It’s hard to be soft

sled

In a few days realtors will give that cute little F fella the worst possible news. House sales across the country shot up last month – a year/year bloat of about ten per cent. In Ottawa, they’ll despair over that. Not that it’s a big surprise. This is why CMHC just squeezed off fresh mortgage money, guaranteeing higher rates to come. It wasn’t supposed to happen, you know.

But the house-humpers will hoist the sales numbers like a trophy. Garth-baiting realtors will teem over this site claiming final victory. The CREA monthly report will ‘prove’ I couldn’t find my butt with both hands, GPS and a valid IP address, they’ll say. So it’s obviously time to buy a house, before you’re priced out forever.

Well, be careful kids. You have no idea what may be coming.

The sales pop in markets like Toronto, Calgary and Vancouver last month seems like a direct result of June’s mortgage rate surge, when the cost of a five-year home loan jumped more than a half point. So, virgins who were pre-approved in the spring – and don’t understand higher rates eventually bring lower prices – thought they’d better leap in before their loan commitments expired. So they did.

And so much for the soft landing.

As you know, the feds have been doing everything but widespread gelding to try and bring real estate down gently. Amortizations shrunk. Mortgage insurance curtailed. Funding reduced. Cash-backs discouraged. Ratios hiked. And it was working.

In fact some of the stats I’ve been feeding you are truly scary in an economy 20% dependant on people building and selling each other inflated houses. New condo sales have collapsed in Toronto. Housing starts have dipped seriously across the country. New construction in Toronto has ground to a halt as projects are delayed or cancelled. Developers have cut land purchases by up to half from levels of a year ago.

Meanwhile the pace of job creation has slumped so far this year by 60%, compared to 2012. Household debt’s grown. And as a new bank survey pointed out last week, astonishing numbers of us have diddly. Over 70% have less than $10,000 and 84% couldn’t live six months without a paycheque. Face it: the economy’s comatose. And I didn’t even mention potash. The last thing we need is for housing to blow up.

But that – a hard landing – is exactly what the CREA numbers will suggest is coming. After all, the opposite – a new bull market for real estate – is impossible. Wage gains are now equal to inflation, which means saving money is even harder for most families. The CMHC changes announced last week are expected to add another half point to the cost of financing. Unemployment just increased. So what, exactly, could higher house prices and sales be based on?

Just two things. Horniness. And delusion.

That’s why strong housing sales, given this economic and financial environment, are scaring the pants off F & the Peckerettes. It’s what Capital Economics head guy David Madani, calls “a Wily E. Coyote moment” – those wee seconds when you know the cliff just ran out from under you.

1New house sales GTA

January-June figures – BILD

And then there’s the media. Over the weekend Canadian Press shoved out a story which gained wide carriage quoting Madani saying this: “It’s astonishing to me that people are not picking up on this. If you see volumes crash and prices still rising, you shouldn’t be thinking everything is fine, you should see that as a warning sign. Here in Toronto, if you look at new home sales, we’re at near-record lows. If you think about the implication this has for home building, new construction and all the jobs that go along with that, this is quite startling.”

Adds BMO economist Doug Porter – about a straight a Bay Street arrow as you can imagine: “Arguably this is the second last thing anyone wanted to see in the housing sector, a re-acceleration. That last thing people wanted to see was a hard landing.”

Being in the newspapers does not make something right. But as this undercurrent of housing danger – which has been brutally beaten to death on this pathetic blog – spreads, it helps turn horniness into horror. When the kids stop thinking a condo is riskless and cool and the Gen Xers realize paying $800,000 in a bidding war for semis insulated with termite droppings is probably not a stellar idea, down she goes.

That it drops is a given. Whether soft or hard – that’s the big deal.

And guess what?

171 comments ↓

#1 Ballingsford on 08.11.13 at 4:39 pm

Who whould have thought it could happen. Taking advice from someone who could turn a 10 billion surplus into a steep deficit. I’d post the deficit number but its probably not accurate anyway.

Why bother.

#2 Andrew on 08.11.13 at 4:40 pm

Chicken butt?

#3 Bob on 08.11.13 at 4:41 pm

Way 1rst

Stop it. Shoo. — Garth

#4 Texas boy on 08.11.13 at 4:44 pm

It won’t end well…

#5 RonH on 08.11.13 at 4:46 pm

Someone said “when time is up, price will move” or something like that. Times up and Garth will now be proved right. Can you say downward economic spiral?

#6 MarcFromOttawa on 08.11.13 at 4:49 pm

First

#7 ILoveCharts on 08.11.13 at 4:50 pm

The question is….how big is hard, how small is soft?

Let’s assume I wait a year and rates are 1% higher. Will the cost of my mortgage be the same after the price decrease?

#8 Bob on 08.11.13 at 4:52 pm

“And guess what?” Garth

WHAT?

#9 Russ on 08.11.13 at 4:53 pm

Hi Garth,
I’m glad things are differnt in Nanaimo.
I have a newspaper snippet in which the local realators say we have a balanced market here.
Whew! ’cause I hope to sell in two years and work part time.

#10 not 1st on 08.11.13 at 4:55 pm

There has never been a soft landing of any type before, why would we expect one now?

The sad truth of the matter and one that lots of people are quietly thinking, is that we need some economic pain for a while to clear out some excesses, set horny overspending young ones and boomers with no retirement straight once and for all and clear out all the over priced stuff out there like vehicles (which should be $10,000 cheaper) and hiring contractors who charge an outrageous fee for the most basic services.

I’m ready.

#11 whaaaat ? on 08.11.13 at 4:57 pm

First, great post gartho, but for some reason my mother in law still has more authority financially even though she does not have any credentials.

#12 Chickenlittle on 08.11.13 at 4:58 pm

Do you think that maybe the lack of new housing starts (not condos) is done on purpose to keep the prices up? Scarcity keeps prices up.

#13 walltiger on 08.11.13 at 5:02 pm

When the kids stop thinking a condo is riskless and cool and the Gen Xers realize paying $800,000 in a bidding war for semis insulated with termite droppings is probably not a stellar idea, down she goes.

GT, just how you come up with this, I spilled coffee on my table. :(

#14 timOfTrees on 08.11.13 at 5:08 pm

Poor renters…

We rent a house for 950 per month in the GTA (deals to be had… Just know people) in a nice area. A red brick home with three bedrooms and a yard to play in.

We rent our farmland at 75 dollars per acre 45 mins from Toronto. Its profitable- because we rent.

I rent my yard for my tree business in the City, 1/2 acre, for 300 bucks a month.

To buy this would put us in the poor house. Instead, we rent. Our cash flow has paid a tractor of in a year, a chipper (they aint cheap) in a summer, and we’ve got more to spare.

Expanding the business. Investment. Baby’s education fund.
Were we set on buying all this land we rent at a nominal fee, none of this could happen.

#15 PermaBear on 08.11.13 at 5:09 pm

Back nine at the PGA….it’s going to get interesting now.

#16 toolatenow on 08.11.13 at 5:11 pm

The debt/income ratio shocked us 12 years ago when it hit 80… we all thought ‘this must correct’…but those who pulled out of real estate couldn’t have been more wrong. This magic mark is now 160% and people are still buying…. but Garth is still barking mad.

We rational persons can logically expect one outcome…house prices must double from here to maintain the economic staus quo. This is the new normal….get used to it.

And while we’re at.. lets double taxes to get more civil servants retired early so that a new crop of well wishers can chow down. Double dipping civil servants are holding back new hires…ergo no new suckers ‘er buyers for real property. Otherwise ..where is the money going to come from? 100% taxation may be the answer….vote left…be right.

The Obamacare Act will exempt all civil servants fand unions from paying for their healthcare…maybe we could try a similar scheme here and encourage the largest segment of the elite earner population to purchase investment homes.

#17 The Truth on 08.11.13 at 5:13 pm

Just wondering, who the hell was crazy enough on the buys-side to have contributed to the July home sales numbers? Makes no sense to buy right now – wait 6-12 months and prices will be down substantially…

#18 As Is Old Man on 08.11.13 at 5:21 pm

Don’t know if this was already posted as it is from January 2012, but here it is from DoctorHousing Bubble.com (mostly California RE analysis):

Title: “The other CA bubble – Canadian housing bubble ripe for popping. Vancouver real estate increased by 142 percent from 2002 to 2011. Average detached home in Vancouver costs roughly $1 million while the median household makes $67,000 per year.”

http://tinyurl.com/7zvl3em

#19 Peter Jones on 08.11.13 at 5:22 pm

Not that Huffington is a bellwether, BUT they scooped your blog today with two columns on the same issue:

Housing in 9th Inning – Crash or Coast?
http://www.huffingtonpost.ca/2013/08/11/canada-housing-boom_n_3739063.html

And the unexpected drop in land sales:

http://www.huffingtonpost.ca/2013/08/09/housing-canada-land-investment-realnet_n_3733940.html?ref=topbar

Being an American citizen living in Toronto, I’ve been watching with horror. Made a few comments on the Huffington today that I’m sure will be snarked at. Waht happened in the US can and will happen in Canada.

#20 Early Spring on 08.11.13 at 5:26 pm

Hey Garth and fellow bloggers, check out this iddeeot on youtube talking about 0 down mortgages. He mentions Garth and he is dumb. I kicked my computer and wanted to punch him in the teeth, Garth will feel the same.
http://www.youtube.com/watch?v=B-UlvFi57HU

#21 mark on 08.11.13 at 5:58 pm

What about the mico economys in say dawson creek b.c.?
Lots of work, oil and gas busy unemployment under 4 percent? so they say.
Still risky buying up here in the north of b.c.
Prices are pricy here too, 250000k for a decent starter home.

