Hold on

hold on

Garth on CBC this morning: Listen here

Some people just shouldn’t invest. Like those who came here over the last few days to moan their real estate investment trusts (REITs) were being ‘crushed’, ‘killed’ and ‘massacred.’ I took a moment Monday to check out Bay Street. Nope. No more bloody intestines or gobs of slithery yellow body fat than usual.

In fact the 68-storey building I hang out in – totally owned by REITs – was still standing. Rents still being paid. A bank logo still hanging off the top of it. Cash still flowing.

REITs, just to be clear, own income-producing properties, have had great capital growth over the last four years, and pay people to own them. As a result, they’ve been swarmed by investors hungry for yield and an asset class which is not correlated to stock markets. There are lots of different REITs, of course. Some own high-rise office towers. Some own shopping malls. Some own hordes of apartment units, or nursing homes, or industrial parks.

Contrary to myth, REITs will not be hurt as residential housing rolls over. In fact, those trusts that own blocks of apartment buildings generally do better when houses tank. Most of the others have secure tenants and long-term, cheapo financing in place. Even the REITs owning Big Box retail campuses will be fine, given the fact any Home Depot or Best Buy going belly-up will honour its lease before it honours its employees.

So why has the REIT index dropped 10% in the last six weeks? Simple. First, it was at an all-time high. Smart people stopped putting new money into REITs half a year ago, because a correction was inevitable. So here it is. Second, REITs were side-swiped as bond yields popped up when it looked likely the US Fed would taper down the bond-buying program that’s provided more stimulus than Mila Kunis.

There is not the same relationship between REITs and interest rates as with bonds or preferreds. So, is the bloodletting over? Insiders think so. In the last few days buying by officers and directors of the trusts has been noticeable, as they Hoover up lower prices. According to a much-watched index, there are now four buyers for every seller.

Let’s also remember that most people buy REITs not just because the price may go up, producing a capital gain, but also for yield. For example one popular exchange-traded fund full of Canadian real estate trusts pays an annual distribution yield of 4.4%, and does so monthly. Plus it’s completely liquid. Sure beats the heck out of your dead-end, comatose GIC.

Bonus: you get diversification, which is what ETFs are all about. This one owns the biggies – like Riocan, H&R, Dundee and Boardwalk. Yup, includes my building. And I always pay my rent.

* * *

By now it’s largely acknowledged Friday’s gung-ho job numbers were crap. Maybe it happened because the federal government gutted StatCan’s budget. Maybe it was just a rogue poll (and that’s all the jobs report is – no survey, just phone calls). Maybe somebody lost the real one on the bus.

Whatever. But the economy did not create 95,000 new jobs last month, half of them in construction. In fact, the most credible employment tally in Canada (the ‘Survey of Employment, Payroll & Hours’), indicates a steady loss of about 5,400 jobs monthly. That’s certainly more in keeping with the reality most people see – scant new factories, few business launches, massive youth unemployment.

It makes you wonder about some of the other numbers flying around. Like that totally unexpected swelling of housing starts in May – a 22% surge in new condo construction (especially in Toronto) at a time when sales shrunk by 9.3% in the GTA, for example, and the inventory of unsold units tops 20,000. Huh?

It all had Scotiabank economists scratching their eggs: “To what extent can the homebuilding boom in multi-family units in Ontario’s cities continue?” they wrote. “Despite slow sales in Ontario in general and weak new home sales in Toronto in particular so far this year, the building boom seems to have picked up at least somewhat in May…”

Or did it? Published industry numbers have condo construction in Toronto down 53% this year. And the latest BILD (Building Industry & Land Development Association) stats show that total housing starts so far in 2013 in the country’s biggest market are 37.8% lower than last year and off 43% from 2011.

There ya go. Homebuilders on crack. Phantom drywallers. Supply to overwhelm demand. Or the government’s lying.

I need a scotch.

176 comments ↓

#1 willowdale on 06.10.13 at 8:47 pm

here in willowdale, just sold my condo to a chinese. Reality is, there is no crisis when your condo is well located, yonge finch area will NEVER go down in value.

#2 yeah yeah yeah on 06.10.13 at 8:49 pm

Hey SM howz the bond trade workin out ???

#3 T.O. & GTA bidding wars debunked June 04-NOW WITH DOM AND PROPERTY TAX INFO on 06.10.13 at 8:49 pm

Some of you asked for DOM and other info to be posted. I have decided to post this info as well. Enjoy !

http://recharts.blogspot.ca/2013/06/to-sfh-bidding-wars-debunked-june-10.html

http://recharts.blogspot.ca/2013/06/gta-sfh-bidding-wars-june-10-from-now.html

#4 Guvmentislying on 06.10.13 at 8:49 pm

Government is fudging job numbers now? Wow…. Should be a fun year

#5 Randy on 06.10.13 at 8:50 pm

Have they ever lied to your before ?

#6 Smoking Man on 06.10.13 at 8:52 pm

Ah when words and images fit perfectly great pic.

Lol

#7 matt on 06.10.13 at 8:52 pm

There isn’t any correction here in Alberta. The economy is supposed to pick up next year in fact, and 2015 is supposed to be even stronger. We will see what happens. I don’t think rates will go up anytime soon, and realistically that’s the only thing that will lower prices.

“Supposed” to be stronger? Who’s doing the supposing? — Garth

#8 AK on 06.10.13 at 8:54 pm

The median financial net worth of an American household today is $10,890.

For Retirees, a Million-Dollar Illusion

Million-Dollar Illusion

#9 W on 06.10.13 at 8:54 pm

So you can’t trust any numbers……perfect.

#10 montreal_freak on 06.10.13 at 8:55 pm

FIRST ! A Remax Realtor told me today in french “Its now official, the condo prices are declining in Montreal”

#11 Sunny on 06.10.13 at 8:55 pm

Garth you are right. The employment numbers are a blip. Soon the markets will realize and mortgage rates will be back down again. Other thing about to happen is that we are about to lap the sales declines that started last year in June. All in all I see this market motoring on absent some shock.

You are right. It will collapse one day in the distant future. But then, anyone could call that.

There is no correlation between recent mortgage rate increases and employment data. — Garth

#12 T.O. & GTA bidding wars debunked June 04-NOW WITH DOM AND PROPERTY TAX INFO on 06.10.13 at 8:57 pm

http://recharts.blogspot.ca/2013/06/to-sfh-bidding-wars-debunked-june-10.html
http://recharts.blogspot.ca/2013/06/gta-sfh-bidding-wars-june-10-from-now.html

#13 JD on 06.10.13 at 8:58 pm

Squeeze, baby Squeeze!
Love those glutes!

#14 AK on 06.10.13 at 8:58 pm

“In fact the 68-storey building I hang out in – totally owned by REITs – was still standing. Rents still being paid. A bank logo still hanging off the top of it. Cash still flowing.”
——————————————————————–

HR.UN and D.UN. I own both and continue to add to them.

#15 Sebee on 06.10.13 at 9:00 pm

Which scotch are you pouring?

#16 Mcnab on 06.10.13 at 9:00 pm

Seems we have big problems the media and our gov’s want to sweep under the rug, I for one having heeded the Greater Fools warning am looking forward to the New World Order with Garth as our Grand Pubab.

#17 Gerryantics on 06.10.13 at 9:01 pm

So, what happened to that “US Economic Renaissance” ???

As ThomsonReuters notes, of the 116 second-quarter earnings preannouncements given by S&P 500 companies, 93 of them have been negative, while only 14 have been positive.

http://www.zerohedge.com/news/2013-06-10/anyone-who-still-thinks-earnings-matter

#18 blase on 06.10.13 at 9:03 pm

You outdid yourself on the photo/headline today :)

#19 tim on 06.10.13 at 9:03 pm

Talked with an electrician last week who said he had to lay off all five employees (including his two sons) in the KW-Guelph area. Anyway- anecdotal but more of the trends I’ve been seeing amongst trades.

Someone’s embellishing…

#20 Ken R on 06.10.13 at 9:04 pm

Let’s all have a scotch! Best idea I’ve heard all day.

#21 Sidera on 06.10.13 at 9:05 pm

Reits have no doubt been a great investment the past couple of years. Strong yield, good propertys and solid management have helped them reached new highs.

Those peaks are now in the past. Sure they will generate solid cash flow, but also come with significant downside risk.

Strip malls depened on the success of the businesses who occupy their property. If Mom and Pop stores start to close down with a credit crunch. Those rents will not be paid. Demand for a1 office space will decline as well.

Housing going up equals an ability to charge higher rents. When companies chase yield and build new developments with out careful consideration of the chance of a downturn, problems can arise. While you warn of higher rates, reits have exposure to high debt levels. Those reits won’t have to worry about rising rates. “Emergency rates” are the new normal.

When the Canadian economy starts to contract, (it will) no country has gone through a huge housing run up while being spared the hang over. And a long hang over it will be.

