The yield curve

Obese Man With A Glass Of Beer Sunbathing

So you’re at a hot-yoga-and-reno party in Leslieville when the convo turns to mortgage rates. All your Vespa-riding, post-Apple friends are talking about how they’re locking in to avoid the pain to come. “Well,” you say solemnly, “I’m not buyin’ it. The yield curve’s bitchy steep right now.” Then you wander off to look for termite tunnels along the basement walls. This will make a strong impression. Which, of course, is why you socialize.

What’s a yield curve? Simply econo-talk for the line on a chart that connects short-term interest rates (like your floating line of credit), with medium-term ones (a five-year mortgage, for example) and really long ones (a 30-year government bond). Normally this curve slopes up gently with time – which is exactly what it did six months ago. That meant the spread between a variable-rate mortgage and a five-year job was not that much – less than a point.

Sometimes the yield curve is completely kinky, and inverts. Then short-term money carries a higher rate than the long stuff. When inflation is out of control, for example, and the feds jack up rates to choke it off. Other times (like now) the curve gets more extreme, when longer-term debt rates pop while shorter-term ones don’t move.

Did you stop reading already? Bad. Get back here.

Central bankers, such as the guys at the Bank of Canada or the US Fed, set short-term rates. As you know, they’ve been in the dirt since 2009, making money cheap so people will borrow their brains out and buy stuff. Which they have. Longer-term rates are established in the bond market, where guys with Porsches trade debt to make money. The bond market, by the way, is massively larger than the stock market and consequently more important.

Since the summer, rates in the bond market have soared higher and that’s why five-year mortgages cost 1% more. Banks finance those mortgages there, while the short-term variable-rate mortgages are costed according to the Bank of Canada rate, which hasn’t moved for a long time. This means the yield curve got wacky – very low at the short end, and spiking at the other. It’s why a 5-year mortgage now costs 1.1% more than a variable.

But what does it mean to hipsters buying urban semis that people a century ago threw up as temporary McHousing?

Lots. Bond yields have risen (and bond prices fallen) since the US Fed (the central bank, which has more money than God) said in June it might taper down all the stimulus spending it’s been doing for several years to rekindle the American economy. The government has been buying up bags of its own bonds, injecting money into the economy and in so doing creating high bond prices and crazy-low yields. Now that will reverse – in fact, it all starts next Wednesday. In anticipation, traders sold billions in bonds to take profits, causing prices to topple and yields to swell.

And that’s how we got a yield curve that looks like an excited banana.

As I said, a key moment in yield curveology comes next week when Feb boss Ben Bernanke holds a presser and announces a tapering program. The bank will formally begin scaling back those bond buys by about $10 billion a month. That will leave $75 billion still being spent, so it’s hardly like turning off the tap. Bernanke will also make it clear that further cuts will take place only as the economy grows strong enough to stimulate itself.

There’s a market saying (sort of) that wise people emote on rumour and act on news. This will be news. The speculation that caused the market turmoil over the past few months – tanking bond prices and sideswiping preferreds and REITs at the same time – will be over, as authorities make it crystal what happens next. This probably means bonds will rally and yields drop, at least until everyone starts worrying about inflation.

Hence, my advice of last week. Don’t lock in to a five-year mortgage. Go variable.

The central bank rate won’t be moving for at least a year, thanks to a sucky Canadian economy, and those longer bond yields will be falling, bringing the five-year home loans back down at least a quarter point. So wait. After all, you missed the chance to lock into a 10-year at an even lower cost months ago (when I pointed it out), so you might as well be fluid now. Watch this pathetic blog for breaking details on when to call [email protected]

144 comments ↓

#1 Albert on 09.12.13 at 5:41 pm

WOW, Im First TODAY !!!

#2 Notta Sheeple on 09.12.13 at 5:44 pm

Early post-tonight.

Judging from the picture above, I’m guessing an early departure for Port Dover’s Friday the 13th on the Hawg.

Enjoy.