Thanks

Mark
I will keep asking the question till someone answers with some hard stats in this area?

#22 Bob Zurrunkel on 08.11.13 at 5:59 pm

We all know what happens next…
http://www.youtube.com/watch?v=XCDKJQ3Z8bU

#23 mark on 08.11.13 at 6:02 pm

In the tradition of Kerri Lynn McCalister and the Mac Marketing Morons, it’s no different in Australia. Marketing coordinator shows up in a story about how great a time it is to buy. Nothing disclosed of course until readers get angry.

http://tasmanianrealestatetrouble.blogspot.com.au/2013/08/shame-part-deux.html

#24 Vangrrl on 08.11.13 at 6:05 pm

I’m in Canmore AB right now and my dad picked up a Calgary Herald so I thought I’d take a look. Hilarious. In the condo section a two page article about a young couple that went out for breakfast and ‘ended up buying a condo’ in a nearby sought-after neighbourhood. That’s it. That was the ‘news piece’. wtf??

#25 Jean le Pute on 08.11.13 at 6:11 pm

“And guess what?” – Garth

QUOI ??

#26 Saint Herb on 08.11.13 at 6:14 pm

Friends husband lost his job today at a bank. This is at least he 4th person we know who has lost there job. Before this year I can’t remember anyone I know losing their job.

My wife read the article today in the paper referenced in the post. She pointed it out to me and said “is this what that Garth guy is always talking about” I said “ya, do you believe it now that it is in the news”. She said “No”

Sorry Garth, but my wife hates you. She blames you for us moving into a rental house in stead of buying a house. We are moving this week into a nice 1 year old 4bdrm, 4 bathroom house. I sure hope this strategic renting works out in my favour.

A hard landing would be fine with me, but things don’t go my way often so I doubt it will happen.

#27 Shawn on 08.11.13 at 6:15 pm

NEVER A SOFT LANDING?

Number 10, not 1st says:

There has never been a soft landing of any type before, why would we expect one now?

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

I agree there has never been a soft landing. Nor a hard one for that matter. That’s because economies and house prices and stock prices never do land. And they never end well because they never end. Life and economies and house prices are always in motion.

And are NEVER predictable.

And are often least predictable just when they seem most stable.

#28 SOFT LANDING ?????? on 08.11.13 at 6:16 pm

Has this term “SOFT LANDING” recently been invented? Because through out history, a correction is sharp and unexpected to the masses. Actually does anyone know of a time we have seen a correction to be soft and gradual so that everyone is effected by such a correction are affected minimally. 1. Price correction 2. rise in unemployment 3. excessive debt,,,,, equals a perfect storm…. Rob

#29 2CentsCdn on 08.11.13 at 6:23 pm

A hard landing = opportunity. I’m anxiously waiting with money ready. It will take a year or so for the masses to fess up that it’s over …. but it will be over. Let the reckless, greedy and foolish get hammered.

#30 retired WI Boomer on 08.11.13 at 6:25 pm

“And Guess What?” WHAT…. you can tell the future, or just guess like the rest of us mostly humans?

That the incredibly obvious to anyone with a pulse, a fat ass, and two hands with normal feeling could find their behind without GPS?

That a gassed economy will magically expand?
Exports will expand because it has been “willed”?Unemployed citizens CAN save money by not working?
You can earn “cash back” from your credit card to make your car payments?
Saving doesn’t matter?
Old age pensions are all one needs in retirement?
No politician ever lies?
There is no global warming?
kia’s last forever?
Real Estate ALWAYS increases in value?

I give up…..what?

#31 Randy on 08.11.13 at 6:25 pm

Can we deport the CMHC ?……or Dump it ?….

#32 AK on 08.11.13 at 6:32 pm

Global Economy: Seeking European signs of sturdier global rebound

#33 X on 08.11.13 at 6:33 pm

So….is the RE market heading off a cliff with the accelerator to the floor or will F make changes (like 10% minimum downpayments or something) to ensure that some have their seatbelts on, as we are going over the cliff regardless?

#34 Mick on 08.11.13 at 6:39 pm

Rates are on the way up, anyone with a clue understands this always causes a temporary surge in activity. Give it until the holding period for rates ends, maybe end of September or so.
Then watch a winter even worse than 2012.

#35 Money talks on 08.11.13 at 6:50 pm

“Investor wanted! Property being sold with a rent to own tenant.

Are you looking to invest in property where you could enter into a lucrative “Rent To Own” with a tenant? I have several properties where I have entered into this type of contract and I am selling a few of them. Here is an example of a few that I have available:…”

http://winnipeg.kijiji.ca/c-real-estate-houses-for-sale-Investor-wanted-Property-being-sold-with-a-rent-to-own-tenant-W0QQAdIdZ512523287

#36 Smoking Man on 08.11.13 at 6:55 pm

SFH in 416 Solid…..Period

Sold sold.sold.signs eveywhere.

Sorry no crash till i will it.

#37 Van Isle Renter on 08.11.13 at 7:00 pm

All of the CREA pronouncements are based on the assumption that they are not lying to us and to themselves. But if I know they are lying, are they really lying? In order for a lie to exist, someone has to be fooled. If I’m not fooled, the CREA isn’t really lying….

My head hurts… I’m going to buy a condo from Brad Lamb…

#38 kothar on 08.11.13 at 7:10 pm

Its already been said many time before. 9th inning stretch?

http://news.ca.msn.com/top-stories/canadian-housing-boom-in-9th-inning

#39 jake on 08.11.13 at 7:20 pm

Your friend David madani has predicted a 25% drop for three years running now. Sounds like the economist who crowd crash except he is never right. Eventually though he and Garth may be right after a decade of being wrong. That is like saying eventually it will be winter. I question the intelligence of readers and believers of this blog.

On the flip side anyone who believes a trade organization when numbers come out is also foolish. Like believing smith & Wesson saying gun violence is down.

That isn’t the point. The point is ten years later homeowners have enjoyed incredible capital gains free ups while renters have enjoyed rising rents and lower savings rates.

Fools.

Not exactly. Average residential real estate gain over 10 years, 6.2%. Average return of 60/40 balanced portfolio, 6.98%. Occupancy costs along the way far exceed rental costs. You lose. — Garth

#40 EvilMagpie on 08.11.13 at 7:24 pm

I’m looking at housing prices in places like St. Paul, MN and Urbana, IL, and it seems like there’s no reason to play the 6/49 anymore, because landing a job in cities like this would save me 300K or more on a house. As a soon-to-be P.Eng, even now I can get a $56 TN Visa and off I go. No debt, no dependents, month-to-month on my rent now. I understand, however, that taxes may end up being complicated.

#41 Derek R on 08.11.13 at 7:24 pm

Folks, Garth has already given the answer to the “Guess what?” question. I’m not going to give it away but it’s there if you look for it. Here’s a hint: More than four words; less than seven. Now go back and read the whole article more carefully.

#42 Marginal on 08.11.13 at 7:32 pm

“But as this undercurrent of housing danger – which has been brutally beaten to death on this pathetic blog – spreads, it helps turn horniness into horror.”
————————————————————-
Garth, you’re right, it’s a disease. I’m actually starting to feel sorry for even those buyers who are able to pay cash.

#43 people losing their jobs on 08.11.13 at 7:33 pm

I’m seeing layoffs all over the GTA. People are maxed out and living off borrowed money. The gta requires a lot of money to maintain the ponzi housing bubble from collapsing. Look for layoffs to increase. Corporations will still makes lots of profits.

#44 snake on 08.11.13 at 7:34 pm

http://www.youtube.com/watch?v=C8jhrXoVAg0

#45 Dan McLean on 08.11.13 at 7:40 pm

Soon young prospective buyers, as well as seasoned speculators, will see housing as a toxic asset. I see no way around a hard landing.

#46 An Importation to Prop the Ponzi Scheme on 08.11.13 at 7:43 pm

Waiting for Toupee Harpo and Garden Gnome to get back to taxi driving after the RS bust? Check it: http://www.theglobeandmail.com/news/world/norwegian-pm-moonlights-as-taxi-driver-in-viral-video-campaign-stunt/article13706140/

#47 The real Kip on 08.11.13 at 7:45 pm

We are just transitioning at the 4th floor from commercial to 40 floors of condo. It’s interesting in that I had to work the weekend changing from a relatively slow tower crane to a faster 331 Comedil Italian built hammerhead.

The crew erected the hammerhead first and then worked Sunday removing the Comidil 250 luffer.

If you ever want to see the step-by step procedure to stand a tower crane click the pics below and we don’t often use one tower crane to erect another. We have done it but not too often. The project will complete in summer 2014.

http://s265.photobucket.com/user/kipgardiner/media/CityPlace/Hammerhead%20Erection%20At%20Peter%20St/FlattopComedil1_zps99f6d6f8.jpg.html?sort=2&o=0

First a Timmy’s television star, and now this. We are not worthy, Crane Man. — Garth

#48 Post Haste on 08.11.13 at 7:58 pm

After I read the caption that 70% of those have less then 10K saved – I still can’t figure what’s happening in my neck of the woods.

