The slaughter

RENT

Of course if the US goes ahead and attacks Syria (kinda doubtful now), and Russia’s drawn in (ain’t gonna happen), then you can ignore the rest of this post. Gas would be $3 a litre in a few weeks and house prices fall by the day.

But let’s not go there. And no need to Hoover the Sobey’s tomorrow for Starkist and Cottonelle, either. There’s no wide war coming. Even tumbling gold and oil prices are telling you that.

That means all we have to worry about is hormones and mortgage rates. That’s plenty.

Realtors in Toronto and Vancouver are expecting a little rush of new listings over the next couple of weeks, and an equal gush of activity. It could be the final one for a long time. Fueling the buying, such as it will be, is the pop in mortgage rates which came with surging bond yields over the last couple of months. Those who pre-approved for five-year loans at 3% or less are desperate now to buy before their commitments expire.

As I’ve said before, it’s lunacy. Higher rates bring lower prices. Buying a house for more dollars and greater debt now rather than for fewer dollars and less debt later – just to save a half point on financing – is all you need to know about how the masses think. Ah well. C’est la vie. I tried.

If they only knew what’s coming…

Of course, bond yields have been backing off for a few days, as everyone knew they would, but I wouldn’t hold my breath waiting for bank mortgage rates to fall. The banker dudes know it’s temporary, since the odds are 100% that the US central bank will begin tapering back its stimulus spending – perhaps as soon as three weeks from now. This is the same action doomers on this pathetic site have been telling you for months would never happen. Of course it will. It’s here.

Over time rates will rise much more. The degree and speed depends on the US economy. If things go well, especially with job creation, then the Fed will increasingly stop buying bonds, dropping prices and hiking yields. The central bank rate itself may not increase for another two years, but that’s cold comfort to someone facing a mortgage renewal twelve months from now.

What to expect?

Right now the yield on a 5-year Canada bond is 1.95%, which is a giant .8% more than it was in April – and explains an equal surge in mortgage rates. The brainy economists at TD Bank are forecasting this yield to top 4% within four years, raising the cost of a five-year, fixed-rate mortgage to 5.74%. That’s one mama of a surge from the days of 2.69% we experienced just months ago.

Mortgages within striking distance of 6% would have a profound impact on real estate affordability. Housing economist Wilf Dunning is already unequivocal: combine current rates with F’s move to punt 30-year amortizations, and the market is pooched.

“The policy change made a year ago was equivalent to a 1 point rise in rates for anyone needing an insured mortgage (i.e. somewhere around 1/2 of buyers),” he warned a mortgage industry publication a few days ago.  “I still believe that the impact of that is long-lasting (but it has been masked recently by the activity resulting from the rate movements). Adding the 1 point equivalent rise from a year ago to actual rises in recent times, there is potential for a major slowdown late this year.”

That major slowdown in 2013 will be nothing compared to what 2017 might bring, if TD’s correct. The bank says every 1% jump in the cost of a mortgage brings a rush of new buyers hoping to beat the increase (poor, deluded fools), followed by a permanent decline in sales. It also adds that, “if five-year interest rates were at more normal levels of around 7%, housing would be unaffordable to the average Canadian household.”

Of course it would be. That’s why real estate prices will fall, until affordability levels are restored. It’s a lesson today’s buyers – rushing to lock in low rates and high prices – will learn the hard way. Buying a house at the top of the market because financing’s cheap is like grabbing RIM stock at $140 because your broker’s margin rate was low. Instead of worrying about carrying costs, you should fret over capital values.

But then, this is the slaughter of the virgins. They know nothing of 7% mortgages. The last time real estate prices toppled, they were watching Big Bird and filling their Huggies. A shocking number think 3% loans are normal. They haven’t the foggiest notion of the Nineties condo collapse in Toronto, or desperate Calgary homeowners selling for a dollar to get out of their fat mortgages.

That’s the cool thing about history. It bites.

126 comments ↓

#1 Randy on 09.01.13 at 8:32 pm

….gee…we’ve got a long way to go….

#2 Mike on 09.01.13 at 8:34 pm

Now you have me shaking with anticipation. What’s the big news you have coming?

#3 Derek R on 09.01.13 at 8:35 pm

So you’ve been reading Garth Turner’s blog for a few weeks and you’re still not sure of the difference between the Boomers and the Doomers, what squirrel recipes have got to do with anything, or why Garth’s got such a downer on gold? Well, here’s the GarthFAQ to explain all…

#4 Chris L. on 09.01.13 at 8:38 pm

Wahhhhat? 2017? The first of the blog dogs are going to be too gray to care in 4 more years! This things been going on since 2009?

#5 SNAKE on 09.01.13 at 8:38 pm

WAIT TILL JAN 2014 TO BUY A HOUSE ?

#6 Fed-up on 09.01.13 at 8:42 pm

2017 huh?

Don’t ya just love how it will take almost a decade longer for the Canadian Real Estate Fiasco to unravel than it did in the USA and almost every other civilized country?

What a retarded nation (of a paltry 34 million) this is.

#7 Chickenlittle on 09.01.13 at 8:44 pm

Geez,Garth, take a weekend off!

#8 Entitled Fellow on 09.01.13 at 8:49 pm

A friend of mine who’s name shall remain anonymous is a perfect example of how screwed up people in Canada are.
On a poggy clearing $1200 a month and less then $150 in total money, in pocket and bank and he says, what a great deal for that pushover shack I Burnaby listed at $950,000.
Oh well, if only he’d stop to ask me the same question over and over again: CAN YOU SPARE A BEER….LOL
Me thinks people in this country are the most entitled/delusional folk on the planet.

#9 Benchwarmers on 09.01.13 at 8:56 pm

“Turn $1200 cash into $240.000 in debt” this sign must be at Calgary city hall, outside the affordable housing office.

http://www.calgary.ca/CS/OLSH/Pages/Affordable-housing/Learn-about-affordable-housing/Learn-about-affordable-housing.aspx

#10 SNAKE on 09.01.13 at 8:59 pm

Now you have me shaking with anticipation. What’s the big news you have coming
——————————

no crash & he is shutting this website

#11 Rates will crush the market soon on 09.01.13 at 9:00 pm

Won’t take 6%…..Over 4% will do it… Coming soon to a bank near you lol

#12 FATHER on 09.01.13 at 9:04 pm

garth I think the U.S. will attack Syria, so is this the good news having gas at $ 3 per litre and housing going down everyday? If it is that’s awesome because the U.K. pay’s that much $ already so I’m kinda used to it.

#13 eddy on 09.01.13 at 9:08 pm

September is a good time to stock up on 100 watt incandescent light bulbs, they will harder to find as we approach Dec.31 when they become illegal to import

Do you need those for surgeries? — Garth

#14 Bob on 09.01.13 at 9:15 pm

#3

Thank you Derek. Very concise. Now I know what [email protected] means.

#15 Ralph Cramdown on 09.01.13 at 9:18 pm

What is this, an amnesiac’s convention? Nobody remembers that Egypt was going to come apart at the seams? Maybe it was Libya that was the huge problem, no wait — it was Tunisia that was going to be a big issue. Iran? Lebanon, that was it!

Nobody seems to remember the lesson that America learned in Somalia. If unwilling to go in in Corps strength, not one boot is to hit the ground and all is to be done remotely.

Focusing on what the Russians are going to do? Puh-lease. All y’all are missing Obama’s brilliant flanking maneuvre on the Republican House, which wouldn’t want to vote for motherhood and apple pie if it showed support for the administration. Now if only Kerry doesn’t mess it up with a promise to act no matter how the house votes, thus making it a nullity…

#16 Retired WI Boomer on 09.01.13 at 9:23 pm

The hawkers keep flogging-its called salesmanship. Just like our elected people keep passing gas, and new laws.
Now the Obama man defers to this defective group for the most important decision WAR.

Do Canadians realize how close to BROKE the US really is?
Not that we can’t fix it, but our elected riffraff have chosen -on behalf of their supporters (read CASH contributors) not to tax us sufficiently. NEVER in my 46 years of paying taxes have I paid less. WTF??

Wake me if we are still here on Nov 1st ok?

#17 45north on 09.01.13 at 9:25 pm

eddy: September is a good time to stock up on 100 watt incandescent light bulbs

If the government has no business in the bedrooms of the nation, then they have no business dictating what kind of mood lighting I can use.

http://www.sunnewsnetwork.ca/sunnews/straighttalk/archives/2013/07/20130712-073126.html

don’t we get to vote on this?

