bald guy in the room.

Did anyone not catch my piece on the art of fibbing

#37 JT on 09.19.12 at 10:52 pm

The future of Canadian RE (10 years down the road):

Land prices continue decline but at slower pace

http://www.japantimes.co.jp/text/nb20120920a3.html

#38 Teresa on 09.19.12 at 10:54 pm

I just watched “The National” and the “expert” panel had the CAW chief economist* Jim Stanford. He warned that if people started to go underwater, banks would be in trouble due to all the losses due to foreclosures. Does he know know about CMHC? Oh wait, at the end of the discussion he mentions how CMHC moderates the market, guarantees the quality of mortgages, etc. So, CMHC will suddenly not pay out it’s insurance policies?

Most of the panel agrees that Canada is different, no ABCP here, banks more prudent, people don’t treat home like ATM, etc…..soft landing.

Well, let’s see shall we?

How can Amanda Lang say over and over that banks don’t sell off the mortgages as securities? Banks have been buying bulk CMHC insurance specifically to insure mortgages with LTV > 20%, to bunlde with low LTV mortgages, just for this purpose and I had thought that OSFI was trying to stop it.

Glad to see that someone in the MSM is starting to realize the market is dropping, I suppose it’s too much to ask they get their facts straight.

Teresa

* I realize that CAW and economist doesn’t really jive, but hey, that’s his title.

#39 Gunboat Denier on 09.19.12 at 11:01 pm

“Do you really want to dump more money into something
which could be worth less next year, and you can’t sell?”

This arguement is not relevant. Debt is debt and is owed regardless of the value of the RE. Whether the after tax
return on the debt payment is more or less than the after tax return on his investments is the real question.

Also his networth is $300 – 90 + 135 = $345K So thats 300/345 = 87% in RE. No diff than paying off his debt leaving $45k liquid assets.

I addressed that question, and he fails. As for NW, I used his RE equity (net) relative to his after-debt (net). — Garth

#40 JRance on 09.19.12 at 11:03 pm

“Bad advice. Dumping more into an asset likely to depreciate and lose liquidity is not investing. — Garth”

Your real estate exposure remains the same no matter how fast you pay down the loan. The fact that the loan is backed by the equity in the house is irrelevant (unless jingle mail is a possibility as I mentioned). It is a loan that must be paid no matter what. It is a mathematical fact that you will be further ahead accelerating the payments on a 4% mortgage than you will using the same amount of money to invest in 3% GIC’s or Bonds (ignoring capital gains/losses), no matter what happens to the value of the property.

The only way to reduce real estate risk is to divest by selling.

I didn’t mentions GICs or bonds. — Garth

#41 Smoking Man on 09.19.12 at 11:06 pm

I’ll stick it where I want, when I want.

That’s if it’s ever wanted.

#42 EJ on 09.19.12 at 11:08 pm

#8 Suede on 09.19.12 at 9:52 pm

That just goes to show you how F’d the Canadian housing market is.

Hm. F’d… Flaherty’d? An appropriate term for what’s happened here.

#32: Do the conversion, they’re about the same price in CAD.

#43 John on 09.19.12 at 11:13 pm

The goal’s no longer to own a house. It’s to be financially independent and liquid. They are now mutually exclusive.
—————

The Greatest Show on Earth called. They want their elephant back.

#44 Mark W on 09.19.12 at 11:18 pm

So you can pay off your house by the age of 41 or 42.

Then do so for the same reason that people who went through the depression did so.

If you own your house free and clear it is yours and no one can take it away from you and throw you out on the street.

This logic of Garths is also based on the assumption that you will always have a job and income and never be unemployed.

(If you can never be without a job and never without an income then follow Garth’s logic).

When your house is paid off in a short time span and you are still in your early 40’s you take the cash that would have been put into the mortgage and build up assets along the lines that Garth recommends.

Mortgage debt is bad debt and eliminate it if you can.

Once the mortgage is paid off you continue to live the frugal life you have up until now and expand your asset base with money that is free and clear of a mortgage.

What this boils down to is a value judgement of debt and whether you are comfortable with it or not?

Money loaned to you for less than inflation is not ‘bad debt’. — Garth

#45 tkid on 09.19.12 at 11:18 pm

James, shovel the money into your TFSA and savings account. Invest in that which pays you to own it – preferred, etf, etc etc. If you can get the TFSA and savings account to equal the remainder of the mortgage, then you can always cash ’em in to pay off the mortgage if times get difficult.

In the meanwhile, you should be getting more in interest from your TFSA and savings account than you pay in mortgage interest. Anything you earn that is more than your mortgage rate is free money.

#46 T.O. Bubble Boy on 09.19.12 at 11:25 pm

@ #15 confused

If James’ equity was only $100k, with $200k in outstanding mortgage, wouldn’t he then “pass” the rule of 90, coming in at under 50%?

Good point — this seems to conflict with my understanding of Garth’s “Rule of 90″… I had assumed that Garth was always referring to the price of the house as percentage of net worth vs. equity in house as percentage of net worth.

This seems to imply that taking on a giant mortgage with a small down payment doesn’t matter, as long as you have some financial assets on the side… and, the more indebted, the less you’d want in liquid assets.

For example, if James had a $1M house and a $900k mortgage, he’d have $100k in home equity, and $135k in financial assets… this is well under 52% of his net worth, but insanely leveraged on overpriced RE.

GARTH – can you please clarify how house price vs. home equity factors into your “Rule of 90”?

If only home equity matters, aren’t you essentially promoting the idea that anyone who owns real estate should stay highly leveraged (i.e. high loan-to-value) unless they have a large pool of liquid assets to balance it out?

To look at this in 2 GTA scenarios:

Scenario #1:
– 50 years old (“Rule of 90” = 40%)
– $600k mortgage on a SFH in the 416 (average price $800k this month)

>> This person would need $200k in liquid assets to not break the rule, but this means he/she would have $600k mortgage debt and $200k in other investments.

Scenario #2:
– 35 years old (“Rule of 90” = 55%)
– mortgage-free on a SFH in the 416 (average price $800k this month)

>> This person would need about $650k in liquid assets to not break the rule, and would have $0 debt with $1.45M in assets.

How are these 2 scenarios both abiding by the “Rules”?

#47 Mark W on 09.19.12 at 11:31 pm

“Money loaned to you for less than inflation is not ‘bad debt’. — Garth

Re: #44.

Yes, the concept of debt to inflation is well taken Garth.

However, if you lose your job and have no income and can not make the debt payments then this ratio is in effect meaningless.

My logic is a defensive rear guard action based on the assumption of whether it is best to have this kind of debt (when you have a choice of getting rid of it) if you lose your job and spend a considerable time unemployed.

If you can never lose your job or income then I would follow your logic.

#48 KG on 09.19.12 at 11:36 pm

Re #26: If this isn’t the end goal, what is life all about Garth??
———
When do we open church in your name. Are your Sundays open ?

#49 mb on 09.19.12 at 11:38 pm

Interest rates will stay ultra low for a loooong time. Currency risk with USA, our largest trading partner, plus not to mention government debt levels. Rising interest rates even moderately would be catastrophic for Canada. We have a trade deficit with all of our oil and resources?!? It would be political to do such a thing, even though we need to

#50 KG on 09.19.12 at 11:41 pm

How does the loonie play out against the USD ?

#51 Gunboat Denier on 09.19.12 at 11:54 pm

I addressed that question, and he fails. As for NW, I used his RE equity (net) relative to his after-debt (net). — Garth

Please clarify as per [email protected] request.

[email protected] – valid points, but we should mention that in this situation it is the after tax return that counts – so perhaps 6% interest, 5% dividend or cap gain depending on marginal tax rate.

#52 Jon B on 09.19.12 at 11:54 pm

“The goal’s no longer to own a house. It’s to be financially independent and liquid.”
I’d say the goal is to own a house and be financially independent and liquid. It’s all about obtaining a financially sound balance between stuff and liquidity.

#53 NotAGreaterFool on 09.19.12 at 11:57 pm

Just saw a clip on The National on Canada’s real estate market. Consensus is we are heading for a soft landing at minimum. Tomorrow’s show is a deep dive on Vancouver.

#54 Johnny B. Goode on 09.19.12 at 11:58 pm

Garth, if the “age of asset inflation” is truly over, does it still make sense to shop for real estate in the recovering US housing market like Florida? I remember you mentioning in a previous post that now is a good time to shop for real estate in USA. Thanks.

#55 Johnny B. Goode on 09.19.12 at 11:59 pm

Garth, I recall that you are supposed to be on air with CBC tomorrow, is this correct? If so, can you advised which show is it and when is it on air? Thanks.

#56 Snowboid on 09.19.12 at 11:59 pm

#31 Form Man on 09.19.12 at 10:36 pm…

I agree with your assessment from yesterday. After following RE in an area from Clement in the north, Lakeshore at Richter in the south – from the lake to Gordon…

Prices are coming down, with SFHs and Condos (haven’t been following T/Hs). Of course there aren’t as many SFHs in this area, so it’s mainly Condos – and they are getting hit bad.

The cycle is now predictable:

1. Overpriced, sit on the market gathering dust
2. Relist at a lower price, or list privately
3. Still overpriced, lower a few thousand
4. Take off the market for awhile
5. Start at 2 again (or proclaim as Sold, then repeat at 2)

After our return to the Okaynagan in the spring, this cycle should bring us close to the pricing we are after – but who knows…

Patient we are.