Just north of the big smoke – every weekend the malls are packed, restaurants are overflowing, high end vehicles fill the spots. 2 new strip malls will be ready by spring of 2014 in an area already lined with recently built malls – people are shopping like there is no tomorrow, what gives!! I know most will say they are using plastic, but geez Louise – have people lost their senses, growing up – we were lucky to go once a month to Ponderosa (no longer in Canada) or St.Huberts, maybe I am being to fragile!! If the music does stop – I think it will be a lot darker than even Garth is letting on.

#49 Up & To The Right on 08.11.13 at 8:01 pm

Thinking of downsizing primary residence but wondering about renting out single 4 bdrm detached home, which I owe 1/8 on. What is the macro future for landlords…Opinions please (easpecially from Mufasa)

#50 Megsy on 08.11.13 at 8:01 pm

I have a friend who just bought in Halifax. Or… Rather… Eastern Passage. Nice view of the refining plant and the bedrooms are below grade (why rent when you can live in a basement?!)… Oh yeah. She has a cash back mortgage at 5% ish.

#51 Freedom First on 08.11.13 at 8:06 pm

Wealthy people think the way wealthy people think and only talk with other wealthy people to avoid the idiocy of the majority, the people who are not wealthy. The people who are not wealthy talk to other people who are not wealthy and who say and think the same way as all of the people who are not or never will be wealthy. The book the “Millionaire next door” goes into detail about this. Now, Garth, in his free blog, spells out exactly what to do to grow financial wealth. People who argue with Garth, will be the “brainwashed” that the wealthy avoid, and, the RE industry and other associated private interest business people who also hate Garth, and Garth can prove their hatred of this blog with their messages to him, as the RE industry has only 1 interest and has always had only one interest………and it isn’t yours. To the people who ask Garth today about “And guess what?” …….try reading his post with someone smarter than you. It is okay to need help, the only crime, is not knowing you need help.

#52 Jimmy on 08.11.13 at 8:11 pm

And guess what…

I told you so.
You heard it here first.

Garth and erections.
Thanks for the pics Kip.
Does it get any better?

#53 snake on 08.11.13 at 8:14 pm

http://www.theglobeandmail.com/report-on-business/housing-market-still-running-hot/article13705392/

#54 thanks Kip! on 08.11.13 at 8:23 pm

thx for posting that photo series, it was way cool.

hard to believe that you used all but a foot or two of the lifting capacity of your crane….man, if you had to go get one that was a bit bigger that would have been a real drag.

really interesting to see what it’s like from your perspective. Good luck with the tower!

#55 T.O. Bubble Boy on 08.11.13 at 8:24 pm

Good summary of the Flaherty/CMHC mortgage mess here:
http://www.theglobeandmail.com/report-on-business/rob-commentary/after-decades-of-stoking-mortgages-ottawa-in-a-mess-of-its-own-making/article13705668/

Who wants to bet that Flaherty hands over the mess to someone else right before it implodes? (kind of like he did in Ontario)

#56 magilla on 08.11.13 at 8:30 pm

To those posting here wondering whether renting is a good idea, make yourself feel better by working out how much your landlord is subsidizing you! This is a frequent game on this site.

By way of example, my BIL and I figured out that, assuming a 25 year mortgage and a 5% down payment, his landlord (SFH westside) is actually LOSING money (about $100 on our calculations) each month!! What a fool.

of course, in 25 years, the landlord will have a fully paid off SFH westside Vancouver that only cost her $30,000 plus her original 5% down payment. But don’t let that bother you….

#57 don on 08.11.13 at 8:41 pm

AK how old are you? I have to know

#58 Donovan on 08.11.13 at 8:55 pm

Why do people think it is OK to post stories about their “friends” like Megsy does/did? Who cares? Who cares about Halifax? About Sudbury? About anywhere else but Toronto – the #1 city to live in the country, and the one that will continue to thrive while you basement-dwelling renters will continue to pay my mortgages? Who cares? Do you not realize that the ONLY places that matter are:

Vancouver-asians love it
Calgary and Edmonton-oil loves it
Toronto-everyone loves it

the rest can go disappear and have the biggest housing crash in the history but Toronto will stay on top for now and forever. EVERYONE wants to live here.

#59 Crapville...I mean Leslieville on 08.11.13 at 8:58 pm

Im stunned by the prices in this still crappy hood called Leslieville. Semis going for 700k with home depot reno jobs? Are you kidding me? Its amazing what these yuppie morons will throw money at with 5% downpayment, then throw another $50k into it for basement leaks . And I always hear the same old moronic excuse for buying there… “its an up and coming neighbourhood”…ya ….right….

Enjoy the bums asking for handouts every morning on your way to work….

#60 TheCatFoodLady on 08.11.13 at 8:58 pm

That was a cool series Kip, thanx.

Lot of discussion about vulching real estate in due course. I like nice things – I have, (theoretical), expensive tastes. If you’re going to dream, it might as well be in colour! We don’t have many nice things. A creative design writer would described our place as decorated in ‘Early First Apartment’ style. Somebody more blunt would exclaim: “What IS this crap?” Second hand, scrounged, scavnged stuff – some of it was even ‘good’ back in the day but it’s old, worn & a fair bit is held together with artful use of duct tape.

We have a replacement fund & when things start seriously going south, we’ll be prowling the online auction sites. I check them out now. You wouldn’t believe the really nice, gently used stuff you can buy for next to nothing – especially when it’s coming from the overly large homes of downsizing seniors.

Another great place to score bargains – pawn shops. Like good jewelry & don’t care if it’s second hand? I don’t. A lot of the better stuff is certified & something that costs… $2,000 can be picked up for $350.

Stores – as specialty stores start finding it tough & a flurry of Going Out of Business sales commence, a lot can be scooped there. I love big, cushy towels & buttery soft linens – there’s the place to get them – specialty stores going out of business.

Yup – gotta love liquidity & budgets.

#61 Bambi Candy on 08.11.13 at 9:05 pm

I agree condos are toast. But honestly Garth what do you think of buying an apartment building in Oshawa with a cap rate well over 10%??? how will such properties fair in a general real estate downturn.

#62 Nemesis on 08.11.13 at 9:06 pm

“Just two things. Horniness. And delusion.” – HonGT

AuldPol, that would would be three, actually… But we’d best not go there. Too contentious.

Something to do with TNC flows…

Practically sideswiped by a tornado today.

The StoneyFaced AuldPols of Rushmore were enshrouded in fog…

RollingThunder&Lightning. Malign Portent?

#63 prairie person on 08.11.13 at 9:17 pm

“EVERYONE wants to live here.” Really? I’ve worked in TO a number of times. The quality of life is far inferior to the West Coast. It isn’t just asians that love the west coast. How old did you say you were?

#64 45north on 08.11.13 at 9:29 pm

The Real Kip: great pictures, the four men aligning each section, their lives depend on the crane operator and the crane. I guess they don’t come cheap – the men that is.

Post Haste: we were lucky to go once a month to Ponderosa (no longer in Canada) or St.Huberts. If the music does stop – I think it will be a lot darker than even Garth is letting on.

that’s what I think

Up & to the right: Thinking of downsizing primary residence but wondering about renting out single 4 bdrm detached home, which I owe 1/8 on. What is the macro future for landlords

Never mind the macro future for landlords, what’s your future? Well for a start count on becoming very familial with the Residential Tenancies Act (assuming you’re in Ontario). If you cannot be bothered do not become a landlord. Do not.

http://www.ltb.gov.on.ca/en/

#65 Min in Mission on 08.11.13 at 9:36 pm

As always Garth, a totally awesome way with words!!

IMHO, there will be a landing. Depending on where you are and, how well prepared, that is what will determine how hard your individual landing is.

Having no mortgage (paid off), very little debt, and money (cash and minor investments) in the bank, mean that I am not too concerned about how hard the landing is. Right now.

I am more concerned about ten, or so, years from now. And we all know that the “crystal ball” is very undependable that far out.

#66 Realistic on 08.11.13 at 9:40 pm

On globeandmail tonight:

Canada’s housing market is running hot. Will Jim Flaherty cool it down?

http://www.theglobeandmail.com/report-on-business/housing-market-still-running-hot/article13705392/

Garth, how Flaherty will cool housing market down again?

#67 george on 08.11.13 at 9:43 pm

A country song about monetary policy, written and performed by Merle Hazard.

http://www.youtube.com/watch?v=hj86YsaoCtw

#68 To the Real Kip on 08.11.13 at 9:48 pm

Hey Kip what do you and your coffee buddies think of future workload. Is there rumours about less orders for condo building cranes or does everything seem fine out there?

#69 It’s hard to be soft — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate | The Affluent Boomer™ on 08.11.13 at 9:55 pm

[…] via It’s hard to be soft — Greater Fool – Authored by Garth Turner – The Troubled Future of Real…. […]

#70 Ben on 08.11.13 at 9:58 pm

I was convinced the UK would have a hard landing in 2008. Three things stopped it:

1. state pulled out all the stops with low interest rates
2. insane population fixated on housing with no clue how rates even work
3. banks went with pretend and extend instead of repo

I hope Canada will be different as the high house prices in the UK are enslaving the young, but I warn you they can kick that can in ways you didn’t even imagine if they are minded too. Though perhaps the US recovery and an increase in their interest rates will mean Canada doesn’t have the same options the UK had back in 2008.

#71 Ahead of the Curve on 08.11.13 at 10:06 pm

What?