#18 Nosferatu the Madman Across the Water on 09.01.13 at 9:25 pm

#143 Smoking Man on 09.01.13 at 9:04 pm — “Anyone wana make a zillion, start a religion, offer the best after life deal going, just get it on TV, the track 6ets are yours. I’m going to invent the ultimate religion……..”

Hey SMan, never mind the MEast garbage, dOg was on The Simpsons 2nite. Holy sheepshit, Jim and Tammy Faye have been blessed! Praise The Simpsons!
*
“Of course if the US goes ahead and attacks Syria (kinda doubtful now), and Russia’s drawn in (ain’t gonna happen), then you can ignore the rest of this post.”

Possibly, but Syria, like Libya and Tunisia are small fry. There is another reason — Hungary, is making history of the first order along with Iceland & Russia (issuing debt-free money); here, here, here, here, here, here, here, here and here.

#121 Julie — “In ‘Climate Cold’ news: I pity those who bought those overpriced match boxes in Garrison. They won’t burn but rather rot when “Climate Cooling” really takes hold.”

To completely mess the world up and confuse Sheeple in the Zombie Zone, all that is needed is for Yellowstone or Toba to have a hissyfit, thereby blocking out the sun’s rays and sending us yonder into another ice age for a few thousand years.

If WW3 happens at roughly the same time, we’ll wipe ourselves out a lot more quickly (physically, but not spiritually as life always continues) than first envisaged.

#19 Obvious Truth on 09.01.13 at 9:28 pm

Some difficulties with these overdone rate backups.

A 4% five year rate and possible 6% ten year would bankrupt most western nations. These numbers in Canada would imply vastly higher rates in Italy, Spain and many other nations. There simply isn’t demand for money at that rate. Canadian bank economists have been wrong for a long time and will continue to be.

There in no inflation. I think i paid less for milk, eggs and butter this week.

The only way out is inflation if we can get it. And a lot of it to boot. It’s always the way out. In that case wages and assets rise and no huge correction. Just run of the mill 15%.

Rates won’t rise without inflation. If they do, assets will crash. It’s simple math. 6% ten year – 1% inflation = 5% easy money. Reits would have to yield 10% to catch a bid.

Governments fought too hard to let that happen again. Everyone knows we need inflation.

#20 mortgagebrokeron on 09.01.13 at 9:31 pm

If the TD economist is correct with a rate increase to 5.74%

There will be a drop of home prices of 23.75% in 5 yrs

I did the math on the affordability ratios, gds and tds, and if this spring’s 2.89 five yr fixed is going to be 5.74% 5yr fixed then people at renewal who put down their 5% downpayment and who were at 39% gds

won’t qualify in 5 yrs to buy the same house they are in now unless prices drop 23.75%.

this is going to be pretty bad

#21 Scott in Gibsons on 09.01.13 at 9:39 pm

Might be a good time to wrap up the blog Garth. The next collapse is starting in the emerging markets like India and Brazil. It’ll spread to the center just like subprime did in ’08. That crash caused stocks to swing wildly, this time it will be currencies. Your messed up macro view is about to be exposed.

Care to bet? — Garth

#22 WAIT DONT BUY on 09.01.13 at 9:41 pm

In a true market RE would correct faster if government did not interfere. The latest news is that man will go to Mars in a decade and RE will be a lot cheaper there. Like the wild west, ths frontier own many acres.

#23 Canadian Watchdog on 09.01.13 at 9:42 pm

Bonds are oversold. Yields will be down anytime within the next few months. I actually hope I’m wrong, but I’m betting I won’t be.

#24 Bob Rice on 09.01.13 at 9:50 pm

You mean I gotta wait til 2017 to buy a house!?!?!

Holy smokes, I don’t know if I wanna rent for that long! ;)

#25 EvilMagpie on 09.01.13 at 9:51 pm

Garth, where do we go from here in terms of building up the fixed-income portion of a given portfolio (long-term investment horizon, RRSP, money added each month) given that interest rates are rising? Funds such as XBB and XRB are decreasing in value. Is it time to go 100% corporate bond until interest rates stabilize?

#26 not 1st on 09.01.13 at 9:53 pm

I for one cannot wait to see young hornys and over stretched new immigrants handed their hat in a good old barn burning recession. Some people have short memories and some assume things will never change.

#27 Big Angry Bear on 09.01.13 at 9:55 pm

Obama is in a tough spot. If he attacks Syria, Syria will attack Israel. Then all hell will break loose. We are part of a shrinking alliance (Canada, US, UK, France, Israel, Turkey, Saudi Arabia, Qatar)

Our leaders have very short term vision (hence the alliance with Al Queda among the rebels in Syria)

Russia and China on the other hand are uniting to confront our alliance and punt the US dollar as reserve currency.

All that’s needed is a spark. Obama knows this and is deferring to Congress who are in Israel’s pocket.

Should be an interesting week ahead as the chickenhawks point fingers and scream ‘attack’

I was fooled 10 years ago by Colin Powell at the UN.

John Kerry couldn’t carry Powell’s laundry

How can you be so sure Garth?

#28 not 1st on 09.01.13 at 9:56 pm

“Bonds are oversold. Yields will be down anytime within the next few months. I actually hope I’m wrong, but I’m betting I won’t be.”

CW, you are missing the the underlying action. The fed wants that bond money out and back into equities and the economy where it will at least work or be paid out as dividends and then put to work. Thats their underlying goal and they will accomplish it.

#29 TnT on 09.01.13 at 10:08 pm

Big Angry Bear

Obama is in a tough spot. If he attacks Syria, Syria will attack Israel. Then all hell will break loose. We are part of a shrinking alliance (Canada, US, UK, France, Israel, Turkey, Saudi Arabia, Qatar)

Obama is in a great spot man handling the GOP in congress.

The US will strike strategic targets.
Syria will launch a few to Israel.
Israel will repel the attack and respond with strategic attack on Hezbollah and will keep their secret support for the rebels in Syria.
Russia and China will stay out
When this round is done Iran will be next on the chopping block.

#30 Donald Trump on 09.01.13 at 10:14 pm

Thanks to all for overwhelming response re: my” pass the hat” idea to send Smoking Man and Old Man to Syria !

I can’t keep up….will need a 10 gallon hat soon !

Also, at this rate, maybe can send them economy class instead of UPS !

#31 Realtor on 09.01.13 at 10:16 pm

Everyone will go back to a variable rate. The trend will switch again. The normal % rate for bank of
Canada rate will be around 4% lock in the 5 year and wait for banks to bring back the prime minus one again

#32 espressobob on 09.01.13 at 10:17 pm

#3 Derek R

Very cool comment! Squirrel is actually a delicacy!

#33 S Man's Trading Mentor on 09.01.13 at 10:19 pm

S Man,

When attempting to make a living in the speculative markets, one only has to have a cursory knowledge
of the pain and suffering of others who have “gone all in”. Didn’t you ever read “Reminiscences….” . Do you know Livermore, probably the greatest trader ever, died broke?” Certainly the ex-principals at LTCM had a much better understanding of markets than your “feel for the herd”. We all know what happen there – hell the Fed had to bail out the fi system just because of them, which by itself is a note worthy accomplishment.
Warren B. once made a comment that he always hired the best of the best to groom for future portfolio managers, but without a fault not one of them could ride out a highly leverage portfolio to actually get somewhere decent for the risk they assumed. Much like them, your own arrogance will be your downfall.

For some easy money, stick to building up a short position in the Canadian dollar via shorting call options -we all know what’s going to happen there over the next two/three years. And if your more aggressive, just buy far out of the money puts on the major indices, puts with lots of time value left. With over extended markets and either rising rates on the one hand or a further slant towards deflation on the other, with all those algos buzzing, it’s only a waiting game before we enter another panic phase. At the very least, just build up a cash horde for the future asset discounts.

#34 Realtor on 09.01.13 at 10:19 pm

People will go back to variable. Lock in for a five year and wait for the banks to offer prime minus again. Prime in five years should be around 4%

#35 Donald Trump on 09.01.13 at 10:28 pm

Nanaimo businesses prepare for Chinese tourist boom

http://www.nanaimobulletin.com/news/221518811.html

Businesses in the Harbour City are preparing for a Chinese tourist boom – beginning with language lessons.

Downtown Nanaimo is banking on construction of a new $50-million conference centre hotel to drive up Chinese tourism with an estimated 70,000 visitors each year.

It’s a major market, according to businesses and tourism organizations now taking steps to roll out the welcome mat.