#57 Moving to Alberta on 09.20.12 at 12:03 am

Great to know that inflation is about 3.1%. Got myself locked into a 5 year fixed at 2.99% today, not sure what will happen in 5 years, but i’m invested into RE at about 40% of net. They do mention that it’s different in Alberta (vs Toronto or rest of Canada), guess I will find out…

#58 thx smoking man on 09.20.12 at 12:18 am

I was looking for something to put me to sleep

your posts just did it

#59 Mr Buyer on 09.20.12 at 12:19 am

#37 JT on 09.19.12 at 10:52 pm
The future of Canadian RE (10 years down the road):

Land prices continue decline but at slower pace

http://www.japantimes.co.jp/text/nb20120920a3.html
……………………………………………………..
I know this to be a fact so I would like the so and so that tried to foist upon the blog that House prices are increasing in Japan to explain just how that can be when houses are depreciating assets in Japan and land value goes down if it has a used house on it. Twenty one years straight of land price decline. 21 YEARS. Scorched earth, not soft landing.

#60 luke8929 on 09.20.12 at 12:21 am

Currency debasement race to the bottom as the ECB, US Fed, BoJ continue to monetize the debt. Hyperinflation or massive deflation, make your bets.

http://gainspainscapital.com/2012/09/18/2374/

74 cents of each dollar of deb issued last year in the US is owned by the Fed, And of course its different here, Canadian banks and the Federal treasury are so much more prudent when it comes to sound fiscal policy and spending.

#61 Weese on 09.20.12 at 12:42 am

Would you advise a mid 30’s person with a paid off home to pull money out and invest it? I’ve have had advisors suggest this in the past but lack the balls to follow through.

#62 THE CELIAC HUSBAND on 09.20.12 at 12:52 am

http://theceliachusband.blogspot.fr/2012/03/jarnac.html

My daily breakfast (at a coffee shop no less) of an Espresso and a Croissant is Euro 1.75, or two bucks here in France.
The Latte alone in Calgary set me back double that. Add a cookie and you are out six.

Separate needs from wants and you will have plenty of disposable left every month.

#63 Nostradamus Le Mad Vlad on 09.20.12 at 12:52 am


“So when you get wrinkly and boring, you can die with a pot of money. Its only economic value is as rent replacement, and we all know renting is cheaper than owning. Rent what depreciates. Buy what appreciates. It’s to be financially independent and liquid. This, of course, is the goal of living. This is the blog of last resort.”

Dying with a pot of loot isn’t the greatest idea, primarily because CRA would take more than its fair share. Even ‘tho each of us has their own best by date, trouble is, no one knows when it is.

If we did, we could spread the wealth out evenly among family, charities and friends, but leave CRA with a few taste-tester morsels. They took plenty from us when we were around, so a miniscule amount is a nice departing gift.
*
Lower Oil Prices The October surprise? Rich? In monetary terms, yes; Scotland Ireland Part II; QE everywhere US Fed, BoJ, now BoE. See the west decline, and if banks continue to print money, it’s all going down a large Pension Hole, or bottomless pit anyway; Yellow Pages Still in there, Smoking Man? Divorce? Expensive Not worth getting married.

QE3 = Inflation; Gold is Money says Deutsche Bank; Home Resales gaining traction; Germany’s big concern China, not Greece; California Already falling; Chinese factory orders down; Hidden Depression; Inflation = Suicide? Ballyhea Boondholder Bailout; Nest Eggs being wiped out thru low interest rates and inflation; Bankless Towns; Blankfein’s austerity; Greece Everything’s up for sale.
*
Neocons want war May not be a bad thing, as they can be obliterated for once and all; Get back to the garden (and farmer’s markets); China – Japan 1911; Takes all sorts Passenger’s luggage; Raking it in Sing, dammit sing! Potty Political correctness off the rocker; Doomsday Preppers Certainly wouldn’t bother me; Not great housekeeping; Undersea high fives between turtles; Dan Brown (The Da Vinci Code) could be right; White Swallow in Nagasaki; Oromneyba Tom and Jerry are better suited for the election; The Mayan Countdown It’s a shift alright, of epic proportions.

#64 John Prine on 09.20.12 at 1:03 am

i too watched Peter Mansbridge and his “Bottom Line” crew. Disappointed in Amanda Lang, Preet Bannerjee seems to be the only objective one there. Tomorrows slant on Vancouver should be interesting, maybe Somerville and Bob Rennie will be the “expert’ guests. Might as well be Global if that pans out…

#65 DonDWest on 09.20.12 at 1:05 am

Is there any reason why he can’t just pay off the mortgage completely and then invest by taking out HELOCs?

Right now, HELOCs are still the lowest interest loans in town. The low interest rate is in many ways laughable. Investing in an already paid off house seems like a win/win situation to me.

#66 };-) aka DA on 09.20.12 at 1:11 am

#31 Form Man on 09.19.12 at 10:36 pm

I know the stats Form Boy. I look at them every day just as I do every sale, every new listing and every expired listing and the history of each.  I live eat and breath this stuff. Does that equip me with the foresight to be able to tell the future? Not so much more than any other, but what it does do is give me a far keener insight than most as to what is happening in the market currently.

Year to date volumes are up. More and more are conceding that things are more likely to improve than get worse. Yes there are still plenty of bears but their numbers are dwindling. Which is not to say people are becoming positively bullish but they are encouraged by the lack of substantive fear mongering and thinking a lot more optimistically about the immediate future and THAT says a lot as is affirmed by those stats I provided in yesterday’s comments section.

#67 Will on 09.20.12 at 1:20 am

This is an interesting debate.
James owes the bank money. He is paying 2.25% interest and paying down the loan. The loan is fixed, firm and forever … until it is paid down. It makes no sense to assume risk rather than pay down the loan.
If interest rates rise yield instruments will fall in price … high yields become higher. The preferreds, whatever, lose value but the mortgage is the same. Higher yields are seductive but the “bond” James has issued has a fixed redemption value, unfortunately he can’t get a guaranteed investment that puts him ahead. Deductible interest would be easier to match. Perhaps he should sell, rent, and buy an investment property … but he probably doesn’t need the hassle. Worst case the house loses value but he’s not under water. Best case he’s debt free and has a tax free capital gain.
If interest rates fall … nothing is impossible … his payments reduce his debt faster, and perhaps he’s missed an opportunity to trade fixed interest profitably, an opportunity that requires smart decisions for realisation.

#68 The Dude on 09.20.12 at 1:58 am

Equities up. Gold up. Dollar up. Interest rates…. still down.

#69 popados on 09.20.12 at 2:32 am

had to change my handle,the wife realized i turned into a blog doggy.woof woof! not happy.

#70 Buy? Curious? on 09.20.12 at 2:46 am

At 38, with 2/3 of his net worth in real estate instead of your rule of 90 that he should only have 52% of his net worth in RE? The way this cat is paying of his mortgage, he’ll be free and clear in a few years paying historically low interest rates. Then he’ll have all this money that isn’t going to a bank OR a landlord to invest in whatever. You’re suggesting that he sells NOW? C’mon!!! Do you really think this correction is going to last that long? If he retires at 65, that’s still 27 years away! The fear mongering is for today’s old people, not future. Old people need to plan for old age homes the way teenagers and their parents are planning to pay for university.

http://www.youtube.com/watch?v=hZxcFtBik_U&feature=relmfu

#71 Peter Andrews on 09.20.12 at 2:50 am

>>Meanwhile the S&P has gained 15% this year

On the back of exactly the same hot air (an expansion of the money supply) that puffed up the housing market.

The best model for Canada and the US over the next couple of decades is the deflationary spiral in Japan, which, over the past couple of decades, has sucked about 80% out of the value of the stock market.

Gareth’s problem is that he believes the garbage he reads in the corporate press, and thinks that the Canadian and North American economies are not going to collapse.

#72 confused on 09.20.12 at 2:54 am

@ #46 RE: rule of 90… Thank you for understanding.

If it’s equity as a proportion of net worth, then having nearly zero equity is “better” than having nearly full equity, regardless of total exposure to RE. (that can’t be right)

If it’s total exposure as a proportion of net worth, then mortgages are unnecessary in this scenario. A 30 year old must save up $500k before buying a $300k home outright, coming in at 60%. (is that really the intention of the rule??)

#73 B P O E -$-$ #2 SOLD OUT on 09.20.12 at 3:02 am

No More Buyers
Prices falling
Inventory increasing
Its gonna be a long wet winter here in BPOE
Watch for another 10% drop by year end in Vancouver 20% in Ditchmond

#74 THE CELIAC HUSBAND on 09.20.12 at 3:14 am

#8……the french castle please. I am certain you can knock the asking down by 25% right now.

#75 Devore on 09.20.12 at 3:32 am

#14 Renting and loving it

I told him that the monies I cashed out of the house and have invested mean that I’m living rent-free and then some, with money left over for living expenses. Plus, I still have easy access to the equity pulled out of the house. Liquidity.

That’s what people talk about, don’t they. They say, buy a house, eventually you’ll pay it off (assuming you won’t HELOC the hell out of it like everyone else) and will live rent AND mortgage free. Well, except for the property taxes. And fixing the roof. And replacing the windows. And a new water heater. And redoing the kitchen. And, well, you know, free. Pride of ownership and all that jazz.

But you’re already there, and didn’t have to spend several million (mortgage with interest) to get there.

#76 The Dividend Trader on 09.20.12 at 4:55 am

Garth I simply don’t understand your fetish with preferreds, yes good if your retired and need (safe)income perfect, but for this guy buying preferreds leaves the regular dividend increases that good companies reward loyal shareholders with. As a matter of fact if you buy them “on sale” over time you’ll see yield on cost eventually hit 10 plus percent.