#3 Robbie on 09.12.13 at 5:45 pm

Summer’s still here on the BC Southern Gulf Islands so I’m heading off for a swim in one of the local lakes. Thanks for the advice, Garth. I’m still trying to put away some money so I can take advantage it. Meanwhile it’s sunbathing and swimming! :)

#4 Dr. Wanker on 09.12.13 at 5:46 pm

Very firsty today garth!

#5 LH on 09.12.13 at 5:59 pm

I second that, variable is the way to go! Not only will the rate likely be lower over the term, prepayment penalties tend to be much lighter or variable mortgages. Banks actually hate variables for this reason (less Profit)

#6 Soylent Green is People on 09.12.13 at 5:59 pm

Re Did you stop reading already? Bad. Get back here.

hahahhahaha you know me so well

…………………………………….

Const. Babak Andalib-Goortani (Toronto Police Officeer)

was convicted today (Thursday)

of assault with a weapon after a judge found he used excessive force during the arrest of protester Adam Nobody on June 26, 2010, on the lawn of the Ontario legislature.

http://www.calgaryherald.com/news/national/Verdict+today+trial+police+officer+accused+assaulting/8902019/story.html

(This is news because rarely do cops get convicted for their many crimes. Highly unusual…. really amazing news today in Ontario).

o
o
o
o

#7 truthseeker on 09.12.13 at 6:00 pm

Home prices in Canada rose another 0.6 per cent from July to August, setting another all-time record, according to the Teranet-National Bank Composite House Price Index.

The index, which measures resale house prices in the 11 largest metro areas in the country, found prices have risen 1.9 per cent, nationwide, in the past year.

Where is the housing correction? Is it time to revise your forecast Garth? Your playing of the one note on the banjo is starting to wear thin.

“Prices in Toronto’s closely watched housing market rose 1.33 per cent in the month, a very sharp increase that’s unlikely to be sustained, as it would mean they are now growing at a 16-per-cent annual rate. Prices in the city have risen 3.72 per cent so far since the start of the year.”

Go ahead. Buy at the top. Tell us how that works out. By the way, Vancouver just suffered its 13th consecutive month of falling prices. — Garth

#8 calgaryPhantom on 09.12.13 at 6:09 pm

How much tapering was factored in, when the bond/preffs/reits prices fell this year?

I guess we will only know when they reveal the size of tapering and the corresponding rebound ( if any ).

#9 Brian Romanchuk on 09.12.13 at 6:10 pm

Nice post. But I have some doubts that things will be crystal clear after the tapering announcement. The Fed is probably going to start blabbing about forward guidance – we will keep rates at zero for a long time, trust us. So everyone is going to have to parse the statements to see what they really mean.

#10 ILoveCharts on 09.12.13 at 6:11 pm

Hi Garth and Blog Dawgs,
I’m going to let my 2.89 5 five year rate hold expire and keep renting.

What to do with that downpayment cash that I had saved up?
With all the stuff happening in bonds, is now a good time to buy them if I want to hold them for a year?

#11 Liquid on 09.12.13 at 6:18 pm

I was just watching economists talk about the yield curve on last night’s news. I’m totally on board with going variable as well. My floating mortgage is just 2.6%, and I think these mortgage rates today are here to stay for awhile. For the past 3 years people have been saying to lock in your mortgage as rates are predicted to go up soon, but most homeowners who chose a fixed rate mortgage over that time could have saved a lot by going variable.

I think from a certain perspective a steeper yield curve is a positive sign because it means the market is signalling the return of confidence to the economy, even though the governments and central bankers are hesitant :)

#12 calgaryPhantom on 09.12.13 at 6:20 pm

@ #10 ILoveCharts

Oh yes!!!!

#13 Vancouver on 09.12.13 at 6:24 pm

Go ahead. Buy at the top. Tell us how that works out. By the way, Vancouver just suffered its 13th consecutive month of falling prices. — Garth

How will we know when Vancouver hits the bottom? 13 months of drops… how many more to go?

#14 Finally on 09.12.13 at 6:30 pm

I’m getting married in Kauai in November. Need to write my speech and my own vows. OMG!