Investment-grade REITs don’t buy mom & pop strip malls. — Garth

#22 Smoking Man on 06.10.13 at 9:05 pm

Man O Man the obsession on here with truth,

READ MY TEXT humans lie, they lie a lot, we do it as naturally as going wee wee.

Almost every comment on here lately …. Look at my link it’s undeniable proof the story is a lie..

Yes rocket scientist, you caught them lying, brovo, good detective work.. And what makes the villain even more deplorable, he’s lying to make buck.

I don’t have a problem with it, I do it all the time myself. Feels good to throw a biggy out there and make the sale.

Man grow up people….

#23 Freedom First on 06.10.13 at 9:07 pm

Thank you for the truth Garth. While I was reading your post tonight a thought occurred to me. Live a life being liquid, diversified, and balanced as per your investing formula, and be financially comfortable throughout your life. Or, follow the thinking of your MIL, [email protected], the RE cartel, your peers, and end up living a life filled with financial anxiety/stress bordering on financial armegeddon, and in many cases experiencing financial ruination due to financial illiteracy, arrogance, ego, and ignorance. This is an extremely difficult decision for many, that is, the people who are even aware there is a choice. Sorry everyone who I have offended, as I often say to Garth, I am not as tactful and kind as Garth is. Still working on that.

#24 Smoking Man on 06.10.13 at 9:08 pm

#2 yeah yeah yeah on 06.10.13 at 8:49 pm

Hey

SM howz the bond trade workin out ???

Didn’t buy yet, you know my code, batman needs two ears. It’s coming.

#25 Mikey the Realtor on 06.10.13 at 9:09 pm

#14 AK
“HR.UN and D.UN. I own both and continue to add to them.”

good for you, you want a plaque or medal? tangible re is the only thing that matters, not the phony stuff on the robmarkets.

#26 TurnerNation on 06.10.13 at 9:12 pm

Expecting TLT.US down to 110 first.

Who? Had to google that name…now you tell me:

http://www.mirror.co.uk/3am/celebrity-news/mila-kunis-without-make-up-looks-1760403

“Sexiest woman alive Mila Kunis pictured without make-up and looking a bit puffy on London visit “

#27 Squatter on 06.10.13 at 9:24 pm

Garth, you taught us lately that mortgage rates depend on bond rates.
Those REITs generally have quite high leverage mortgages.
When they renew their mortgage down the road, they will pay more interest, which means less profit.
IMHO that would make them go south when the rates go north. Less profit = Lower market price.

#28 Kreditanstalt on 06.10.13 at 9:25 pm

There is NO way to evade RISK.

This entire “invest only in safe yield-producing paper assets” thesis will sink if the central bankers lose control of either end of the interest curve.

You WILL speculate. Whether you want to or not.

#29 AK on 06.10.13 at 9:27 pm

#25 Mikey the Realtor on 06.10.13 at 9:09 pm
#14 AK
“HR.UN and D.UN. I own both and continue to add to them.”

“good for you, you want a plaque or medal? tangible re is the only thing that matters, not the phony stuff on the robmarkets.”
——————————————————————–

No medals or plaques, Dude. But the mountains of cash that I receive on a monthly basis is very gratifying.

#30 Van guy on 06.10.13 at 9:30 pm

Bonds and preferreds ETF’s are falling too, any thoughts on what’s happening here?

#31 Piccaso on 06.10.13 at 9:30 pm

#7 matt on 06.10.13 at 8:52 pm
There isn’t any correction here in Alberta

That’s a bunch of crap, i’m from Alberta and unemployed but I don’t wear a hard hat or steel toed boots.

But….. If I lived in the U.S. I’d have to change my phone number and email address to get these agencies to leave me alone.

#32 The Man From Nantucket on 06.10.13 at 9:37 pm

#25 Mikey the Realtor
“……… tangible re is the only thing that matters, not the phony stuff on the robmarkets.”

I kinda like the phony stuff on the “robmarkets”. Below are a few reasons. I’m sure our gracious host has presented many of these.

-Capital gains weren’t not bad lately,

-The income paythrough is often equal or better than what one could net on a revenue property,

-No time and expense to maintain,

-The fake stuff doesn’t lead to 2am phone calls from idiots who’ve clogged their sink,

-Can buy or sell in minutes with a few mouseclicks. No need to consult and pay for a real estate professional.

Your experience may differ, but I like this approach to having sensibly sized real estate holdings within my portfolio.

#33 Sidera on 06.10.13 at 9:38 pm

No strip malls owned by Reits?

Check out what RioCan has to offer. They have a whole category called “strip”

http://www.riocan.com/PropertySearch/PropertySearch.aspx

Great investment properties!! They will still generate cash flow, but the valuations are ripe for correction.

PS. Canadian banks are going to get hit too.

For everyone who owns them, sell. For anyone who disagrees, let’s have father time be the arbitrator in this situation.

#34 Lots of MLS condo listings without address on 06.10.13 at 9:42 pm

Can anybody explain why these listings have no address ?These are all condos, here is a partial list:

http://pastebin.com/ATX65YeB

And here are a couple of direct links

http://www.realtor.ca/PropertyDetails.aspx?PropertyID=13205481

http://www.realtor.ca/PropertyDetails.aspx?PropertyID=13124962

Are these agent owned listings ? There is a lot of them, especially in the condos category

#35 Ralph Cramdown on 06.10.13 at 9:42 pm

#28 Squatter — “Those REITs generally have quite high leverage mortgages. When they renew their mortgage down the road, they will pay more interest, which means less profit.”

Actually, most Canadian REITs aren’t too levered For a rough idea, you can divide one’s P/E into it’s ROE. Or you can actually research one by reading annual and quarterly reports, which will typically tell you what interest they’re paying, what rents they’re receiving, and how soon their mortgages and leases come up for renewal.

#36 Piccaso on 06.10.13 at 9:46 pm

I have had one phone interview for a decent Canadian job in telecom for LTE…. ONE !!!!

In the U.S. AT&T alone is looking for 1000 people to upgrade there network to LTE…. a THOUSAND !!!

That’s just AT&T, were not even talking Sprint or T-Mobile or Verizon.

I saw an add online by Netricom offering $22 an hour for a Certified Journeyman Telecom Engineer…. $22 an hour in Alberta. Some grunt cable pulling job. LMAO

I told them to take there Certified Journeyman Telecom wage and shove it where the sun don’t shine!

I make more then twice that amount in the U.S. where it costs me a third the amount to live.

There…. I’m finished venting.

#37 bill on 06.10.13 at 9:46 pm

#25 Mikey the Realtor on 06.10.13 at 9:09 pm
you sound desperate …got an underwater mortgage or two?

#38 JSS on 06.10.13 at 9:49 pm

XRE

#39 Saint Herb on 06.10.13 at 9:50 pm

iShares S&P/TSX Capped REIT Index (XRE.TO)
OR
BMO Equal Weight REITs Index ETF (ZRE.TO)

Which one are you referring to Garth, and which one is better? They are both down, but there seems to be room for them to drop even further. Haven’t touched either yet, but am considering them now.

Thanks for the suggestion, Scotch sound good..

#40 Alex K on 06.10.13 at 9:54 pm

to #1 Willowdale
good for you but what about the other few hundred listing in the same area trying to sell forever?
And BTW didn’t know this was the “best” area, Yeah okay

#41 Shawn on 06.10.13 at 9:58 pm

SUCKS TO BE A DOOMER

It was a dreadful day for doomers as S&P took the United States off negative credit watch.

Yes, S&P has lost a lot of credibility. Still, this is positive news. It’s probably late in coming. The U.S. has been improving for many months. This is grat news for everyone except doomers. (I use the term loosely to mean financial pessimists who forecast great doom and gloom and hyperinflation and the like)

Man it sucks to be a doomer fighting the war that the U.S. has already won.

#42 Uh Oh Canada on 06.10.13 at 10:00 pm

Was in Old Montreal on Saturday to grab lunch. I was surprised at how many restaurants were actually closed with chairs up on the tables, and how many places were for rent. When restaurants are the first to go down, especially in a tourist area, that’s like the canary in a coal mine. Things are about to get worse.

#43 Ralph Cramdown on 06.10.13 at 10:04 pm

#34 Sidera — “For everyone who owns [REITs], sell. For anyone who disagrees, let’s have father time be the arbitrator in this situation.”

Just so we’re clear, what is in Father Time’s portfolio that we’re benchmarking against? And what’s the horizon? 1 year? 5 years?

#44 Julia on 06.10.13 at 10:04 pm

#1 willowdale on 06.10.13 at 8:47 pm
here in willowdale, just sold my condo to a chinese. Reality is, there is no crisis when your condo is well located, yonge finch area will NEVER go down in value.
—————————————————————
Maybe, but according to MLS there are currently over 200 condo units for sale at Yonge and Finch. Maybe you just got lucky, or undercut the competition, or maybe your unit was especially nice?