Let me quote from Bells web

8 dividend increases in the past 3 years

Sorry Garth preferreds don’t give pay raises like that

#77 The Dividend Trader on 09.20.12 at 4:57 am

For you blog dogs, SP Brunner has a great stock watching site, bit heavy at times but worth checking out

Rob

http://spbrunner3.blogspot.com

#78 Tony on 09.20.12 at 5:14 am

Re: #16 Realtor #1 on 09.19.12 at 10:07 pm

The time to have bought real estate in southern Ontario was the fall of 1982 and sold before 1990. Anyone who bought after 1990 may see their property values fall back to the level in which they first bought it or them in the next 5 years or so.

#79 Elmsley on 09.20.12 at 6:08 am

Re: 46
It doesn’t matter if you are over-leveraged. Take a look at what you need as income in order to sustain the rule for the next year. All mortgage free people are in the clear. Bank slaves need to make more. A 40 yr old would be paying 1k and need to invest 1k. A 60 yr old would need to invest 3k with the same mortgage payments.

#80 JB on 09.20.12 at 6:58 am

When you read on RE pages this:
A Slowdown in Canada’s Housing Market is Coming!

You should be considering renting. I´m renting and even it is not as financially favorable as I thought (in the short term), I believe I have done a right decision. Especially when I see my relatives sinking money to a big house which needs tons of repairs and consumes much energy.

#81 maxx on 09.20.12 at 7:33 am

#16 Realtor #1 on 09.19.12 at 10:07 pm

What a lame, outdated commentary. 15-20 years ago, the boomer demographic was a RE buying juggernaut that was coming into full momentum and kept going ’till recently.
Now, economics, demographics and a badly deteriorating job market conspire to fix RE as one of the worst repositories for those precious hard-to-get and keep dollars.
Given public policy that can change on a dime, the need to factor in life circumstances (which no one can predict but inevitably manifest) and the resulting huge value of being liquid, enslaving yourself to an outsized mortgage is proving for many to be an unrecoverable financial error of enormous proportions.
Today, people need to hedge their finances for many types of risk- government policy change risk, central bank policy risk, uncontrollable tax hike risk, utilities increase risk, insurance cost increase risk, job loss….the list is long. Society is also becoming far more litigious, in part due to thinner money on the ground, so, better factor that one in too, in case you sideswipe a cyclist or someone slips on the ice on your sidewalk.
The time to sell RE has been passing right before your eyes.
Garth is right. You are wrong.

#82 T.O. Bubble Boy on 09.20.12 at 7:39 am

RE: “Rule of 90”

Seeing his comments here that his “Rule of 90” is referring to Home Equity (i.e. net worth in the house) divided by Total Net Worth, and the comments on 2.25% mortgage debt being ‘good debt’, I recalled one of Garth’s strategies (in his books) for getting balance in your investments: use a HELOC as an investment loan.

So, if we take the example of a 50-yr-old with a $500k mortgage-free house but no other financial assets, he/she could take out a $300k investment loan (HELOC – where the interest is tax-deductible) and buy $300k of investments to get down to 40% ($200k home equity and $300k liquid) in RE for the “Rule of 90”.

This approach is very similar to the Smith Manoeuvre — which Garth feels is ‘dangerous’. The main difference (I think) is the automatic re-leveraging in the Smith Manoeuvre, and maybe the % leverage.

So, my real question is: where to draw the line between “balanced” and “dangerous”? Cheap mortgage debt is ‘good’ if you have a certain amount in liquid assets, but ‘bad’ if you’re maxed out on mortgage debt to buy liquid assets.

Garth – where does the “Rule of 90” draw the line?

#83 John on 09.20.12 at 7:42 am

Charlong wrote:

“Any insight into the Stratford, Ontario market? Prices are noticeably higher than nearby Kitchener / London. Does the law of supply and demand still come into play in niche markets? And when inevitable correction you are forecasting transpires will certain markets be less vulnerable due to demographic demand? (ie: older refined people enjoying theatre…)”
————-
Seeing about 80 posts this morning, and just a sprinkling of reality here and there. It seems that “shop talk” is encouraged, and the global reality that is Canada ignored.

It’s a copy of what happened with the general public and it’s purchase of cheap international banking cartel “money”. Pretend that there are no consequences, and a faceless authoritative system “has it all under control”.

How do we know that “everything is fine”? Because authority and “the crowd” say so. Same principle on the blog. The sprinkling of posts that stick to reality and consider true systemic risk are ignored and downplayed over and over so that non-critical thinking is finally tossed aside.

Yes, Charlong’s is a “nonsense” post out of “not knowing”. The poster very understandably thinks the values of real estate have been locally driven. This, in spite of overwhelming and freely available evidence to the contrary. Day after day. Even the few posts of this morning.

What happens? Filtered. Just like Greater Fools did. Nothing changed.

Any comments about the error? Specifically? Anyone standing up and saying… “uh…no…you’ve got it wrong…Canada’s housing bubble is fully international”.

Almost without a peep.

So. What does that mean? The blog is great because it’s still possible to find contrarian opinions ( those people-opinions that are aware of the fact that “out of debt, be liquid, diversify” is not contrarian).

But. As the increasing relevance of emerging facts become even more obvious, the blog risks becoming an electronic version of “The Watchtower”. Legit critical thinking would just look for another place. Thus making everything here “true”.

When obvious cause and effect plays out, you know whqt the response would be? “Oh well, that’s how it goes”. The same line property virgins sinking underwater would get. A copy.

#84 gladiator on 09.20.12 at 8:12 am

OT:
A serious relationship isn’t when you have sex, or when you get married – it is when you take a mortgage together.

#85 Beach Girl on 09.20.12 at 8:20 am

Well this has been an interesting read. Does not apply to me as I have no mortgage. But I love my home. Which is most definitely a financial folly if you are trying to squeeze two cents together. But, I collect my rent, this place is massive, I enjoy the company and live for free. Regarding there is no mortgage or car payment etc. In 2002 I purchased 5 houses, with 2 apt in each. Made out like a bandit. Too lazy to do that again, and the timing is wrong, but much more fun than working. I think those times will return.

The bank manager came today. He wants 25K for the first 500K and 20K for the every subsequent 500K to execute my will. I was born at night, but not last night. Is this even reasonable?

Next question. Our resident, the bi-Polar young man is on ODSP with full benefits. On his meds he is OKAY. We all include him in our life. He is registered for RRDP. Registered Disabilty something and currently has 13K in his account. When he deposits 1,500 a year this is topped up by the govt by 3,500. But it needs to be invested for max but safe returns. Best advice guys.

Although this young man has issues and always will have, what do do? We have signed him up for govt housing for a bach apt but it takes years. Someone has to die. How do people like this who have no help cope? This is truly sad. He is always welcome here, but I won’t be here forever. This is hard, even for me.

#86 LSC on 09.20.12 at 8:21 am

#38 Teresa
I just watched “The National” and the “expert” panel had the CAW chief economist* Jim Stanford. He warned that if people started to go underwater, banks would be in trouble due to all the losses from foreclosures.

The craziest comment he made was that before a wave of foreclosures takes hold – Government should have a program in place to “Forgive Debt” to keep these people in the homes. At the expense of tax payers of course.

#87 LSC on 09.20.12 at 8:22 am

BTW if I recall correctly – Garth will be interviewed as part of tonights National with Peter.

#88 Karie on 09.20.12 at 8:46 am

I see Garth’s logic but I don’t think I could go that route! I’d take the textbook answer and aim to own free and clear. I also have the same mortgage rate as you (2.25 variable) and similar remaining on my mortgage ($100,000), fast tracking the payments, same RSP $100,000 but I spent my TFSA money – it was too accessible for me!

One warning is as some mentioned, houses needs updating plus there’s going to be a roof to fix, furnace and other stuff, which is the boat I’m in now but you seem to have more than enough disposable income to take care of home repairs! I have a feeling your townhouse is on the newer side anyway.

#89 refinow on 09.20.12 at 8:51 am

James, first of all, your Prime -.75 variable is not an “OPEN” mortgage…It is a closed convertible mortgage. The open Variable’s never hit a deep discount of .75.

Now this is somewhat a moot point since you declared your purchase date is 2008. This tells me your maturity date for you Prime -.75% mortgage is next year.

Bye Bye to the Prime -.75% rate, and with your mortgage being conventional, the bank’s don’t favor those naked uninsured mortgages, and do not deep discount such a small mortgage.

I find it rather astonishing that in just 4 small years you managed to chip away a mere $140,000 in principal and afford to max out your RRSP contributions and put money away in your TFSA..

You are either making $400K+ per year and living in a tiny condo, or like so many people who are posting to this site…..Completely full of Shyte….

Maybe you won a lottery or that rich Uncle included you in his will.

James you are likely a financial poser, stop wasting our morning coffee time with BS scenarios.

#90 Gypsy Kid on 09.20.12 at 8:55 am

We paid off our mortgage as fast as we could. Now we have equity outside of our home that exceeds the value of our home; we’re stress free; and we feel “free”.

I know it might make less of a financial chance when rates are so low, but it makes psychological sense. And, you do have to live some where. We’ve been in this house almost ten years, and will probably live ten more at least. If James is planning to stay long term, then by golly, pay off the mortgage and be stress free.

Garth, I can see you rolling your eyes…

#91 };-) aka D.A. on 09.20.12 at 8:58 am

In defence of REALTOR #1

#77 Tony on 09.20.12 at 5:14 am
and
#80 maxx on 09.20.12 at 7:33 am

Every seven to ten years when the real estate markets shift one way or the other the disadvantaged come up with excuse after excuse why this time it’s different.