#15 espressobob on 09.12.13 at 6:34 pm

I’m not taking any credit for this link as it was posted on this blog by someone else who I wish to thank!

http://www.youtube.com/watch?v=vII-GxsrR2c

#16 Big Bear on 09.12.13 at 6:51 pm

Love ya Garth, especially your bang on analysis of the Cowtown fiasco playing out in moldy basements close to the Bow. Pretty brilliant how the cartel has managed to massage some extra toothpaste out of the tube on that one…

Would you care to comment on the rumors that the Fed is backed by guns not gold?

Mediterranean Fiat Chicken anyone?

#17 JWD on 09.12.13 at 7:00 pm

I love the education. Thanks professor Garth!

#18 bill on 09.12.13 at 7:05 pm

is that glass half full or half empty….

#19 Shawn on 09.12.13 at 7:14 pm

PREDICTIONS…

Are difficult, especially when they involve the future.

Why bother to predict anything? Buffett simply buys things that are undervalued. He does not try to predict when things will happen. Sometimes he predicts what will happen, but seldom when.

P.S.

Actually, bonds suck.

Be an owner, not a loaner.

For me diversication as far as invesments is cash and stocks. Bonds need not apply. But that’s just me.

#20 bond bust on 09.12.13 at 7:17 pm

Bonds rock? Then go ahead and load up your REITS and Preferreds.

Just remember, 30 years of bond bull has died! Act accordingly.

#21 Yitzhak Rabin on 09.12.13 at 7:30 pm

Don’t put too much hope into longer term rates falling. Foreigners are raising rates and selling treasuries big time to raise US dollars to defend their currencies. If the trend of increasing rates reverses, it won’t be for long. Same with tapering.

The Fed will soon be the only buyer of government bonds just as the Bank of Japan will be in that country. If inflation picks up and the FED has to raise rates and sell bonds, what does that do to the finances of the US government and the economy?

The labour force continues to shrink while now 20% of Americans struggle just to afford food. But remember, the stock market is up and houses are more expensive so it’s a recovery.

#22 Victoria Real Estate Update on 09.12.13 at 7:36 pm

How ridiculously overprices have houses in Victoria become since 2000?

Consider Austin Texas. In 2000, house prices in Austin and Victoria were at about the same level. Since then, unprecedented housing market stimulus has pushed Victoria house prices deep into bubble territory. The housing market in Austin didn’t reach bubble prices since state policy in Texas prevented that from happening. There was no crash in Texas. Without the extreme housing market stimlulus that has been present in Canada since 2000, house prices in Victoria and Austin may have remained at approximately the same level to this day.

Let’s compare current house prices between these two cities. The following set of criteria will be used:

– 2009 or newer
– minimum 3 beds, 2 baths in main (owner) living area, above ground
– minimum 1800 sq. ft. in main (owner) living area, above ground
– 2 car garage

This Victoria house is listed at $785 K (with a recent price reduction). It was built in 2010 and has 3 bedrooms and 2 bathrooms in the main (owner) living area. It is listed as having 2503 sq. ft., but that includes the 2 bedroom suite, so the actual square footage of the main living area is much smaller than that, probably around 1200 sq. ft.. This may be the lowest-priced newer house in Greater Victoria within a reasonable commute to downtown.

You could pay $785 K for one house in Victoria, or buy all four of these houses in Austin, TX for $737 K.

6924 Plains Crest Dr., value: $148 K

and

12309 Paloma Blanca Way, value: $145 K

and

8421 Leeds Mountain Cv., value: 230 K

and

10218 Laredo Dr., value: 214 K.

Not much has changed with respect to the Victoria housing market over the past 3 months. It is still a buyer’s market with a lot of inventory.

Buying a house in Victoria at extreme bubble prices and historically low interest rates is a bad idea. Much lower prices are on the way and interest rates will continue to rise causing future mortgage payments to increase dramatically. I know many people who bought houses in Victoria near the peak. Many bought with a minimum down payment and are now in a position of negative equity. They know that prices will continue to decline in Victoria. Many of these people tell me they get depressed every time they walk in the front door because it reminds them that their house is worth less than their mortgage.

