Not even close

special

Well, I told ya. Mortgage rates would increase, and the hike would have nothing to do with the Bank of Canada. Are you ready?

On Monday it was the Royal. On Tuesday it was TD. And on Thursday… well, read the email that just went out to realtors from the mortgage lady at Scotiabank:

From: TML ([email protected])
Sent: Tuesday, June 11, 2013 3:54 PM
Subject: RATES

Good afternoon,

RATES GOING UP AGAIN THURSDAY!!! … Spreads decreased another 11 bpts.  Please forward any clients names and numbers you feel would want to take advantage of this and I will contact them ASAP on your behalf.

Five year-money has now travelled from a low of 2.89% to 3.29%, and it looks like there’s more to come. The reason is a big surge in bond yields, with both five- and ten-year government bonds bloating to 13-month highs. In barely more than a month the return on five-year debt has jumped about a half point, which means lenders have moved to pass along the costs to their borrowers. (Fixed-rate mortgages are funded in the bond market, while variable-rate loans are tied to the bank of Canada rate.)

Here’s what I mean:

BONDS

Why is this swelling? Because good economic news is now negative investment news. The more jobs that are created or the better the US housing recovery, for example, the greater the odds central bankers will scale back their stimulus programs. All that government money spent buying up government securities cratered yields and spiked prices in the bond market, plus sent gobs of cash seeking returns in equities. So when it looks like it might end, investors scramble in response.

That’s resulted in a bond market sell-off, bringing prices down and taking rates up. It’s made volatility flare, and tanked gold. After all, without stimulus spending, hyper-inflation or a financial crisis, why own metal that pays you nothing and costs money to own?

Needless to say, the mortgage rate creep is about the last thing Canadian real estate needs.

* * *

Speaking of creeps, let’s hand it to the marketing dudes at Great Gulf Homes who came up with the branding for a towering 50-storey mega-condo to be erected (appropriately enough) on the site of a once-famous Toronto burlesque house. Not far from the corner of Yonge Street and Richmond Street, it’s called “Yonge + Rich” and is aimed at that hot new market: young people who will never be rich because they can’t count.

Y&R

The development is not even a hole in the ground yet, but Great Gulf has just sold 315 units, which is about three-quarters of the number released, all aimed at inexperienced “investors.” Prices range from about $280,000 (500 square feet) to $650,000 (900 feet), with an extra $62,500 for a parking spot and $5,000 for a locker. Condo fees will range from $250 to $450 a month. Investors need 20% down, but it can be paid over 18 months.

Interested? Here’s the great part: it won’t be ready for five years, and those 315 investors are already losing money. Even industry insiders are snickering into their cuffs.

“With a down payment of $81,066, a 3% mortgage and 30-year am, and with a projected $3 per square foot rental rate in 2018 (5 years to closing!!), your rent might equal your payments if you’re lucky,” says a senior and experienced condo exec. “In other words, a ZERO return on your equity investment, not even counting closing costs. And there were 315 sales. What am I missing?”

Same thing the Yonge + Rich crowd did in school. Math.

152 comments ↓

#1 T.O. & GTA bidding wars debunked June 11-NOW WITH DOM AND PROPERTY TAX INFO on 06.11.13 at 8:16 pm

http://recharts.blogspot.ca/2013/06/to-sfh-bidding-wars-debunked-june-11.html

http://recharts.blogspot.ca/2013/06/gta-sfh-bidding-wars-debunked-june-11.html

#2 TurnerNation on 06.11.13 at 8:16 pm

Today I caught a presentation of strategists; a pension fund and two banks (and I’m not even on the Buy Side!). Anyway they echoed most of this blog’s economic macro & global memes and themes. Execpt on housing. They claimed ‘soft landing’ and ‘reasonable prices’.

I bet they all own big bloated houses.

700k for an old Toronto semi? Death of 30 year? Mum on those points and rising yields increasing mortgage funding costs.

What it would take for a TSX rebound: $CAD falling to .90, on this they all agree.

#3 Jim Flaherty on 06.11.13 at 8:19 pm

Fuuurst!

Can’t you do anything right? — Garth

#4 Mark Bourrie on 06.11.13 at 8:20 pm

And who would want to live with the insufferable fools who bought into this pretentious mess?

#5 Randy on 06.11.13 at 8:21 pm

When will the theft from savers ever end ???

#6 AK on 06.11.13 at 8:25 pm

“Five year-money has now travelled from a low of 2.89% to 3.29%, and it looks like there’s more to come.”
——————————————————————–
Wow. A whole 3.29%. As I said before, I wish these rates existed during my mortgage years.

For people who will be renewing loans now at 2.6% on houses they stretched to buy, this is consequential. — Garth

#7 Garth is too modest to post it so I will do it for him on 06.11.13 at 8:27 pm

Here is Garth on CBC this morning (min 12.44 of the podcast)

http://podcast.cbc.ca/mp3/podcasts/current_20130611_27458.mp3

#8 An Importation to Prop the Ponzi Scheme on 06.11.13 at 8:30 pm

Toronto’s strumpets looking in Montreal for clients: http://montreal.en.craigslist.ca/reb/3863989395.html

#9 Freedom First on 06.11.13 at 8:30 pm

Thanks Garth. Stunning to read this post today. Hard to believe people are actually buying these right now.

Garth, nice interview on CBC. Calm, cool, collected, and nothing but the truth. Congrats!

#10 For the "furst" suckers on 06.11.13 at 8:30 pm

You almost convinced me to write a script to automatically post my daily updates just seconds after a new article is posted by Garth. I am still hesitating because I do not want to irritate the other readers as you do

#11 AK on 06.11.13 at 8:34 pm

“For people who will be renewing loans now at 2.6% on houses they stretched to buy, this is consequential. — Garth”
——————————————————————–
No doubt about that. More like a rude awakening. :-)

#12 Yongeandpoor on 06.11.13 at 8:41 pm

Wow… all those buyers of Yonge and Poor condos are gonna get slaughtered. Can’t wait to see them get those mortgage approval rates in 5 years at 5% at best lol. The wrecking ball of higher rates will be smashing toronto condo developments for years. And to the moron above in post #6, a 40 bps change in rates is a lot for carrying costs, qualifying reasons and psychologically for the market. You wouldn’t understand though as you’re probably a realtor with no education.

#13 Bill Gable on 06.11.13 at 8:42 pm

The two most common things elements in the universe – Hydrogen and stupidity.
I have friends eyeing 7 year and 8 year car leases, because they can’t carry much more. Mortgaged to the ears, one bump from the food line.

People get ready, is more than the name of a hit song.

#14 Mister Obvious on 06.11.13 at 8:47 pm

“Young and Rich” is a song from ‘The Tubes’ second album of the same name. It’s always been a huge favourite of mine.

Some very kind soul took the time to post a high quality version of it on Youtube. They just don’t make ’em like The Tubes anymore. Pity.

http://www.youtube.com/watch?v=72OdJG3XmCs

#15 Not even close — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate | The Affluent Boomer on 06.11.13 at 8:56 pm

[…] via Not even close — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate. […]

#16 Smoking Man on 06.11.13 at 8:59 pm

Nice chart garth, like to see it again in 30 days.

Mean while, it’s up, I’m calling heads, and it’s heads, wait it’s a two headed coin…

So if yields drop as I predict they will, I have bragging rights, if not and yields rise, there will be hope for my newlyweds to have a shot at a white picket fence closer to me than the outlaws… In St Catherines

Either way I win…

#17 DaleFromCalgary on 06.11.13 at 9:01 pm

A followup to the story in this blog a few days ago about the Affordable Homes project in Calgary. Today it was announced that an 88-unit tower recently completed will not be occupied until September because the developer forgot to build the sewer for it. With 88 families in the building, this isn’t just a matter of a backhoe digging a trench and putting in a 10-cm plastic pipe.

Meanwhile Cowtown realtors keep babbling about how this city is different because we have oil. Petroleum design work is done in Texas, and the equipment is manufactured in Asia or Germany. None of my recent wells were done using Calgary staff. Who’s buying those particleboard fire traps out in the suburbs? Answer: construction tradesmen and immigrant families who pack a dozen people into the house.