#45 Shawn on 06.10.13 at 10:06 pm

REITS AND INTEREST RATES

If REIT distributions in the future are exactly as anticipated then REIT prices will fall if and as interest rates rise. That’s basic financial math. In fact the very definition of an interest rate is how much of a discount one applies to a future expected cash inflow. REITS will behave very much like long term bonds, just like they rose as interest rates fell.

If (but only if) a REIT can increase its distributions faster than earlier expected then its price could rise or stay stable even as interest rates rise.

The price of a REIT is the discounted present value of its expected future cashflows (from now ’till doomsday). Higher interest rate (all else equal) means higher discount rates means lower present values means lower REIT prices. No escaping it if interest rates rise.

#46 valleyrenter on 06.10.13 at 10:17 pm

#34, you are correct. RioCan does have strip malls, their client list includes but not limited to: Safeway, Starbucks, Quiznos, DollarTree, A&W, Boston Pizza, NevadaBobs, CactusClub, Nandos, Sears, FutureShop, Milestones, Montanas(pretty much all the Cara group), LondonDrugs, GoodlifeFitness, Liqour Stores(private and Gov’t), Bombay, Marks, most of the Big 5 banks… Yeesh, seems like a never-ending list. Could go on but you get my drift, they are well diversified with companies that will hack employees before losing profit, thus always getting rent paid on time.

#47 HDJ on 06.10.13 at 10:17 pm

” ..given the fact any Home Depot or Best Buy going belly-up will honour its lease before it honours its employees.” Garth

Well, isn’t that nice? Wonder why it works that way?

#48 Victor V on 06.10.13 at 10:17 pm

This correction has suited me fine. Picked up a boatload of CPD today.

#49 onesaigon on 06.10.13 at 10:18 pm

The second part I don’t quite understand. If reits are not directly to rates, why would the fed bond buying matter? Furthermore, if the reits are Canadian, won’t the concern be mainly Canadian bonds?

#50 brainsail on 06.10.13 at 10:19 pm

Bogus real estate statistics and now employment numbers. Which rock gets turned over next?

#51 RayofLight on 06.10.13 at 10:27 pm

There are much better opportunities out there than RIETs. Look at lumber companies feeding the US housing boon. Look at auto parts manufacturers feeding the auto boon. Look at US stocks . Look at uranium mines now that the “Megatons for Megawatts” agreement between the US and Russia expires in 2013, thereby drying up a supply that the global mines won’t be able to replace quickly.
Just saying…

A diversified and balanced portfolio should hold many different asset classes, rebalanced regularly. REITs constitute but one. — Garth

#52 John in Mtl on 06.10.13 at 10:37 pm

In the US: “Housing Prices Are Being Dangerously Distorted by Big Institutional Money. Do we really want to live through Housing Bubble 2.0?”

“The problem is, a good portion of the rebound in house prices in many markets has less to do with renewed optimism, new jobs, and rising wages, and more to do with big money investors fueled by the ultra-cheap money policies of the Fed.”

“…It seems entirely wrong that the Fed bailed out big banks and made money excessively cheap for institutions, and that this is being used to price ordinary people out of the housing market. Said another way, the Fed prints fake money out of thin air, and some companies use that same money to buy real things like houses and then rent them out to real people trying to live real lives.”…

Full article here: http://www.peakprosperity.com/blog/82088/housing-prices-being-dangerously-distorted-big-institutional-money?utm_campaign=weekly_newsletter_78&utm_source=newsletter_2013-06-07&utm_medium=email_newsletter&utm_content=node_teaser_82086

Recovery, but not for the people…

John

#53 Sparky55 on 06.10.13 at 10:44 pm

Wow
Today’s Viewpoint stats:
New listing (mostly relisted): 120 (down a little)
New price(Vast majority price drops): 120 (up a lot)
Just sold: 59 (low)

Price drops and new listings each doubled the sold number. I never saw this before.

#54 Zorik on 06.10.13 at 10:50 pm

Soon gonna be ugly in Canada. My prediction 1.5 year
Starting 2015
The Organization for Economic Co-operation and Development ranks Canadian real estate the third most overvalued of the 34 developed countries assessed by the group, based on two metrics tracking what homes cost compared to incomes and rents.

The Paris-based OECD, which monitors and compares wealthy nations, recently released a report that ranks its 34 member countries based on two broad housing measures:

The price of the average home compared to what it could be rented for.
What the home costs compared to the average salary.
According to that analysis, Canada has the third most overvalued real estate in the developed world, just behind Belgium and Norway, which are deemed to have the frothiest real estate market under the OECD’s terms.

Check out our interactive map tracking house prices across Canada
Based on rents, Canadian real estate is overvalued by as much as 60 per cent, the OECD says. In terms of prices to incomes, Canada fares a little bit better, but the OECD suggests the country’s real estate is still as much as 30 per cent overvalued.

On the opposite end of the spectrum, the OECD says real estate in Japan, Germany, South Korea, Ireland and Portugal is undervalued. In almost all those cases, home prices should be higher than they are, considering rents and income levels.

Based on the numbers, the OECD places Canada in the fifth of five baskets — one where real estate seems overvalued but prices continue to increase.

“This is the case in Canada, Norway, New Zealand and, to a lesser extent, Sweden,” the OECD says. “Economies in this category are most vulnerable to the risk of a price correction – especially if borrowing costs were to rise or income growth were to slow.”

The latest data from the Canadian Real Estate Association indicates the average Canadian home was worth $380,588 in April — 1.3 per cent higher than it was in the same month a year earlier.

#55 Ab on 06.10.13 at 10:57 pm

Matt you obviously haven’t been in Alberta long enough to see the boom and bust cycles.Its scary,I’ve seen through two myself.all of the sudden bang no work no warning.

#56 Gg on 06.10.13 at 10:57 pm

US Fed would taper down the bond-buying program that’s provided more stimulus than Mila Kunis.
……..

So then the US dollar shoudnt have sold off in tadum with the bond market. Higher rates = recovery = taper off. LoL. Bond market is telling us about inflation.

#57 Small Town Steve on 06.10.13 at 10:58 pm

#42 SHAWN

Doomers make me laugh.

I have a shirt that reads:
“You find it offensive?
…I find it funny
That is why I am Happier than you.”

Doomers always have thier panties in a knot!

I have about 50% USD Equities, my canadian 50% is in REITs Preferreds, and bond ETF’s

#58 Suede on 06.10.13 at 10:58 pm

Former Dundee CEO Ferstman just bought 1,500 shares of Dundee REIT.

Canada Pension Plan Investment Board has a stake in Dundee.

My money is only 8.29% x 5% where my mouth is.

#59 Gg on 06.10.13 at 11:03 pm

By now it’s largely acknowledged Friday’s gung-ho job numbers were crap
………..
Yet you believe the story coming out of the states without question. LoL.
175k jobs this month. Painfully low.

#60 what bubble? on 06.10.13 at 11:05 pm

Government is not lying. Government just doing a simple routine of managing crowd behaviour.
The lies are usually told to avoid responsibility… only one of them escaped to Britain, the rest of them are still here… they can only escape to lies.

#61 Cory on 06.10.13 at 11:06 pm

There is definitely a condo renaissance in Cowtown. Nooks like the stupid kids have been sucked in by those pretend “professionals” that sell real estate. You know the ones, they take a weekend course and they’re instant financial experts……ya, those ones.

So the kids get suckered in to buy with low down, do not pay until completion and in 3 years they’re Kim Campell’d…..

#62 Derek R on 06.10.13 at 11:10 pm

#50 onesaigon on 06.10.13 at 10:18 pm asked
The second part I don’t quite understand. If reits are not directly to rates, why would the fed bond buying matter? Furthermore, if the reits are Canadian, won’t the concern be mainly Canadian bonds?

No it won’t. The reason that bonds matter is that every investor has a choice between REITs and bonds. American REITs, Canadian REITs, American bonds, Canadian bonds. So the investor will choose the one with the best expected return.

If investors think they can make more money from American bonds than from Canadian REITs then that is where they will shift their investment. Only an investor who was limited to buying Canadian would consider nothing but Canadian REITs and Canadian bonds.

#63 Wise Guy on 06.10.13 at 11:11 pm

I love this article in the Globe and Mail dated April 19th, 2013, where BMO recommends all these REITS. I would say that ever since they printed this article, the REITS have gone exactly the other way! Too funny!

The banks are the biggest crooks out there, promoting REITS to the average investor, all the while probably selling their own positions!
http://www.theglobeandmail.com/globe-investor/inside-the-market/bmo-these-are-the-canadian-reits-to-buy-now/article11408171/

#64 Gg on 06.10.13 at 11:15 pm

#42 Shawn on 06.10.13 at 9:58 pm
SUCKS TO BE A DOOMER
The U.S. has been improving for many months.
…..
Last I looked the fed is still purchasing $85bill a month in bonds or a trillion a year. And this months job report lost 8k manufacturing jobs. With interest rates rising and dollar falling – it doesn’t add up. Today the fed is the mortgage market. Period. Today the fed is the treasury market.