The Downtown Nanaimo Business Improvement Association and Literacy Central Vancouver Island plan to boost cultural sensitivity by teaching shop owners and front-line staff Mandarin and Chinese business customs. Businesses are seeking new products to appeal to Chinese visitors and translated signs for tourists could be placed downtown.

The first tour group will be brought to Nanaimo by hotel owner SSS Manhao this fall in anticipation of the company building its new hotel. It will be a test run for downtown shops, according to Cory Hostetter, general manager of the DNBIA.

“This will definitely be a learning experience to find out what we can do to make the visitor experience a little more pleasant,” she said. “If we think of [70,000] tourists coming throughout city … that number is huge. Obviously we want to be as best prepared [as possible] to have them.”

The City of Nanaimo unanimously approved selling its Gordon Street property to SSS Manhao International Tourism Group in July under the condition the new build is completed within three years.

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

If not mistaken…this was the site that the City Of Nanaimo was in bed with the same company(which went bankrupt) that did the COV Olympic Village condos fiasco.

BAD sign.

Reeks of desperation.

#36 takla on 09.01.13 at 10:28 pm

10 years from now this RE correction will be history also…..or will it???can you see that far ahead Garth since many of the horneys have no prob signing on the dotted line for morgages three times that duration

#37 Ralph Cramdown on 09.01.13 at 10:34 pm

#26 Big Angry Bear — “Russia and China on the other hand are uniting to confront our alliance and punt the US dollar as reserve currency.”

The mind boggles. Would YOU want to keep a decent fraction of your wealth denominated in yuan or roubles for an appreciable period of time? Neither would I, neither would any of 4 billion people who’ve grown up on American movies, neither do most of China and Russia’s own citizens, neither does anyone save perhaps a few small-time traders located in small satellite states on the peripheries of those two great nations whose local currencies are an even crappier store of value.

Non gold-backed currencies are based on FAITH. Even gold backed ones are, because you need FAITH that they won’t become fiat. And nobody’s got any FAITH in the Chinese or Russian government’s handling of their currencies, and that won’t change soon unless they buy oodles of gold, deposit it with the Swiss, and publicly announce an agreement that the Swiss will convert it on demand and control the press.

I’ve got a three rouble bill. I got it in Moscow, but it isn’t legal currency any more. When I was there I needed a transit visa for the Ukraine, so I stopped by the embassy. The woman behind the glass was quite clear: “Nyet Roubli, nyet Deutschemark. DOLLAR!” Holding only Marks, I went outside and asked the policeman stationed out front where a currency exchange could be found. He bent down and wrote a number in the snow, quoting me an exchange rate, but when he found I had only Marks to sell he lost interest and sent me down the street. So it goes.

#38 TheCatFoodLady on 09.01.13 at 10:36 pm

Kingston is undertaking an interesting initiative which, if done right, could help with a number of issues. If badly handled – potential nightmares on several fronts. We have very little affordable housing stock that’s not public housing & that frankly, is ghastly. I live just outside of a concentration of it & every stereotypical ill associated with public housing is there in spades save, thankfully, for murder.

On the other hand we have a population ‘aging in place’ at home who are having trouble holding on to their homes & many desperately want to. Then there are the boomers who can’r or won’t sell the family suburban pile.

The city has chosen to deem specific neighbourhoods exempt from zoning exemption applications for those who choose to put in secondary suites for rental. Of course they’ll still need permits & to follow appropriate bylaws & safety codes but they can skip the zoning exemption application stage, which can take forever.

The city is hoping most will choose to build AFFORDABLE apartments & says maybe, perhaps, possibly, some time in the future, some money can be kicked back to the homeowners – some sort of grant if they undertake to keep secondary suites affordable for an as yet unspecified amount of time. It’s in committee – holding of one’s breath guarantees death.

Interestingly, the neigthbourhoods are all middle class & there is already bitching & moaning & gnashing of teeth. Hey, no one is being forced to do this – but read the comments at the link – interesting takes.

Here are my concerns – the city meeting to be held will address permitting & building legalities. I would prefer to see a shark explaining the Residential Tenancies Act to these potential landlords. I’d also like to see a financial planner explain being a landlord is not a licence to print money – depending on what anyone needs to spend to create or make legal an existing apartment – you might be lucky to break even & the rent is INCOME.

Link:

http://www.thewhig.com/2013/08/27/city-encourages-secondary-suites

#39 Old Man on 09.01.13 at 10:48 pm

#22 Canadian Watchdog – I would not be buying bonds at any price, as the interest earned is fully taxable so this must be discounted to ascertain an effect yield on capital invested; not my gig.

#40 Marie on 09.01.13 at 10:49 pm

Garth’s wrong on O and Syria.

#41 Ralph Cramdown on 09.01.13 at 10:50 pm

#33 Realtor — “People will go back to variable.”

That could get a little interesting. In a time of rising asset values and falling rates, a bank wants all the business it can get, because what could go wrong, right? In a time of rising rates and perhaps falling asset values, what bank wants to take on or renew the marginal customer at prime minus 1/4? Scare ’em into a five year fixed with lots of juice, or offer ’em prime+1/2 and hope they cross the street to your competitor. Isn’t that how you’d do it?

#42 Herb on 09.01.13 at 10:53 pm

Re. Syria,

let us go with Socrates, who said that “I [we] know that I [we] know nothing.” To which I would add that we know only what we are supposed to know to support the measures intended by government(s).

As an encouragement to caution:

http://ericmargolis.com/2013/08/antoher-jolly-little-war/

#43 TurnerNation on 09.01.13 at 11:04 pm

Why are mind controllers of ours dishing such a sell job, all over a country whose exports total 60% in oii. While a third there live in poverty. Same script.

#44 BG on 09.01.13 at 11:21 pm

2017? Wow.

I’m still new to Real Estate and investment in general, but 2017 seems like a long wait for someone who just wants to buy early enough to:
1/ Not pay a rent when retiring.
2/ Live in place where your primary goal is not to save but actually live ( I don’t want to call it a “dream home”, but close enough)

Being diversified is good I guess. But what do you do when you’re as reach as the average Joe? I’m going to say Joe makeslary 60k/year and has 30k in bank since this is my case.

It sounds like you’re kind of stuck out of ownership, unless you’re willing to take risk of putting all your eggs in one basket.

And if you want to invest with decent ROI, you need to educate a lot to mitigate the risk, but with the numbers I mentioned above is it even worth it?

I’m just saying that following the advice given in this blog (as good as they can be) is starting to feel like a luxury. That would explain why average Joe’s don’t listen.

You want to buy a house with a total net worth of $30,000? Yikes. — Garth

#45 Patient in Richmond on 09.01.13 at 11:26 pm

you cant even get Canadian tourists to come to nanaimo , LOL

#46 TurnerNation on 09.01.13 at 11:36 pm

O yea for the 1948 crowd: never forget who created that state. Hint their mug adores our money. Err, adorns.
Scion on the bottom line. Always.

#47 Van Isle Renter on 09.01.13 at 11:50 pm

#34 Donald Trump on 09.01.13 at 10:28 pm Nanaimo businesses prepare for Chinese tourist boom

http://www.nanaimobulletin.com/news/221518811.html

Businesses in the Harbour City are preparing for a Chinese tourist boom – beginning with language lessons.

++++++++++++++++++++++++

Hilarious. Sad.. and pathetic too. Reminds me of the business case I read many years ago where a town council in a small U.S. town felt that they could boost business by putting pink ice in all of the urinals of the public buildings. People do weird stuff when they’re desparate.

#48 backwardsevolution on 09.01.13 at 11:53 pm

General Wesley Clark’s conversation at Pentagon after 9/11:

“So I came back to see him a few weeks later, and by that time we were bombing in Afghanistan. I said, “Are we still going to war with Iraq?” And he said, “Oh, it’s worse than that.” He reached over on his desk. He picked up a piece of paper. And he said, “I just got this down from upstairs” — meaning the Secretary of Defense’s office — “today.” And he said, “This is a memo that describes how we’re going to take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran.” I said, “Is it classified?” He said, “Yes, sir.” I said, “Well, don’t show it to me.” And I saw him a year or so ago, and I said, “You remember that?” He said, “Sir, I didn’t show you that memo! I didn’t show it to you!”

http://www.nakedcapitalism.com/2013/08/wheels-falling-off-the-imperial-reality-creating-machine.html

Could it be that these wars were planned for long ago?

#49 BG on 09.02.13 at 12:11 am

You want to buy a house with a total net worth of $30,000? Yikes. — Garth

No.
And even if I had the double I would still be screwed.
It sucks.