The venue may be different but the play remains the same. What we have been experiencing is a return to norm not a departure from it and the historical trend is just as REALTOR #1 stated @ comment #16

RE over a 10 to 20 years will always average to roughly 2-3% yearly increase.

If it rises more than that at any given time the unwarranted increase is eventually clawed back. If it fails to achieve that increase at any given time it soon makes up for it. The cycles have just enough duration variation to make timing interesting and facilitate fools being parted from their money.

Real estate is a long term hold. Look around and you will note that is how an overwhelming number of the big players made it. Ask any one of them and they will agree; real estate is a long term hold not a short term speculation.

#92 };-) aka D.A. on 09.20.12 at 9:04 am

Peter Mansbridge and his “Bottom Line” crew last night did a decent enough job of calling it what it is but a rather muddied collective opinion of what will be and that affirms but one thing; nobody knows what tomorrow will bring.

#93 Smoking Man on 09.20.12 at 9:07 am

Why does everyone on here care about property V’s

Truth is you don’t . So you don’t make enough loot to live down town. Then move. Or. Figure out a way to make more loot. Hard to do as years of school only taught you to be a slave not a ruthless deal maker. Last option. Become a rebel. Freedom fightet . Do an occupy. Oh ya forgot your teacher imasculated you.

Your screwed

#94 Karie on 09.20.12 at 9:10 am

@ TurnerNation – You are a regular on a financial blog, you have a good sense of humour, you say you’re not a big drinker. I would guess you as an occasional beer drinker but you’d take a scotch or other drink once in awhile if it was offered to you.

Light Beer
You’re a down to earth guy watching your weight.

Regular Beer
You’re money conscious and practical. You don’t follow trends.

Imported beer
You’re worldly or like to try to be worldly. You like to try to be different.

Wine
You’re an intellectual or have discerning tastes or you like smelling and swishing for fun or like to figure things out like puzzles, etc.

Scotch
If you go high end – you’re trying to project the image of tough but a lot of money. If lower end, you are tough and want a quick buzz.

Vodka/Gin/Rum/Mixed Drinks
You’re on vacation and want to have fun. You’re on a diet having alcohol with soda water or diet coke. If you drink it regularly, you’re fashionable and creative.

Tequila
You want to party. If you do the hard man tequila shot – throw the salt over your shoulder, squeeze the lemon in your eye, down the tequila without a chaser – you like to get off the wall crazy.

#95 Smoking Man on 09.20.12 at 9:16 am

Trend warning. Second ear is forming on cad bonds. Batman
Best batman I have seen in a while.
Shuttle go with throttle up…………..

I think Ben’s next move. Ok home owners. Forget about it.we forgive your debt

#96 AACI Okanagan on 09.20.12 at 9:34 am

“#31 Form Man on 09.19.12 at 10:36 pm

I know the stats Form Boy. I look at them every day just as I do every sale, every new listing and every expired listing and the history of each. I live eat and breath this stuff. Does that equip me with the foresight to be able to tell the future? Not so much more than any other, but what it does do is give me a far keener insight than most as to what is happening in the market currently.”

This coming from a guy who didn’t have a clue what a pair set analysis was last year.

#97 };-) aka D.A. on 09.20.12 at 9:48 am

#86 LSC on 09.20.12 at 8:22 am
BTW if I recall correctly – Garth will be interviewed as part of tonights National with Peter.

Oh THAT ought to be interesting. Hopefully they will have someone with a tad more counter perspective as well. Maybe someone with more of a western perspective, someone like Ozzy Jurock.

#98 Sparky55 on 09.20.12 at 9:57 am

Halifax NS Condo
Listed $599,900 beginning in 2006
Listed since last year: $749,900 -> $699,900 -> $649,900 -> $599,900

Sold today: $530,000
PID 41232000

#99 Regan on 09.20.12 at 10:01 am

A friend of mine just got pre-approved on a mortgage for $680K based on household income of about $135K annually. They have a substantial downpayment, but still… even at 3% and 30 years that will work out to $2800/month, plus utilities, taxes etc. – probably $4000/month for housing. And yet $135K generates maybe $6800/month net… so how exactly is the crazy lending slowing down? Has it just subsided to the point that you’d be trapped in endless, painful penury to your mortgage. I can’t imagine spending >50% of my net income on housing for the next 30 years.

#100 Dupcheck on 09.20.12 at 10:13 am

#24 Korean Auto Manufacturers,

KIA, hemmm, i guess Garth makes fun of them because we do not have Tata’s or Geeles here in north america.
Face it they are: underpowered, rust fast, fall apart earlier, loose depreciation hourly, wimpy trade name, non-collector type of machine, but they are good on gas i give you that. Show me a Kia on the road that is 15 or 20 years old!!!!! I bet there are none. Just accept it as it is ….A to B … nothing else.

#101 Interesting Times on 09.20.12 at 10:26 am

#7 TurnerNation – Houses selling above asking.

Yes, I have noticed the same thing. Houses in the downtown 416 area are still selling for 100 – 120% of ask. Yet I also look at guava.ca every day and see that there are many other houses that are reducing their asking prices because they are not selling. This market is schizophrenic and I really don’t understand what is happening.

Garth, I look forward to hearing you speak in Toronto. Maybe you can shed some light on the Toronto market.

#102 Form Man on 09.20.12 at 10:27 am

#96 AACI

exactly……

I am currently in discussions with some bankers regarding completing a development in the Okanagan that has been foreclosed on ( I have done similar work for these bankers off and on for the last 15 years ). DA’s comments provided some much needed hilarity at our meeting yesterday.

#103 IM in C on 09.20.12 at 10:32 am

James – Pay off the house, then invest as per Garths advice. Is this a good investment strategy, almost certainly not – but- do it anyway!

#104 Bobby on 09.20.12 at 10:34 am

I watched the CBC special on real estate last night and was quite frankly disappointed. Very little was said of CMHC and how it was backstopping mortgages for people that really didn’t have the means to buy. The only really astute comment was by the gentleman who said that markets can overshoot by 50% going down, just like they have overshot going up.
Back to reality here in Victoria. Prices are falling and many homes and condos are just languishing on the market. I have been looking at condos and have never seen so many empty units.
The market is tanking irrespective of what CBC says!

#105 Tony on 09.20.12 at 10:36 am

I think it is pointless to argue what about James should do. He’s in pretty damn good shape.

#106 walltiger on 09.20.12 at 10:37 am

#18
If you lease a new car every 3 years, that will be a very expensive luxury. No, you should buy a car (even though it depreciates, but the rate of depreciation is decreasing) and keep it for a long time, say over 10 years, at least, and you will be on top.

#107 Penny Henny on 09.20.12 at 10:42 am

garth-Rent what depreciates. Buy what appreciates.

I assume then that you lease the Hummer and the Harley.

Classics. — Garth

#108 Tony on 09.20.12 at 11:09 am

Re: #91 };-) aka D.A. on 09.20.12 at 8:58 am

The problem is the price of real estate can fall and never come back. Japan has seen real estate fall in price for the last 21 years in a row.

#109 Not 1st on 09.20.12 at 11:10 am

Gold is up just about everyday since Bernake’s announcement. Since they are going to be buying 40 billion a month to infinity, thats steady upward momentum for the metals. All while the U.S. fed adds half a trillion to its balance sheet per year.

More money has been kicked around than people realize. Enough to pay off the mortgages of every person in the U.S.A. Enough to put solar panels on every house. Enough to end poverty and hunger in the world many times over. Anyone cheering these moves by the fed is a fool. This is a broken system and what can’t last, won’t last.

#110 bill on 09.20.12 at 11:22 am

#26 mid-Ontario on 09.19.12 at 10:28 pm
what is life [ the universe and everything ] all about Garth??
the answer is 42…

#111 Daisy Mae on 09.20.12 at 11:22 am

#75 Devore: “….and will live rent AND mortgage free. Well, except for the property taxes. And fixing the roof. And replacing the windows. And a new water heater. And redoing the kitchen. And….”

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

Living costs are a fact of life.

#112 };-) aka D.A. on 09.20.12 at 11:24 am

#96 AACI Okanagan on 09.20.12 at 9:34 am

This coming from a guy who didn’t have a clue what a pair set analysis was last year.

That is so pompous. How often have you actually had opportunity to do a paired set analysis? Why is it not a more commonly used tool in the appraisal industry? The only hat’s off I will give to the appraisal industry is that they base their opinion of value on recent comparable sales not asking prices or supposition of what may or may not happen in the future.

Market value is determined by what a ready willing and able buyer is prepared to pay a ready willing and able seller, neither being under undue influence to buy or sell.

But hard core paired set analysis… give me a break. Kinda like that seldom used specialty tool a mechanic has little use for but eagerly brings it out on the rare occasion they do and in the interim use it as a conversation piece over Friday afternoon beers.

When you do an appraisal of a residential property you take three or so comparables and make adjustments to equate them, correct? You determine replacement value, correct? And you factor in depreciation, correct? Do you actually ever use Paired Set Analysis in a fee appraisal? I’ve never seen it. Why do you think not?

The bone of contention between you and I last year was direction the market might be headed as the limited number of paired sets available led you to believe prices were dropping at a rate something more than they were. As I recall you seemed to be quite a bear in consequence to those perceived price drops, which surely there were, since 2008 but not nearly so much as your paired set analysis led you to believe. Why? Because paired set analysis is not so prevalent an opportunity that it can provide you with a reasonable sample size yielding reliable data. Paired set analysis is probably the most adept at affirming Statistics are like a bikini. What they revel is suggestive but, what they conceal is vital

Now, a year later, what do you think of what you expected might have happened between last year and this and what actually did?