On Friday the federal advisory board gave a very dark senario about the state of the economy and montary policy. These are the very souls that leand money to the country. Google it on the federal reverse web site.

#65 Godth on 06.10.13 at 11:20 pm

#48 HDJ
“” ..given the fact any Home Depot or Best Buy going belly-up will honour its lease before it honours its employees.” Garth

Well, isn’t that nice? Wonder why it works that way?”

the psychopaths and sociopaths designed it that way, that’s how they roll. the sychophants are all in too.

#66 Gg on 06.10.13 at 11:29 pm

Fed minutes – item 8: “Uncertainty exists about how markets will reestablish normal valuations when the Fed withdraws from the market. It will likely be difficult to unwind policy accommodation, and the end of monetary easing may be painful for consumers and businesses. Given the Fed’s balance sheet increase of approximately $2.5 trillion since 2008, the Fed may now be perceived as integral to the housing finance system.”

http://www.federalreserve.gov/aboutthefed/fac-20130517.pdf

#67 Canadian Watchdog on 06.10.13 at 11:30 pm

The best measurement of employment widely used by institutions is the employment to population ratio, that is, how many people are working as a percentage of the population.

Ontario
Quebec
Alberta
British Columbia
Manitoba
Saskatchewan
Canada

As it turns out, after hundreds of billions of government stimulus and record immigration numbers, we've added more people, but haven't supplied them with jobs.

#68 happy renter on 06.10.13 at 11:34 pm

Garth is right about location when it comes to real estate.My realtor friend in Calgary said everything is selling,very busy.Same as Victoria lots of houses with sold signs up.Where I live in Victoria suburb their building over 100 houses a year for the next 5 years.Boom times are back in business baby.Also its good to wait for a nice pullback to gamble on your favourite reits,etfs,mutual funds and stocks.Qe will wind down next year so the market will go up,game on as usual.

#69 2CentsCdn on 06.10.13 at 11:41 pm

I don’t get it? Does anyone know the real numbers? Everything (unit sales, building permits, building starts) must get registered in various Gov’t offices aren’t they? They should know. They must know.

And you would think that considering the tens or hundreds of millions of dollars at risk ….. these home and condo builders would be super sophisticated, calculated, fact knowing and at least a little cautious. In addition to the TO condo mega-glut ……. up here in 905 land (north of TO) between Richmond Hill and Barrie I see so many brand new SFH and town house projects just getting under way. And some of them of massive scale. Old corn fields bladed off and ready to go. Who the hell is going to buy all of these homes?

This whole thing IS NOT going to have a “soft landing”. It’s not mathematically possible. It’s all just plain crazy.

#70 Shawn on 06.10.13 at 11:44 pm

Your Sensitive Side…

Small Town Steve at 58. Glad you are not a doomer. Yeah I guess doomers exist so we investors can have someone to laugh at. Also to make money from.

Your Canadian portfolio appears to be 100% interest sensitive, just sayin’.

#71 Tony on 06.11.13 at 12:34 am

Canada taking a page out of America’s playbook? Tell a big enough lie and the whole world is supposed to believe it. Well America has been lying like a rug for years about employment figures as it helps Wall Street make new highs when it should be making new lows. Like i said before at some point in time the ruse down in America has to stop and the public told the truth. Any Canadian can pick up a newspaper and see only about one-third of one page of jobs no one would ever apply for. As for America is reminds me of Bre-x and all their claims of this much gold no this much no this much. America should make the average citizen puke with all their lies.

#72 DON on 06.11.13 at 1:03 am

#7 matt on 06.10.13 at 8:52 pm

There isn’t any correction here in Alberta. The economy is supposed to pick up next year in fact, and 2015 is supposed to be even stronger. We will see what happens. I don’t think rates will go up anytime soon, and realistically that’s the only thing that will lower prices.

“Supposed” to be stronger? Who’s doing the supposing? — Garth

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

Garth you know…”supposed to” is the new phrase for validated facts.

People like Matt scare me…perhaps he is in his 20s or early 30’s when math and history were optional in high school. Forget the laws of physics, nature and human nature this is a new era they say, yup…exactly the same as the old one cause most humans are slow to learn.

AND

The kicker is all those folks using the latest published real estate numbers as proof that real estate has reached the bottom and is now gaining speed. LMAO. I see dumb people everywhere. More and more people are checking in on the real estate market at work lately, quietly checking the most recent sale prices. It is telling for sure.

#73 screwed on 06.11.13 at 1:53 am

Garth, thanks for setting the record straight on the bogus jobs report last week. Nobody believed those numbers but everyone is asking why? Harper said that day the numbers should be taken with a grain of salt. I would imagine that the PMs office had advance notice of this important information and they should have recommended a review to the StatsCan offices before making them public. Now they’re being subjected to major backlash and ridicule.

Unless PMs office encouraged StatsCan to release the report as a welcome distraction from the current and ongoing investigation into “Senator Expense Gate”.

Someone here had released prelim. sales numbers for Vancouver real estate which were over 40% off from last year. The actual numbers showed only a small change. Has REBGV fudged the actual number as the real recorded sales would have been just way to ugly?

FUBAR

#74 Vamanos Pest on 06.11.13 at 2:31 am

regarding the May jobs number:
There’s nothing ‘wrong’ with the 95 000 added jobs reported for May. what’s wrong is the credence we give a statistic that has a margin of error of 25%, 2 of of three times, and a margin of error of 50%, 19 times out of 20.

If you know statistics, you know the above parameters provide useless information (the content is irrelevant as there is too much uncertainty in the statistics) We would EXPECT the true number to be >50% off the reported number 3 times every 5 years! By >25% every 3rd month?! This data may have use in establishing trends, but there is no way a single data point can be used to draw any conclusions about the jobs situation or the economy.

(My source of the margin of error is the globe an mail)

#75 Dean Mason on 06.11.13 at 2:37 am

I bought a 4 25 to 27 year provincial bonds at about par $100 in March-2010 which their prices reached $124.90 to $125.10 in July 2012.This was the bottom so far in government bond yields.

The yield to maturity on these bonds ranged from 4.70% to 4.90% when I bought them so I have been collecting a decent yield.When I bought them the U.S. 10 year bond was 4.00% and the U.S. 30 year bond was 4.80%,Canada 30 year bond was 3.81%.

The provincial bonds I bought are down 5.50% from their peak prices but are still 18% higher than when I bought them.I have the advantage of just holding them until maturity and collecting the almost 5.00% yield. I think the most optimistic outcome of higher bond yields for those looking for income is yields reaching maximum another 1.00% point higher in the next 18 to 24 months and a sideways up and down for many years.

It’s a good thing I have many 4.70% to 6.50% government bonds I bought over the years.I can just get paid to wait and who cares what bond prices do until they mature over the years.

#76 Dean Mason on 06.11.13 at 2:40 am

Correction I bought 4 25-27 year provincial bonds at about par $100 in March -2010 which their prices reached $124.90 to $125.10 in July-2012.

#77 Steve on 06.11.13 at 2:42 am

The balance sheets of many REITs cannot withstand a higher interest rate environment without cutting payouts. Their value has peaked.

70% of us own homes and households are in record levels of teaser rate debt. If there is a severe correction in housing, you can be sure that the sudden erosion of our phony “net worth” will spread through the entire economy.

It’s hard to see how REITs could continue to charge top dollar to clients of shopping malls and office towers should consumer spending drop. The prices they charge to tenants can fall just as easily as they rise.

Exorbitant profits in any industry attract pretenders and do not persist long term.

REITs have 3 large and under-appreciated downside risks: Interest costs, Crowded competition and Consumer spending.

#78 World Traveller on 06.11.13 at 5:00 am

Sometimes I am really glad I don’t live in ‘Merica.

http://www.wheels.ca/news/police-charge-completely-sober-man-with-drunk-driving-because/

#79 World Traveller on 06.11.13 at 5:03 am

This woman is getting no sympathy, but you have to admit, GO still sucks. same for the rest of public transportation in the GTA.

http://www.thestar.com/news/gta/2013/06/10/nightmare_commute_mississauga_woman_arrested_for_mischief_at_union_station.html

#80 groovin_123 on 06.11.13 at 5:19 am

4.4% a year ain’t so hot when you get whacked for 10% in a couple of weeks, eh?….

Wow. Didn’t see that coming.

I wonder where REITS would trade from here if interest rates jumped… ohhh, I dunno 100 points or so?. Or back to long-term averages?.

Enjoy the ride. Down. But hey, you’re making some cash flow… just like your rental properties, lol.

#81 Devore on 06.11.13 at 5:22 am

#48 HDJ

Well, isn’t that nice? Wonder why it works that way?

It’s called a contract. One day you might be important enough to have one yourself, instead of being a lowly drone working on a two week contingency.