You cannot expect every middle class young professionals to have 100k in the bank before they start thinking about buying.
The average salary in Canada is something like 46k/y I think.

What are the options for the “normal” people? Suck it and get frustrated in their smelly rental unit?

I can relate to the greater fools… Even if I hate debt too much to join them.

#50 Freedom First on 09.02.13 at 12:24 am

It would make a good movie title too: “Slaughter of the virgins: There will be blood”.

I like buying quality value assets when they drop 30-60%. It always works out well. (Without debt of course). However, buying any asset at a record price, no thank you, I’ll pass. That’s how people get burned.

I read history, from this past decade, to at least the last hundred years. Looks like people get burned from a lot of different asset class bubbles on a regular basis.
The generations change, but human nature remains the same. Just look at the multi-millions of households bankrupted in this not finished housing crash in : Japan, U.S.A., several countries in Europe.

Garth is right. No exception. Balance, Re-balance, diversity, and liquidity. Only babies and toddlers should have the entitled attitude of “I want what I want when I want it”. Most unfortunately, many babies and toddlers remain untrained until the Financial/RE industries train them. “The slaughter”, apt title of today’s blog Garth. I am so grateful I never gave a sh!t what the interest rate is. It is just another tool to make money with, no matter what the rate is. Garth has been spelling out for years what a balanced portfolio pays, and exactly the balance to achieve it. It works for everyone. No excuses. No exception.

#51 Smoking man on 09.02.13 at 12:36 am

Had to make a choice tonight

Drive home in a cab with a gent who don’t believe in ac or deodorant, or my truck hammered listing to Floyd

What did the gambling man do is the question.

#52 Smoking man on 09.02.13 at 12:48 am

Ladies and Gentlemen

Imagine a bird on song in a tree

An ordinary bird like you or like me

Imagine some ruffian happening by

And beating him within an inch of his life

Then a priest from some denomination
Witnessing this abomination

Blesses not the bird but the beast

The Unknown Soldier appears on the field

And takes the bird’s feathers to put on his shield

Then a powerful judge from the high court

Decrees that the birds really ought

Not be allowed to sing in the trees

But then one day

Some of the priests and soldiers and judges

Putting aside some old worn grudges

Changes their minds and the birds sang against was the Revolution

The Revolution is a story of birds

Of sticks and stones and bushes and bones

A story of now, a story of then

A story of woman, a story of men

A story of everything to come

Of everything under the sun

#53 Devore on 09.02.13 at 1:04 am

#43 BG

Being diversified is good I guess. But what do you do when you’re as reach as the average Joe? I’m going to say Joe makeslary 60k/year and has 30k in bank since this is my case.

It is a common fallacy to assume our individual situation is common, average, normal.

With 30 grand to your name, and retirement on your mind, buying a house is the last thing you should be worried about.

#54 The slaughter | The Affluent Boomer™ on 09.02.13 at 1:11 am

[…] The slaughter The slaughter […]

#55 Nemesis on 09.02.13 at 1:16 am

@ChickenLittle/#7…

I’m with you. See this WeekEnd’s OBIT’s [Frost]… Seriously, it’s always the GoodOnes. Always too soon.

Right. Enough of that.

And now, as to the rest of you SaltyDogs… about whom I occasionally worry, when not cracking jokes…

NuancesNotWithstanding – pay more attention to CramDownRalph and, naturally, OurHost…

As in: TotalGlobalWar is really bad for the RealEstate.

i.e. – I can assure you that ‘TheMoney’ – being cognizant of that fact – are primarily JustPosturing. Well, for the most part.

So?

Chillax. But it you’re too worried/caffeinated for that… Just have a go at Carl Von Clausewitz and SunTzu a few times… and then get to back to me.

NoteToRalph: Somewhere in the ‘Archives’, I do believe I still have a ‘few’ Roubles stashed away… Never mind all that though. For, as an OldAdversary once told me, “It is better to have OneHundredFriends… than OneHundredRoubles.” And in those days… you could have some SeriousKickAssFun for a hundred roubles. I s**t you not.]

#56 Jesse Ventura Jr on 09.02.13 at 1:20 am

Since we are talking about Syria and it’s potential impact on our money – check out another joy-filled blog for a tidy 1-page summary of the whole lost-boys fiasco (of course, finish reading Garth’s blog first)

“Another Jolly Little War” by Eric Margolis

http://tinyurl.com/kejzexj

#57 Donald Trump on 09.02.13 at 1:26 am

#15 Ralph Cramdown on 09.01.13 at 9:18 pm

QUOTE:

Focusing on what the Russians are going to do? Puh-lease. All y’all are missing Obama’s brilliant flanking maneuvre on the Republican House,

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

Dude…You’re kidding…right ?!?

#58 marcus on 09.02.13 at 1:57 am

US just added another carrier battle group to supplant the need for air operations out of cyprus. Obama has decided to go. Just a few days of pointless posturing by congress then it is on ….again. http://www.zerohedge.com/news/2013-09-01/nimitz-rerouted-syria-more-destroyers-arrive-saudis-drum-support-syrian-strikes

#59 Buy? Curious? on 09.02.13 at 2:55 am

Hey Garth! First of all, I owe you an apology. I had been a bit dismissive of your claims of an impending price correction because I wasn’t seeing it on my street. Well, I found out yesterday that my neighbour who put their house up for sale in July, at 465k, have now dropped the price to 449k! That’s just over a 3% drop in a month! I think the panic is setting in.

Secondly, are you proud of Justin Trudeau’s pro-marijuana stance?

http://www.youtube.com/watch?v=JWsRz3TJDEY

#60 willworkforpickles on 09.02.13 at 4:48 am

Tapering is as it was from the beginning – nothing but a big lie in an all is going to be -alls-well soon- premeditated delusion (already tailor made) for the gullible to hork down and choke on (the choking part comes next and soon) . If the big banks are going to remain solvent and a big market crash is to be avoided…then QE will only be upped a notch or two come this Fall or Winter season. NOT tapered. Some wishful thinkers need to get their heads out of their …. ^sses.

#61 E22 on 09.02.13 at 7:13 am

I suppose the moral of the story is to buy a house that you can afford (if you want one) and live your life.

The futility of trying to predict the future should be quite clear to anyone who has been frequenting this blog over the past few years. Economists cannot predict with any degree of accuracy what will happen next week, let alone in 2017.

I think anyone who is allowing such predictions to influence their major life decisions should seriously consider this. It’s human nature for all of us to seek out news sources that support own personal world view – that’s why some read the Post, some like the Star, and some are attracted to articles that predict cheap housing in the near future.

#62 Randy on 09.02.13 at 7:46 am

Governments never fix problems…they just subsidize them…

#63 Ralph Cramdown on 09.02.13 at 9:04 am

#48 BG — “You cannot expect every middle class young professionals to have 100k in the bank before they start thinking about buying. […] What are the options for the “normal” people?”

If you want to be like the normals all your life, do what they do. Otherwise, real estate pros are always talking about how a house is probably the biggest purchase you’ll make in your life. Figure out how to either pay cash for it, or to make most or all of the interest tax deductible. Either way, you save high five to low six figures, and that right there puts you ahead.

Having half a year’s salary ‘in the bank’ is a great achievement, but it’s not nearly enough. Now you have to figure out how to get that money working for you, earning 5-10% tax advantaged without a lot of bloodsucking financial types skimming off the top, and you have keep adding a lot to the pile, like 20 or 30% of your income for the next five or ten years. If you can’t or won’t do that, you might as well throw in the towel and buy a place — somebody needs to keep up the payments on your real estate agent’s Mercedes, and it might as well be you.

#64 Yuus bin Haad on 09.02.13 at 9:08 am

#3 – You forgot “TLP” (ou en français, “LPC”)

#65 Ralph Cramdown on 09.02.13 at 9:18 am

#55 Donald Trump — “Dude…You’re kidding…right ?!?”

Of course not. Syria is a cheap sideshow for Washington, but the House Republicans were planning on turning all of September into an expensive sideshow (Böner promising a “whale of a fight”) over a continuing resolution needed by October 1 and a debt limit increase needed two weeks later. That caucus of clowns couldn’t unify behind a resolution that ice cream tastes good, so they’ll be at it a while about Syria, leaving them pretty much no time or media oxygen to talk about budgets before either signing a deal, or being the government shutdown party, again.

#66 Bob Rice on 09.02.13 at 9:19 am

#57 : “Hey Garth! First of all, I owe you an apology. I had been a bit dismissive of your claims of an impending price correction because I wasn’t seeing it on my street. Well, I found out yesterday that my neighbour who put their house up for sale in July, at 465k, have now dropped the price to 449k! That’s just over a 3% drop in a month! I think the panic is setting in.”