Unless Redford grows some balls and tells the petes to upgrade the bitumin in Alberta, there will be no boom.

#18 Gerryantics on 06.11.13 at 9:07 pm

Welcome to the NEW usa economic renaissance:

According to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, investors purchased 69% of “damaged” properties in April 2013, while first-time home buyers accounted for only 16% of “damaged” purchases.

Suzanne Mistretta, an analyst at Fitch Rating Services, was quoted this week as saying, “The [housing price] growth is being propelled by institutional money…

http://www.fxempire.com/opinions/profitconfidential/best-explanation-on-the-fake-housing-market-recovery-ive-seen/

#19 Gerryantics on 06.11.13 at 9:11 pm

A six month chart for a ten year bond…. Snicker…

#20 Nemesis on 06.11.13 at 9:13 pm

…”…erected on the site of a once-famous Toronto burlesque house.” – Hon. GT

You’ve absolutely no idea how appalling I find that… Naturally, I will concede to having enjoyed a BlackTie BachelorParty [or two? Ok, possibly RatherMore…] at the Fillipone’s deservedly famous “PentHouse”.

Accordingly, in the spirit of Tonight’sThematic – I think it’s HighTime we outed CIBC’s OutréCashBackTeaser, don’t you? NoBoas… NoBalloons… And NoMoneyDown, either.

https://www.cibc.com/ca/focus/spring-13/mortgage-offer.html

#21 Chopper on 06.11.13 at 9:13 pm

Great interview there Garth on CBC and nothing but the truth. Now is not the best time to buy Real Estate, it is a good time to sell althought that is slowly changing. Like you said we have passed the peak heading to the bottom of the trough, for those who are still holding waiting to get top dollars for their home they will be dissappointed.

I see a trend with listings here in Brampton, long DOM, and price drops. Sellers are listing too high hoping to cash in not realizing there is a shift in favor of the buyer, so the DOM creeps up then they start dropping prices. This is just the beginning of the slide downhill, especially with the interest rate hikes.

All that said I just bought a Detached that was listed for $389K, with two price drops and was yanked from the MLS and relisted for $349,900. Bought it for $345,000. I am sure if I wait till Feb 2014 I would have gotten a better deal, but the family cannot wait.

#22 T.O. Bubble Boy on 06.11.13 at 9:14 pm

The “Yonge + Rich” condo project must be financed by the “You’re Richer Than You Think” bank.

#23 Breaking News on 06.11.13 at 9:16 pm

US Housing market in full swing recovery:

http://www.canadianbusiness.com/blogs-and-comment/u-s-real-estate-and-rubber-tales-of-a-two-tier-recovery/

#24 GTA Engineer on 06.11.13 at 9:21 pm

Hmm – why the sudden drop in preferreds? Potentially just outflows in general following the market I suppose and we should look forward to opportunities to buy into higher yields?

#25 Dean Mason on 06.11.13 at 9:25 pm

Randy #5

The days of 7%,8%,9%,10% 5 year GIC’s are over.We might see a 5.00% 5 year GIC like in 2007 but it only lasted a few months.This is why I bought longer term government bonds from 4.70% to 6.50% over the last 15 years. I saw the pattern over the last 15 years.

I will say that as bond yields rise a 2.75% % to 3.75% GIC from 1 to 5 years is the best you will do in the next 24 months.They control the money,you have to see the trends and act accordingly.

GIC’s were never intended for longer term income,they were used to put your money for a certain time period and use it if you needed it at that time.

#26 Nemesis on 06.11.13 at 9:27 pm

Oh yes… a tragic oversight…

http://youtu.be/7YdMaZRVUU8

It was a VeryGoodYear.

#27 Gen Y on 06.11.13 at 9:28 pm

“The difference between genius and stupidity is; genius has its limits.”—Albert Einstein

#28 Smoking Man on 06.11.13 at 9:36 pm

Difference between a conspiracy theorist and a critical thinker?

The Topic – Smoking Man

#29 The Prophet Elijah on 06.11.13 at 9:36 pm

According to the Calgary Herald housing starts are at all time highs:

http://www.calgaryherald.com/business/boom+time+Alberta+home+construction+five+year+high+graphic/8503723/story.html#ixzz2Vvw6CmrD

But wondering if this is like my folks area where there are lots of new houses being built but nobody buying, and this is in a hood where there is already so much inventory coming onto the market from pre-owners.
Just doesn’t make sense, this was like California in 2006.

#30 Dimitri on 06.11.13 at 9:41 pm

Great interview on The Current this morning.

#31 House Porn Across the Pond on 06.11.13 at 9:43 pm

Thought the girls and boys here would get a kick out of this story:

http://www.dailymail.co.uk/femail/article-2336624/Would-spend-200-000-doing-house-just-make-neighbours-jealous-DEBBI-MARCO-did-Here-explains-.html

…”Watching the neighbours stroll past my house always makes me smile. Why? Because I can tell how jealous they are.
For I know they will be observing the latest costly improvements to our four-bedroom, three-storey property and furiously calculating how much it would take to do the same to their far more inferior homes. The answer? Not far off £200,000.
My husband Matt, 32, a sports sponsorship manager, and I have spent the past four years pouring all of our savings into making sure ours is the best house on our street — because I wanted ours to be one that people stopped, stared and pointed at, for all the right reasons.”…

#32 Smoking Man on 06.11.13 at 9:43 pm

Two years of planning, two years of pretending and acting to be a dog. A slave bitch, woof woof, so I can get in the gang and make my move.

This week dogs, thanks to NSA whistle blower, I can make my move six months earlier than planned, and take wealth to the next level.. While saving mankind from tyranny, or let me re phrase that… My paying clients.

#33 The Prophet Elijah on 06.11.13 at 9:44 pm

“Why is this swelling? Because good economic news is now negative investment news. The more jobs that are created or the better the US housing recovery, for example, the greater the odds central bankers will scale back their stimulus programs.”
——————————————————–
Let the game of chicken begin. This will be the true acid test, when rates start rising due to the supposed good economic data then no furthering of the recession should follow.
Remember when Bernanke raised rates in the US he decimated the housing market and it didn’t recover even when they came back down.
And I thought we agreed the Canadian jobs report was a total fabrication already Garth, lets see how the “strengthening” economy handles this.

#34 montrealer on 06.11.13 at 9:52 pm

In Montreal the latest condo project gives a Fiat 500 to each buyer. They prefer that to giving a parking space.
I wonder how much you will have paid that little car after 25 years of mortgage!

#35 tim on 06.11.13 at 9:55 pm

Hey Garth- great spot on Anna-Marie this morning, though… well… I thought your voice would be deeper. You know, more Charlton Heston, less economics professor.

Anyway, awesome spot- and the ‘zero down incentive’ in Calgary was a great follow up to your argument.

#36 BG on 06.11.13 at 9:56 pm

Yonge/Rich – not much to do round there after hours or weekends. Not Yorkville or Harbourfront or even upper Bay. Pawn shops on Church block east if cash needed or to recover stolen jewellery or dropped cell.

#37 Derek R on 06.11.13 at 10:01 pm

#32 Smoking Man on 06.11.13 at 9:43 pm wrote:
This week dogs, thanks to NSA whistle blower, I can make my move six months earlier than planned, and take wealth to the next level..

Sounds like you owe him then. Go on. You can afford it and he’s going to need it.

#38 Sasquatch on 06.11.13 at 10:05 pm

Did any one catch Lang and O’leary Report. Even O’leary knows that real estate is cooked and had some industry know it alls doing nervous smiles and laughs.

#39 Smoking Man on 06.11.13 at 10:17 pm

#35 tim on 06.11.13 at 9:55 pm

Hey Garth- great spot on Anna-Marie this morning, though… well… I thought your voice would be deeper. You know, more Charlton Heston, less economics professor.Anyway, awesome spot- and the ‘zero down incentive.

…….

Tim, Garth is an alpha, hell he owns a Harley for chirst sakes….

But I agree he’s got to work on that girly voice of his..

#40 smartalox on 06.11.13 at 10:21 pm

Multi-unit permits are up, more jobs reported in construction. Sure, these units will be built, but can they be SOLD?