#82 Gary M on 06.11.13 at 6:25 am

“[REITs] have been swarmed by investors hungry for yield and an asset class which is not correlated to stock markets.”
———————————————————————–
This is false. Several academic pieces have been written on this topic:

• Clayton, J. and MacKinnon, G. 2002. The relative importance of stock, bond and real estate factors in explaining REIT returns. Journal of Real Estate Finance and Economics, 27(1), 39-60
• Jirasakuldech, B., Campbell, R. and Knight, J., 2006. Are there rational speculative bubbles in REITs? Journal of Real Estate Finance and Economics, 32, 105-107
• Nneji, O., Brooks, C. and Ward, C. Housing and equity bubbles: Are they contagious to REITs? June 2011. ICMA Centre, University of Reading. Reading, UK
• Chan, S.H., Leung, W. K. and Wang, K. 1998. Institutional Investment in REITs: Evidence and Implications. Journal of Real Estate Research, 16, 357–374

If finance journals bore you, just look at the average (levered) betas of any of the major Canadian REITs; they are highly susceptible to economic cycles.

Don’t be fooled. The REIT bull market will be over as soon as the housing industry comes back to reality. With that being said, it’s hard to predict when exactly the bubble will pop, so you may want to hold on to those REITs for the next little while.

It is correct. REITs are not closely correlated to equity markets. They are however, as your academics toiled to prove, correlated to the economy. What a revelation. — Garth

#83 willowdale on 06.11.13 at 6:34 am

#41 Alex K on 06.10.13 at 9:54 pm
to #1 Willowdale
good for you but what about the other few hundred listing in the same area trying to sell forever?
And BTW didn’t know this was the “best” area, Yeah okay
————
It depends, there are crappy condos here that won’t sale quick, ( aluminum and glass crap )

As for “best” area, yes, Yonge & Finch is the best area in the GTA for Asians ( who are the ones with money nowadays ) but not necessarily for WASPs ( who think junkie heaven downtown toronto is “best” )

#84 willowdale on 06.11.13 at 6:47 am

#45 Julia on 06.10.13 at 10:04 pm
#1 willowdale on 06.10.13 at 8:47 pm
here in willowdale, just sold my condo to a chinese. Reality is, there is no crisis when your condo is well located, yonge finch area will NEVER go down in value.
—————————————————————
Maybe, but according to MLS there are currently over 200 condo units for sale at Yonge and Finch. Maybe you just got lucky, or undercut the competition, or maybe your unit was especially nice?

———————
They will sell trust me. Nothing special about my building but this area is heavily Asian = money. If your condo is not well located ( Downtown toronto area or 905 ), sorry but it wrong demographics and wrong area… it won’t sell.

#85 World Traveller on 06.11.13 at 7:13 am

Very Funny…and sad…

http://fmlistings.tumblr.com/

#86 Chickenlittle on 06.11.13 at 7:49 am

#26 Turner Nation

I know, I know. Chris Rock was right when he said the men lie more often, but us women are the biggest liars. Make up is proof of that! :)

https://www.fortunebuilderstickets.com/TORONTO/5.0000/index.dtm?MID=4139457

Anyone for Than Merrill house flipping seminar? This is a joke, right? We should send a Greater Fool contingent to this with Smoking Man as team captain.

http://www.jeffreyteam.com/blog/miscellaneous-real-estate-posts/10-mistakes-that-made-flipping-a-flop/

#87 fancy_pants on 06.11.13 at 7:52 am

I think it’s a good thing the gov’t trimmed the budget for StatsCan. All they need is a group of a half dozen to pull numbers out of a hat. Yet they need a whole dept to send us the lies. sigh

#88 Chickenlittle on 06.11.13 at 7:55 am

#87 World Traveler

Yes, that website was the first website I ever read that actually told the truth about TO RE! I’m sad that she doesn’t post anymore.

#89 Chickenlittle on 06.11.13 at 7:57 am

STOP THE PRESS!
There is a Than Merrill house flipping seminar coming to TO!!

Let’s go to it Smoking Man! I’m not kidding! That would be HILARIOUS!!

https://www.fortunebuilderstickets.com/TORONTO/2.0000/index.dtm?MID=4139595

#90 Buy? Curious? on 06.11.13 at 8:07 am

It’s all about offshoring labour. Many industries are doing it. I don’t know if some bean counter has been hitting the scotch during normal working hours but something is as fishy as a Newfie public toilet.

https://www.youtube.com/watch?v=uCwqr27LgPU&feature=player_embedded#!

#91 The American on 06.11.13 at 8:33 am

At #72: Tony, LMFAO. You get the award today for making *such* a strong argument. Where the heck did you come up with this sh*t?!?! Anyway, thanks for making me laugh so hard I almost spit out my morning coffee. Spoken like a really uninformed Canadian!

#92 Berniee on 06.11.13 at 8:33 am

#90 Chickenlittle

Than Merril says “This is not traditional real estate, which is slow right now. This is wholesale real estate which is absolutely prime”

Wholesale real estate. Like from Costco!
(Eyes rolling)

I love his (Simpson’s) Troy Mclure intro:
“Hey it’s Than Merril and you might recognize me from MY hit TV show “Flip this house ” on A & E.

Check out Than, er I mean Troy here:
http://www.youtube.com/watch?v=oC7TVRU5nho

#93 The American on 06.11.13 at 8:40 am

At #72: Tony, yes, Canada has not only taken a page out of the U.S. playbook, but Canada has behaved worse for an even longer period of time. Stats don’t like. Canadians have more consumer debt than Americans ever did, Canadian home ownership now exceeds that of the U.S. at peak, Canadian banks offer and have offered for a very long time the equivilent of $0 down AND subprime lending (only you call it something prettier so you Canadians don’t have to feel icky and sticky about it), Canadian jobs are leaving by the droves and back to the U.S., Canadian lending is the equivilent of what we in the U.S. call an ARM (only the vast majority of Canadians are in this kind of product, whereas in the U.S. it was less than 20%), jobs are leaving Canada in droves and back to the U.S., the Canadian housing sector is hurting now and will only get worse from here on. Ummmmmm, yeah, the great American lie?!?!? I don’t think so. Clearly, it is the great Canadian lie, being your government, media, CREA, and banks are all in denial and not being transparent with information to it’s citizens. It’s either that, or you’re really dumb.

#94 AK on 06.11.13 at 8:42 am

#84 Gary M on 06.11.13 at 6:25 am
“Don’t be fooled. The REIT bull market will be over as soon as the housing industry comes back to reality.”
——————————————————————–
How is an Office REIT correlated to the housing industry?

T.BPO owns office towers in Canada, U.S., England and Australia. So how will the Canadian Housing Industry impact Brookfield? Geez…

#95 World Traveller on 06.11.13 at 8:43 am

#89 Chickenlittle on 06.11.13 at 7:55 am

Too bad, some great examples, made even more apparent by the SoCal and European hotspots comparisons.

What the Hell is happening in this city??? Who is buying all these properties?? and what is the end game for these people if the values don’t go up??

Gahhh!! The stupidity!!

#96 World Traveller on 06.11.13 at 8:47 am

Also, a question, do foreign buyers qualify for CHMC as well?

#97 Buy? Curious? on 06.11.13 at 8:48 am

Hey Garth, I just read this week in Harper’s Weekly (yes, I am very sophisticated.). They have this section called the Harper’s Weekly Review where they carry all the oddball news stories and kind of links them together (Hey I said I was sophisticated, not an Economist!) and here’s something from Abbotsford, British C. Columbia (The “C” stands for corruption).

“Abbotsford, British Columbia, apologized for dumping chicken manure at a makeshift camp in an attempt to disperse the homeless”

Way to go! BC Politicians! You make leaving my children with a crack smoking, (well, technically, there’s no video proof and The Toronto Star HAS BEEN whoring itself out lately) person, seem like a good idea.

http://www.youtube.com/watch?v=rRLwV2xafpk

#98 World Traveller on 06.11.13 at 8:52 am

asked and answered.

http://opinion.financialpost.com/2012/04/13/to-tame-torontos-housing-bubble-ban-foreign-buying/

With this in mind is it still a good idea to invest in Canadian banks, I mean once CMHC hits the 600 Billion limit, who will they loan to?

#99 AK on 06.11.13 at 8:53 am

#72 Tony on 06.11.13 at 12:34 am
“As for America is reminds me of Bre-x and all their claims of this much gold no this much no this much. America should make the average citizen puke with all their lies.”
——————————————————————–
Hey Tony,

The Bre-X saga was something else. I wonder if de Guzman is still alive?

Bre-X timeline

#100 Sparky55 on 06.11.13 at 9:13 am

@90 Chickenlittle

STOP THE PRESS!
There is a Than Merrill house flipping seminar coming to TO!!

Let’s go to it Smoking Man! I’m not kidding! That would be HILARIOUS!!

http://www.fortunebuilderstickets.com/TORONTO/2.0000/index.dtm?MID=4139595
**********************************
I’m pretty sure that’s the same guy who was pumping the same thing a couple of months back in Halifax…

#101 T.O. Bubble Boy on 06.11.13 at 9:24 am

Well, whaddayaknow — credit growth (mortgage loans) can impact the overall economy.