I’ve seen that happen a little where I live (King Township, north of T.O.), but two homes just wnet for 3% over asking and one of them was an outright piece of junk… so for every story like yours there are a few opposite ones too… I suppose everyone’s situation is different. If that’s what convinced you then you’d been convinced that house will continue to go up by the stats from July that house prices went up again across the board (or maybe the stats were used to cloud the real picture)

Anyhow, if I learned anything in my life its that we shouldn’t be too certain of anything! I hope there is a correction b/c I am a renter (after selling my condo this spring – without an agent – and making a decent return…now condos are going for less in that same building). I am not crazy about my rental scenario b/c my landlord turned out to be a real A-hole. There’s nothing better than “owning” your own place, even if most of it belongs to the bank… within reason (and bylaw allowance), you can do whatever the hell you want in your place. The jerk I rented from even had a problem when I planted a tomato plant. Anyhow, I just wonder if detached homes will sink like some of you think. COndos, yes, but they just aren’t building SFH like they did in the past.. In the ‘States, they had built tons of SFHs in the lead up to their crash… they hate high-rises there. There SFH housing stock was over-supplied. And when properties crashed here in the early 90s, SFHs were the norm, especially in the 905… Now you got condos, towns and semis being the “norm” even in the 905. But detached seem to be drying up… only the upper middle class can afford them. So working people will have to live somewhere and it seems like towns, semis and condos will fill that void. I just wonder that maybe, just maybe, single detached homes will emerge relatively “unscathed” from this “correction”

Please tell me I’m wrong..

Anyhow, renting is smart for now, but eventually my wife and i would like to own our own property.. in the meantime, we are saving up as much as we can so that we won’t be as indebted as some people…

#67 Ralph Cramdown on 09.02.13 at 9:29 am

#59 E22 — “I suppose the moral of the story is to buy a house that you can afford (if you want one) and live your life.”

Do you mean ‘afford’ with retirement savings, or without? In the old normal, couples got married in their early twenties, perhaps rented a few years, were in a home they could raise children in before thirty, paid it off in twenty-five and used the last ten or twenty years of work to save money to supplement the often generous pension(s) that awaited.

If you’re planning on marrying later, getting a starter home and then a move-up, not having it paid off for 30 or 40 years after your first step onto the property ladder, and retiring to a not-so-generous pension, or none, then I can tell you that it will work great in a time of gradually falling interest rates, falling inflation and low unemployment. Otherwise good luck with that.

#68 No Longer Innocent on 09.02.13 at 10:00 am

#48BG Smelly rental unit? Seriously?? Clearly it’s time to upgrade. Almost all communities with populations of over 50,000 have had some sort of new build, condo craze and many of those will be available to rent. Even in the tiny town of Cobourg you can rent a new townhome for less than the cost of buying it. Not to mention the tens of thousands available in the GTA

http://ontario.kijiji.ca/c-real-estate-house-rental-3-bed-room-Townhouse-in-Cobourg-1175-W0QQAdIdZ518875385

The days of renting being only smelly old apartments are over.

Buy or don’t buy, but cut the woe-is-me crap about the horridness of renting.

#69 Julia on 09.02.13 at 10:42 am

Speaking of word class cities and condo prices, taking a little wander through RE in Chicago gives some good perspective. For example here’s a spacious 3 bdrm condo in a lovely neighbourhood close to good transit, park and lake, 10 minutes or so to downtown on the Red line train. Under $250k
http://www.dreamtown.com/properties/4619-n-magnolia.html

#70 BG on 09.02.13 at 10:48 am

#61 Ralph Cramdown

I can do the saving part.
But getting a 5%-10% on my saving sounds like supernatural to me right now as I’m only starting to read on investment.
The learning curve, the risk and having only 30k make me think I should rather spend my time on increasing my income.
I’m the process on doing the maths

I’m kind of falling down from Neverland by reading this blog.

#66 No Longer Innocent

OK I pushed it too far with the “smelly rental unit” thing.
But I’m just saying that renting what I consider a quality home (condo or house) hurts too much the saving capacity for modest incomes.
This is something I see in Montreal.

#71 Post Haste on 09.02.13 at 10:49 am

#50 Smoking Man – this confirms you are a real douche! Can’t decide while drunk to either take a cab or drive and likely kill someone, I couldn’t care less if you plow into a hydro pole – but it always seems that drunks walk away while hurting others – for you to write that just proves 2 things – either you are a small minded idiot or you are desperate to be noticed because outside this blog – you are invisible to others. Why am I freaked, my wife lost her mother to a drunk driver when she was only 8, yeah, smoking man – he too thought he was sober enough to drive but instead killed 2 innocent people and scarred everyone else for life – Garth, you gotta kick this waste of space out!

#66 No longer Innocent – I agree, to a point. I rented for 7 years, each of the 3 different apartments were clean, bright and convincing enough to sign onto a 1 year term. However, each had it’s own dark secrets from the time I moved in – one thing I have learned quickly, rentals also mean that tenants couldn’t care less about their fellow tenants, party at 2am – why not – smoke weed outside your window while my 4 year old plays inside – why so touchy neighbour – the list goes on. I for one, believe that those who own something, take more care of it then if you rent it – case in point, owning a car – most will baby the car, if you rented – what’s a few dents and scratches.

#72 maxx on 09.02.13 at 10:50 am

#30 Realtor on 09.01.13 at 10:16 pm

“Everyone will go back to a variable rate. The trend will switch again. The normal % rate for bank of
Canada rate will be around 4% lock in the 5 year and wait for banks to bring back the prime minus one again”

Sorry- wrong.
Banks have harnessed fees, rates and product development, in order to support balance sheet objectives and, in anticipation of the decline of RE as a disproportionate (and fiscally unhealthy) influence, have been scouting other opportunities for the money. RE will continue to be part of the profit portfolio, the operative word being “part”, not the lion’s share.
Buy now, and pay forever.

#73 OffshoreObserver on 09.02.13 at 10:50 am

Apropos this column’s title:

http://www.theglobeandmail.com/life/home-and-garden/real-estate/its-been-3-months-why-wont-my-house-sell/article14023363/

I would have left a link to this blog but G&M forces one to register before submitting a comment. I don’t like that.

#74 Mr. BigStuff on 09.02.13 at 10:52 am

Only buy into an asset class that goes on sale. Is RE on sale? NO! I always wait for sales sales sales. As far as RE goes if it doesn’t produce income forget it
ie. Laundromats, golf courses/driving range, apartment buildings. RE is investment 101, unless it produces income stay away.
Mr. BigStuff – roger out!

#75 Julia on 09.02.13 at 10:55 am

In follow up to my last post about condos in Chicago, if you are looking for a lux condo right downtown with actual city and river views and huge balcony, here is a lovely one bdrm for $280
http://www.dreamtown.com/properties/165-N-Canal-619.html

So point is, even if TO were a world class city, we are still way overpriced. Yes, they pay more in property taxes, but that’s what gets you world class infrastructure, beauty and afforable prices.

#76 The Prophet Elijah on 09.02.13 at 11:10 am

2017? Garth you think you can keep this blog going for another 4 years, wow since 2009.
Hope so.

#77 James Bond in Gold Finger on 09.02.13 at 11:19 am

“since the odds are 100% that the US central bank will begin tapering back its stimulus spending – perhaps as soon as three weeks from now. This is the same action doomers on this pathetic site have been telling you for months would never happen. Of course it will. It’s here.”

Tapering will be good for gold, contrary to popular belief, the rising interest rates will put pressure on the system with capital flowing out of bonds and putting enormous strain on interest rate sensitive derivatives threatening to blow up the system. The coming crisis in 2016 won’t see flows to the USD this time, times are a changin and this needs to be recognized in order to survive.
Inflation will pick up as interest rates rise increasing the velocity of money.
If the Fed doesn’t taper this will also be positive for gold, it’s a win win situation for the PM’s.

Delusional. Gold is dead money. — Garth

#78 Mr. Monday Night on 09.02.13 at 11:20 am

I see a lot here with respect to averages, meaning can the average Canadian salary afford the average Canadian house?

Don’t forget that higher-priced homes always pull up the average, which means that if there’s a neighborhood with two houses in it and one is valued at $990K and the other $10K, then the average value in that neighborhood is $500K. See what I mean?