#41 Gg on 06.11.13 at 10:26 pm

Why is this swelling? Because good economic news is now negative investment news. The more jobs that are created or the better the US housing recovery, for example, the greater the odds central bankers will scale back their stimulus programs. …….

LOL. So the US buck should have gone higher. Bond market is hedging inflation. More jobs? 175k in latest report dsnt keep up with pop growth.

#42 Holy Crap Where's The Tylenol on 06.11.13 at 10:28 pm

Younge and Rich, Ha, Ha, should be Younge and Stupid. When will these downtown Yuppies ever learn! “There’s a sucker born every minute” is a phrase often credited to P. T. Barnum (1810–1891), an American showman. Toronto is full of suckers. Barnum could have made a killing here!

#43 Gg on 06.11.13 at 10:34 pm

Who is participating in the US housing recovery?

“Housing Market RecoveryThe average American Joe isn’t participating in the U.S. housing market. As a matter of fact, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, investors purchased 69% of “damaged” properties in April 2013, while first-time home buyers accounted for only 16% of “damaged” purchases.

It is very well documented in these pages how home prices in the U.S. economy are being driven upward by institutional investors. Affirming my stance on the U.S. housing market, Suzanne Mistretta, an analyst at Fitch Rating Services, was quoted this week as saying, “The [housing price] growth is being propelled by institutional money… The question is how much the change in prices really reflects the market demand, rather than one-off market shifts that may not be around in a couple of years.” (Source: Popper, N., “Behind the Rise in House Prices, Wall Street Buyers,” New York Times Dealbook, June 3, 2013.)”

No matter how much effort you doomers and America-haters put into your cause, it is lost. — Garth

#44 Gg on 06.11.13 at 10:46 pm

No matter how much effort you doomers and America-haters put into your cause, it is lost. — Garth

So we will use Fitch rating when it is positive news but ignore when negative. Very analytical argument.

PS … You are a Canadian hater the way you talk down about this country.

The rater was S&P. My record for Canada stands. — Garth

#45 willworkforpickles on 06.11.13 at 10:47 pm

Historically which of these had more common sense and were actually right – The buy now or never crowd ? ….or the sell now or suffer types?

#46 Fed up of "Smoking Idiot" on 06.11.13 at 10:48 pm

#32, SM… Do you EVER shut up? You’re so full of yourself it’s laughable. What happened to STAYING ON TOPIC? 90% of the time your “posts” have nothing to do with the subject discussed, and the other 10% you just blabber about how you allready know everything about anything that exists… You “know” what? WE DON’T CARE!!

Garth, PLEASE remove his idiotic comments that have absolutely nothing of substance to add to the discussion.
I’m sure I’m not the only one to feel this way.

If you have something of interest to say about the topic, fine. But if not, keep it to yourself bud…

#47 Uh Oh Canada on 06.11.13 at 10:49 pm

Latest update from my hood: Some houses on MLS are already down 40-60k after being listed for a few months. I’ve noticed several bank foreclosures, more than I’ve ever seen. Also, the local squirrel population has dropped. A coincidence?

#48 Canadian Watchdog on 06.11.13 at 10:50 pm

The development is not even a hole in the ground yet, but Great Gulf has just sold 315 units

That's misleading. They didn't 'just' sell 315 units because these started selling many months ago to Platinum and VIP brokers. Meet Ryan Coyle, one of Toronto's VIP condo pumpin' brokers whose youtube channel shows a video for Yonge and Rich posted on Feb 27, 2013. That's when presales really started.

The scam is they want people to believe the general public is buying units. They're not.

I'll post it again for those who missed it: Inside The Toronto Pre-Construction Condo Sales Process

You’d have more credibility if you did not quote me in sentence fragments. I clearly referenced the release of investor units (not public sales): “The development is not even a hole in the ground yet, but Great Gulf has just sold 315 units, which is about three-quarters of the number released, all aimed at inexperienced investors.” — Garth

#49 Yuus bin Haad on 06.11.13 at 10:52 pm

Has Anna Maria or Amanda ever shared a comment here?

Just curious.

I think Jian has.

#50 not 1st on 06.11.13 at 10:56 pm

Your rate increase fear mongering is just about on par with the realtors motto “buy now or be priced out forever”

Encouraging people to lock in is folly when you know as well as anyone that interest rates will be range bound under 5% likely forever. And the reason being is that the massive sovereign debt that accumulated as a result of QE and other stimulus becomes UNSERVICEABLE at any higher rates. We will NEVER see 1980 again, just like we will never see 2008 again like you say. Give people the real picture. Dig up some sovereign debt numbers once and report them here.

Not even a factor. — Garth

#51 NFN_NLN on 06.11.13 at 10:57 pm

#24 GTA Engineer on 06.11.13 at 9:21 pm

Hmm – why the sudden drop in preferreds? Potentially just outflows in general following the market I suppose and we should look forward to opportunities to buy into higher yields?

How tightly coupled is an ETF to the underlying stocks it is composed of?

As a theoretical example, if people started aggressively selling an ETF while the underlying stocks didn’t move what is the result?

I would expect the ETF to trade lower on the market. But at the same time I would expect it to be worth the same. So then I started wondering about how tightly coupled ETFs are to their assets in general. If they are decoupled, is it possible to game the system by tracking the assets trend and buying when the ETF deviates. But if they are tightly coupled then someone other than the buyer/seller would have to set the price?!

Anyone?!

#52 Sluggo8 on 06.11.13 at 11:01 pm

I got a message from RBC on Friday, locking me in for 120 days whether I wanted it or not. The only time they call is when I’m late on paying them something or when they feel I could be paying them more.

#53 Rational Optimist on 06.11.13 at 11:06 pm

#19 Gerryantics

Check out the one-year chart for the five-year bond, then, if you prefer…

Get ready.

#54 Shawn on 06.11.13 at 11:06 pm

ENGINEERS AND INTEREST RATES

GTA Engineer asks:

Hmm – why the sudden drop in preferreds?

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

It’s because interest rates are to financial assets what gravity is to physical assets. Growth in earnings is the buoyancy force, interest rates are gravity.

#55 Old Man on 06.11.13 at 11:07 pm

The condo building development should be renamed, as the immediate area sucks bigtime, and would not even want to walk out the door. I would be ashamed to even live near it, as this must be a joke. SAVE YOUR MONEY ON THIS DOG!

#56 The Mummy on 06.11.13 at 11:15 pm

Greg M works on Wall Street. QE will have to be increased soon as bond yield is rising, otherwise stock markets will melt down and servicing the debt will be impossible. Bernanke will have to ante up and the dollar will melt:

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

I’m not an American-hater just reporting the facts as they are.

#57 DIEBROKE on 06.11.13 at 11:23 pm

Back in April 2013 I received an email from agent V.I.P YONGE+RICH

FREE ASSIGNMENT

EXTENDED DEPOSIT

RENTAL PERMITTED DURING OCCUPANCY

CAPPED LEVIES

FREE AIR MILES

MAINT. FEE $0.52 PER SF.

LOCKER: $5000

PARKING $60000* (SELECTED SUITES ONLY)

Great Gulf is pricing Yonge+Rich right. Floorplans are well-thought-out and will appeal to both investors and end-users. With pricing starting at $275,990 and a perfect walk-score, we are proud to recommend Yong+Rich(mond) to our clients.

1 bedroom from $275990

1+den from $334990

2 bedroom from $499990

2+den from $575990

#58 FATHER on 06.11.13 at 11:26 pm

44 get a life i’m a proud Canadian but when I invest it is with brains not heart. usa is the best to invest in look at the population and housing I would buy 4 for 1 there compared to housing in Vancouver it’s economics garth has contributed to Canada as an mp what have you done? Garth works hard for us to have a blog 6 days a week what do you do other than complain. I truly appreciate all the effort you put in these blogs garth, not that many people out there thinking of others.

#59 Yitzhak Rabin on 06.11.13 at 11:35 pm

Agree with everything about Canadian real estate and interest rates.

No idea how you can see this so clearly yet be blind to the catastrophe in the making in America. Do you think US consumers can afford higher rates? How about their banks? Local, state and the Federal government? Not to mention the $45 billion in MBS the Fed is buying every month.