Girls and guys, do the smart thing and wait for lower prices.

Until next time – Cheers!

#23 Victoria Real Estate Update on 09.12.13 at 7:48 pm

Correction: the actual main living area of the Victoria house is probably close to 1800 sq. ft., not 1200, after the square footage of the suite is subtracted.

#24 Daisy Mae on 09.12.13 at 7:49 pm

“Did you stop reading already? Bad. Get back here.”

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

Yes, I did. My head started swimming…

#25 espressobob on 09.12.13 at 7:56 pm

#10 I love Charts

Smart move on the RE thing! Investing on the other hand is over the long haul, that includes bonds. Do some homework & ‘average in’ to each asset class, whats the rush! Relax, & good luck!

#26 Adam on 09.12.13 at 7:58 pm

Just want to point out that the market saying actually is: “buy the rumor, sell the news” – why Apple’s stock always does better in a runup to one of it’s glitzy media events than on the day of.

That being said, you still made your point.

#27 Chickenlittle on 09.12.13 at 8:03 pm

#7 truthseeker
“Prices in Toronto’s closely watched housing market rose 1.33 per cent in the month, a very sharp increase that’s unlikely to be sustained”

What do they base that number on? Sale price or asking price?

#28 father on 09.12.13 at 8:05 pm

hey espressobob what lesson did you get from that, sorry cant pay attention for that long

#29 espressobob on 09.12.13 at 8:08 pm

#20 Shawn

Fixed income is in fact an important element in a portfolio. Where do you come up with this ‘stuff”? Please provide a link so we can have a good laugh!

#30 espressobob on 09.12.13 at 8:12 pm

#29 father

The moral of the story is ‘compounding” figure it out!

#31 Nemesis on 09.12.13 at 8:16 pm

“And that’s how we got a yield curve that looks like an excited banana.” – HonGT

Whose banana ever went vertical looking at charts?

On second thought, please don’t answer that.

These are the only CurvesThatCount…

http://tinyurl.com/owhk7h3

Curves: AnAppliedScience:

http://youtu.be/AInHpgxv7yg

BonusSoundTrack:

http://youtu.be/uco-2V4ytYQ

#32 Lock in for 10 years and buy at the top vs go variable and buy at a lower price on 09.12.13 at 8:20 pm

Hi Garth

Here is my strategy. I have a big down payment (I would say huge compared with what was called big so far on this blog in most of your examples) and I have been waiting for home prices to fall for the simple reason that I did not believe that they were realistic.
Now that the interest rates are rising there will be a lot of pressure on the sellers and I am positive that the prices will retreat
I did the maths and since my downpayment is quite consistent a rise in interest rates will make me pay over 5 years a lot less than what the buyers will be forced to give up in the coming months.
The stats show me that at the current average prices the average price decrease is around 10K. A 1% increase in interest rates would result in my case in around 13K additional interest over 5 years.

In my opinion there is a good chance to save more if the prices fall and you buy at a higher interest rate than when you buy at the top and you lock in for 10 years at a low rate.

Am I missing anything ?

PS: a 5% discount of the average SFH in To will represent 5 times the interest paid at a 1% higher rate.
The above were calculated at a fixed rate. If I go variable the things will look even better

#33 father on 09.12.13 at 8:22 pm

“compounding” understood “figure it out” not understood

#34 Kurt on 09.12.13 at 8:23 pm

“the economy grows strong enough to stimulate itself.”

Given the suggestive nature of much of this blog, this statement provokes many curious and disturbing images…

#35 Obvious Truth on 09.12.13 at 8:28 pm

A portfolio that’s rebalanced a couple times a year beats this mess.

1 to 5 year laddered bond wins every time.

Just can’t expect to shoot the lights out by making binary bets. Too much risk. And investing is always about risk. Hear that termite hunters.