My family’s combined salary x 2.5 or 3 is what I can reasonably afford. If I want a better house, I’ll have to either move to a different area, look for a better job or make cuts in my day-to-day to make it work.

I wouldn’t be looking for $400K houses to suddenly drop to $250, as you’ll see $900K houses drop to $750K. Those people have a bit of flexibility because their payment is lower, plus there are vultures waiting for it to happen and you’d see bidding wars and run-ups ensue anyway.

I agree with the posters who say if you have to buy, buy, but make it what you can afford and just live your life. I have to rent right now because I’m out of country, but I’ll definitely be buying when I return. If all that’s within my means is some s***ty tarpaper shack miles out of town, so be it. My choice. The folks who bought at the top and are stuck made their choice as well, hope they’re happy in 35+ years when it’s paid off and their suffering is over.

#79 45north on 09.02.13 at 11:40 am

Ralph Cramdown: In a time of rising rates and perhaps falling asset values, what bank wants to take on or renew the marginal customer at prime minus 1/4?

my guess is that the major banks will find a way to decline loans to marginal customers

#80 Mister Obvious on 09.02.13 at 11:45 am

#66 No Longer Innocent

A stellar reply to #48 BG. In addition to ‘smelly rental units’, BG should also beware the following on the ‘buy side’ of the equation…

Acrid interest
Odoriferous fees
Pungent devaluation

#81 Donald Trump on 09.02.13 at 11:53 am

#37 TheCatFoodLady on 09.01.13 at 10:36 pm

IMHO…… Gov’t creates many of the problems that otherwise wouldn’t exist, and conversely cannot fix the aforementioned problems. Any solutions are usually short- term band -aid fixes.

The old home ownership gauntlet say for a couple was rent a suite, save downpayment….buy into multi family until afford SFH.

The Kingston solution is nothing new, its been tried all over. Illegal suites are now legal…so long as you let Big Brother get a cut with annual permit AND subject to code compliance.

In my City, they have developed ” affordable housing ”
quotas for new multi -family projects. WTF is affordable…less than current market rent ?

Many City’s are allowing coach houses in SF neighbourhoods..which is a detached building in the back yard….so effectively its a multi family zoning.

People can no longer buy with certainty as to the zoning of a SF neighbourhood. One exception effectively creates continual uncertainty for the rest.

All in all, it is more definitive of Gov’t…it creates a problem , people are ignorant of this, yet the Gov’t comes in like a white knight to fix it.

“Fix it” in Gov’t nomenclature = MORE Bureaucracy and MORE problems.

#82 Donald Trump on 09.02.13 at 12:12 pm

#63 Ralph Cramdown on 09.02.13 at 9:18 am

#55 Donald Trump — “Dude…You’re kidding…right ?!?”

Of course not. Syria is a cheap sideshow for Washington, but the House Republicans were planning on turning all of September into an expensive sideshow (Böner promising a “whale of a fight”) over a continuing resolution needed by October 1 and a debt limit increase needed two weeks later. That caucus of clowns couldn’t unify behind a resolution that ice cream tastes good, so they’ll be at it a while about Syria, leaving them pretty much no time or media oxygen to talk about budgets before either signing a deal, or being the government shutdown party, again.

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

If you recall the Mad Max movies…there was this little midget that stood on the should of this big brute.Master Blaster.

That is the Israel-US relationship.

Israeli PM Netenyahu was in the US Congress several months ago and got several standing ovations by all present. In other words it ALL IN…..both Dems and Republicans.

Israel is the false flag experts.

I was a bit surprised by Obama’s call, at least this early.
The Republicans may posture for the usual political theatre, and/or there may be some “amendments”.

Long list of US politicians that have voted against what Israel wants and either lose their seats or removed by other means .

The US is in far too deep to back out now.

Israel, which is simply a Rothschild’s base/safehouse, and has somewhere between 200-400 atomic weapons (which it will not allow any outside inspections), is not fearful of WMD’s…the only WMD they fear is Nationalism and nations that are fed up with central global banking system and wish to de-link. That’s why Irag and Libya went down and why Syria and Iran are now targets.

All wars are banker wars.

#83 Babblemaster on 09.02.13 at 12:14 pm

“As I’ve said before, it’s lunacy. Higher rates bring lower prices. Buying a house for more dollars and greater debt now rather than for fewer dollars and less debt later – just to save a half point on financing – is all you need to know about how the masses think. Ah well. C’est la vie. I tried.” – Garth

——————————————————-

Makes sense based on available information and reasoned thinking. Howver, that has been the case for several years now and, as it’s turned out, the warnings have been for naught.

Hardly. That depends on the market and housing type. Some people have lost all their equity in the last two years. — Garth

#84 Don on 09.02.13 at 12:16 pm

2017? Wow.

I’m still new to Real Estate and investment in general, but 2017 seems like a long wait for someone who just wants to buy early enough to:
1/ Not pay a rent when retiring.
2/ Live in place where your primary goal is not to save but actually live ( I don’t want to call it a “dream home”, but close enough)

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

I hear the “I can’t wait to buy” all the time. People whining about having to wait and avert serious consequences. You don’t have to wait, stick your head in the sand and BUY a house, make sure it has granite and stainless steel. Wait for the house repair bills start rolling through, even the new houses are poorly built and good luck going after the builders.

Buy now or forever be priced out. Go ahead…I Dare you.

Some people just don’t seem to get it…things do not need to happen on your timelines and will happen when all the conditions are ripe. Ah recency is such a great option for the delusional.

#85 Ogopogo on 09.02.13 at 12:18 pm

#48 BG on 09.02.13 at 12:11 am

What are the options for the “normal” people? Suck it and get frustrated in their smelly rental unit?

Dude, seriously? I’ll take your comment at face value and assume you’re not just another troll trying to undermine this hallowed blog. If you truly want to avoid “smelly rental units” don’t look at craigslist or kijiji for ads. Find yourself a property manager at a reputable realty company (usually a retired realtor) and deal exclusively with them.

I rent a luxury condo unit in downtown Kelowna that’s subsidized by a generous Albertan landlady (whom I’ve never met or am ever likely to meet) to the tune of close to $1,000/mth if I were to rent money from the bank (a.k.a. mortgage) for the exact same unit. In fact, friends who visit us often marvel at how little rent we pay for such nice digs. With the bucketfuls of savings we invest in a Garth-approved portfolio and reap a steady stream of dividends, reinvested at distribution.

What was that again about a smelly rental unit? The only thing I smell here is money. Is there a smell for peace of mind? I think I smell that too…

#86 Telik on 09.02.13 at 12:21 pm

I love all the “wait” advice. If you bought a place in 2009 you’ll be way ahead of someone who waited and rented until 2017. The only time “wait” works is when you don’t have inflation. The amount of inflation currently is insane. Just look at the price of oil, houses, stocks, food. Just keep going up. By 2017 the average house price might be 100 trillion with worthless dollars flooding the economy.

That was compelling. — Garth

#87 Ralph Cramdown on 09.02.13 at 12:24 pm

#68 BG — “I can do the saving part. But getting a 5%-10% on my saving sounds like supernatural to me right now as I’m only starting to read on investment. The learning curve, the risk and having only 30k make me think I should rather spend my time on increasing my income.”

Become a Boglehead, at least until you’ve got a bigger roll, and maybe forever. The Canadian Couch Potato has good advice, mainly.

Increasing your earning is always good. Coming up with an investment plan and ensuring you stick with it (automatic withdrawals and investments every month) is important. Stay away from anything with high fees, and understand what has hidden fees.

Here’s some fun tips: http://www.thereformedbroker.com/2012/11/21/good-luck-with-that/

#88 Ogopogo on 09.02.13 at 12:36 pm

Holland, a national under water, and no, no dykes are broken. We’re talking about the most frugal Europeans around. What does that say about debt-enslaved Canada?

http://edition.cnn.com/2013/08/29/business/netherlands-nation-under-water/index.html?hpt=hp_c4

#89 Ralph Cramdown on 09.02.13 at 12:44 pm

#77 45north — “my guess is that the major banks will find a way to decline loans to marginal customers”

Which may be easier or more difficult depending on whether they hold a plain old mortgage or a collateral charge securing several different products…

And of course, any customer who was originally CMHC insured and who doesn’t have to increase borrowing or extend the term is still golden, no matter how strapped after meeting his monthly obligations.