Yes Bronson that is a shinny new quarter you have there. Now go out and play with your toys. (inside joke)

#113 Frank le Skank on 09.20.12 at 11:32 am

About the National Bottom Line segment:
They stated the facts and described the current problems that we face regarding falling RE sales and prices. They also mention the potential economic impacts related to a downturn in RE, which I thought were accurate. They failed to provide guidance when Jim Stanford and company implied that buying a house is something that should be done, but with caution. They admit that prices will fall given the current data but provide poor advise on that actions that people should take. I’ve intermittently watched this panel before and Amanda Lang goes with the flow, her opinion in the past was that of a RE agent has now changed, so no real insight from her.

Preet seemed to be the only one that had the testies to provide an opinion.

#114 };-) aka D.A. on 09.20.12 at 11:44 am

#96 AACI Okanagan

I wonder if YOU really understand “paired set analysis”? It’s not so simple as comparing one prior identical property sale to a later. Who here is so adept at paired set analysis? Certainly not me but what I do understand of it leads me to believe it is an analytical tool which has far better academic application than residential real estate appraisal for which it would be perceived as a cumbersome, little understood not commonly accepted dissertation by the end users who simply want to know what the damned property is worth that they might reasonably lend and borrow against it.

#115 Form Man on 09.20.12 at 11:56 am

#113 DA

I swear, people are falling off their chairs in uncontrollable laughter…………

#116 };-) aka D.A. on 09.20.12 at 12:04 pm

#107 Tony on 09.20.12 at 11:09 am

You’re forecasting Tony. “Never” is a long, long time. Certainly for some their real estate holdings may not in their lifetime attain the values they were at the peak of this last cycle in 2007/08 and our hearts are with them not for the equity loss but for the apparent inevitability of their too soon life loss.

#117 Derek R on 09.20.12 at 12:04 pm

Okay, here’s my opinion on how and why the rule of 90 works.

The Rule of 90 is all about diversification. As such it applies to Assets, not Net Worth. So a 30 year old with a house, no savings and no debt has a 100% of their assets in RE. They are fully exposed to changes in the RE market, up or down. A 30 year old with a house, no savings and a mortgage of equal value to the house also has 100% of their assets in RE. That means that the latter is also fully exposed to changes in the RE market. Both of these people have a score of (90-30)% so should be aiming to have no more than 60% of their assets in RE. But as they both have 100% of their assets in RE there is a problem.

The first person can achieve the 60% target by taking out a HELOC mortgage on the house and using it to invest in the hallowed “diversified portfolio”. The second person can’t. The latter is in a very risky situation and should really reduce the risk by downsizing to a less expensive house, or by “going rental”.

Say the first person “takes steps” and gets an 80% HELOC (possible in 2011 but not now) which is used to invest. For assets that person now has a house worth whatever plus a portfolio worth 80% of whatever. And if we do the calculations we find that the person’s RE assets are now 56% of their total assets. True, the person now has a mortgage equal in value to the portfolio, but the person’s assets are also now more diversified, so swings in the house price will now likely be balanced by opposite swings in the portfolio value.

The mortgage debt is fixed in value, so there is no uncertainty attached to its value, apart from that caused by inflation/deflation. The risk of whether the person can afford the loan is another matter of course. But the assumption is that income from the diversified portfolio can be used to fund the interest payments on it, or to pay it off.

That’s why the Rule of 90 only takes into account your assets: it’s being used as a rule of thumb to work out how risky your asset mix is. It basically assumes that the older you are the less time that you have to recover from RE losses, and therefore the less risk that you want to take with real estate.

And if I got that wrong, I’m sure that Garth will let me know in no uncertain terms.

#118 Old Man on 09.20.12 at 12:14 pm

Years ago in King City there was this home so huge that no AACI was qualified to appraise such, and not a one in Toronto would do it. I had to retain the services of someone who had higher qualifications, but forget what he was called; quantitative something comes to mind.

#119 };-) aka D.A. on 09.20.12 at 12:21 pm

#102 Form Man on 09.20.12 at 10:27 am
#96 AACI
exactly……
I am currently in discussions with some bankers regarding completing a development in the Okanagan that has been foreclosed on ( I have done similar work for these bankers off and on for the last 15 years ). DA’s comments provided some much needed hilarity at our meeting yesterday.

I call BS Form Boy. Such conversations, any of any consequence above idle chit chat, would take would take place at a level far above local. Unfinished construction foreclosures get SOLD not completed by the bank. The bank is not in the construction business they are in the lending business and would be in, on backing such a venture in trade, a good enough equity position that they could sell it without having to finish it. You must know well the lending parameters for such ventures – hint there are no zero down mortgages to be had in commercial real estate.

#120 mac on 09.20.12 at 12:22 pm

When you write a brilliant line of copy, I think you deserve to be called out and rewarded with accolades for it. Here it is, and thank you:

“So when you get wrinkly and boring, you can die with a pot of money. This, of course, is the goal of living.”

Just beautiful.

#121 AACI Okanagan on 09.20.12 at 12:41 pm

“That is so pompous. How often have you actually had opportunity to do a paired set analysis? Why is it not a more commonly used tool in the appraisal industry? The only hat’s off I will give to the appraisal industry is that they base their opinion of value on recent comparable sales not asking prices or supposition of what may or may not happen in the future.”

we deal in the moment, and yes we do use listing prices as a gauge and that is all..see you are wrong again.. and me being pompous, ha pot meet kettle, was me that called form man form “boy”.. you want respect, you have to give it to get it.. you are in such denial about our market is become comical.. thanks for the laughs..

#122 spaceman on 09.20.12 at 12:51 pm

“Mortgage debt is bad debt and eliminate it if you can.”

Yes and no, if rates were to jack up soon to say 6%, you are better to pay down your mortgage to at least have 50% equity, then when you renew, you are not paying as much interest. But at todays rates, the extra cash will apprecitate much better in a balance portfolio.

Every situation is different, you have to crunch your own #’s and be able to manage your own risk tolerance.

#123 Smoking Man on 09.20.12 at 1:06 pm

I remeber while ago when fitch sighted canada as a place with a housing bubble about to splater everyone in its path.

The blog dogs where having a party with that story.

O wait, what is this on the globe and mail?

Fitch is now changing its mind. Now we all know ratings ageencys are full of it.

How ever can’t wait for the same cheerleaders of the first report do a 180 and bash Fitch.

And remeber.

Its going to be a nasty crash realtors, a nasty crash

#124 jess on 09.20.12 at 1:08 pm

where does money come from

http://neweconomicperspectives.org/

#125 AACI Okanagan on 09.20.12 at 1:12 pm

“I wonder if YOU really understand “paired set analysis”? It’s not so simple as comparing one prior identical property sale to a later. Who here is so adept at paired set analysis? Certainly not me but what I do understand of it leads me to believe it is an analytical tool which has far better academic application than residential real estate appraisal for which it would be perceived as a cumbersome, little understood not commonly accepted dissertation by the end users who simply want to know what the damned property is worth that they might reasonably lend and borrow against it.”

stop showing how stupid you are..

#126 patiently waiting on 09.20.12 at 1:16 pm

Fraser Valley Real estate Board Stats – as of September 20th, 2012 (12 of 19 Working Days in September).

Sales are down 25% year over year, starting to mirror what has already been happening in Vancouver for several months.

SEPTEMBER 2012 Listings 1648 Sales 517
AUGUST 2012 Listings 1456 Sales 578
SEPTEMBER 2011 Listings 1629 Sales 695

PW

#127 sciencemonkey on 09.20.12 at 1:21 pm

On this blog, Garth and others have mentioned the general idea that in the first years of a long mortgage most of each payment goes to interest. This idea, when considered in an environment of high price to rent ratios, implies that for the early years one may build equity faster by renting (at much less than the mortgage cost) and saving and/or investing the difference.

Of course, there will come a point in paying off the mortgage, or equivalently in having accumulated a certain percentage downpayment, where mortgage payments build more equity than the aforementioned renting plus investing the difference.

Is there a calculator that takes into account a) house price, b) monthly mortgage payment, c) mortgage rate, d) monthly rent for equivalent house, and e) investment return rate on money saved, to calculate the optimal downpayment one should build before buying? Any general rule of thumb on this?

Of course a lot of things are being glossed over, like whether one can make huge gains or losses with huge leverage, illiquidity, comfort of having your own home, etc. For this discussion let’s just assume that house values and rent increase with inflation.

#128 Old Man on 09.20.12 at 1:27 pm

Know this guy who blew off everything, and bought a 60 foot sail boat for retirement with his wife. They said we can fish for our dinner; no more property taxes; and will use ATM for our green. Fly back to Canada every six months to make an appearance to maintain a legal status for a month, and then back to Bermuda as it is parked for a dockage fee there; always before tax time to file for the Tax Man.

Life is good for them, as they love their lifestyle, and are living a dream with tons of money banked; here there; and everywhere. The Tax Man doesn’t know all, and neither do I.

#129 betamax on 09.20.12 at 1:28 pm

#66 };-) aka DA: “More and more are conceding that things are more likely to improve than get worse.”

Seems out of step with every other economic indicator on the planet, but I suppose some bulls are still bullish.

I see DA is spamming already. Garth, how long before he’s filled his quota for 2013?

#130 Form Man on 09.20.12 at 1:28 pm

#118 DA

The first lender on the title forecloses on the property. At that point a decision must be made as to what to do with the property if it is not complete. Sometimes the property is sold ‘as is’. Sometimes the lender chooses to complete the project. Surely you are aware of this ?
I am beginning to wonder of you know anything about real estate.