Any central bank exit strategy ensures chaos. Are you going to buy the hundreds of billions of treasuries and MBS securities if and when the Fed decides to sell? Who is?

Continually growing the Fed’s balance sheet ensures a dramatically weaker dollar. Guess which path they will choose.

Will you be calling gold bugs basement dwelling doomers when it makes a new high?

#60 Gg on 06.11.13 at 11:42 pm

#58 FATHER on 06.11.13 at 11:26 pm
44 get a life i’m a proud Canadian ….

I am a proud Canadian too. Point out some US facts and one is called a American hater. If this is the retort to actual facts the augument from Garth is weak to begin with.

#61 Sgip on 06.11.13 at 11:58 pm

DELETED

#62 Angry Twenty Something on 06.12.13 at 12:22 am

Enjoyed the read.

#63 MagnumMtl on 06.12.13 at 12:25 am

Speaking of doing the math;

Garth, care to share an opinion on the CSA mandating a dollar weighted return calculation?

#64 Nosty in Limbo on 06.12.13 at 12:25 am


#32 Smoking Man — “This week dogs, thanks to NSA whistle blower, I can make my move six months earlier than planned, . . .” — Neat move!

Gonna be a lot of dirt being cleaned out over the next little while, such as Here, here, here, here, here (this is good), here (also good) and here (resumé). Is TSHTF all at the same time? Sure is interesting times!

#65 dosouth on 06.12.13 at 12:45 am

#46 Fed up of “Smoking Idiot” on 06.11.13 at 10:48 pm
– #32, SM… Do you EVER shut up?……

_________

Well Fed up of…. you certainly have given this chap what he wants….attention. It takes more energy to reply than to ignore. SM needs your energy, good or bad, you know like a crappy sales person.

Oh no, I’ve indirectly invested in SM too….. my bad!

#66 Old Man on 06.12.13 at 12:54 am

#48 Canadian Watchdog – I looked at the video called Yonge and Rich which showed nothing other than a skyline drama. Let them take a video camera to 25 Richmond Street East and walk the ‘immediate area’ in all four directions for some reality, and a dark drama will unfold. Lets give it an appropriate stage name like Welcome To Our Neighbourhood :)

#67 van guy on 06.12.13 at 1:38 am

Garth,

You’ve mentioned in the past that buying rock steady preferred shares for income. I don’t think they’re rock steady anymore. Look at CPD and ZPR. More like getting rocked than being rocked steady!!!

#68 JUNO on 06.12.13 at 2:16 am

Just as a sick joke, you should mention to your co-workers you plan on looking at some open houses this weekend. See what their reactions are.

I know while playing MJ last weekend, the regular people pushing real estate (how you can’t lose) were saying nothing.. zippo mums the word. One who has about 5 houses, all hedge against each other was shaking and in panic with the future of the industry. (I guess he’s not going to hedge his bet any longer. Or will the banks give him another loan on top of his existing one the bet on another house.

#69 nubbers on 06.12.13 at 4:03 am

To be fair to the teachers, I don’t think math taught in schools ever had anything to do with buying a house.

I find that even those with degrees in accountancy stick their fingers in their ears and shout ‘La-la-la-la-la-la’ when presented with a spreadsheet to study the economics buying a property.

On the subject of teaching maths in schools, I found this.

#70 angela on 06.12.13 at 4:19 am

Nomura REIT ipo falls on its debut A whopping 6.2 percent LOL them Japanese are funny offering this garbage at this time
http://www.businessweek.com/news/2013-06-11/nomura-reit-biggest-ipo-this-year-falls-in-debut-tokyo-mover
Garth I like the way this link explains the bond market a little better than you do …sorry .
http://www.tfmetalsreport.com/blog/4774/taper-talk

#71 Yellow Rox Rock on 06.12.13 at 4:48 am

#14, Mister obvious:

thanks for the link. i’d never heard that song before.

#72 The real Kip on 06.12.13 at 5:58 am

Glad to hear Yonge and Rich will go ahead, great news. Should start construction about the time I’m finished here and it’s not far if I can get through those legions of unemployed construction workers you keep talking about.

#73 World Traveller on 06.12.13 at 6:15 am

#46 Fed up of “Smoking Idiot” on 06.11.13 at 10:48 pm

You’ll get used to it. Think of it as an introduction to mental illness.

#74 Tony on 06.12.13 at 6:44 am

…and next month i’ll be saying the same thing as 5 year mortgage rates fall back down to 2.89% in Canada. Like i said before the ruse down in America can’t continue much longer. The only recovery in America will be a continuation of the last recession. The holders of TBT will be sorry puppies when the job figures come out for June. Same can be said for Canada. I’ll repeat the same thing again the Bank Of Canada rate will fall to .25% in the near future in this country.

And you will be wrong again. — Garth

#75 Tony on 06.12.13 at 6:54 am

Re: #43 Gg on 06.11.13 at 10:34 pm

Here’s a stock which reflects the factious U.S. housing recovery. Take a good read on this company and note the huge drop in the share value. Here’s real life evidence the housing recovery at best is a flat line. Note the movement in the last three months in this stock.

Silver Bay Realty Trust Corp. (SBY)

The firm is a wholesale buyer of distressed SFHs. A bad business model from the start, and reflective only of a failed corporate strategy. — Garth

#76 Ralph Cramdown on 06.12.13 at 7:09 am

“[…] catastrophe […] chaos […] dramatically weaker dollar […] Will you be calling gold bugs basement dwelling doomers when it makes a new high?”

If the shoe fits…

#77 TorontoBull on 06.12.13 at 7:28 am

speaking of Scotia, my coworker got a preapproval extension yesterday until September 17 @2.89….

Extended only for live deals. — Garth

#78 Gg on 06.12.13 at 7:54 am

#73 Tony on 06.12.13 at 6:44 am
…and next month i’ll be saying the same thing as 5 year mortgage rates fall back down to 2.89% in Canada. ……………

Focus on the real rate. Rates go much higher in US the Fed will be forced to step in.

#79 Shawn on 06.12.13 at 8:49 am

ETFs and Net Asset Value

NFN_ at 51 asked:

How tightly coupled is an ETF to the underlying stocks it is composed of?

******************************************
Extremely tightly. There is an arbitrage process in place whereby institutional traders can swap ETF units for a basket of the underlying stocks and vice versa. This keeps the ETF price extremely tight to the underlying stocks. Closed end mutual funds have net asset values that deviate from the value of the underlying stocks. ETFs basically do not have that issue.

#80 Shawn on 06.12.13 at 8:53 am

BLAME THE TEACHERS and SCHOOLS?

“Wah, no one taught me about finance in high school.”

Fess up, you were a C to low B student at best right? You were the ones moaning about having to learn useless math right? You told Mom that all the other kids failed that math test too right? When you failed you blamed the teacher for not being a good teacher? Am I right? You are still blaming the world for your lack of success, right? You never bothered to read the business section of the newspaper when you were in high school right? or college?

#81 daystar on 06.12.13 at 8:54 am

#44 Gg on 06.11.13 at 10:46 pm

Those who cannot openly constructively criticize their own including themselves are perhaps, through blind pride, the greatest (and possibly the most dangerous) fools of them all.

#82 Kevin on 06.12.13 at 9:01 am

For people who will be renewing loans now at 2.6% on houses they stretched to buy, this is consequential.

It’s not that bad. Someone who borrowed $400,000 at 2.6% on a 25 year amortization (and don’t try and pull a fast one and suggest such a rate was around when 30-year amorts were roaming the tundra) has a monthly payment of $1,815.

If rates have “spiked” to 3.29% when they renew (owing $339k), their monthly jumps to $1,930. Over 5 years, that represents an annual increase of 1.2%, or less than inflation. Normal wage increases should easily absorb that.

But even if not, and that $115/month is just too much for their fragile budget to bear, all they have to do is re-amortize back to 25 years, and their monthly drops back to $1,660. Now their monthly is $155 less than it was before. Problem solved.

The ability to so easily correct the threat of a growing monthly payment by re-amortizing leads me to believe that nobody will be truly financially imperiled by increasing fixed mortgage rates. The folks facing real hardship will (as usual) be those faced with much bigger financial complications (job loss, additional children, sickness, etc.).