#90 Ralph Cramdown on 09.02.13 at 1:00 pm

Holland has an interesting tax system. Mortgages interest is deductible from very high rates on earned income. What do you think lenders invented to solve that problem?

http://www.ft.com/intl/cms/s/0/1277c06c-0277-11e2-9e53-00144feabdc0.html#axzz2dktdC6OV

#91 Mister Obvious on 09.02.13 at 1:09 pm

#83 Ogopogo

I’ve made the same point here and offered myself as an example several times. Its real simple. Don’t want to live in crap? Then don’t rent crap.

Maybe we should try using hand puppets.

#92 TheCatFoodLady on 09.02.13 at 1:18 pm

Mr. Trump – I’m aware, (as per the article), that a few cities have tried this same solution. There’s a minor mention of how many suites resulted in Ottawa – but not a peep about how it’s going.

Traditionally, one should spend no more than 36% or thereabouts of income on housing. For the poor in most communities, clearly that’s going to end up being more. I’ll use numbers with which I’m familiar – a couple on Ontario Disability Support Program should pay no more than $625/month. Good luck with that in most Ontario communities. For a landlord to offer that, the unit had better be mortgage free, not in need of repairs & it’s still going to be a struggle for a landlord to make money. Landlords wanting to offer ‘arrodable’ units without losing their shirts need to be part of their city’s housing program & have what tenants pay themselves topped up by the city.

No potential landlord is going to build ‘affordable’ units – not if they want to pay their mortgage without going bankrupt. Builders spend years in the planning & approval process & in that time, realize losses on the land on which they plan to build. When they do build – they’re not going low end – no matter if they’re selling or planning to rent.

There’s no single solution to ‘affordable’ housing. Secondary suites in private homes can be part of that. Two singles sharing a two bedroom or one bedroom that’s laid out in a way that makes sharing possible is another. One source of housing that seems to have almost disappeared – decent rooming houses or room & board. Not sure if that’s a safety issue, insurance, permitting & other administrivia interfering or what but for really low income simply looking for a clean, decent room; that would certainly be an option.

#93 TurnerNation on 09.02.13 at 1:24 pm

Re. blog photo here:

http://www.greaterfool.ca/2013/08/27/be-bold/

New British Motorcycle marque: Hargh, Leigh David&Son?

#94 Musty Basement Dweller on 09.02.13 at 1:42 pm

“Why are you throwing your money away on rent? ” Aw yeah that brilliant question came up again recently with a guy at coffee .

Well by about now, anyone who bought with 5 or 10 percent down in about 2010 on Vancouver Island has lost at least all of their equity if they had to sell. And this round of declines in housing has barely started.

Wouldn’t a better question be “why are you throwing your money away on house or condo ownership”?

#95 Paul in London on 09.02.13 at 1:46 pm

Garth,

i used to read your blog daily for years, but fell out of that habit a couple years ago. In reading a few posts, i see you have kept up our unique blend of humour, sarcasm, and useful advice. I can’t imagine putting in the effort you do daily except that it must be a labour of love on your part. Thanks for keeping it going.

I have to renew my $200k mortgage this week. I can lock into a 10 year at 4.1% or continue at a near prime floater at 3%. I can also go in fr a 5 year, but I’m thinking the 10 year rate is attractive. Any advice?

Thanks,

Paul

You stopped reading this blog two years ago and now show up for advice because you have a mortgage to renew this week? I feel so used. — Garth

#96 Ralph Cramdown on 09.02.13 at 1:47 pm

#84 Telik

The only inflation that affects the timing of real estate purchases are wage inflation and house price inflation. The rest are irrelevant.

#97 Donald Trump on 09.02.13 at 1:52 pm

#90 TheCatFoodLady on 09.02.13 at 1:18 pm

All levels of Gov’t have their own version of the Federal Reserve. At local Gov’t level its often via creating $$ out of thin air when re-zoning and new OCP’s.

However, therein lie the problem, as its not much different than OPEC. IMHO, Gov’ts balance maximum taxation revenue with artificial land shortages.

Affordability is now an archaic concept, the numbers have not added up for years.

Canada does not want to copy the US experience of Housing Projects…those turn into hellhole ghettos.

Co-op housing was once built, but no more.

The only solution appears to be a hybrid, but again will be disruptive to existing zonings.

The cynic in me feels this is all intended consequences via social -engineering…the more friction Gov’t creates, the better for Gov’t, but at our expense.

#98 Butch on 09.02.13 at 2:01 pm

We are taking 2017 now? 9 years of waiting? The solution at this point may be to just make so much money that losing money on your house is insignificant. Can’t put your life on hold forever.

What does owning a house have to do with living your life fully? — Garth

#99 BG on 09.02.13 at 2:12 pm

#83 Ogopogo

I’m not a troll. I just know very very little about RE and investment.

As a thinking human being, I’m naturally challenging a bit the views on this blog before deciding whether to accept them. Then again the reason that brought me here is to challenge what the mainstream media say…
Not trying to undermine anything.

I appreciate your advice by the way, and #85 Ralph Cramdown’s too.

#100 FATHER on 09.02.13 at 2:34 pm

I feel so used. LOL my coffee came thru my nose sh..

#101 Steven on 09.02.13 at 2:38 pm

DELETED

#102 FATHER on 09.02.13 at 2:42 pm

I guess today is the day for shocking big news, damn that was a long wait.

#103 Soylent Green is People on 09.02.13 at 3:33 pm

Chris Hedges re Obama/Harper and Syria:

And let me finally say that in the end, you know, there are weapons contractors for whom, once again, this is about profit. They don’t really care what the consequences are. For them it’s about how to swell their bank account.

at this point we don’t really know definitively what happened, and (having been a reporter in those situations) we may not know for a few weeks. That’s number one.

And number two, after it’s over, I don’t think we have either a legal or a moral right to start dropping cruise missiles in Syria.

There you go. Again, it gets back to the whole arms trade. You know, they’ll–and, of course, we are the largest seller of weapons and munitions on the planet, and these people don’t care as long as they make money.

And I think that is a lot of what is fueling these conflicts in places like Afghanistan, that companies like Halliburton and Raytheon, Boeing, they don’t want to get out. They don’t ever want to get out. They don’t care how many Americans die, how many Afghans die. They don’t care what happens in Afghanistan. They don’t care what happens within the region. Look at their stock prices, like Halliburton. They’ve all quadrupled since 9/11. And that is sort of the unseen engine behind a lot of this. So there’s a lot of pressure.

(No time to watch? There is a transcript below the video).

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=10656

.

#104 Casual Observer on 09.02.13 at 3:45 pm

What does owning a house have to do with living your life fully? — Garth

Many people feel some part of their life is in “limbo” if they are currently renting and waiting to buy.

Since the majority of rentals are from an individual owner with one or two properties, trying to make a few bucks in RE, there is no guarantee that the owner won’t sell, or move back in at any time.

When you can be forced to move with a couple months notice, that always sits in the back of your mind, which may prevent you from living your life fully.

The solution is to only rent purpose built rental stock operated by a rental corporation, but the downside is that since it was only ever built to rent out, it will typically be lower quality with sometimes less desirable neighbors.

The only other alternative is to become part of a co-op, where you are still renting, but you at least have some security that your unit won’t be sold out from under you.

Marriage is forever too, isn’t it? — Garth

#105 Donald Trump on 09.02.13 at 3:52 pm

Its Labour Day….

Sure a good thing Smoking Man and Old Man give their brains the day off.

(as well as the other 364 days)

#106 Stupesing in Cabbagetown on 09.02.13 at 4:05 pm

Garth, please take another look at #101 Steven: Doesn’t pass the pc test.

Agreed. I missed that. Thank you. — Garth

#107 James Bond in Gold Finger on 09.02.13 at 4:15 pm

Delusional. Gold is dead money. — Garth
———————————————————-
Gold has been rising with interest rates, that says alot, we’ll see.

#108 Ralph Cramdown on 09.02.13 at 4:34 pm

#103 Soylent Green is People

Re. Chris Hedges: He sounds a bit behind the times. People have been talking about the Military Industrial complex since Ike coined the term. Boeing has known for 20 years that the secret to profits is to build a little bit of the weapon in every congressional district, and remind every congressman about those jobs, which leads to absurdities like Congress appropriating money to build even more B-52s than the Pentagon wants or needs. Star Wars, Space Command, Cybercommand…. The idea that you need a hot war to make money in defence contracting is rather outmoded. Hot wars lead to increased expenditures on the Veterans Administration &c — low margin and not very sexy.

#109 Casual Observer on 09.02.13 at 4:47 pm

Marriage is forever too, isn’t it? — Garth

It’s supposed to be, but today people’s mortgages last longer than their marriages.