#131 Suede on 09.20.12 at 1:38 pm

#44 Mark W said

If you own your house free and clear it is yours and no one can take it away from you and throw you out on the street.

—————————

Really?

Try not paying your ever increasing property tax or utilities or fall behind on condo fee’s. See who the house really belongs to.

Every last one of us are still serfs, but not to aristocrats anymore.

#132 Form Man on 09.20.12 at 1:43 pm

#118 DA

Perhaps you are not aware of this, but financing for developers is not typically done by conventional banks. When I refer to bankers, I am referring to the fund managers representing investors who have financed these projects. As a realtor you should aquaint yourself with the different financing that developers use…….

In addition, if you find yourself backed into a corner, stick with facts and reasoning, as opposed to desperate and erroneous personal attacks. People will take you more seriously then……..

#133 };-) aka D.A. on 09.20.12 at 1:53 pm

You use list prices as a gauge of what; to measure the quotient levels of unrealistic seller absurdity? In this market today a disproportionate number of listings are overpriced. Well priced listings sell for top dollar in less time. Overpriced listings languish on the market for months not selling until sometime after they have reduced their price to a realistic level and then for a lower percentage of that price than the competitive listing that started there in the first place. In other words the asking prices of homes which have not yet sold mean nothing. You ought to know that as

Market value is determined by what a ready willing and able buyer is prepared to pay a ready willing and able seller, neither being under undue influence to buy or sell.

Clearly no ready willing and able buyer has seen clear to offer anything close to what those unrealistic sellers expect

And on Form Boy (Man). I think the level of respect extended me by him has preceded and been much less than mine for him. But I understand that. He’s apparently had a hard go of it in Kelowna and clearly got a few chips on his shoulder due to it where I, for the most part, love this place and think very highly of it despite Form Boy (Man’s) efforts to convince me otherwise.

Anyway boys, I can’t let this become a habit. I have business to attend to. Cheers.

#134 DM in C on 09.20.12 at 2:01 pm

FML the flood gates are open — DA is back and dominating the blog.

9 posts just today. Can’t change his spots.

Time to depart.

#135 Waiting on 09.20.12 at 2:17 pm

Garth, where are the cheap houses you were predicting for past 10 years. C’mon man!

Show me where I said cheap. — Garth

#136 Investx on 09.20.12 at 2:18 pm

76 The Dividend Trader:
Garth I simply don’t understand your fetish with preferreds, yes good if your retired and need (safe)income perfect, but for this guy buying preferreds leaves the regular dividend increases that good companies reward loyal shareholders with. As a matter of fact if you buy them “on sale” over time you’ll see yield on cost eventually hit 10 plus percent.

Let me quote from Bells web

8 dividend increases in the past 3 years

Sorry Garth preferreds don’t give pay raises like that
………………………………………………………………………..

I had asked about this as well.
How are preferreds better when it lacks something significant to income as increasing of the yield?

No one could really answer beyond preferreds being “safe” – but we’re talking about Canadian banks here, who have among the most stable dividend paying history and whose stability even Garth endorses (none will fail), yet…

(a) Preferreds yield is comparable to, or higher, than most quality stocks. (b) Volatility of good quality preferreds (like banks) is vasty less than the common stocks of same companies. What more evidence do you need? — Garth

#137 PoorgEoisie on 09.20.12 at 2:21 pm

Can one of the realtors/bulls explain what causes a housing crash? Can any of you find an example of a drastic increase of RE prices that far outweighed increases in income and then only endured a subsequent “soft landing”?
Can you find any examples where the above scenario has led to a crash? I understand there is a first time for most things but demographics alone suggested a correction as the boomers head into retirement. The low rates have most likely exacerbated the consequences this onslaught of sellers will have on the market. To me, if a good size drop occurs and takes 10 or more years to recover we will then start to see the boomers passing away a lot sooner than expected and their kids (if any) then trying to sell their inheritance house (or move in and sell the old one). I have a hard time believing this correction will be short lived.

#138 Jim Lahey, Sunnyvale Trailer Park Supervisor on 09.20.12 at 2:24 pm

I propose that D.A. and Form Man enter a contest of sorts at the SASTPGFBDCParty much in the same spirit as the ploughing match between Form Man and Westernman at the FASTPGFBDCParty. Real estate aside, let us see if Form Man can defend his straight as an arrow ploughing prowess that he demonstrated against the able and willing but slightly less accurate Westernman. I think it would have been a closer contest if Westernman hadn’t been up drinking all night with Ricky. These are the perils of the bash after all.

#139 AACI Okanagan on 09.20.12 at 2:42 pm

“33 };-) aka D.A. on 09.20.12 at 1:53 pm

You use list prices as a gauge of what; to measure the quotient levels of unrealistic seller absurdity? In this market today a disproportionate number of listings are overpriced. Well priced listings sell for top dollar in less time. ”

hello? if i come in at $500,000 for a home and then i check the listings and see three similar homes at $475,000 then i know i am too high and that i need to do more adjusting.

#118 Old Man on 09.20.12 at 12:14 pm

AACI are qualified to do that assignment, they may have turned down the assignment for a many reasons..

#140 truth hammer on 09.20.12 at 2:50 pm

#38 T….What that communist economist from CAW said was that all debt should be forgiven if people get behind on their mortgages……he skipped the CMHC part and just dove straight into the taxpayers pocket…as usual for a communist leach.

The CAW braintrust thinks that every union member should be able to buy a 5000 sq ft Mc Mansion with a heated pool and then not pay for it….but instead have the taxpayer pick up the tab when they decide not to pay for what they purchased.

Apparenetly the unions don’t like to live like the rest of us……..appparently stupid behavious should be forgiven and the tax payer is responsible for paying these peoples debts as well as their outrageous salaries and pensions…..the audacity of these commies is beyond the ken.

#141 Form Man on 09.20.12 at 2:59 pm

#138 Jim

Being a Kelowna realtor, DA is likely more comfortable sitting in a salon chair having his hair tips frosted, than steering a plow. I shall defeat him effortlessly.

#142 Triplenet on 09.20.12 at 3:06 pm

#115. Form man

#113 DA
I swear, people are falling off their chairs in uncontrollable laughter…………
———————–

My office is having a good laugh too.
It’ fun laughing at silly people.

#143 };-) aka D.A. on 09.20.12 at 3:06 pm

#132Form Man on 09.20.12 at 1:43 pm

You said at your post at #102 today that you were speaking with bankers not venture capitalists. I smell something fishy in your claim. I don’t think anyone in “the business” actually engaged in a conversation with one or the other would mistakenly call one the other – they are quite different. The venture capitalist funded projects I have been involved in do not get “foreclosed” on. The funders just start seriously leaning on the idea man to get his/her sh_t together and get it done right. Changing horses midstream is a costly alternative that rarely achieves the best result. They don’t go into these ventures lightly in the first place Form Man for, unlike bankers, it is money out of their pocket which is on the line. Typically a project sinks – it takes the venture capitalists down with the front man.

You and AAIC can spin whatever however you like and you do have the audience here, predominantly, that will side with you as, for reasons beyond me, most followers of this blog would prefer to read about economic carnage than optimism. Bottom line is I have neither reason nor benefit to be had by changing anyone’s mind on what the real state of the real estate market is here in Kelowna. It is what it is and I am quite happy with what it is where as you don’t seem to be so much. I really don’t care if it changes one way or the other whereas you apparently do.

But I am a fool for only a fool with waste valuable time debating these fruitless matters as far as I have. Have fun, I’m out as my quota has certainly been surpassed.

#144 jess on 09.20.12 at 3:08 pm

location location location hum… but what happens when your neighbour sells off mineral rights and starts fracking. Houses can’t sell and insurance companies are starting to not insure ya

Fracking in Suburbia
Tuesday, 18 September 2012 10:09 By Andrew Spear and Mike Ludwig, Truthout | Video Report

http://truth-out.org/news/item/11604-fracking-in-suburbiahttp://www.mothersagainstfracking.org/emergency/
broadview heights ohio

BROADVIEW HEIGHTS, Ohio — Susan Fowler’s Georgian colonial has been on the market for two-and-a-half years. The four-bedroom house sits on a wooded lot on a quiet cul-de-sac in Broadview Heights, where home values are among the highest in Cuyahoga County cities. Fowler’s house lists at $250,999 — knocked down from $389,000.

But with several oil and gas wells on land behind her property, she says potential buyers want no part of it. The closest well is 89 feet from her property line.

An oil and gas company cleared woods to drill a well behind the house in 2008. The next year brought two more wells. The family moved out during the drilling of the second well. …”You couldn’t pay me to live in Ohio again,” she said. “It was our dream home. Now it’s a lovely home right on top of an industrial site. We feel like refugees from our city and our state.” read more
http://www.cleveland.com/metro/index.ssf/2012/06/as_fracking_debate_heats_up_br.html
==========
Loopholes
http://www.cleveland.com/business/index.ssf/2012/05/gov_john_kasichs_proposed_frac.html

#145 meslippery on 09.20.12 at 3:14 pm

2.5% Beach gril
http://www.allanlaw.ca/our-services/wills-and-estates/can-the-executor-charge-a-fee

#146 DON on 09.20.12 at 3:14 pm

#28 TRT on 09.19.12 at 10:33 pm

CBC National Housing Story….

Patricia Crof — lying thru her teeth

Amand Lang — deceiving because she wants to work for the Big Banks.

CAW guy — gives kudos to gov re CMHC etc (wants future handout??)

Pree banerjy — Gives in to conscious and says there is possibilty of a crash.