I share with you what: invest for the long run in a balanced portfolio, stay relatively liquid and please think twice before buying any investment that takes control of your life.

#72 Uwinsome on 08.11.13 at 10:10 pm

Maybe another blow to the Nova Scotian economy.

http://www.vancouversun.com/news/Canadian+defence+analysts+navy+should+shift+vessels+West+Coast/8775819/story.html

#73 not 1st on 08.11.13 at 10:12 pm

Garth, you called slow melt in RE about 6 months ago. Do you still hold to that now with todays new developments or is hard landing dealt in the cards?

Beats me. But it won’t be a quick event. — Garth

#74 -=jwk=- on 08.11.13 at 10:30 pm

@ #7 Iloce charts

The question is….how big is hard, how small is soft?

Let’s assume I wait a year and rates are 1% higher. Will the cost of my mortgage be the same after the price decrease?

Roughly, yes. The issue was not affordability at current rates, but the high amount of debt ie the illusion of ‘wealth’. An 800,000 2.% and a 400,000 @ 10% are about the same. But if you were to, say, throw an extra 100 bucks a month at the 400k you would save nearly 3 years. on the 800k? You save 1 year. And that’s IF your interest stays low the whole 25 years…

#75 NotAGreaterFool on 08.11.13 at 10:32 pm

not 1st – You’re correct Garth has stated a “slow melt” that is likely closer to the “soft” landing scenario, but like you, I have sensed (very recently) a more bearish tone resembling a “hard” landing. The question is how long will this take to unfold?

The next General election is Fall 2015.

#76 Smoking Man on 08.11.13 at 10:38 pm

#74 not 1st on 08.11.13 at 10:12 pm

Why do you guys always ask garth about this stuff, I gotta damn good track record in spite of being a bit off.

I don’t suffer from wish full bias, could care less about the market either way.

Just the facts jack……

But then it’s his show..

Truth is know one knows for sure, we place our bets based on our personal bias and beliefs, as a gambling man.

The out comes are usually a surprise.

Not enough weigh is placed on gut……

#77 NoOneOfConsequence on 08.11.13 at 10:40 pm

Arrrrg! The paywall at theprovince.com just blocked my access to sports, news and editorials.

Oh wait! The Real Estate and Mortgages sections still work…..no lie. Paywall doesn’t block these sections!

#78 A Little Horny to Own on 08.11.13 at 10:40 pm

#48 The real Kip on 08.11.13 at 7:45 pm
Kip, those pictures are awesome. Are you single? Or even the workmen on the towers. It is all very impressive the way you build our real estate and the city.

#79 BWilson on 08.11.13 at 10:54 pm

@ #57

I call BS.

Let me count the reasons you’re lying (and most likely a realtor).

1. Assumption: 5% down payment on a west side detached home (nice try – west side detached homes start in the $1.2-$1.3 million range)

2. Assumption: $100/month negative carry. A decent starter home in Kits costs about $1.5 million that’s bargain basement as far as the West Side goes. In Vancouver once you get over $2000/month in rent your tennant pool declines rapidly. Realistically you can rent a $1.5 MM home in Vancouver for around $3000/month. Assuming a 20% down payment and using the posted BMO 5 year fixed rate mortgage of 3.59% and assuming 25 year am, you’re looking at mortgage expense of $6050/month + property taxes and maintenance. So lets just call it a $4000/month negative carry to be conservative.

So with $300,000 down payment + property transfer taxes and $1.2 million in negative carry you could own a home on the West Side that is now worth $1.5 million. Of course that assumes that rates don’t go up when you roll your mortgage over.

If you assume 0% opportunity cost on all that capital, you might break even if you’re lucky.

Make no mistake – in Vancouver buying makes no sense at all. Those that suggest otherwise usually lie about the numbers, just like you did #57.

#80 dienekes on 08.11.13 at 10:56 pm

Why did the government bail us out 5 years ago with CMHC. Things would be so much better now if they hadn’t. Now we are just going to be stomped on.
Did you see in the news the two doctors get into a fight in the Emergency area over working hours in Flin Flon hospital? I heard one choked out the other. Maybe they are stressed about house payments. At least they were in the hospital.

#81 Nosty the Vampire Slayer on 08.11.13 at 11:12 pm

SMan — Here’s a really cool way to be at one with the UCC!

#82 blablabla on 08.11.13 at 11:20 pm

#81

They should go to S. Italy, a doctor there called the police after realizing nobody was coming around to replace his shift…he had worked 30 hours straight.

http://www.net1news.org/italia/calabria/medico-fa-turno-di-30-ore-nessuno-d%C3%A0-cambio-e-chiama-polizia.html

#83 Nemesis on 08.11.13 at 11:24 pm

#63 Addendum

“It used to be a whole lot of naked women. It’s turned into RV’s and golf carts. The golf carts about kill me. You’re at a [redacted] motorcycle rally.” – Veteran Biker Richard Lantz

http://tinyurl.com/mb76ozg

#84 Ralph Cramdown on 08.11.13 at 11:24 pm

#64 prairie person — “The quality of life [in T.O.] is far inferior to the West Coast.”

It’s true. Today’s North Shore News front page screams Heritage home lost to profit taker. “Why would you buy a heritage home only just to tear it down? If they just want an empty lot to build their dream home, they should go find some rundown bungalow that isn’t on the heritage register and do it there. There’s plenty of those kinds of houses around.” Y’all have seen ‘crack shack or mansion,’ right? In Toronto, I have to pay for this level of comedy. While holidaying here, it’s delivered to my door gratis.

N.B. You can and should drive a V8 anything from ten minutes to forty years old — in fact you MUST if you don’t want to be mistaken for the help — but woe betide you if you ask for a plastic bag at the drug store. They’re environmentally conscious here!

#85 retired Boomer - WI on 08.11.13 at 11:33 pm

Shawn #67

Some of the nicest humblest people I know are “RICH”*
Also, some of the biggest jerks I have ever met fall into that “RICH”* definition.

What I do NOT know is whether they all earned the bulk of their wealth, or inherited it. In some cases I do know, but not in every case. A common thread in that, is those who inherited the bulk are most often the jerks. While not a universal, there is a tendency there.

Most “RICH”* I know are first generation Americans i.e. recent immigrants. Most own a business of some type, but not all. Trucking, and truck equipment repair (this is the area I spent most of my working life in) has produced a lot of them.

* by Definition, no debt, more than 1 million at their disposal in cash, or investments. i.e. the ability to do WHAT one wants, WHEN one wants to do it. Freedom FROM work if they so choose.

#86 OK Kingpin on 08.11.13 at 11:35 pm

I liken all of this to a seasonal summer end blow out sale, cut prices (interest rates) and pump up sales volume because it is all going out of style fast. Cyclical economic patterns are at the heart of Real Estate.

See here: http://mayer320.wordpress.com/2013/08/11/year-end-blowout-sale/

#87 Alberta Girl on 08.11.13 at 11:40 pm

My Mom’s had her lake front lot & cabin in Northern Alberta (Nice Vacay spot from The ‘Mac) up for sale…. SINCE 2009!!! She is insisting it’s worth $500,000 and wont budge on the price, even though she bought it in ’97 for $22,000. It has been considerably upgraded but this is the Baby Boomer mentality. As a Gen Xer, I can afford my 187K mortgage but there’s no way I can afford to buy a second home for a half mil. What are they THINKING?

#88 Snowboid on 08.12.13 at 12:06 am

#57 magilla on 08.11.13 at 8:30 pm…

$ 100? Are you kidding? It should be in the thousands.

Renting vs buying in Vancouver isn’t unlike our situation in Kelowna (we have relatives renting in Vancouver).

As I pointed out about a month ago:

We currently rent a high-end condo (over 1500 sq ft) – owner paid $ 475,000. Current value (estimated) $ 400,000.

Rent? Under $ 17,500 a year.

Even if the owner put down 20% on a 25 yr amortization at 2.9% their annual costs are:

Mortgage: $ 21,348
Strata: $ 5,000
Taxes $ 3,000

Their total outlay annually is almost $ 30,000 – not including maintenance, repairs, special assessments, etc.

It also doesn’t include the > $ 75K loss since they bought, or the $ 154,000 in interest over their 25 yr amort (assuming 2.9%). It also doesn’t include the calculation of our investments reducing our rent.

It could be some time before buying makes any sense, and we are ever patient.

#89 Junkieman on 08.12.13 at 12:09 am

#81dienekes There from Utah, he dared the Mormon god, he answered.

#90 AACI home-dog on 08.12.13 at 12:32 am

Garth….won’t rising rates kill our cdn dollar ? Which of course has large consequences. The powers that be will be kiboshing it as long as possible.

#91 moremiles on 08.12.13 at 12:43 am

love this from David Madani of Capital Economics

… “home builders are having a Wile E. Coyote moment” as when the perpetually ill-starred cartoon character realizes he has overshot the cliff and looks down to see nothing but air under his feet.”

#92 k on 08.12.13 at 12:51 am

Hi Garth Bang on as usual. What I find as a right in the middle Baby Boomer is that most people simply don’t live within their means and want to get rich quick somehow. Real Estate seems to be that Golden Goose. However everything has an economic cycle and this cycle is over. Guess it’s back to hard work and saving again. If interest rates return to NORMAL I will quit work and live off my saved $ 50 % of my net worth @ 57 yrs old ! Large debt should scare anyone !