In order for the whole “re-amortize back to 25 years” trick not to work, rates would have to go from 2.6% to more than 4.13% within a 5 year window, which is of course, possible, but that still doesn’t immediately spell “foreclosure.” The “consequence” might be one less pizza per month, or canceling their iPhone’s data plan. Let’s be realistic here.

#83 Montreal fan on 06.12.13 at 9:17 am

Hi Garth,

A question: if the variable rate loans are tied to the Bank of Canada rate, shouldn’t we go for this type of loan if we are to renew in the next few months?

The BoC rate will likely rise in 2014. If you are prepared for that. — Garth

#84 daystar on 06.12.13 at 9:27 am

#73 Tony on 06.12.13 at 6:44 am

Tony, Tony, Tony… I wish I had more time for you.

#85 TorontoGuy on 06.12.13 at 9:37 am

“All that government money spent buying up government securities cratered yields and spiked prices in the bond market, plus sent gobs of cash seeking returns in equities. So when it looks like it might end, investors scramble in response.”

Hey Garth, weren’t you just saying that the run up in the equity markets is due to an economic recovery in the US? And today you are saying that it has nothing to do with fundamentals, and is instead driven through artificial liquidity created by the Fed.

While I respect your opinion about the housing market, your views on financial matters seem to flip-flop based upon the last article that you happened to read.

US equity markets have advanced, as I’ve stated a few times, for a variety of reasons including enhanced and sustained corporate profitability, GDP and employment growth, the real estate revival, plus low bond yields. Pay more attention. — Garth

#86 Daisy Mae on 06.12.13 at 9:46 am

#3 Jim Flaherty: “Fuuurst!”

Can’t you do anything right? — Garth

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

Funny! :-)

And…no.

#87 broadway skytrain on 06.12.13 at 10:04 am

XRE reit at under 16 has about a 5.9 yield at an 18month low price – is this the time to pounce?

#88 Grantmi on 06.12.13 at 10:19 am

#56 The Mummy on 06.11.13 at 11:15 pm

Greg M works on Wall Street. QE will have to be increased soon as bond yield is rising, otherwise stock markets will melt down and servicing the debt will be impossible. Bernanke will have to ante up and the dollar will melt:

Really Mummy! Greg M???? You’re following a dude that has 5,000 youtube hits?

Here’s one for you! Gary Shilling says US Treasury Yields are going LOWER.

http://bloom.bg/16dunph

#89 AK on 06.12.13 at 10:30 am

#73 Tony on 06.12.13 at 6:44 am
“…and next month i’ll be saying the same thing as 5 year mortgage rates fall back down to 2.89% in Canada. Like i said before the ruse down in America can’t continue much longer. The only recovery in America will be a continuation of the last recession. The holders of TBT will be sorry puppies when the job figures come out for June. Same can be said for Canada. I’ll repeat the same thing again the Bank Of Canada rate will fall to .25% in the near future in this country.”
——————————————————————–
Hey Tony,

Even Roubini is turning bullish. How about you?

Roubini Sees Two Years of Stock Gains

#90 Joe Bogusheimer on 06.12.13 at 10:39 am

Re: #21 Chopper on 06.11.13 at 9:13 pm

I am in a similar position. While I continue to believe that we are way overdue for a correction in the housing market, I find that I need a new place to live, and my wants (in particular I want a garage) basically having me looking at some sort of house – a “townhouse” to be exact. After looking around for rentals, I find that, at least at current interest rates, owning will actually cost me less per month than renting. So, I’ve made an offer on a place, knowing full well that I may get hosed with market value drops in the future. I’m buying at the cheap end of the scale, however (under 200K), figuring this will at least limit my possible downside.

I’m not looking for validation – I know a lot of the blog dogs here will probably think I’m nuts to be buying now. I need a place to live, though, and I’m going into this with my eyes wide open.

#91 Jon B on 06.12.13 at 10:39 am

Canada Housing prices increase 1.1% in May

And the stats continue to show the durability of the Canadian Real Estate market.

As for the threat of increasing rates, people understand that as a general rule households see an INCREASE in their monthly revenue over time. Generally at renewal time the average mortage holder has MORE household income thatn he did when he orginally took the mortgage. I’ve been in mortgages for 10 years and can count on one hand the amount of times a customer has had debt servicing issues upon renewal. In fact the opposite is the case, more customers coming off of a 5 year fixed are looking to DECREASE amm

Canadians are very conservative , 70% are locked into fixed rate Mortgages. A move of 30 or 40 bps isnt going to rock anybody’s boat

I’m sure that’s true for past history. But we ‘ve never had a four-year period of mortgages sub-3%. When they normalize, you will have new stories to tell. — Garth

#92 curious on 06.12.13 at 10:44 am

Hi Garth, what would you do if you hold a bond ETF in the rising rate environment?

#93 -=jwk=- on 06.12.13 at 11:02 am

@89 Hey Joe, what country are you in where you can get a townhouse for 200k? A 1 bedroom condo in Toronto is 280+…

#94 Grantmi on 06.12.13 at 11:07 am

#89 Joe Bogusheimer on 06.12.13 at 10:39 am

I’m buying at the cheap end of the scale, however (under 200K), figuring this will at least limit my possible downside.

Where the hell are you buying a condo for under $200,000??

Moose Jaw?

#95 -=jwk=- on 06.12.13 at 11:08 am

I also don’t think rates will go up. Ever. They didn’t in Japan, and haven’t in the US. There is too much debt for that to happen. I expect below 5% for my lifetime…

However rates do not have to go up to trigger a housing crisis as witnessed in the US…

#96 Old Man on 06.12.13 at 11:23 am

#90 Jon B: – There is an intrinsic problem which was pointed out to me by a little old lady last night. The capital value of Real Estate increased in the past decade by a doubling value, more or less. This was done with cheap money to rush like a herd to max out value pushing an artificial value higher and higher.

Did family income double? Will it double in the years to come? What if interest rates begin to rise on renewals? In conclusion she said fasten your seatbelt as this is a potluck dinner or a perfect storm coming our way, and the outcome might be nasty.

#97 kww on 06.12.13 at 11:28 am

#79 (Shawn):

DELETED

#98 Dienekes on 06.12.13 at 11:35 am

#90 Jon B
I have a different story to tell. My employees, electricians, over the last ten years have remortgaged there houses to keep living, and keep up with depts. everything hit the wall a little while ago when they were no longer permitted to re-finance at 5% down. Some of these guys built there own homes with twenty percent down and are worse off today then a few years ago.
I remember one of them taking a 6000 dollar hit to re-finance his mortgage.
Those are the stories out there now.
I just shake my head. It sure keeps them working.

#99 Smoking Man on 06.12.13 at 11:46 am

I’m sure that’s true for past history. But we ‘ve never had a four-year period of mortgages sub-3%. When they normalize, you will have new stories to tell. — Garth

……….

True but we have never had such a high concentration of wealth in so few hands…..

Will thats not right either, France in 1787-1799

#100 coastal on 06.12.13 at 11:54 am

US dollar tanking 3 cents in less than 3 weeks. If this is the signs the US economy is recovering then inflation will rear its head and gold will go up because gold is historically bought as a hedge against inflation correct ?

Gold is kaput. — Garth

#101 Steven on 06.12.13 at 11:55 am

Garth what we have seen with low interest rates is persistant and massive government borrowing and a massive real estate bubble that jacked up house prices so high that even god would be hard pressed to buy a place to live with out performing a miracle. In my view the obvious solution is medieval interest rates that encourage saving and discourage governments from borrowing and also make real estate price inflation a no win proposition for speculators and home buyers.
Giving politicians and real estate cultists a break on interest rates did not prompt them to get their financial houses in order and pay down debt but instead encouraged their bad habits. Clearly financial punishment is justified.

#102 Gerryantics on 06.12.13 at 12:09 pm

The fed buys 70 % of US treasuries. Us bond market is kaput. Many Corps buy their own stocks with cheapest loans in history and buy their own stock for better yield.

Both consumers and corporations will be cutting spending the moment interest rates rise.