Based on this, It will not end well at all. How do these people get their jobs…by lying everyday??
***************************88

Missed a bit of the show. Did any of them mention cash back mortgages or loans based on lying about real income? If these are the ‘experts’ than I am a genius.

Not one of them put all the factors into perspective. However I did like the comment that if prices could increase at an irrational pace the opposite is true. “every action has an opposite and equal reaction”. Oops…no room for science as real estate is religious.

#147 Realtor # 1 on 09.20.12 at 3:20 pm

The canadian RE has never visited lows from previous years
http://tinyurl.com/9z6cdjo
The graph will indicate ups and downs but the low of the 90s never reached the lows of the 80s. Why would the low of this decade be any different. We will not even reach the low of 2008.
Garth has been writing about a housing bust for the last four years but prices will only retreat from the last 2 years.
PRICES WILL NOT GO DOWN TO 2008 LEVEL. Mortgage rates are not moving up any year soon. And when they do banks will bring back prime minus 1 variable mortgages.

baby boomers needing to retire and selling their home and causing a flood of inventory is a myth much like the ham myth.
Have you ever tried to get old to move out their home, they resist until the end. Still cheaper to maintain a three bedroom home than it is to move into a condo with their soon to be a dollar a square foot monthly fee.

#148 Nodebt on 09.20.12 at 3:36 pm

I’m no expert at investing by any means, but I know one thing I got a awesome McMansion paid for and the wife and I are 38 years old. Every nite we go to bed we sleep like little babies! I hate any form of debt! So I paid off my house first!

#149 Nodebt on 09.20.12 at 3:37 pm

Actually we have been mortgage free since we were both 30!!

#150 jess on 09.20.12 at 4:38 pm

.#146 DON

and no one mentions FRAUD?

===

Is private equity a collusive “club”
http://www.courthousenews.com/2012/09/18/bain4ac.pdf
http://www.nytimes.com/interactive/2012/09/12/business/12bain-docs.html?ref=business
=======================
HCA largest buyout 2006 for $32.1 billion,
also the Largest fraud $2 billion to settle, US history
FRIDAY, MARCH 16, 2001
http://www.justice.gov/opa/pr/2001/March/111civ.htm

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

NASHVILLE, Tenn. — The Justice Department and HCA have reached a $16.5 million settlement over violations of federal laws that restrict financial relationships between hospitals and physicians

The case arose after two subsidiaries of the Nashville-based hospital chain gave financial benefits to Diagnostic Associates of Chattanooga, a physicians group, in an effort to get more patient referrals to HCA facilities, the Justice Department said in a news release Wednesday.

#151 Questioning Calgary stats on 09.20.12 at 4:40 pm

Please do not post this Garth.
Canada’s Housing Crash Begins.

#152 Sebee on 09.20.12 at 5:12 pm

#95 Smoking Man

I used to think the machine cared about home owners and would do things in their favour, like forgive debt. I was wrong. They do just enough to keep you enslaved to the debt, but not enough to forgive it. They don’t care if it’s a house, a car, an ipad you owe for. As long as you owe. Lucky you and I have the luxury not to owe. Most don’t. It probably needs to stay that way.

#153 Tony on 09.20.12 at 5:15 pm

Re: #147 Realtor # 1 on 09.20.12 at 3:20 pm

The most likely scenario is prices will fall back to 1997 levels in most of the major cities in Canada.

#154 Agioblue on 09.20.12 at 5:50 pm

How in the hell many of you don’t see the sarcasm in “So when you get wrinkly and boring, you can die with a pot of money. This, of course, is the goal of living.” should be a puzzle to me but it isn’t.

James
You received decent broadstroke advice from Turner. Given you’re ahead of most you obviously have an IQ above 60 or a lusty sugar cougar. Do some of your own research and do what you’re comfortable with and ignore any comments except mine. They lack clarity.
My pleasure.

#155 jess on 09.20.12 at 5:59 pm

where’s the water and the wine?

In a 2005 report to investors, for instance, three analysts at Citigroup advised that “the World is dividing into two blocs—the Plutonomy and the rest”:

In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie

http://neweconomicperspectives.org/2012/09/romney-the-little-people-dont-pay-taxes.html

#156 Canadian Watchdog on 09.20.12 at 6:09 pm

CanEquity Toronto Monthly Mortgage Application Volume: Chart

#157 Form Man on 09.20.12 at 6:24 pm

#143 DA

you haven’t got a clue, have you……..?

#158 Ralph Cramdown on 09.20.12 at 6:31 pm

What that communist economist from CAW said was that all debt should be forgiven if people get behind on their mortgages

Much as defending a man who wears paisley shirts on national TV gives me hives, you COMPLETELY missed his broader point. He said that if you kick out the homoaner, that vacant property drags down the values of all the other properties in the neighbourhood. I’d add that it depreciates rapidly, gets vandalized, attracts a constant stream of municipal citations for not mowing the lawn and shovelling the sidewalk, &c.

As a lender facing a loss, your options are to mitigate by forgiving part of the loan, foreclose but offer to rent to the defaulter, foreclose and sell (but your loss mitigation department quickly becomes overwhelmed with the volume), foreclose, fix up and rent while you wait for the market to come back (but there’s a glut of rentals and you’re not really in that business), or do what the Americans did, which is the worst possible option and what Jim Stanford was railing against.

You should listen more carefully to him. I don’t agree with everything he says, but he’s a smart man who seems to understand a lot more about economics than you do.

#159 boom on 09.20.12 at 6:34 pm

Whoa I think I know who the guy in the picture is…

#160 Old Man on 09.20.12 at 6:39 pm

#139 AACI – It was huge, new, and constructed by a brick contractor who had a crew of 100 in Toronto doing the big apartment jobs. There were no comparables in existence, and the construction costing was ahead of its time. For example the lower level had the largest recreation room ever seen in my life that would seat hundreds for a banquet. There was not a support column in sight, as he used structural steel beems to support the upper load, and you should have seen the rest of this monster home. No AACI would touch it for a mortgage, so had to bring in this other guy whose qualifications were much higher. An appraisal report was done, and he had no problem signing it, whereas, no AACI would sign as didn’t want the liability.

#161 jess on 09.20.12 at 6:47 pm

“If the U.S. federal government were to ask you, ‘Does Chris have a shell company in Belize?’ what would you say?” asked Glorioso.

“I would say, ‘Sir, we are not allowed to give out information on our clients,’” said the salesman.

some salespeople offered “nominee services,” whereby we pay for local people — so-called “straw” persons who live on the island — to sign their names on the paperwork so public records don’t identify the real owners of the offshore account.

“Our law allows us to act on behalf of the client,” explained one salesman. “There’s nothing illegal about it.”

“Despite being hidden or disguised, the income and assets of U.S. persons are still subject to U.S. tax. Taxpayers should be aware that abusive offshore arrangements will not produce the tax benefits advertised by their promoters and that the IRS is actively examining these types of arrangements. Furthermore, taxpayers and/or the promoters of these offshore arrangements may be subject to civil and/or criminal penalties.”

corporations aren’t people ?

Though individuals may be punished for hiding income offshore, corporations and corporate profits are treated differently.

As long as a U.S. company argues its profits were born in a zero-tax foreign country, that wealth can be shielded from U.S. corporate taxes.

“For big companies, the trick is they kind of claim all their money arose in tax havens even though they’re not actually doing anything there,” said NYU law professor Daniel Shaviro. He says the companies essentially pretend their products, assets or headquarters are based in locations that happen to be tax havens.

#162 Smoking Man on 09.20.12 at 6:51 pm

F just said no housing bubble in Canada on lang and O Leary. See I told ya.

#163 Smoking Man on 09.20.12 at 6:57 pm

Seebe I maxed on my heloc 3 percent cost for 10 percent return. Romspen.com.

#164 Mr Buyer on 09.20.12 at 7:02 pm

#147 Realtor # 1 on 09.20.12 at 3:20 pm
The canadian RE has never visited lows from previous years
………………………………………………………..
This character must know that this is a bubble and has nothing to do with anything previous

#165 dosouth on 09.20.12 at 7:18 pm

So the City of Nanaimo doesn’t really want to sell tax delinquent houses…just buy them with our tax dollars.

Whose the brain of this operation and isn’t there something wrong with this picture?

http://www2.canada.com/nanaimodailynews/news/story.html?id=bfc2e1bd-fb24-4192-ad73-1f9067c1f326

#166 Nostradamus Le Mad Vlad on 09.20.12 at 7:21 pm


#52 Jon B — “I’d say the goal is to own a house and be financially independent and liquid.” — That is a good balance. If one does not need to sell, why bother with all the aggravation?

#85 Beach Girl — “The bank manager came today. He wants 25K for the first 500K and 20K for the every subsequent 500K to execute my will. I was born at night, but not last night. Is this even reasonable?” — I don’t know enough about the business side of it, but I recommend doing homework. A little research and investigation goes a long way toward good preparation.