#93 Beck on 08.12.13 at 12:54 am

I am currently looking to rent a house in vancouver’s west side. Something “liveable” starts around $4500 month. Nice is $5000. That’s 60k a year x 25 years – I could of paid off the purchase of said house.
But instead I will wait to buy until ……….

#94 Andrew Woburn on 08.12.13 at 1:11 am

I used to work with a cynical but experienced former stock broker who told me that the stock market relies on the fact that every five years there is a new crop of buyers that believe the market was invented yesterday, the past is distant and irrelevant and that miracles happen. I assume the real estate market is the same, particularly for a generation raised by parents for whom “saving” and “deferred gratification” are quaintly archaic terms.

Let me tell you about my real estate soft landing experience from the Eighties. I beg your amused indulgence because clearly I am approaching the age of senility and therefore unable to fathom how much smarter everyone is today.

The market for tax-advantaged residential apartments in Victoria had been heating faster and faster for five years in the early eighties. I and some lawyers teamed up to purchase and flip an apartment site. We already had it sold before we bought it. We sold for $950K with a three month close and financed 100% of the $750K purchase price at a chartered bank based on the bank’s appraisal of $800K. A month before the close, the Federal Reserve abruptly kicked the wheels from under the North American economy and construction hit a brick wall at 500 miles per hour. Our erstwhile purchaser courteously informed us that he could not complete and we were at liberty to sue his socks off but he was already barefoot. After some general unpleasantness and frothing, the bank foreclosed. Three years later they sold it for $150K. It was six more years before the new purchaser got around to developing it.

I told my sad tale to an older architect I knew. He said that the Uplands, still a top drawer neighbourhood in Victoria, was developed around 1910 at a time of heavy real estate price appreciation. Prices subsequently crashed and did not recover to their original level until the Fifties.

It must be the incipient dementia but for some reason I am irresistibly reminded of the craze for pyramid schemes that swept Albania in the nineties after the fall of the Soviet Union. People from all walks of life clamoured to buy Ponzi investment deals that promised huge payouts. Horrified foreigners tried in vain to explain how the scam worked but no one wanted to hear. Thousands of Albanians lost their life savings. Thank God that well-educated, well-governed, financially-literate Canadians would never fall for that crap.

#95 Babblemaster on 08.12.13 at 1:20 am

#72 Ben

Though perhaps the US recovery and an increase in their interest rates will mean Canada doesn’t have the same options the UK had back in 2008.

————————————————————-

May not have the same options, instead they’ll just have different options.

If there is a hard landing, Canada has many options available to re-inflate the prices and keep the charade going. Of course, they would all by necessity kick the can down the road and add to the debt, but it should be obvious to everyone by now that our government has no fear of debt.

Garth’s message regarding housing not being supported by the fundamentals is logical, but my neighbors son, who just bought a condo for investment purposes doesn’t care. Neither does his mother. Most people don’t. Garth states,”That it drops is a given. Whether soft or hard – that’s the big deal.” That’s been the same message for the last 4 years and instead of deflating or stabilizing, the RE bubble has just inflated even more. The madness of the masses.

#96 betamax on 08.12.13 at 1:44 am

“Over 70% have less than $10,000”

Likely much less than $10k, given that previous polls have shown the majority couldn’t pay cash for a $5k emergency.

“84% couldn’t live six months without a paycheque”

I’d bet 84% couldn’t last one month without a paycheque.

A couple I know just did a budget — 6-figure household income, no kids — and discovered they’re $200 in the red every month. I didn’t ask the two questions which immediately sprang to mind: 1. How is that possible? 2. How could you not know?

#97 Tinfoil Hat on 08.12.13 at 2:12 am

#72 Ben

Could be a crash in the UK housing market yet:

http://www.theguardian.com/society/2013/aug/10/housing-bubble-families-london-help-to-buy

And Carney’s commitment to low interest rates won’t help:

http://www.theguardian.com/uk-news/2013/aug/10/flood-cash-london-property-rising-prices

Sounds eerily familiar…

#98 Chaddywack on 08.12.13 at 2:12 am

I’d still rather have my money in potash right now v.s. real estate…..at least you get paid to own it.

#99 jim on 08.12.13 at 2:19 am

#40 jake,

Homeowners have made nothing until they take those profits by selling. Unrealized capital gains.

I agree, if you played your cards and rode the real estate wave only to cash out at some point, you made some money. Garth questions how much money, compared to other investments. That’s a fair question.

#100 jim on 08.12.13 at 2:20 am

#41

Don’t be afraid of taxes as a Canadian working in the US. Hire someone to do them for you.

And yes, housing is much cheaper down here. However, unemployment is also high in many states, and housing is sometimes cheap for a reason.

#101 relocated aussie on 08.12.13 at 2:31 am

Recently relocated back to Canada from Australia. Over there I was waiting for sanity to prevail in house prices. It did not happen ,although the economic news in OZ lately is not good so it should start to happen even though the spruikers keep talking about a RE boom. My question is When will prices in the Fraser Valley start to decline? I have been here for 5 months and can not find the house I am looking for at a reasonable price.

#102 Jooks on 08.12.13 at 3:16 am

A guy friend in Vancouver wanted to buy his own place so he could impress the girls. That’s a dumb reason. To make things worse, I thought he had a lot money saved up. After chatting with him for awhile, he didn’t say it but I sensed that he doesn’t even have 10g in his account. What’s with people these days?
Get your act together please!

#103 AngryMan127 on 08.12.13 at 3:40 am

I’m not sure why you are so quick to dismiss the effects of globalization and that Canada has become a parking place for cash from around the globe. Predominantly, this cash is parked in real estate.

So this may explains why fiscal policy has had no real affect on canre… so when the latest action causes another 3 month dampening then RE springs to life again….will you look at it then? You’ve kind of spent your last bullet on explaining the irrationality haven’t you?

I previously disproved this. — Garth

#104 GarthWasWrongAboutVancouver on 08.12.13 at 3:47 am

Vancouver real estate market is now hot again. Garth was wrong about Vancouver so conveniently ignores this market.

http://youtu.be/0oNcoWdaftY

I see you linked to Global TV McNews. How could you possibly be better informed? — Garth

#105 The guy from Montreal on 08.12.13 at 4:28 am

Just a small link from La Presse in Montréal on Real Estate.

http://affaires.lapresse.ca/economie/immobilier/201308/11/01-4678933-signaux-contradictoires-dans-le-secteur-immobilier.php

Contradicting signals in the Real Estate that is the title of this news.

Statistique Canada mentionned that construction permit is down by 12.9% in june only for SFH and 18.8% for those marvelous condo unit only.

Investments for residentials in Toronto, Vancouver and Calgary are down 51, 52 and 30%…..

Also mention that people who contracted new mortgage have reached a level never seen before at 160% of their available revenu.

The bubble will burst sometimes…..

So glad, we just rented an appartment and wait for the bubble to burst. It will take as much time as needed but my wife and I are not too horny to buy.

Thanks for this pathetic blog ( as it is being called )

This blog mentionned all these before this article in La Presse…

#106 The Big M on 08.12.13 at 7:28 am

The obsession with RE crashing around here is soooo tiresome. It’s not happening, no matter how many stories you quote, graphs you paste here, to support your arguments.

The US had a full blown financial and RE meltdown and they are well on their way to a full recovery.

So what?

Prices go up, they drop, they level off, they go up again.

So what?

It’s called a cycle.

Maybe Canada will have half of what the US had and that is a huge stretch, but regardless – SO WHAT?

It bounces back and all the time and energy wasted here arguing about it will prove to be senseless.

Lots of knowledgeable people here that get drowned out by all this RE babble.

There are so many other financial topics that could be discussed such as; investment strategies, investment vehicles, tax opportunities, owning your own business, buying existing businesses, tax loopholes, etc. etc.

#107 Rapier Wit on 08.12.13 at 8:07 am

The last two sentences make reading the whole piece worthwhile. Perhaps its time for F minister to other public needs, say, Senate Reform?

http://www.theglobeandmail.com/report-on-business/rob-commentary/after-decades-of-stoking-mortgages-ottawa-in-a-mess-of-its-own-making/article13705668/#dashboard/follows/

#108 pbrasseur on 08.12.13 at 8:27 am

@Andrew Woburn #95

Nicely said, thanks!

The short memory of market participants is indeed an important “bubbly” factor and I’m sure most Canadian RE market bulls have never seen (or were too young to care or remember) what a real estate bear market looks like!

#109 Castaway on 08.12.13 at 9:06 am

Anyone catch the clip on China RE last night on 60 Minutes. If not you should You tube it or go to their web site and check it out. Hundreds of thousands of homes and condos. Entire cities. That plural. All sitting empty. And please dont be so naive as to think they are building for the future! All fueled by Chinese middle class who are allowed only 1 type of investment. Condos which only go up in value right?? China, economic miracle or economic sham?

#110 Wally on 08.12.13 at 9:16 am

Garth:
Not exactly. Average residential real estate gain over 10 years, 6.2%. Average return of 60/40 balanced portfolio, 6.98%. Occupancy costs along the way far exceed rental costs. You lose. — Garth
———————

Nope. Using the example above, and a ten year horizon, the buyer has made 8X more than the investor, because home ownership is a highly leveraged investment through a mortgage.