And when interest rates really go up like what Garth has been saying for years, the bond market will collapse, real estate will collapse, and the stock market will tank.

Don’t be a drama queen. — Garth

#103 Holy Crap Wheres The Tylenol on 06.12.13 at 12:13 pm

Am I ready for the interest rate increase, you bet! I do not have a mortgage and haven’t had one for over 30 years. I do not feel even the smallest amount of compassion for those of you whom in my eyes received mortgages that should not have ever been given one in the first place. Those whom where on the edge should have been denied credit until they could have afforded it with the proper amount of capitol held in secure investments for such unforeseen calamities. Acts of God, job losses, shifting incomes, and uncontrolled rate increases. I saw this back in the early eighties with the jump up to 20% from the 10%-14% interest rates. All of my neighbors that lived the fast life suddenly had for sale signs on the block. Some even walked away from their homes. Can you imagine 20% for a mortgage? These people are going to feel the wrath of God for this one when they can not even afford the jumps from these small mortgages to say 5%,6% or say7%. I see the for sale signs coming next spring like a field of dandelions. The problem is there may not be anyone whom is interested in purchasing your now worthless property. Better trade in your BMW and Porsche now as you will be driving a Kia or Yaris in the near future. At least they are cheap to purchase and good on gas! Oh I almost forgot you wouldn’t be able to afford gas, as the bank will own you!

Come on rising interest rates, How high is the water Mama, five feet and rising.

http://www.youtube.com/watch?v=jI7M2ELPtro

#104 Joe Bogusheimer on 06.12.13 at 12:15 pm

Re: #92 -=jwk=- on 06.12.13 at 11:02 am and #93 Grantmi on 06.12.13 at 11:07 am:

Hamilton “mountain”, actually. Not real fancy, but serviceable. Reasonably close to my work, and until recently I lived in the same area(ish). Still overpriced for what it is, but I can live with it.

#105 Piccaso on 06.12.13 at 12:15 pm

To funny…

There’s a lot of posters on the interest rate debt wagon… below 5% for my life time, never go up, to much debt in the world, look at japan, etc etc

To me it just shows how there’s so many that have gorged themselves silly at the debt buffet. If rates did go up some they’d be so royally Fu$%’d because there life hangs on low interest.

LOL

#106 Old Man on 06.12.13 at 12:16 pm

Now for all you fools who bought a home in the past couple of years, or about buy soon into a pile of debt with cheap money. Some of you are freaking out about a correction in the REIT market, so is the glass half full or empty? I will give you a lesson in the mortgage market, as you are looking at trees and not the forest at large.

Now the hidden cost of money has gone up with a change in mortgage rules by almost 1% setting you up for a renewal down the road. This is just the beginning of woes, as you are not paying attention to the impact of a mortgage payment into the future against the debt capital outstanding for that home in paradise that you could not afford.

So do some simple math as a hypothetical going forward, and say the rate outstanding is 3% on your dream home against the debt. Renewal time comes up and the cost of money as a percentage has increased bigtime, and does this not increase the mortgage payment bigtime? The percentage increase is the kill shot, so can you afford this hit, as it will be a shocker?

#107 Carney tax-funded party!!! on 06.12.13 at 12:17 pm

sickening:

http://www.thestar.com/news/canada/2013/06/12/farewell_bashes_for_outgoing_bank_governor_mark_carney_cost_about_30000.html

#108 Joe Bogusheimer on 06.12.13 at 12:19 pm

Re: #101 Joe Bogusheimer on 06.12.13 at 12:15 pm
And, actually, just under $180K. To rent the same would cost me $1,300/mo + utilities.

#109 FATHER on 06.12.13 at 12:33 pm

gg read my post properly then open your mouth

#110 GC on 06.12.13 at 12:39 pm

Here is absolute proof that a price correction is inevitable: Bachelor in a newly built and occupied (you wouldnt know by looking at it at night) condo in Mississauga at Square One mall selling for 244,000. There is a less expensive bachelor for 220, 000.

Now, try and tell me its cheaper to own than rent.

http://www.realtor.ca/propertyDetails.aspx?propertyId=13214091&PidKey=-171703454

#111 lee on 06.12.13 at 12:43 pm

I am not sure why people are so down on giving Carney a going away party? Anything less would seem classless to the world.

#112 economictsunami on 06.12.13 at 12:44 pm

I am not certain how long US interest rates will be allowed to rise, especially as I feel the narrative that the US economy is in a sustainable recovery is incorrect.

Match this with an economic slow down in both China/Europe and rate increases confound; other then shifting capital and repositioning global portfolios.

For years Japan was notorious for misinterpreting artificially skewed data and suffered from the on again/ off again policies of both government stimulus and BOJ induced QE.

Granted, the US financial structure has stabilized (for now) but the best that can be said about distorted data (not polls/ surveys of sentiment of alleged confidence) is that the jury is still out on the true strength of the US economy.

With the continued mis-allocation from huge amounts of global liquidity sloshing around, true risk has been
broadly masked and miscalculated.

With CBs concern more focused on disinflation and outright deflation, I really can’t see the Fed taking their foot off the accelerator for too long…

In a Shift, Interest Rates Are Rising

http://dealbook.nytimes.com/2013/06/11/in-a-shift-interest-rates-are-rising/?ref=business

#113 R. Olausen on 06.12.13 at 12:55 pm

Did !02 just get back from some Patricion Toga party or what? Augusta out Nero in.

#114 Canadian Watchdog on 06.12.13 at 12:59 pm

Bloomberg: Bankers Joining Plumbers on Canada Housing Agency Board

For those who are just tuning in, here's a little more about Mr. Kelly's past.

Bank under fire from angry investor lawsuits

Back in 2009, Bank of New York Mellon chief Bob Kelly boasted that his bank had little exposure to the mortgage-market mess that toppled Lehman Brothers and nearly pushed other big financial firms off a cliff.

Now it appears nothing could be further from the truth.

—-

Not even one mention of this in Canadian media yet.

#115 Old Man on 06.12.13 at 1:01 pm

#102 Holy Crap – just bought a BMW roadster, and will not be trading it in anytime soon, but is like driving a jet plane with all these buttons to push, as needed a summer car. Now last night made a pot of tea for this little old woman who was educating me about Real Estate, and at midnight she wanted to make a new pot, and pulled out a flask of Scotch Malt to spike the tea. I said will not let you drive home if we finish this off, and she laughed saying that was my plan, as will be staying overnight kind sir, so lets party the night away.

#116 Smoking Man on 06.12.13 at 1:11 pm

Teranet reports strong gain in composite house price index, full 1 precent gain in a month…..
And that data can’t be fudged…

See National Post

Bad news bubble heads…

#117 Jester on 06.12.13 at 1:24 pm

Not Yong and Rich. Young and Stupid is more fitting .

#118 CalgaryRocks on 06.12.13 at 1:36 pm

#82 Montreal fan on 06.12.13 at 9:17 am

Hey Montreal fan, we’ve been spending a lot of time in Montreal since we sold our house and left Calgary in April.

We sublet an awesome apartment from a nice girl for 800$/month until the end of August. I was surprised how easy and relatively cheap it was to find something decent and for a great price. (And also without a lease). I love kijiji.

After that we’re heading south cuz I need a break from Canadian winters.

I loved owning a home but I really love being a nomad. People get really confused when I tell them that we don’t have a set ‘address’ and they should mail their stuff to my UPS mailbox in Calgary.

#119 Old Man on 06.12.13 at 1:36 pm

I will never forget the day that subscribed to the best advisory service in Canada. Well the info was great on the one hand, but not always the case when all is said and done. I sold out Bombardier stock at about $21.00 a share, and they got into some trouble, and the family bought large positions in this stock. This advisor said at $8.50 a share buy before it is too late, and had no choice but to cancel my costly subscription, and see the shares are now trading at about $4.70 a share, so believe nobody in life.