#95 Smoking Man — “I think Ben’s next move. Ok home owners. Forget about it.we forgive your debt”

Interesting perspective. Who will forgive the west their debts / deficits? It could lead to #60 luke8929 — “Currency debasement race to the bottom as the ECB, US Fed, BoJ continue to monetize the debt.”
*
0:44 clip BoA cutting 44K jobs by xmas, and Minn. employers cut 2K jobs last month; Illinois More people in poverty; 7:52 clip No criminal fraud at Lehman; US$1.8 tri. shock Obomba’s miscalc. on ObombaCare; Property Collateral “If what former Rep. James Traficant (left) said in 1993 is true, Americans should get their wealth out of IRS reach.”; FedEx — Economy stalling; Household Debt Quickest rise in four years; India Nationwide strike underway.
*
Homebrew If the ‘net goes down, but I don’t think there is a kill switch for the ‘net; Monsanto and ObombaCare “So the government allows Monsanto to feed us corn that causers cancer, liver failure, etc., then fines us for not buying health insurance to pay for those illnesses we never would have gotten in the first place?” wrh.com; 0:31 clip “This is the TV commercial featuring Netanyahu now airing in the US to urge America to go to war with Iran immediately. But check out the comments (before YouTube takes them down). Nobody is buying Bibi’s bullshit!” wrh.com, and Iran and Iraq had nothing to do with 9-11, so why is Noddin’ Yahoo pushing so hard for war with Iran? UN and Agenda 21 As long as Texans have guns, TPTB can’t do anything; Medical Self-Care Five things we can do for ourselves; Sinkhole Still Sinking; France investigating GMOs; Active Brain Mine’s somewhere.

#167 Investx on 09.20.12 at 7:38 pm

(a) Preferreds yield is comparable to, or higher, than most quality stocks. (b) Volatility of good quality preferreds (like banks) is vasty less than the common stocks of same companies. What more evidence do you need? — Garth
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

(a) But the yield cannot increase over time like the common dividend.
(b) If someone is investing for the long term, volatility shouldn’t be as much of a concern, especially with stable compaines like Canadian banks. If not, you shouldn’t be in the markets to begin with. For older investors who need stable income, yes I can understand.

(a) Common stock dividends also go down when companies do less well. Preferred dividends are fixed. (b) You will change your tune with the next 400-point equity market decline. — Garth

#168 Realtors in an all out PANIC! on 09.20.12 at 7:39 pm

Wow…look at all the realtors who post non-stop on garths blog trying to convince everyone that the housing market in Canada isn’t crashing. The fact is if the housing market was doing well they wouldn’t be here. Realtor smokingman is proof the market is very weak. Having trouble keeping up with your payments realtor smokingman since you can’t sell anything in this current housing crash where sales have dropped like a rock in the GTA? Talk all you want but the fact you realtors are here tells me it’s already becoming a nasty housing crash realtors a nasty housing crash!

#169 Realtor #1 on 09.20.12 at 7:42 pm

Mr. Buyer

let me guess this bubble is “different”

#170 Realtors in an all out PANIC! on 09.20.12 at 7:43 pm

It’s seems like 50% of the posts are from our everyday out of work and looking for a sale realtor . They come here just to tell us the housig market is doing well? Looks like they have lot’s of time on their hands and the over 30% drop in sales seems to prove realtors are in a panic. Keep posting on garths blog which proves the housing crash is here and now. It’s going to be a nasty crash realtors a nasty crash!

#171 neo on 09.20.12 at 7:44 pm

#123Smoking Man

I believe Fitch focuses mainly on Ontario and our debt problem not Canada as a whole. And yes, Ontario will get downgraded and to stem that tide the provincial government is going to put a hacksaw to the public sector and we are going to see austerity and higher taxes in the near future. None of which is bullish for housing or an economy in Ontario that is already weakening.

#172 Junius on 09.20.12 at 7:47 pm

#147 Realtor #1,

You said, “Why would the low of this decade be any different. We will not even reach the low of 2008.”

You are probably off by at least a decade but never mind about that. If you are going to use past statistics why don’t you compare the only long term averages that matter which is income to price ratios and interest rate averages.

The average home would cost roughly 3 times income over the past century and interest rates 2 to 3 times where they are now. Now run these calculations and what do you get?

We are headed back to the 90s in the long run. It is just a matter of time.

To answer your question directly – house prices of risen due to a credit bubble and not due to wage increases. This is the difference. Add in the demographic shift and it could get much worse.

BTW- boomers don’t have to be convinced to sell. Just their inheritors.

#173 Mic D'angelo on 09.20.12 at 8:00 pm

All you home buyers are just fooling yourselves bragging about having a low 2.25% mortgage rate that is not even fixed and will not last more than 1- 2 years at that mortgage rate. All you did is prepay your interest with real estate costing 225% or more than in 1996 16 years ago when housing started it’s rise. Today, 2012 you have a $600,000 mortgage but in 1996 you would of had a $270,000 mortgage for the same property. The $330,000 is just prepaid interest. However, even a 15% decline in real estate will make this cost even worse as you are on the hook now not over the years like a the lower mortgage balance in 1996 would of worked out. It’s called the present value of money look it up real estate indebted buyers.

#174 Old Man on 09.20.12 at 8:08 pm

Beach Girl – trust me as know all about this stuff, and you are talking about a Trust Will, and your banker can’t execute anything. They can become a corporate sponsor, and all fees are regulated by the government, so forget him, and go to a large Law Firm, and get together with a commercial lawyer to document such.

All Law Firms have the same tariff, so pick a larger one to get expert advice for a Trust Will to be executed, and you name the corporate sponsor which can be any bank of your choice; not for some banker coming to you with booga booga, but for you to decide in the end.

There will be fees to pay, but all is regulated with any corporate sponsor of a Trust Will, and if you want can still appoint your banker too, but not with their Law Firm, as find one that is large and specialized to get your Estate done right. It is not the banker’s business to hoop you ahead of time like a shark wanting full disclosure to hound you.

#175 Smoking Man on 09.20.12 at 8:09 pm

#170 Realtors in an all out PANIC! on 09.20.12 at 7:43 pm

LaughingCon
I hope I see you at the Gartho show. I want to buy you a beer. And give you a few pointers at propaganda, you really suck at it.

#176 Jim Lahey, Sunnyvale Trailer Park Supervisor on 09.20.12 at 8:12 pm

#141 Form Man

“Being a Kelowna realtor, DA is likely more comfortable sitting in a salon chair having his hair tips frosted, than steering a plow.”

The whole gang in Sunnyvale had a hearty laugh at this comment. You are very witty in your ripostes Form Man!

#177 Bill Gable on 09.20.12 at 8:13 pm

Just writing my new book “Beloved Boomer”.

#178 Realtor #1 on 09.20.12 at 8:17 pm

# 172 Junis and #170

I’m not saying things are great what i’m disputing is how much it will decline.

Prices going back to the 90s, ha , no way , the average family income in the 90s was 57K today its around 77K

What is the average family income? Stats Can says in 2010 it was 77K – so are you telling me that homes should only cost 231K???? Get Real stop dreaming, PRICES going back to the 90s what a joke. Your leader Garth has already state a 15% drop. Your calling for 50% drop. Crazy talk keep dreaming.

That right folks homes in the Beaches, Lawrence Park, Bloor West , Trinity Bellwoods, Bayview Village is now 50$ off.

#179 T.O. Bubble Boy on 09.20.12 at 8:19 pm

@ #162 Smoking Man:
F just said no housing bubble in Canada on lang and O Leary. See I told ya.

Just like he said “no recession” in August 2008, a few weeks before the global financial crisis and recession hit?

Just like a 99-year loan on the 407 can also be accounted for all in year 1? (his non-GAAP accounting from his days on Ontario parliament w/ Harris and Eves)

This guy is a hack – I’ll take the other side of the F bet any day.

#180 DON on 09.20.12 at 8:41 pm

Realtor #1 on 09.20.12 at 8:17 pm

# 172 Junis and #170

I’m not saying things are great what i’m disputing is how much it will decline.

Prices going back to the 90s, ha , no way , the average family income in the 90s was 57K today its around 77K
**************************************8

gas is the 90’s was $0.56 and now $1.25. Food is also more expensive price of milk, etc.

Nothing like leaving out some of the main factors people are facing today. This is a done deal, you might want to try clicking your heels together, so you can find you way back to delusional city.

#181 Canadian Watchdog on 09.20.12 at 8:46 pm

#178 Realtor #1

“Prices going back to the 90s, ha , no way , the average family income in the 90s was 57K today its around 77K”

Try again with an inflation calculator.

#182 Realtor #1 on 09.20.12 at 9:00 pm

#180 Don

gas has been at a 1.25 or more for the last five years.
Food etc.,didn’t shoot up in price this year

We have paying it for years how has it effected homes prices?

so let me guess the story will read – after years of paying 1.25 for gas and 8$ for milk canadians can no longer afford their homes and prices will drop 30%.
Who’s delusional ?

#183 Old Man on 09.20.12 at 10:45 pm

In all fairness to AACI must put this in context with a time frame, as today it could be done, but not in 1977, as had clients from the Italian community that came to me, as was known to be honest with them. The subject property in King City just a bit north of Toronto was 60,000 sq. ft. – need I say more? He built another home down the street that was 30,000 sq. ft, and there was a small bankline on both, so he came to me to blow off the bankline to take a small mortgage on his principal home to make the other free and clear to sell.

#184 Gunboat Denier on 09.20.12 at 11:15 pm

DA/AAIC/Form Man – I call BS on all three of you because it’s obvious you dont have anything better to do
in the middle of the day!

#185 TurnerNation on 09.21.12 at 8:38 am

#94 Karie. Makes sense!
This scotch fuelled weblog is not a beer blog but…

I’m an occasional beer drinker, once per month while out somewhere. Stella, Heniken or something like Sapporo.
Craft beer is big in Toronto. Muskoka brewery makes good stuff.
If I had to have a mixed drink I’d take CC and coke.
I really don’t like spending money on the stuff…

#186 Ken R on 09.21.12 at 6:03 pm

Everyone is on a payroll and speaks the company line, garbage or not. This is what the world has become; flunkies unwilling, or not knowledgeable enough to take a stand. It’s a rare individual who can stand against the crowd. They are a dwindling breed.