Using a typical example:

A buyer who put $10k down on a 100k house has seen his house appreciate to 190k, so his gain is 800% (from 10k to 90k. Actually well more than that, because he doesn’t owe 100k on the house as he has paid off 10 years of the mortgage.

The “investor” put $10k into an investment instead of a down payment on a house. He now has doubled his money to $20k. So he has made $10k or 100%. Actually less because he owes tax in the gain.

So the house buyer in this example has seen a gain of more than 8 times what the investor has seen. This is not theoretical, it is what a typical scenario was over the last ten years.

Obviously no expectation that this will be the scenario going forward, but Garth’s analysis was looking back ten years. Over the last ten years, home ownership has clearly been superior to renting and investing your down payment.

You can also leverage financial assets, so compare apples to apples. You still lose. — Garth

#111 maxx on 08.12.13 at 9:35 am

#44 people losing their jobs on 08.11.13 at 7:33 pm

Yes, I’m hearing it from many sources as well. I yak away with as many people in as many places as I can and I’m sitting tight, just like that cat spotting the alien creeping up to its victim.
No way is this a good time to be taking on debt of ANY kind. Money is getting more and more difficult to get and keep.
Was at a large flea market yesterday, speaking with a hubcap recycler and he was complaining that business is way slow and also that people are spending far less than ever.
Vendors mostly all exclaiming either “make an offer” or “price is negotiable”.
Yet again another litmus test result of our economy scraping the bottom of the barrel.

#112 Tanis from Calgary on 08.12.13 at 9:36 am

location location location. The entire mythos of Canadian realestate discussion revolves around Toronto and Vancouver. Those two places got bubbly, are over valued and will crash. There are other places in Canada, such as Calgary, built on fundamentals. The prices in Calgary are 1/2 of what they are in Vancouver and Toronto while the unemployment rate is lower and the salaries are higher. The housing market is going up because of basic supply and demand. Vancouver and Toronto could completely crash and it would mean nothing for Calgary real estate which will keep going up based on sound fundamentals

Average Calgary price – $460,050. Average GTA price – $513,246. Calgary pop – 1.097 million. Toronto pop – 6.2 million. Good luck with that. — Garth

#113 Daisy Mae on 08.12.13 at 9:44 am

31 retired WI Boomer: “And Guess What?” WHAT…. you can tell the future, or just guess like the rest of us mostly humans?”

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

Chances of a soft landing are over. Garth is saying we’ll have a hard landing.

#114 Mike on 08.12.13 at 9:48 am

#111 Wally on 08.12.13 at 9:16 am
Garth:
Not exactly. Average residential real estate gain over 10 years, 6.2%. Average return of 60/40 balanced portfolio, 6.98%. Occupancy costs along the way far exceed rental costs. You lose. — Garth
———————

Nope. Using the example above, and a ten year horizon, the buyer has made 8X more than the investor, because home ownership is a highly leveraged investment through a mortgage.

Using a typical example:

A buyer who put $10k down on a 100k house has seen his house appreciate to 190k, so his gain is 800% (from 10k to 90k. Actually well more than that, because he doesn’t owe 100k on the house as he has paid off 10 years of the mortgage.

The “investor” put $10k into an investment instead of a down payment on a house. He now has doubled his money to $20k. So he has made $10k or 100%. Actually less because he owes tax in the gain.

So the house buyer in this example has seen a gain of more than 8 times what the investor has seen. This is not theoretical, it is what a typical scenario was over the last ten years.

Obviously no expectation that this will be the scenario going forward, but Garth’s analysis was looking back ten years. Over the last ten years, home ownership has clearly been superior to renting and investing your down payment.

You can also leverage financial assets, so compare apples to apples. You still lose. — Garth

——————————————————–

Aside from the fact that you use ability to leverage as an argument for investing in real estate (which is a dumb argument since leverage cuts both ways), you failed to consider the cost of selling (Realtor fees) and also, the additional cost of owning compared to renting. If you pay an additional $300/month to own rather than rent, this adds to $36,000 of after-tax dollars by year 10.

#115 The American on 08.12.13 at 9:53 am

Everyone, Canada is in for a hard landing, not a soft one. Why again do you think you’re different, when in fact you’ve managed to create the mother of all real estate bubbles? Oh yes, you’re not different. As with all other markets who found real estate to be a dog, including the U.S., Europe (primarily U.K., Spain, Ireland, Italy, France, etc., etc.), China, India, Mexico, and on and on, Canada’s will be no different. The fundamentals of operation today in Canada are PRECISELY what they were throughout the globe 6 years ago. Canada’s only lagging in the times, as is Australia and New Zealand.

#116 economictsunami on 08.12.13 at 9:53 am

GT:

In an article from CP via CBC I was reading this morning, it stated:

Canadian housing boom in ‘9th inning’

“While housing constitutes only about seven per cent of the economy, the number underscores its impact.”

http://www.cbc.ca/news/business/story/2013/08/11/canadian-housing-market.html

Much like yourself, I would imagine this more restrictive view of economic impact only serves to lull policy makers into a false sense of security…

#117 The American on 08.12.13 at 9:57 am

At #19: Peter Jones, I completely agree with your comments. I guess what I’m so shocked at is this we-are-different-and-therefore-we-will-have-no-hard-landing mentality. In fact, it is damn near comical if you stop and think about it. Canada has managed to create the most overvalued real estate in the world (that’s nothing to be proud of), yet Canadians are the ONLY people on the planet who think it will end in a whispering decline of feathers and rose petals. It is screwed beyond belief.

#118 Infused with Opiates on 08.12.13 at 10:04 am

88 Alberta girl – why do you think you should be able to
afford a vacation home? Are you entitled?

#119 M on 08.12.13 at 10:07 am

It’s “hard” and “hard” is good.

The best thing, aside shorting collateralized debt obligations (aka the “investment grade RE mortgaged backed securities” ) is to take a position (via credit default swap) and short those MFs in Japan.

Any sympathy for these guys anyone ?
-> http://www.bloomberg.com/news/2013-08-09/norway-s-fund-lost-2-on-government-bonds-amid-japanese-slump.html

nah… I don’t think so. Thinking that a BOJB yeld increase by 2 % wipes out ALL the jap gov income one should think what planet do they think they live on ?

When huge funds tike the ones above start dumping their holdings watch out :) 12% mortgages in Canada in 2 years anyone ?
You don’t think it’ll happen because u see.. Canada fiscal responsibility is prime time… :) HA !!!

Oh man whatta circus :)

Garth… no more babes in red ? Keep up the good work.

#120 M on 08.12.13 at 10:23 am

@#19

PJ, what happened in the States WILL indeed happen in Canada but 100 times worse.

#121 pbrasseur on 08.12.13 at 10:26 am

@The Big M

“So what? It’s called a cycle.”

This bull market is unprecedented (mostly because home ownership has been socialized to a point never seen before, however debt – either public or private – must be repaid at some point). After a run of this magnitude there will be serious consequences to a cross-nation RE bear market with many ramifications making their way into the Canadian economy.

Because of this “cycle” too many people have been making choices that will turn out to be wrong about their financial life, this will impact millions. The economy itself has been dragged into a path that is clearly unsustainable, getting back to some kind of normalcy will be painful no matter the type of “landing”, many jobs will be lost for people who are not trained to do something else. With the slowing economy (and rising rates) many governments will find that their revenue expectations are no longer realistic nor adequate, etc… Nothing trivial about this “cycle”!

#122 Steven on 08.12.13 at 10:36 am

Why should savers subsidize mortgages with cheap money and why should savers desire increases in home prices? In the first case the after tax interest income doesn’t keep up with inflation and in the second case the saver pays more for less when home buying. Either situation is bad economics and a waste of money or saved currency. Collapsed real estate prices raises the buying power of savings and income.

#123 Siva on 08.12.13 at 10:49 am

Lot of Chinese money may go to Caribbean. Weather is much nicer there

http://timesofindia.indiatimes.com/india/Caribbean-nations-wooing-Indian-immigrants-with-attractive-citizenship-for-cash-offers/articleshow/21754345.cms?intenttarget=no

Actually the story is about Indian investors. But whatever, right? — Garth

#124 The Big M on 08.12.13 at 10:57 am

#122 pbrasseur

Now take that entire argument and insert the US in place of Canada.

Now 5 years later where is the US and their RE market?

In total recovery.

Are you saying our RE market will fall further and be far worse than the US?

Our Gov’t debt will be worse? (per person)

Not even close but if you disagree, please show some facts on that. I keep reading here the sky is falling but the sun seems to shine every day.

#125 Daisy Mae on 08.12.13 at 11:13 am

#116 The American: “Everyone, Canada is in for a hard landing, not a soft one. Why again do you think you’re different, when in fact you’ve managed to create the mother of all real estate bubbles? Oh yes, you’re not different. As with all other markets who found real estate to be a dog, including the U.S., Europe (primarily U.K., Spain, Ireland, Italy, France, etc., etc.), China, India, Mexico, and on and on, Canada’s will be no different. The fundamentals of operation today in Canada are PRECISELY what they were throughout the globe 6 years ago. Canada’s only lagging in the times, as is Australia and New Zealand.”

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

The Conservative government didn’t learn a thing, did they? No leadership. So now that they have ‘created the mother of all real estate bubbles’ we don’t hear a word from them.

And that ‘cute little F fella’ is now despairing over the mess he’s created.

#126 brunette on 08.12.13 at 11:21 am

I was at dinner yesterday and there was a realtor there, he was all pumped that it was a “buyers market”.