#120 Doug in the South on 06.12.13 at 2:35 pm

I still see a lot of Boxing Week sales in REITs, and given that it’s warm outside during this time I still believe I’m somewhere in the Deep South. Where are all those oak trees with Spanish Moss hanging from the branches? One REIT that’s on sale now is CAP REIT, symbol CAR.UN. This REIT pays out about one third of earnings per share as dividends and reinvests the rest. I saw an example, where CAP REIT recently bought an apartment building in London near the corner of Commissioners Road and Wellington Street. This proud new owner was putting a lot of money into refurbishing it, as it was left run down by the previous owner. In the long run, that can be a good investment as you get happier tenants that won’t squawk about future rent increases.

So now, what will happen to this glut of condos with falling prices? If there are any at all that are well built (they should be, for the outrageous prices they have sold for) with windows that don’t fall out on to the street below, maybe CAP REIT will scoop them up at cheap prices some day. That will further add to shareholder value. Needless to say, the case for being bullish about REITs is much stronger than the dim hope of being bullish about condos, including the not yet built Great Gulf ones.

#121 Shawn on 06.12.13 at 2:55 pm

OLD BUT MOT MATURE?

Old man said:

This advisor said at $8.50 a share buy before it is too late, and had no choice but to cancel my costly subscription, and see the shares are now trading at about $4.70 a share, so believe nobody in life.

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

Seems immature to expect your advisor to be 100% corrrect.

#122 Ralph Cramdown on 06.12.13 at 3:01 pm

#107 Joe Bogusheimer

I won’t fault you for buying what you can afford, after doing the math and with your eyes open. It’s the young fools who go all in because it always goes up, and their enablers (their parents, the banks and the agents) who I fault.

If you bought a new build or a recent build, look it over really carefully. My cousin bought a new build in that vicinity a year or two ago. The lower level rear has a wall running lengthwise from the garage to the rear of the house, separating the utility room from the den. The designer specified a deep piece of lumber as a lintel over the door, meaning it’s obviously a bearing wall. The HVAC guy took a Sawzall to it to run a 6″ duct through. Given the cookie-cutter nature of the subdivision, probably half the units suffered at the hands of the same bozo. Point being that stuff built at or near the end of a boom is often crap.

Best of luck.

#123 Editrix on 06.12.13 at 3:07 pm

Maybe the 315 buyers number is BS, just to make the project look good. Either that, or maybe the buyers are money laundering.

#124 what a bubble? on 06.12.13 at 3:10 pm

#104 Picasso… because there life hangs on low interest…..

It’s been said so many times here that it’s a new economic reality out there. We can’t expect anything from the past to be repeated again. Smart people call it systematic change. I don’t know is it true or not, since I am apparently not one of them, but what I know (I’ve been working with prognostic systems for a while), that just basic computerized analysis of the existing economic model would show that taking rates to the historic norm would bring us to ruin.

A different economic model would give us different results, but do we have any different one? Or do we have a government which at least acknowledges the flaws of the existing economic model?

While we stay within present economic model rates can fluctuate within a very low range.

#125 Holy Crap Wheres The Tylenol on 06.12.13 at 3:12 pm

#114 Old Man on 06.12.13 at 1:01 pm

#102 Holy Crap – just bought a BMW roadster, and will not be trading it in anytime soon, but is like driving a jet plane with all these buttons to push, as needed a summer car. Now last night made a pot of tea for this little old woman who was educating me about Real Estate, and at midnight she wanted to make a new pot, and pulled out a flask of Scotch Malt to spike the tea. I said will not let you drive home if we finish this off, and she laughed saying that was my plan, as will be staying overnight kind sir, so lets party the night away.

Old Man you are young at heart so please enjoy the party in your BMW as you arguably deserve to have such fine wheels. My contention is with the younger ones whom are in debt up to their proverbial derrieres. It is these Lexus loving BMW bitching instant gratification generation yuppie living, I don’t want to get my hands dirty home owners. They are going to suffer and I don’t believe they will be able to stomach the turbulence as this housing plane goes down.
I am also an Old Man but my allegiance lies with a 1967 Corvette Stingray Convertible. That is my summer Old Man toy!

#126 Old Man on 06.12.13 at 3:20 pm

#120 Shawn – you are not reading well, so perhaps you need to buy a new pair of glasses. I have no idea what the hell you are talking about lol, as bailed out before the crash.

#127 Canadian Watchdog on 06.12.13 at 3:24 pm

Royal Pacific Realty Group wins Brokerage of the Year Award!

Congratulations to Royal Pacific's VP & GM, Andrew Peck, who also happens to be a director at CREA.

No conflict of interest here either!

In other news, Landcor has just released its Q1 BC residential sales summary, and the numbers are ugly as hell. What's unique about Landcor data is that it totals all title transfers including presales in Greater Vancouver. With this data set, we can obtain the number of presales (and any other sale considered residential) by subtracting REBGV sales to quantify a spread, indicating an unofficial new home sales figure. By this method of calculation, GV's pre-market just collapsed to a new record low in Q1.

Perhaps this is the reason why MAC Marketing Solutions has now resorted to a crossword puzzle contest to lure any presale yuppie in, because now that presales are at an all time low, so is developer's cash flow, putting Van's presale market on solvency of the fittest status.

Expect headlines with developers folding and investor lawsuits in the not to distant future.

#128 Dean Mason on 06.12.13 at 3:41 pm

There is an article in the Toronto Star real estate section under business that shows development charges and taxes from governments add up to 23% or $118,400 on average in the GTA for a single detached home and $64,000 or 20% for high rise condos in the GTA.

This has pushed housing prices to a record in the GTA.Go to http://www.thestar.com for full details.It is an extensive and detailed report on many cities in the GTA.

#129 smartalox on 06.12.13 at 3:42 pm

Fort hose who are ‘Yonge and Rich’ and have financed their new Kias on the 84-month (!) plan, now they can RENT their tires!

http://www.autoblog.com/2013/06/11/rent-a-tire-business-inflating/

[i]”Customers can pay as little as $14 per month for new rubber, but may wind up paying as much as four times the retail price by the time all’s said and done.”[/i]

#130 Unpoovvio on 06.12.13 at 3:58 pm

I’m cold-blooded when it comes to markets getting hit or entering a downtrend, but when you have people who still have a mindless buy-the-dip mentality and compare stocks entering a downtrend as boxing week sales (for which it would take all year to break even on the subsequent slide down) you know it’s still a bit too early to buy in.

#131 Devore on 06.12.13 at 4:07 pm

#115 Smoking Man

Teranet reports strong gain in composite house price index, full 1 precent gain in a month…..
And that data can’t be fudged…

Real estate market picks up in the spring, you don’t say. In other news, sales (and prices in many places) still suck.

#132 Mixed Bag on 06.12.13 at 4:19 pm

103.5 FM in Toronto has started airing an ad regularly during the rush hour home drive, on how to invest in real estate, and that experts are willing to share with you how to make money. Apply now for your free ticket to the seminar, and you’ll get a second ticket for your friend or relative.

First thing anyone who’s actually interested in attending needs to know – no one who’s making money, wants to share that knowledge with you. They want it all for themselves.

Clearly marketing to the young crowd. Especially when noting the youthful voice of the announcer.

#133 :):( Ying Yang on 06.12.13 at 4:20 pm

#46 Fed up of “Smoking Idiot” on 06.11.13 at 10:48 pm

#32, SM… Do you EVER shut up? You’re so full of yourself it’s laughable. What happened to STAYING ON TOPIC? 90% of the time your “posts” have nothing to do with the subject discussed, and the other 10% you just blabber about how you already know everything about anything that exists… You “know” what? WE DON’T CARE!!

Fed up of Smoking Idiot please learn the ways of SM the grasshopper must go Feng Shui the Camel Toe when Batman crashes after Forexing at the Casino Rama whilst he subdues us helpless obedient slave dogs with his knowledge of the Universal consolidated conscious collective. SM thinks on a different plain of existence instead of hearing a clock our way he hears it this way,,, Tock, tick, tock, tick, tock, tick…
He is right on his guesses 50% of the time.
Go easy on him man.
“dyslexics are teople poo”

#134 Suede on 06.12.13 at 4:25 pm

People need to relax, CPD has fallen just under 3% and XPF about 4% from its recent HIGH. Hardly catastrophic.

But who buys at the highs? People that complain and people with no skin in the game.