Australia seems to be about 1 year ahead of Canada… here is a look into the future:
http://globaleconomicanalysis.blogspot.ca/2013/06/australian-dollar-plunges-as-home-loans.html

#102 gotthardbahn on 06.11.13 at 9:26 am

Hey Garth –

That’s a new angle for you! When Canada’s economic numbers blow your predictions out of the water, claim they are all lies!

I honestly expected better from you. Silly me!

No respected economist believes May’s job numbers. Go argue with them. — Garth

#103 The American on 06.11.13 at 9:27 am

This is old news, but it’s good news. I’d be curious to understand the results of the talks that were supposed to have transpired this past April. Does anyone know?
http://www.straight.com/news/stephen-harper-government-lies-world-housing

#104 T.O. Bubble Boy on 06.11.13 at 9:30 am

As Garth already noted… fixed rate mortgages are creeping up as the bond market turns:
http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/06/td-joins-rbc-in-raising-fixed-rates.html

#105 The Mummy on 06.11.13 at 10:02 am

#69 happy renter on 06.10.13 at 11:34 pm
Garth is right about location when it comes to real estate.My realtor friend in Calgary said everything is selling,very busy.Same as Victoria lots of houses with sold signs up.Where I live in Victoria suburb their building over 100 houses a year for the next 5 years.Boom times are back in business baby.Also its good to wait for a nice pullback to gamble on your favourite reits,etfs,mutual funds and stocks.Qe will wind down next year so the market will go up,game on as usual.
———————————————————
Do you work for Remax or Royal Lepage?

“Qe will wind down next year so the market will go up,game on as usual.” – crock of sh#t word for word.

#106 Penny Henny on 06.11.13 at 10:04 am

Garth-In the last few days buying by officers and directors of the trusts has been noticeable, as they Hoover up lower prices. According to a much-watched index, there are now four buyers for every seller.

If there are four buyers for every seller would prices not be going up?

Read more carefully: buying by officers and directors is 4-to-1 positive, not buyers in general. These individuals feel they are buying low. — Garth

#107 The Prophet Elijah on 06.11.13 at 10:09 am

#103 gotthardbahn on 06.11.13 at 9:26 am
Hey Garth –

That’s a new angle for you! When Canada’s economic numbers blow your predictions out of the water, claim they are all lies!

I honestly expected better from you. Silly me!

No respected economist believes May’s job numbers. Go argue with them. — Garth
——————————————————–
Clap clap clap, I applaud you Garth, and you think the US propaganda machine is any different with reporting employement, inflation, GDP, shale oil reservse potential?! It’s because of the lies that most won’t be prepared for the coming calamities.

Because the US stats are far more fully researched, revised monthly and independently collaborated. — Garth

#108 CaptainObvious on 06.11.13 at 10:14 am

The big question is how fast interest rates rise. I don’t think rates will rise fast, so an interest rate sensitive investment class like REITs should still be useful in a portfolio. Higher interest rates are bad in general for REITS because they need to increase their distributions to maintain an attractive yield versus safter interest bearing investments (like government bonds) while their long term debt servicing costs go up. Predicting the future is a fools game though, so staying diversified is the best approach. The periodic table of investment returns is entertaining.

#109 someone on 06.11.13 at 10:21 am

Is the stock market finally going to crash today?

Why would it? — Garth

#110 AK on 06.11.13 at 10:28 am

A discussion going on about Canadian Housing over at RFD.

Canadian Housing

#111 Doug in The South on 06.11.13 at 10:33 am

Normally I post by the name Doug in London, but given what I’ve seen lately I must be somewhere in the South, probably Florida. Why do I say that? I just logged off my trading account where I saw AWESOME BOXING WEEK SALES on REITs, including XRE, as well as other ETF’s like CPD, XPF, and XRB. Utilities like NPI are on sale also. You see, during Boxing Week in Ontario it’s winter. Where I am now, it’s warm, there’s no snow on the ground, and the leaves are out on the trees so I must be in the South. Yes, I have my medical insurance just in case. I will log off now and see if there are more good bargains to be scooped up.

#112 KWW on 06.11.13 at 10:34 am

Thanks for the link to the CBC podcast.
I cannot believe that our nanny gov’ts are now protecting us from ourselves. Now they want to get us into “Affordable” housing on the taxpayers dime. I get very frustrated trying to do the right thing and respond logically when gov’ts throw spanners into the works to protect idiots.

#113 Penny Henny on 06.11.13 at 10:39 am

If there are four buyers for every seller would prices not be going up?

Read more carefully: buying by officers and directors is 4-to-1 positive, not buyers in general. These individuals feel they are buying low. — Garth

The same could be said for many gold stocks.

#114 MarkToronto on 06.11.13 at 11:11 am

Garth:

what’s the ticker symbol for the ETF of the REIT you mentioned that has the diverisified classes of real estate ?

Thanks

#115 Rabbit One on 06.11.13 at 11:21 am

>97 World Traveller
CMHC for Non-residents

Yes, it is available. There is no restrictions on borrowers’ residency to get CMHC coverage.

Just to add, CMHC is not only for High Ratio Mortgage (= less than 20% Downpayment), but for example, can insure small sq. ft suite that is below bank’s lending standard.

1BR condo in Yaletown less than 500 sq. ft used to be subject to CMHC approval, now banks think 485 sq ft suite in Yaletown is more markatable than before, so applies exception, no CMHC required.

#116 Ray Skunk on 06.11.13 at 11:39 am

Garth:

what’s the ticker symbol for the ETF of the REIT you mentioned that has the diverisified classes of real estate ?

Thanks
—————————————————–
ZRE and perhaps XRE.

Both are taking another pummeling today (at the time of posting).

XRE down 21 cents at $16.80. ‘Pummeling’? — Garth

#117 Ray Skunk on 06.11.13 at 11:55 am

XRE down 21 cents at $16.80. ‘Pummeling’? — Garth
—————————————————

Ok, maybe that’s an exaggeration!

I think your shorts may be too tight. — Garth

#118 Mister Obvious on 06.11.13 at 12:09 pm

#117 Ray Skunk

I’m still quite a ways up on XRE because they were purchased at a more sensible time. Back when they represented good value. Such a time is now coming around again. Time to start thinking about buying.

Regardless, you don’t own these puppies for capital gain potential nearly so much as for yeild.

Haven’t you been paying attention in Greater Fool class?

#119 GOTTHARDBAHN on 06.11.13 at 12:28 pm

Hey Garth – Reference Post 102

‘No respected economist believes May’s job numbers. Go argue with them. — Garth’

Economists? Who cares what these guys think? They can’t even agree on the time of day. The real question is: What are professional traders doing? CAD sold off last night in the big risk-off massacre, but it has rallied back today, currently trading below where it closed last night i.e. STRONGER. These guys believe the numbers, even if a bunch of wussy economists don’t.

#120 Victoria - the original on 06.11.13 at 12:30 pm

This is brilliant! Mac Marketing is doing a RE crossword puzzle about RE and the winner gets a $50 gift certificate. One of the contributors to VCI did his/her own.

http://www.armoredpenguin.com/crossword/bin/crossword.cgi?cmd=solve&filefrag=2013.06/1013/10134303.694.html

#121 Victoria - the original on 06.11.13 at 12:32 pm

Garth,

You are in there. Author of Greater Food Blog no. 4 down.

#122 Post Haste on 06.11.13 at 12:42 pm

Garth – Excellent Post!! My head was spinning on all this new data from MSM that appeared to tell me that a new building boom was on the way with loads of new jobs –

Thanks for the info on REIT’s – excellent point of view, though in my neck of the woods, 2 new strip malls that have only 1/2 the required tenants, they surely are getting killed on that investment.

Thanks G

#123 SCIBIDUBADEBUMBADO on 06.11.13 at 12:50 pm

There are 3 kinds of lies:
lies
damned lies
and statistics

#124 Doug in The South on 06.11.13 at 12:58 pm

@Ray Skunk, pots 117 and 118:
XRE at $16.80 you say? It’s way cheaper now, the inventory department just slashed the price again because they want to clear it all out ASAP. It reminds me of a story I read about how William Van Horne was being grilled about the cost overruns in building the CP Railway. He replied: sell your boots and buy CPR stock! Fast forward to now have a yard sale, sell you boots and other stuff lying around and buy XRE!!!!!!!!

#125 The Prophet Elijah on 06.11.13 at 1:06 pm

Because the US stats are far more fully researched, revised monthly and independently collaborated. — Garth
———————————————————
Yes it definietely is “collaborated”. Just ask the NSA how they “collaborate” on people’s privacy.

You just made yourself more irrelevant. I doubted it was possible. — Garth

#126 Evil Magpie on 06.11.13 at 1:13 pm

Smart people stopped putting new money into REITs half a year ago, because a correction was inevitable.