Someone asked him that if it was a buyers market that shouldn’t the buyers wait because prices will go even lower. His reply was that “you’ll never know the bottom until the prices rise back up and then you are too late so it’s better to buy now then guess”.

#127 Wally on 08.12.13 at 11:40 am

You can also leverage financial assets, so compare apples to apples. You still lose. — Garth

————-
OK, apples to apples. Invested money vs buying a house with 10% down over the last 10 years.

Well if you know someone that invested $10k instead of buying a house, and then leveraged that investment 10x, and made 800% return in 10 years, then yes you could make an investment approach the return of a house. Of course it would be less than the return on the house, because the investor pays interest in the borrowed money, and taxes on the gains.

But no investor can do this, because 10x leverage is not available to the typical investor. For example, you haven’t done it, because you’ve told us that your returns are 7% per year, not 800% in 10 years.

An investor who does that would be a special apple indeed. If you know even of a single person who has done this, please let us know. Unlike the many people who have done this through house ownership.

But any, garden variety, “green apple” homeowner that had bought a house with 10% down 10 years ago would have achieved about 800% return in their down payment, which is a lot more than your 7% per year.

#128 Wake up the sheeple on 08.12.13 at 11:50 am

This is worth watching Max Keiser episode KR482 , he has a good rant about Carney and canadian housing , keep up the good work Garth .

#129 JE on 08.12.13 at 12:00 pm

A sign of great things to come:

http://www.thestar.com/business/personal_finance/2013/08/12/is_seller_financing_an_answer_to_cmhc_restrictions.html

I will have some comments on this later. — Garth

#130 pbrasseur on 08.12.13 at 12:28 pm

The Big M #125

The US is in recovery but damages from the RE bust are still current, unemployment is diminishing but employement still at an historical low and american households have lost 40% of their worth.

Even if our bust is not as bad it can be very painful.

#131 Ralph Cramdown on 08.12.13 at 12:30 pm

#128 Wally — “But no investor can do this, because 10x leverage is not available to the typical investor.”

Any investor who can’t figure out how to get 10x leverage probably shouldn’t be handling his own investments. Any investor who WANTS 10x leverage, outside of a few select instruments and markets, probably shouldn’t either.

#132 Mister Obvious on 08.12.13 at 12:35 pm

#107 The Big M

“Prices go up, they drop, they level off, they go up again.

So what?

It’s called a cycle.

————————

When does the ‘Nortel cycle’ begin the next upswing?

#133 Holy Crap Where's The Tylenol on 08.12.13 at 12:43 pm

#130 JE on 08.12.13 at 12:00 pm
A sign of great things to come:

http://www.thestar.com/business/personal_finance/2013/08/12/is_seller_financing_an_answer_to_cmhc_restrictions.html

I will have some comments on this later. — Garth

Sure I would really like to use your credit terms and borrow my cash from you. But when the leader says “I’m going to make you a deal you cant refuse” Start running and never look back or you will be sleeping with the fishes!

#134 Renter's Revenge! on 08.12.13 at 12:44 pm

Wally,

Let’s pretend it’s 1999 for a minute, and you’re reading a blog (or newsletter or something) someone is writing about how overvalued the NASDAQ index is, and how it’s probably a good time to buy a house, because prices have barely grown in the past 10 years.

Then you come along and start giving examples about how people who invested $10k in the NASDAQ in 1990 have grown their investment by 1000%, without even using leverage, while people who bought houses in 1990 have barely broken even after 10 years, all while throwing away money on interest payments on their mortgages, thus showing that leverage is useless and possibly even detrimental to one’s investment returns.

Then in response, the writer of the blog urges diversification away from tech stocks, and suggests that leverage may be wise to use in certain circumstances. But still you persist in your statements about how tech stocks are the only worthwhile investment and that leverage is pointless.

Now, fast forward a few years and tell how us how things look.

#135 Siva on 08.12.13 at 12:45 pm

Actually the story is about Indian investors. But whatever, right? — Garth

“Both countries have set their sights on wealthy Chinese as well as Indian immigrants.” – Headline says Indian investors but the article says both Chinese and Indian investors.

#136 Snowboid on 08.12.13 at 12:56 pm

From the biggest online real estate selling/buying service in the US…

http://www.auction.com/blog/canadas-housing-market-in-bubble-territory/

For those RE agents still in the denial stage, this is the time to set aside your fear and plan how to take advantage of the coming downturn instead of posting BS about how well it’s doing!

Maybe get together and start ‘Auction.ca’ (domain is available) – you could make a mint!

#137 happity on 08.12.13 at 1:22 pm

The only real booster shot to rising interest rates has been the fed taper that never was, so garth do you believe that free market forces will dominate real estate or not?

#138 Doberman on 08.12.13 at 1:25 pm

My forcast is a soft landing but not till 2015, still up until then. Followed by a couple years slow melt, then back up for another 10 years.

#139 Musty Basement Dweller on 08.12.13 at 1:25 pm

Yeah Calgary is different than Vancouver alright. Calgarys 4 seasons are mud& bugs, dust, snow and ice. But the real estate vulnerability seems similar.

#140 Musty Basement Dweller on 08.12.13 at 1:31 pm

#107 The Big M on 08.12.13 at 7:28 am
Yeah it’s just a cycle. Maybe if you go through something like many have in recent crashes and are living on the street you might not shrug it off so easily.

#141 not 1st on 08.12.13 at 1:34 pm

Be careful referencing guys like Schiff and Keiser. They are colorful characters and have made some accurate predictions. While each has a scathing but accurate analysis of the shenanigans and corruption plaguing our system, they both then go on to recommend gold and silver as the only investments worth having.

Keiser still thinks he can take down a behemoth like JPM just by buying silver. Hasn’t happened yet.

#142 Morgan on 08.12.13 at 1:49 pm

Re: the discussion about whether you make more money from real estate or stock/bond investments… they are fundamentally different assets. Both can turn into financial money pits, both can skyrocket in value. Similar to an investment in education, they serve different purposes and each has its place in a diversified life.
I’d argue that home ownership is not the same as real estate investment per se – simply because you have the built-in liability of being a real person who needs real estate in some form to house yourself. You can live in real estate, and avoid the expense of renting. You can make money, but also go deeply below zero without even abusing leverage to get there (witness the tax sales of properties). When you sell you do avoid capital gains taxes, but also pay huge exit fees, and your renting liability resumes – the cost of which is often somewhat in proportion to whatever has happened to your old property. These are qualitatively different factors from a financial portfolio.
I’ve never found that playing with theoretical numbers really replaces doing the more personal math for each individual situation. And really, the last 10 years is probably not the right numbers set to use to base any decision going forward anyway.

#143 Debtfree on 08.12.13 at 2:52 pm

Margrette Heffernan ” the dangers of willful blindness ” Ted.com a kindred spirit of yours Garth ? People choosing to be blind ? It’s a Canadian thing .

#144 bill on 08.12.13 at 3:24 pm

#144 The Big M on 08.12.13 at 2:14 pm
are you a realtor by any chance?
do you remember 1980?
were you even alive then?or still just a gleam.
this RE market has unfolded just about the way Garth predicted.
it is not going to end well.
there will be a lot of pain for those who came late to the RE party…. boomers that havent unloaded their RE
will regret their inaction.
the RE market will return to the mean and most likely overshoot that …
you are of course leveraging RE so you can take advantage of the next run-up?
would you be so kind as to tell us all about your RE purchases?
or are you just a desperate bagholder ,hoping ,praying the market turns around and all those condominiums
get sold to…especially yours?
just who is going to buy all this excess anyway ?
could you enlighten us ?
Thanks

#145 Sebee on 08.12.13 at 3:25 pm

Nice New Homes Sales chart.

Does someone have a similar chart for resales?

#146 jess on 08.12.13 at 3:42 pm

“upselling” — steering mortgage applicants into higher-cost terms that increase the lender’s profits — and it was rampant during the housing boom years.

It worked like this: Rather than put borrowers into loans at the lowest rates and fees for which they were qualified, loan officers persuaded them to sign up for more expensive ones. Loan officers who squeezed more juice, or profit, out of their applicants got extra pay.

The Federal Reserve Board banned abusive practices like this in 2011. But a lawsuit filed recently by the Consumer Financial Protection Bureau suggests that hidden, backroom upselling ploys are still alive and well

http://www.latimes.com/topic/economy-business-finance/u.s.-consumer-financial-protection-bureau-ORGOV00000233.topic

===
CFPB director Richard Cordray decried the company’s alleged actions, saying that such practices “precipitated the financial crisis”.

#147 prefshareschallenged on 08.12.13 at 3:45 pm

I just finished looking over a long list of pref shares. As I suspected they were all under water. Many falling more than the yield will return in the near term. The sharp drop in values is interesting. I’m a glass half full kind of person. Is there an opportunity around the corner to buy? Might there be a big drop coming between now and November when big news of Fannie and Freddie going down adjusts the market? If private banks are forced to choke on the outstanding jumbo loans….could there be a spike in rates that crashes the market and gives an old vulture a fine feed?

No rate spike coming. Preferreds are bought for income – which is sweet right now. Besides, what’s to fear with perpetuals that have a par value? Sounds like you don’t get that. — Garth

#148 Devore on 08.12.13 at 3:58 pm

#107 The Big M

There are so many other financial topics that could be discussed such as; investment strategies, investment vehicles, tax opportunities, owning your own business, buying existing businesses, tax loopholes, etc. etc.