#110 Evangeline on 09.02.13 at 4:50 pm

#87 Ralph C. “Increasing your earning is always good. Coming up with an investment plan and ensuring you stick with it (automatic withdrawals and investments every month) is important. Stay away from anything with high fees, and understand what has hidden fees.”

I’ve recently been re-thinking the DRIP approach because I don’t like it when my rising cost basis and average price per share diminish dividend yield.

#111 Penny dreadful on 09.02.13 at 4:55 pm

Here’s one garth. If you bought a house in roughly the 1980’s, paid it of around 2000’s. And been collecting rental income since. Would you sell or hold today.

It’s a financial, not theoretical, question. Would the capital gain, invested in liquid assets, deliver a larger and more tax-efficient yield than that determined by the cap rate on the house? If so, sell. — Garth

#112 Canadian Watchdog on 09.02.13 at 5:18 pm

Banks can't keep up with demand

Brokers say they are experiencing longer than average turnaround times with the banks, suggesting it could be a result of a flooded market due to collective client fears that rates will continue to increase.

“I would divide the segment into two parts; the adjudication part with the banks in general is probably twice or three times as long because of the rush of people trying to rush deals,” Andrew Galea of The Mortgage Management Group told MortgageBrokerNews.ca. “The monolines are still adhering to much faster turnaround times.”

What may be good news for resale (in the near short-term) is even worse news for presale owners as sideline demand rushes for spot delivery, leaving futures speculators (presales) and developers with less or no bids.

#113 espressobob on 09.02.13 at 5:20 pm

#107 James Bond in Gold Finger

I believe it was Nixon who dumped the gold standard back in 1971, if I’m not mistaken. FIAT is the name of the game these days, not metals.

Not that theres anything wrong with a position in such, but overdoing it in a portfolio could be painfull! The over-invested energy bulls from a few years ago understand this. Just look at Natgas!

Diversification and profit taking works.

#114 detalumis on 09.02.13 at 5:31 pm

#59 no downturn here yet, neighbour just got carted off to LTC after suffering a fractured skull falling because kids think a person with dementia is able to live alone, you know, aging in place. Teardown bungalow listed at 699K sold for 714K. Still waiting for the market collapse.

My life lesson is take the online Sage dementia test from the University of Ohio every year on your birthday and then “off” yourself at the first signs. Dignitas will take you if you go straight away.

#115 Ralph Cramdown on 09.02.13 at 5:35 pm

#110 Evangeline — “I’ve recently been re-thinking the DRIP approach because I don’t like it when my rising cost basis and average price per share diminish dividend yield.”

I think it depends on your investment approach, how much in dividends your account generates monthly or quarterly, how many positions you’ve got and how much commission you get charged.

If you’re a passive investor or commissions are too high a fraction of the income from each position, a commission-free DRIP is the way to go. If you like to buy stuff that’s on sale and are confident that you can do so without just buying relentlessly declining value traps, maybe pooling all your periodic dividends into one or a few best buys each time is the way to go. I’ve got some smaller accounts whose income is too small to cost-effectively actively reinvest often, so I DRIP them, but I actively reinvest in the larger accounts.

#116 triplenet on 09.02.13 at 5:40 pm

#111

Garth – how do you determine the cap rate on the income stream provided by a single family residence?
Are single family residential properties a true real estate investment vehicle?
……..and can be analysed by a cap rate?

#117 the love boat on 09.02.13 at 5:48 pm

wwi wwii korea vietnam suddam hussein
iraq afghan syria …..
what can we deduce about american history and the
value of their fiat crap money from that list above?

unfortunately doom is coming. u will need a home a gun and lots
of gold and silver.

u are warned.

its all coming undone.

#118 Derek R on 09.02.13 at 5:53 pm

#103 Soylent Green is People on 09.02.13 at 3:33 pm wrote
And I think that is a lot of what is fueling these conflicts in places like Afghanistan, that companies like Halliburton and Raytheon, Boeing, they don’t want to get out. They don’t ever want to get out. /i>

Oh, Halliburton wanted out alright. So badly that it cut its arm off in order to get out. In 2007 it got rid of its Kellog, Brown & Root division which did that government work. So Halliburton doesn’t do work for the US military any more. KBR Inc does but it’s been an independent company for years now.

#119 Smoking man on 09.02.13 at 6:02 pm

.#71 Post Haste on 09.02.13 at 10:49 am

Obviously I took a cab, you think I’m nuts..

#120 Nosty the Vladman on 09.02.13 at 6:03 pm

#82 Donald Trump — “…the only WMD they fear is Nationalism and nations that are fed up with central global banking system and wish to de-link. That’s why Irag and Libya went down and why Syria and Iran are now targets.”

Correct. First Iceland, Poland (failed), Russia and now Hungary have told the IMF where to go, and Hungary has gone one step further by banning Monsanto’s repulsive trash. Beneficiaries also play a role, Impeachment and UK.

A few years ago, Poland announced that it had cleared its debts and deficits with the IMF, was now debt-free and ready to work in collaboration with the IMF in helping other countries in trouble out. Consequently, almost the entire Polish govt. was wiped out in a plane crash in Russia. New elections, new govt. and Poland is now IMF-dependent again.

Libya was wiped out because Gadaafi was about to introduce a gold-backed dinar for the African continent, and TPTB were not having any of that.

#121 Nimoucha on 09.02.13 at 6:41 pm

#49 BG

What are the options for the “normal” people? Suck it and get frustrated in their smelly rental unit?

You might want to read the following blog entries for a start:
http://www.greaterfool.ca/2013/06/17/emotional-baggage/
http://www.greaterfool.ca/2013/06/18/advice-4/

Good luck!

#122 Donald Trump on 09.02.13 at 6:55 pm

Trudeau’s pot admission reefer madness to U.S. lawyer

http://www.richmondreview.com/news/222090031.html

Federal Liberal leader Justin Trudeau’s admission he smoked marijuana after becoming an MP – and the ensuing flurry of similar disclosures by other Canadian politicians – has a U.S. immigration lawyer shaking his head.

“I couldn’t believe it when I saw him admit to it,” said Len Saunders.

The Blaine, Wash. lawyer says Trudeau and any other admitted Canadian pot smokers – high profile or not – should expect to be refused entry to the U.S.

“Justin Trudeau is inadmissable to the United States,” Saunders said. “He’s admitted to use of an illegal substance. If he’s elected prime minister he can’t come into the U.S. without a waiver.”

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

This is good !

Potentially first Canadian Prime Minister who is denied entry to the U.S.

A combi-NATION of his Old man’s arrogance and his mamis’ brains.

#123 Evangeline on 09.02.13 at 8:01 pm

#115 Ralph C. “If you like to buy stuff that’s on sale and are confident that you can do so without just buying relentlessly declining value traps, maybe pooling all your periodic dividends into one or a few best buys each time is the way to go…”

I didn’t know you were a professional. I thought we were all amateurs here except Garth. :)

The part of your post that I’ve quoted above articulates exactly what I’ve been thinking about doing. And maybe keep drips open for a few positions that I’m optimistic about and can get “on sale” without paying transaction fees.

I’ve learned the hard way about value traps, but the good news is that as a result of that mistake, my research skills are improving exponentially. Reading, reading, reading and taking full advantage of the research resources at TDW. I don’t know if Garth lets us talk about other books, but I’m currently enjoying “Purple Chips” — written by a Canadian guy, employee of ScotiaMcLeod in fact. His innovative method of charting EPS and market price lines together is quite illuminating.

#124 Ralph Cramdown on 09.02.13 at 8:50 pm

#123 Evangeline “I didn’t know you were a professional.”

Me neither; strictly family accounts. But I did write my CSC and my RR exam once, so I guess I cleared the low hurdle to qualify.

#125 Cici on 09.02.13 at 10:52 pm

#12 Father

Yeah, but your cars are probably much more fuel efficient? I can’t imagine the damage 3$ a litre would do to the credit card balance of the average fool who’s bombing around town in an SUV.

#126 Yitzhak Rabin on 09.03.13 at 1:43 pm

Foreign sales of US treasuries will accelerate as other nations move to protect their currencies. There are not enough domestic savings to buy the debt issuance (like there has been in Japan), leaving the Fed as the only buyer. If they really are serious about eventually tapering QE to zero (they aren’t) interest rates will hit the stratosphere.

Check out the rate trajectory on US bonds that the FED isn’t buying. Municipal bonds (bottom of page):

http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

It’s very naive to think the dollar is safe. Guess who bought gold in April while issuing a sell/short call?

Good ol’ Goldman Sachs. Maybe they don’t read Greater Fool?