How can one tell when an asset class like this is due for a correction? Does one consider the percentage allocated in a balanced portfolio, a metric such as current price versus 200-day moving average, or something else?

#127 frank le skank on 06.11.13 at 1:21 pm

#1 willowdale on 06.10.13 at 8:47 pm
here in willowdale, just sold my condo to a chinese. Reality is, there is no crisis when your condo is well located, yonge finch area will NEVER go down in value.

#86 willowdale on 06.11.13 at 6:47 am
They will sell trust me. Nothing special about my building but this area is heavily Asian = money. If your condo is not well located ( Downtown toronto area or 905 ), sorry but it wrong demographics and wrong area… it won’t sell.

——————-

Don’t be offended if I don’t trust an anonymous user on an internet blog. You provide no data other than trust me and its different here (Yonge and Finch). All you’re doing is perpetuating the myths that are based on wishful thinking. I hope you didn’t buy another condo in that area because you will learn the hard way that you shouldn’t blindly trust what your RE agent regurgitates.

#128 mel in victoria on 06.11.13 at 1:38 pm

Let me see if I understand this correctly. If Reits and dividend paying stocks drop in price then they’re a buy…or possibly a screaming buy! But if oil and pm and copper prices decline they’re in their death throes? Huh?

People buy REITs and preferreds largely for predictable cash flow – ‘yield.’ So lower prices sweeten the returns. Oil and gold are bought for speculative capital gains. What part of that do you not get? — Garth

#129 World Traveller on 06.11.13 at 1:38 pm

>97 World Traveller
CMHC for Non-residents

Yes, it is available. There is no restrictions on borrowers’ residency to get CMHC coverage.

**

This is crazy, so someone from another country can just skip out and leave the CDN taxpayer holding the bag?

Of course not. CMHC insures mortgages. Mortgages are placed on real estate. Non-payment of a mortgage means the liquidation of the underlying security. — Garth

#130 The Prophet Elijah on 06.11.13 at 1:42 pm

Because the US stats are far more fully researched, revised monthly and independently collaborated. — Garth
———————————————————
Yes it definietely is “collaborated”. Just ask the NSA how they “collaborate” on people’s privacy.

You just made yourself more irrelevant. I doubted it was possible. — Garth
——————————————————-
But not as irrelevant as the NSA whistle-blower Edward Snowden:

http://www.guardian.co.uk/world/2013/jun/09/edward-snowden-nsa-whistleblower-surveillance

Up until now, the general public has known very little about the U.S. government spy grid that knows almost everything about us.
Time to face reality of this Matrix.

#131 angela on 06.11.13 at 1:50 pm

Wow Garth you dont believe the jobs numbers but but the government never lies

StatsCan is not the government. It messed up. — Garth

#132 mel in victoria on 06.11.13 at 1:51 pm

Let me see if I understand this correctly. If Reits and dividend paying stocks drop in price then they’re a buy…or possibly a screaming buy! But if oil and pm and copper prices decline they’re in their death throes? Huh?

“People buy REITs and preferreds largely for predictable cash flow – ‘yield.’ So lower prices sweeten the returns. Oil and gold are bought for speculative capital gains. What part of that do you not get? — Garth”

So what’s wrong with speculative gains if that represents only a small % of your portfolio?

I didn’t say there’s anything wrong. I pointed out that these asset classes are different, which you did not. — Garth

#133 Alex K on 06.11.13 at 1:56 pm

to willowdale,
at Tim’s where I get my coffee is all served by Asian, I should get me a job there eh=money.
what an analogy, no wonder all of China is buying Vancouver LOL
joke of the day

#134 mel in victoria on 06.11.13 at 2:01 pm

Let me see if I understand this correctly. If Reits and dividend paying stocks drop in price then they’re a buy…or possibly a screaming buy! But if oil and pm and copper prices decline they’re in their death throes? Huh?

“People buy REITs and preferreds largely for predictable cash flow – ‘yield.’ So lower prices sweeten the returns. Oil and gold are bought for speculative capital gains. What part of that do you not get? — Garth”

So what’s wrong with speculative gains if that represents only a small % of your portfolio?

I didn’t say there’s anything wrong. I pointed out that these asset classes are different, which you did not. — Garth

Thanks for clarifying this. Man you are sure grumpy today. All I did was ask a question…

You neglected to kneel first. — Garth

#135 Ray Skunk on 06.11.13 at 2:03 pm

Regardless, you don’t own these puppies for capital gain potential nearly so much as for yeild.

Haven’t you been paying attention in Greater Fool class?
————————————————–

Ha, yep – I’ve been paying attention, and I’m not in it for the CG. That said, I’m not really in it for the losses either. As long as the price remains relatively stable and the yields keep coming, I’m happy.

After what Garth had mentioned in his entry about 4buyers:1seller and insiders saying the bloodletting is over, I guess I was hoping for a flatline today, rather than another 1.6% drop.

I’m hanging on but I do have conflicting thoughts between believing the moral of Garth’s story (and common sense) to ride it out, vs. taking a look at the historic prices of 2009/2010 and seeing there’s still a LONG way to drop if there was a full-on correction.

I didn’t buy into these way back when (only within the last four months) so I’m down quite a bit. These aren’t going to be held forever – this is my house purchase money parked until prices soften up. I can’t see myself being able to hold out for 2-3 years for a recovery should the worst happen.

Of course what is distorting things and perhaps making the REIT situation look worse is the overall drop in my portfolio – all my other ETFs (with the exception of ZDY) have shed value in the past fortnight.

#136 Chickenlittle on 06.11.13 at 2:04 pm

Honestly, WHO flips houses anymore?
I like how he says he’s a self made millionare. Of course he is! He played in the NFL…what a joke!

#137 Chickenlittle on 06.11.13 at 2:04 pm

I was talking about Than Merrill….

#138 willowdale on 06.11.13 at 2:06 pm

#128 frank le skank

Yonge & finch is a transportation hub, plus many chinese, koreans and well to do persians call it home. On the other hand, is also family friendly and you don’t see the ~#$%%# you see in downtown or scarberia, or brampton.

Stand near the xerox building for a while and you will see what I mean.

I base my analysis on facts.

#139 T.O. Bubble Boy on 06.11.13 at 2:06 pm

bought some more REIT ETF shares this morning… ZRE just hit the 5% yield mark.

#140 mel in victoria on 06.11.13 at 2:22 pm

Let me see if I understand this correctly. If Reits and dividend paying stocks drop in price then they’re a buy…or possibly a screaming buy! But if oil and pm and copper prices decline they’re in their death throes? Huh?

“People buy REITs and preferreds largely for predictable cash flow – ‘yield.’ So lower prices sweeten the returns. Oil and gold are bought for speculative capital gains. What part of that do you not get? — Garth”

So what’s wrong with speculative gains if that represents only a small % of your portfolio?

I didn’t say there’s anything wrong. I pointed out that these asset classes are different, which you did not. — Garth

Thanks for clarifying this. Man you are sure grumpy today. All I did was ask a question…

You neglected to kneel first. — Garth

Sorry……I’ll try to remember to do so in the future..

#141 Boomtown on 06.11.13 at 2:28 pm

Garth,
You’ve written many good articles describing REITS, like the one above. I agree that there isn’t much risk in the rents not being paid, resulting in the REIT falling in value. However, with REITS yielding 4.4%, the risk is that all rates rise, and then the yield people would want to hold REITS might rise to say 5.5%. If that happens, REITS would need to fall 25% in value, about 6 years worth of dividends, just for that tiny rise. As you will remember, a few years ago people wanted 8% yields to hold RETIS.
In your article about REITS, shouldn’t you mention this as a big risk?

Rising rates impact all yield investments. But we are miles away from a 1% hike. Enjoy the dividend now. Rebalance down later as the world changes. — Garth

#142 Doug in the South on 06.11.13 at 2:37 pm

Wow, I’m still enjoying those dirt cheap Boxing Week sales, with XRE at only $16.09 and CPD at only $16.86. My only worry is that any time now the alarm clock will sound and I’ll see it was all just a dream, the best one I’ve had in many years!

#143 Alex K on 06.11.13 at 2:42 pm

yeah baby, standing in the street corner is suddenly factual.Which corner would you need to be standing on to observe this statistic? (please advise)
I always new this blog attracted only smart people

#144 Canadian Watchdog on 06.11.13 at 2:57 pm

Here's a technical chart of XRE based on my own calculations.

A buy signal really depends on how much the Fed is willing to intervene with another round of QE. They must time and size QE properly to satisfy the markets. If they get it wrong, yields will rise quickly, and that means more downside for REITS.

#145 Mike T on 06.11.13 at 3:09 pm

There are 3 kinds of lies:
lies
damned lies
and statistics
—-
very true

also keep in mind that there are two ways to be fooled

1) believe that which is not true

2) refuse to believe that which is true

#146 espressobob on 06.11.13 at 3:15 pm

Sure was a great day for loading up on ZRE & XPF. those yields are smelling sweet. I just wish ZDV would tank a bit more! Happy trading.