No one is stopping you. Garth won’t. Or by “discussing” do you mean other people providing information and you reading it? This is a real estate blog. There are dozens of investing blogs where you can pontificate the finer points of the tax code.

#149 Devore on 08.12.13 at 4:00 pm

#109 pbrasseur

The short memory of market participants is indeed an important “bubbly” factor and I’m sure most Canadian RE market bulls have never seen (or were too young to care or remember) what a real estate bear market looks like!

It was only 2 decades ago. Plenty of the people fueling and enabling today’s house horniness have lived through that period first hand. I guess this time is different.

#150 Jake on 08.12.13 at 4:00 pm

BUT GARTH THIS IS SO WRONG (and thanks for replying-your comment below)
Not exactly. Average residential real estate gain over 10 years, 6.2%. Average return of 60/40 balanced portfolio, 6.98%. Occupancy costs along the way far exceed rental costs. You lose. — Garth

Why is it wrong?
Because average CANADIAN r/e? Or micro-example (for me all that matters is TORONTO).
Secondly and more importantly_ are you factoring in capital gains in your average? Because in owner-occupied you know you don’t pay any.
Third, are you imagining I have $400,000 to invest today vs $400,000 to spend? Because I don’t. So let’s say I have 20% or 80K – if I make 7% on 80K vs 7% on 400K, and pay no cap gains on 400K “investment” (my home), and pay interest, surely to God I’m ahead by borrowing to buy vs investing and making 7% as per your example, no?

#151 In edmonton on 08.12.13 at 4:20 pm

In Edmonton here, we have a total of 27 highrises either started, or approved, many as high as 40 stories tall.
Yet we have highrises completed in 2008 with presales since 2005, that still have new units being released.http://www.theicon.ca/
We never got up to the peak prices of 2007 here in Edmonton with the low interest rates that were made to avoid a depression after the 2008 US stock market meltdown….

#152 espressobob on 08.12.13 at 4:25 pm

#149 prefshareschallenged

Why are you looking at prefs with doom? Get a grip! Thats the problem, ‘short term thinking’! Don’t invest if you need the cash.

Averaging in to an asset class is a slow process And nothing wrong with all that yeild, is there?

View this over the long haul instead and remember one thing, a T3 beats the crap out a T5! Good luck.

#153 Bill Gable on 08.12.13 at 4:37 pm

This caught my eye, Mr. Turner: This is all too familiar –
“Canadian housing starts fell slightly in July. According to Canadian housing officials, this is a sign the market is “stabilizing.” A warning to our friends to the north: in January 2007, our Federal Reserve declared “signs of stabilization have appeared in the U.S. housing market.” As it turns out, well, no need to go into all that. You get the picture.”

LINK: http://tinyurl.com/l5hwd6a

#154 HAWK on 08.12.13 at 4:40 pm

Man one has gotta luv ads like this……….a sign of the times :-)

http://toronto.kijiji.ca/c-real-estate-house-rental-RENT-TO-OWN-OPEN-HOUSE-AUGUST-17TH-BETWEEN-2PM-to-4-PM-W0QQAdIdZ512829438

#155 Yitzhak Rabin on 08.12.13 at 4:49 pm

Ontario’s budget deficit is roughly the same as the Federal one. This is during the housing boom. Any thoughts on how bad provincial debt will become when a housing crash is thrown on top of it?

#156 The Big M on 08.12.13 at 4:53 pm

#146 bill

“are you a realtor by any chance?”

Typical response around here.

“this RE market has unfolded just about the way Garth predicted.”

Yeah OK. Have another one.

#150 Devore

“This is a real estate blog.”

Really, then what does this mean from the title;

Garth Turner on Economics, Real Estate, Money and the Road Ahead

Admitting you were wrong is the first step on the road to recovery.

#157 Devore on 08.12.13 at 4:58 pm

http://www.theglobeandmail.com/report-on-business/rob-commentary/a/article13705668/

It is now clear that Ottawa is not only worried about homeowners borrowing too much. The government is also concerned about its own exposure, and it’s scrambling to limit the potential risk to taxpayers.

/…/

As Canso bluntly puts it: “Canada borrowed its way out of the 2009 recession by stoking our residential housing market to absurd levels. We cannot afford the houses we are in.”

/…/

Looking back, Finance Minister Jim Flaherty’s constant badgering of Canadians about excessive borrowing may have been a diversion.

He could have worried more, and sooner, about the government’s own behaviour in pumping up house prices.

Oh, those pieces are setting up on the chessboard so beautifully, almost like according to some overarching plan!

#158 jess on 08.12.13 at 5:06 pm

omg!

Professor Zhang Lin has spent six years shifting rocks and rubble to the roof of this apartment block to build his dream ‘mountaintop’ penthouse

http://www.dailymail.co.uk/news/article-2389974/Zhang-Lin-builds-mountain-apartment-block-Beijing-China-create-dream-penthouse.html

#159 Freedom First on 08.12.13 at 5:18 pm

#107 Thebigm

You are ignorant, insane, and heartless. Millions of people world wide were not able to hang on to their homes when their RE market crashed. They were thrust into Foreclosure, bankruptcy, and poverty. #107, you’ve got to be a Realtor.

#160 bill on 08.12.13 at 5:53 pm

#158 The Big M on 08.12.13 at 4:53 pm
just answer the questions and spare us your contempt eh?

#161 NorthOf49 on 08.12.13 at 6:10 pm

The flipper mentality in Hamilton:

Listed in Sept 2012 and purchased shortly thereafter – $450K (or close to):

http://webcache.googleusercontent.com/search?q=cache:H1FmLc6QtIIJ:www.housingblock.com/for-sale/220-lime-kiln-road-ancaster-on-l9g-3p6/p_5244268/+%22220+Lime+Kiln%22&cd=6&hl=en&ct=clnk&gl=ca#.Ugkz0njD_iw

Received construction permit from the city in November 2012 for $25K (though probably more like $50-$100K done in upgrades)

Re-listed Aug 2013 – $769,000:

http://www.realtor.ca/propertyDetails.aspx?propertyId=13497155&PidKey=-535863940

They’re taking a huge gamble. Two years ago a similar house on this street was listed at $749K then reduced to $699K after a year on mls. It never sold, and the listing was eventually pulled. Another house on this street listed at $2.4 million has been for sale for over 3 years now.

#162 Devore on 08.12.13 at 6:13 pm

#158 The Big M

The ball is still in your court, regardless of my “wrongness”. If you wish to “discuss” investment matters, feel free to get things rolling instead of selectively picking on individual out of context sentences.

#163 jake on 08.12.13 at 6:17 pm

#156 how is that a sign off the times? Seller is smart. He will sell but rent in the meanwhile. That looks to me like a pottery big home with two income potential.

Here is my story.

Bought an 18 ft wide semi for 400 in leslieville Toronto in 2005. Sold in 08 for 547 and bought for 730. Now that similar semi is asking 800 and mine 1m. So even a 25% gut job just puts me at even. Meanwhile I love my home and could not fathom selling. So, who cares if the market corrects? I am here for life (at lest I hope).

Plus, you have all those little friends in the basement. — Garth

#164 Penny Henny on 08.12.13 at 6:50 pm

basement for rent 1200 all inclusive.

#165 Alberta Girl on 08.12.13 at 6:53 pm

#118 Infused with Opiates – You must be! I never stated I wanted or deserved a vacation home. I was commenting on the fact that many Baby Boomers have two or three properties for sale at ridiculous prices and who do they think are going to buy these? I am fourty one, saving for my own retirement, while paying my own mortgage and there is no way I could logically afford one of these homes. I never said I deserved one, I wondered whom the BB’s thought would buy these places up?

#166 Alberta Girl on 08.12.13 at 6:55 pm

Oops, my apologies to The American. Infused with Opiates was #119.

#167 maxx on 08.12.13 at 7:58 pm

#92 moremiles on 08.12.13 at 12:43 am

Hilarious!…and anyone not getting sucked into buying anytime soon will be exclaiming “meep-meep!” on the way past!

#168 Daisy Mae on 08.12.13 at 8:31 pm

#105 GarthWasWrongAboutVancouver: “Vancouver real estate market is now hot again. Garth was wrong about Vancouver so conveniently ignores this market.

http://youtu.be/0oNcoWdaftY

GARTH: “I see you linked to Global TV McNews.”

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

Sponsored by REMAX. Controlled by REMAX.

What else is Global to do? ;-)

Well, they do as they’re told!

#169 Ben on 08.12.13 at 8:35 pm

tinfoil hat – oh it will crash, of that I’m certain. The question is real or nominal, and when.

They kept it going for a lot longer than I ever thought they would, that’s all I’m saying…

#170 Infused with Opiates on 08.12.13 at 11:28 pm

167 Alberta G – then dont buy one, but why do you think
you are the benchmark?

#171 Xerox on 08.13.13 at 11:32 am

Alberta Girl: I checked the mls and 28 pages is only 8 listings per page= 224 listings over $1,000,000- and this includes acreages- there are about 5834 residential properties for sale right now in Edmonton- those $1,000,000 homes only account for 4% of the inventory- and frankly in my area of the city I surprisingly have seen a number of over $1,000,000 homes sell this summer. I just wanted to clarify and expand on your post, I don’t mean to demean anything you have posted.