#135 Joe Bogusheimer on 06.12.13 at 4:44 pm

#121 Ralph Cramdown

Thanks. It’s a risk, I know, but one I am fairly comfortable with. The place I’m buying was built around 1990, which I think may have been around the end of an earlier boom. The house I lived in previously was built around the same time, and while I thought some of its materials and construction was a little iffy, compared to places built in earlier decades, it was really fairly problem-free compared to some of the horror stories I’ve seen in new builds. And it’s pretty much lacking in DIY home “improvements” other than the finished basement which appears to have been done by somebody who had some clue as to what they were doing.

#136 Jon B on 06.12.13 at 4:55 pm

Let’s do some quick math for fun as opposed to anecdotal evidence that increasing rates are going to crush the housing market.

Let’s just take a straight 300K MTG purchased with a 5 year fixed rate of 2.99, pmt of 1418. It matures in 5 years with a principal balance of 256K. Let’s go for a 150bps increase in rates so that the renewing rate is 4.5. the new pmt based on 20 year amm/256K/4.55 is $1613 a whopping ….wait for it $197 increase.

On a 400k MTG its the same deal $1890 pmt to start with a 2.99 MTG, renewed at 4.5, existing balance after 5 yrs is 341K..new pmt is $2,149 a difference of basically $260

Again the amount of households that are to have LESS income in 5 years is debatable but I’d wager it won’t be a high percentage.

…but let’ assume worst case scenerio and state that Canadians are making less in 5 years time. (How we would have an environment of wages decreasing but interest rates increase is a matter of extreme economic gymnastics..but whatever)

At renewal time you can still re-ammortize to 25 years providing your house has 30 years of life expectancy

So use the example above…you have 256K left on your MTG..its renewal time…you lost your job and your new one doesn’t pay as well…you can reset to 25 years at 4.5% and your payment is …wait for it $1416…$2 less that the pmt in your first 5 year term.

And I’m not even touching blend options, short term options, interest only products, 10 year MTG options…

#137 EIT on 06.12.13 at 5:02 pm

Nobody knows you Garth! I’ve been looking for months for a fellow blog dog, with no luck. You know, just bringing it up in conversation. All I can do is recommend greaterfool to them. Where are you blog dogs? WHERE ARE YOU?

#138 Rich renter on 06.12.13 at 5:05 pm

# 17 Dale In calgary.
Your making a slight exageration on the sewer pipe problem for that affordabale housing project in DT Calgary.
The true story is that the sewer pipe which was installed cannnot handle the waste from so many units. This is a result of poor planning or lack of communication between builder and consultants but certainly nothing to do with the housing market here in Calgary.
Like it or not Dale but Calgary is doing well and people are moving here.

#139 Mike in Surrey on 06.12.13 at 5:22 pm

#6 and #11 AK … this is consequential. – Garth Let’s do some math; there’s no consequence as banks let the borrower take payment holidays or skip a payment. After 5 more years, even if rate goes to 4%, the monthly payment would be same as long as remaining principal is re-mortgage to 25 years amortization again.

#140 espressobob on 06.12.13 at 6:13 pm

#133 Suede

Good point. Bargains galore. After taking profits over the past few months this pullback seems almost to good. Rebalancing has its merits.

#141 Alex K on 06.12.13 at 6:32 pm

#135 Jon B aka real estate salesperson with no one to sell to<
life doesn't stand still for most- you forgot to add to your equation kids and new Kias and maybe some mothers staying at home (1 less income)
Hey Jon B where did you learn all this stuff, never knew they thought all this in a 2 week course

#142 Smoking Man on 06.12.13 at 7:04 pm

#132 :):( Ying Yang on 06.12.13 at 4:20 pm#46
Fed up of “Smoking Idiot” on 06.11.13 at 10:48 pm

Ying Yang it’s more like right 90 precent of the time. Slipping a bit lately…. Used to be 98

As far as fed up, like I give crap, don’t read my shtick…

I have like 15 fans on here, I write for them..

#143 Piccaso on 06.12.13 at 7:40 pm

#135 Jon B on 06.12.13 at 4:55 pm

You forgot the newbie factor qualifying so you can sell your over priced beginner box to them and then you can move up to a bigger more expensive box.

#144 dosouth on 06.12.13 at 7:45 pm

#141 Smoking Man on 06.12.13 at 7:04 pm –
“….As far as fed up, like I give crap, don’t read my shtick…

I have like 15 fans on here, I write for them..”
_________________________________________
Fan (Verb) –

Cool (esp. a person or a part of the body) by waving something to create a current of cool air or hot air….

Guess we get to choose.

#145 neo on 06.12.13 at 8:38 pm

Just curious Garth. Is the Nikkei down almost 3,000 points in less than a month still a flesh wound?

Weren’t five year rates at 3.29% in the Fall of 2011 after spiking in early 2011? The 10 year isn’t getting over 2.4% without the equity markets tanking. That is the mendoza line they have been dancing around for some time now. Watch and learn.

Yes, the Nikkei has plunged from a 50% gain in 2013 to just 29%. The horror. – Garth

#146 Daisy Mae on 06.12.13 at 8:54 pm

#81 Kevin: “If rates have “spiked” to 3.29% when they renew (owing $339k), their monthly jumps to $1,930. Over 5 years, that represents an annual increase of 1.2%, or less than inflation. Normal wage increases should easily absorb that.

But even if not, and that $115/month is just too much for their fragile budget to bear, all they have to do is re-amortize back to 25 years, and their monthly drops back to $1,660. Now their monthly is $155 less than it was before. Problem solved.”

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

Yes, I suppose they could re-amortize forever, or at least until the cows come home. Mighty expensive house. As long as they can make their ‘monthly’….

Can’t depend on wage increases. It’s not happening. Or have you noticed?

#147 Renter's Revenge! on 06.12.13 at 8:55 pm

EIT,

If you can’t find any fellow dawgs, make new ones! Just don’t expect any gratitude. I told a bunch of people about this blog a while ago, and every once in a while they tell me about this cool real estate blog they read called Greater Fool… :|

#148 neo on 06.12.13 at 11:19 pm

Yes, the Nikkei has plunged from a 50% gain in 2013 to just 29%. The horror. – Garth

That assumes the plunge is over my friend. Even from the time I posted earlier the loss today went from 2.75% to 6.00% within a couple hours. The recent velocity down has been much greater than the velocity up so far this year. Let’s revisit this in another couple months and you’ll see my point (-;

#149 neo on 06.12.13 at 11:35 pm

Oh and by the way. Nikkei has dropped 20% from its May 22nd high which equals bear territory already. So it hasn’t even been a month yet.

#150 Old Man on 06.13.13 at 12:09 am

For those that are doing mortgage calculations over a 5 year period you must consider two variables. One is the increase in taxation, and the other is the principal outstanding in relation to the decrease in asset value. There will be a meltdown, so is the principal really being paid down or is this an illusion? There will be lots of interest going out the barn door, as will become an expensive asset over time.

#151 Doug in the South on 06.13.13 at 12:17 pm

@Unpoovvio, post #130:
You could be right, we may not have touched bottom yet in REITs, preferred shares, or other assets that have been on sale recently. The problem is no one can say for sure how long this dip will last or how far down the markets will go. Even the “experts” get it wrong sometimes, their crystal ball isn’t much better than mine which, by the way, was stolen from a bowling alley. However, if you buy some of these assets now at these cheap prices now, even if they go down further you will like a fool in the short run but a genius in the long run. Eventually a rally will appear, suddenly out of nowhere, and asset values will climb again. Oh sure, these assets are paying “only 5 to 6 percent” yield but what’s the alternative? Ontario Savings Bonds pay a paltry 1.15% the first year, and only by year 4 or 5 does it go up to 2%, and you are taxed at full rate on interest. Who, in their right mind, would buy an “investment” like that when you can do far better with REITs or preferreds, and get tax breaks on income earned from them? Sooner or later the panic sellers will come to that realization and prices will start climbing up again, just like they did after past corrections.

Last but not least I wonder, these people who are so eager to sell now at reduced prices, why didn’t they sell a month ago when prices were higher? Correct me if I’m wrong, but aren’t you supposed to buy low and sell high?

#152 Too human — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate on 06.13.13 at 8:01 pm

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