I’m with the hunters for now but doesn’t mean I’m right. Just a little overweight TLT.

Fact is nobody really knows where rates wil be past today. Not me,bernanke or even Garth (sorry you’re in good company). That’s why average investors shouldn’t make binary bets or buy vix calls into the fed meeting.

The average person should ignore volatility and manage risk. Housing included.

#36 snake on 09.12.13 at 8:36 pm

Tiny Toronto House Size Of Tool Shed Sells For $165,000 ttp://www.huffingtonpost.ca/2013/09/11/tiny-toronto-house_n_3908797.html?utm_hp_ref=mostpopular

#37 Bob Rice on 09.12.13 at 8:38 pm

So 5 -year loans will come down again? Geez, I’m getting dizzy… I thought rates were going to continue to go up thereby undercutting further price rises in homes..

Man, this is one complex pyramid.

#38 espressobob on 09.12.13 at 8:45 pm

#21 bond bust

Sorry dude I’m on a tear tonight, nothing personal! This type of mindset just goes to prove why so many DIY investors screw up!

Think ‘long term’ and rebalance when needed. Get over that negative stuff! Stop reading bad info wherever it comes from and realize that crap has been around for years! Think outside the box!

#39 Dienekes on 09.12.13 at 8:46 pm

This is probably a stupid question, but what is [email protected]?

#40 eddy on 09.12.13 at 8:48 pm

re: 165k tool shed. I was in it. It had no kitchen or bath. The drain was outside of the front door. It had a hydro mast and meter. No water inside. It was in fact a severed tool shed. Shame on whoever allowed the severance.

#41 Yuus bin Haad on 09.12.13 at 8:50 pm

spinning some vinyl tonight – Todd Rundgren and tequila – nothing finer.

#42 snake on 09.12.13 at 8:53 pm

Buying a New York City Apartment at the Tender Age of 22

http://www.huffingtonpost.com/2013/09/10/polly-mosendz-apartment-new-yorker_n_3901435.html?utm_hp_ref=mostpopular

http://observer.com/2013/09/polly-go-lightly-buying-a-new-york-city-apartment-at-the-tender-age-of-22/

http://gawker.com/normal-22-year-old-buys-250-000-apartment-1279398375

http://groupthink.jezebel.com/class-privilege-a-reasoned-discussion-in-which-i-say-f-1279982969

#43 ponerology on 09.12.13 at 8:57 pm

too bad there isn’t a good legal way to “short sell” houses..

#44 zee on 09.12.13 at 9:01 pm

hi

You keep saying go for variable but to qualify is much harder so why do you even bother to recommend it

Then you should not be buying real estate. — Garth

#45 live within your means on 09.12.13 at 9:23 pm

I laughed when I saw the pic as it reminded me of hubby & his cousin Luc in the south of France this summer. Both naked in a hot tub outside. Luc called himself the whale. His wife & I had a good laugh. We spent 4 great days with them, including a day in & around Cap d’Agde. They’ve lived in a few places in the south & have visited them many times over 26 yrs. & we`d often take off for a day on our own to visit other areas.

I`ve always loved to travel. Have spent time in 11 countries in Europe – not on tours. Just hope I`ll be able to go back again.

#46 Smoking Man on 09.12.13 at 9:23 pm

Hence, my advice of last week. Don’t lock in to a five-year mortgage. Go variable.-Garth

No brainier…..but unless the peasants start making more loot, BOC rate will go no where.

Can anyone see Kevin O leary waking up and giving his staff more money. Ha

Or any other Smoking Man do that. Look at the corp profits of the bigs, huge last 1/4. What are they thinking about doing. Cutting costs, It’s business.

Peasants you want freedom, sell something. Do not trade your time for wages. Unless you are a gifted writer with writers bloc looking for material. That’s different.

Everyday I see the same people having darts at the tax farm. A few of them are addicted to books, they never say hi, just light up. nose in the book.

What is wrong with these people. It’s way more fun writing your own book. Who cares if you ever publish it or sell it. Its a hoot.