#147 willowdale on 06.11.13 at 4:01 pm

# 144 alex K.

Alex, since you are our little Einstein, I strongly suggest to wait for the bus @ Jane and Finch around midnight.
By the way….. its knew…not new…. moron

#148 Happy and Free in BC on 06.11.13 at 4:04 pm

bought VNQ about 6 weeks ago and have watched it spiral downward (doh!) Bought XRE this morning at $16.10. Hoping to rebalance. I really should leave this stuff to the professionals lol but I’m having way too much fun!

#149 The American on 06.11.13 at 4:06 pm

The Profit Elijah, are you aware the Canadian government collects data on its citizens, inclusive of phone and internet, and DENIES it? Oh yeah, big cover up and now it is out in the open. At least in the U.S. our government says they’re doing it. No surprises.

#150 Happy and Free in BC on 06.11.13 at 4:35 pm

@ #151 you2fast
even if XRE takes a dive, it is paying me a fat dividend every month and it will bounce back over time…should be ok, no?

#151 jess on 06.11.13 at 4:36 pm

78 Steve
what about currency movements?

#152 LP on 06.11.13 at 4:43 pm

#148willowdale on 06.11.13 at 4:01 pm
# 144 alex K.

By the way….. its knew…not new…. moron
********************************

By the way…it’s it’s…not its…are you a moron or merely just rushed and inattentive?

Spelling cops are one thing. Apostrophe Nazis are another. — Garth

#153 Alex K on 06.11.13 at 4:44 pm

to willowdale,
must have touched the nerve, check your post at #85 and #86 for gramar and spelling, did you learn this “knew” at your ESL class this afternoon you F—ing moron.
No one to sell houses to, then how about collecting empty bottles you looser

#154 Spiltbongwater on 06.11.13 at 4:46 pm

All this talk about stocks etfs etc. I am going all in on Phil Mickelson in the US Open this week.

#155 MortgageRATESUP on 06.11.13 at 4:51 pm

MORTGAGE RATES UP TODAY AGAIN!

GOODBYE 2.99%

http://www.bloomberg.com/quote/GCAN10YR:IND

#156 Alex K on 06.11.13 at 4:53 pm

thanks LP, yeah I made a mistake but at least I sold my house to the guy who made a bigger mistake LOL
This will not end well especially for willowdale who spends his time at street corners collecting important data.

#157 willowdale on 06.11.13 at 4:59 pm

# 154. LP
Burn by nothing less than Garth LOL. Suggestion to LP…stop smoking that thing…. pea brain nazi…..

#158 Shawn on 06.11.13 at 4:59 pm

TECHNICAL (SO CALLED) ANALYSIS

You2fast says:

Not only have they complete a double TOP formation, which has clearly broken own badly…

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

Raher than attempt to read tea leaes like that to see what the smart money is doing, why not observe or predict st rates have and will rise and that all else equal REITS must hterefore fall. Interest rates are to all financial assets, as gravity is to physical objects.

No need for tea leaves…

That is why not be the smart money rather than attempt to follow the smart money as so-called technical traders do.

#159 Boomtown on 06.11.13 at 5:04 pm

Boomtown: If rates rise 1% (from 4.4% to 5.5%), REITS could fall 25%
Garth: But we are miles away from a 1% hike. Enjoy the dividend now.
==================================
Depends on how long “miles away” is for that 1% rate rise.
Because if a 1% rise in rates means a 25% drop in REITS, and all I’m enjoying while waiting for this is a 4.4% yield, I need to hope that this 1% rise in rates doesn’t come for al least 6 years, and that’s just to break even (when the 25% fall in price would come).

#160 frank le skank on 06.11.13 at 5:10 pm

#139 willowdale on 06.11.13 at 2:06 pm
You observations are anecdotal, facts are backed up by data that can be represented by numbers. I think that because its on the subway line it will not devalue as much as a condo in Markham or Richmond Hill but you can be sure it will not be impervious to a decline. In the words of the wise Justin Bieber, never say never.

#161 FATHER on 06.11.13 at 5:14 pm

why do people care about spelling or grammer i was born here and ain’t any good but but but i’m smart. By the way garth you sound really young , heard you this morning for the first time i’ve been a fan for about a year now and look forward for your blog every day should have a warning on it (HIGHLY ADDICTIVE)

I’m 23. Total stud. — Garth

#162 Ratesuptonight on 06.11.13 at 5:30 pm

Several lenders raising mortgage rates AGAIN tonight.

Here comes the wrecking ball to Canadian Home Prices.

Sell now or regret it forever folks.

#163 willowdale on 06.11.13 at 5:30 pm

# 155 Alex K

Looser? Garth, please advise, should I correct him?

I bet Alex K is a just like LP…hopeless.

Back to the point…real estate here in toronto is localized… block by block. You have to literally stand on corners to do due dilligence. If you know what type of neighbors you have for sure you know what the value of your house will be. Garth is right (most of the time at least) that is why we rely on him for RE news and not on the piggs @ toronto star.

#164 Shawn on 06.11.13 at 5:51 pm

PREDICTIONS ARE DIFFICULT ESPECIALLY WHEN THEY INVOLVE THE FUTURE

You 2 Fast asks me:

can you answer how high rates will go? and by when? can you tell me the same about reits? the market? gold? oil?

probably not.

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

I cannot. But neither can anyone.

What I can do is observe that some stocks are undervalued compared to a conservative assessment of their actual value based on their competitve advantage and a conservative forecast of growth. I then Buy.

I can also observe that all long term bonds are over-valued based on any sensible outlook for interest rates. Or based on a sensible required return to maturity. I don’t buy those.

That’s what Buffett does. That’s what I do. We both studiously ignore technicals. Between him and me we have amassed quite a lot of wealth.

#165 Steven on 06.11.13 at 6:17 pm

Garth what are they smoking in Vancouver?

#166 Smoking Man on 06.11.13 at 6:54 pm

#165 Ratesuptonight on 06.11.13 at 5:30 pmSeveral lenders raising mortgage rates AGAIN tonight.Here comes the wrecking ball to Canadian Home Prices.Sell now or regret it forever folks.
…………….

Yes 1 tenth of 1 precent, scary.. Lol just reacting to the drop in bond prices which are about to get expensive again. Hence yields down….

Plus the variable rate only one way it’s going and that’s down..

#167 Alex K on 06.11.13 at 7:07 pm

#162 frank le skank
#139 willowdale
Frank they don’t teach “anectdatol” in ESL, please use simpler English for the benefit of willowdale.
Not hopeless but rather hopeful for this to come to a crushing end LOL, we’re getting closer by the day

#168 happy renter on 06.11.13 at 7:11 pm

You want yield check out PGP or PHK.Can anyone find me better than that,Thanks

#169 Matt on 06.11.13 at 7:16 pm

People like Matt scare me…perhaps he is in his 20s or early 30′s when math and history were optional in high school. Forget the laws of physics, nature and human nature this is a new era they say, yup…exactly the same as the old one cause most humans are slow to learn.

Yes, I am in my 20s, and I just bought a house in Alberta. I just graduated and got a government job. Maybe it’s because I just moved from Vancouver, but the same house that I just got for $575,000 would be closer to a million in Vancouver.

#170 franke le skank on 06.11.13 at 7:57 pm

#171 Alex K on 06.11.13 at 7:07 pm
LMAO!

#171 Daisy Mae on 06.11.13 at 7:59 pm

#94 The American: “Clearly, it is the great Canadian lie, being your government, media, CREA, and banks are all in denial and not being transparent with information to it’s citizens. It’s either that, or you’re really dumb.”

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

Yes, Canada is really dumb…the government, that is. Harper et al don’t lead…they merely follow. And the populace is naïve and ill-informed.

I enjoy your posts. You always make sense. Thanks for your input!

#172 Happy & Free in BC on 06.11.13 at 9:37 pm

@ #172 happy renter…those are some nice yields! Gonna look into those more! Thanks!

#173 peter on 06.12.13 at 1:58 am

REITS & utility etf’s are suffering. No surprise if you understood that interest rates wouldn’t remain at historic low levels forever. The party appears over for yield chasers.

#174 Richard in Kelowna on 06.12.13 at 7:00 pm

Garth…this dude Russell figures ALL markets are manipulated. You agree? He’s been around quite a long time…Don’t know what his track record is like but he seems kinda knowledgeable about the markets like you are…

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/6/11_Richard_Russell_-_Gold,_Stocks,_Rigged_Markets_%26_The_Wealthy.html

#175 JSS on 06.12.13 at 8:48 pm

#177peter on 06.12.13 at 1:58 am
writes: The party appears over for yield chasers.

Tell that to those who bought D.UN today for 7.03% dividend

#176 m on 06.13.13 at 11:11 pm

Speaking of Scotch: was at a pal’s party last month and had some very nice Blue Label Johnnie Walker…had a cup or two actually…had no idea it was so expensive! Waiting to be invited back.