These useless readers so anti social. The need to live threw the imagination of some one else.

That’s said.

Ok now that I have insulted every religion , political affiliation, education, govt, lesbians, wait I never insulted lesbians, I would rather take my chances of drawing a cartoon of Mohammad in a mosque in Syria that take a swipe at a Lesbians. I’m not an idiot.

Is there anyone I left out. ?

#47 Ray Skunk on 09.12.13 at 9:28 pm

So, Garth, will REITs take a hammering next Wednesday (which is the simple assumption), or will they actually do well, given there will be solid clarification?

That should be obvious.– Garth

#48 House Porn on 09.12.13 at 9:31 pm

# 35 Kurt “the economy grows strong enough to stimulate itself”

So, it’s not just me! Keep this up Garth and we’ll be “crossing the river again”!

It’s macroeconomic talk. Grow up. — Garth

#49 OMG on 09.12.13 at 9:32 pm

Victoria Real Estate Update #22, #23

Good post, but I think you’d have to go back to the mid 1990s to see Victoria prices be equal to Austin prices – but your point is still valid.

Prices are as much driven psychology as economics. We have seen a 30 year run-up in prices in Victoria and people have just come to accept that houses cost 2 to 4 times here what they cost in other similar sized markets.

My sense is that unless we have a major supply increase (like the US housing meltdown) there will be no fast reduction in Victoria prices. And there is no real catalyst to cause such a melt down on the horizon – a run-up in interest rates of 2 to 3 percent will simply not do it.

I think we are in for a long, slow grind back to traditional house price to income multiples. That could take a decade or two as people wrap their minds around the fact that $1 million 3 bedroom homes in a city of 350,000 is not the norm (or sustainable).

#50 Pascii on 09.12.13 at 9:36 pm

So do I buy bonds now or sell ’em (or hold em)? I am a little confused.

(sad trombones)

#51 Smoking Man on 09.12.13 at 9:38 pm

#44 ponerology on 09.12.13 at 8:57 pm
too bad there isn’t a good legal way to “short sell” houses..
………………………………….
lucky for you had it been available last 4 years you would have been wiped out.

stick with batman and camel toe……..wins at 80%

#52 live within your means on 09.12.13 at 9:52 pm

My hubby today has 3K registered users as of today on his K100 BMW forum which is celebrating the 30th anniversary of the K bike – Big meeting in Italy. He also has 2 other BMW bikes – 1 with a sidecar.

#53 Aileen on 09.12.13 at 9:52 pm

@#7 “truthseeker”

you are a RE knob. shoo fly.

#54 Mr. Frugal on 09.12.13 at 9:58 pm

So, Garth, will REITs take a hammering next Wednesday (which is the simple assumption), or will they actually do well, given there will be solid clarification?

That should be obvious.– Garth

====================================
Garth,

This stuff isn’t obvious to alot of folks, myself included. I’ve been paying close attention as I’m sure this other reader has as well. My take is that people have panicked and oversold on REITs, preferred shares and Bonds. If the FEDs start tapering their Bond purchases, the yield curve should flatten and we will see some decent gains in REITs, preferred shares and Bonds.

We’re all trying to learn here. Thanks for your efforts. Some of us are a little dense and need you to spell it out for us.

Keep your stick on the ice,

Mr. Frugal

You are not only frugal, but correct. — Garth

#55 Derek R on 09.12.13 at 10:03 pm

#40 Dienekes on 09.12.13 at 8:46 pm asked
This is probably a stupid question, but what is [email protected]

For the answer to this, and many more, see the GarthFAQ

#56 Garth's Disciple on 09.12.13 at 10:05 pm

Garth – I’m a little confused about your recommendation. I agree that the bond market is a little oversold and conversely yields are ahead of themselves, but the trend is clear. Like most asset price charts, the yield line (let’s say the US 5yr & 10 yr YTMs) will look like a sawtooths with higher highs and higher lows….but the trend will continue. Staying with variable mortgage now will keep it cheap since prime won’t move up for another year likely, but fixed rates will march higher. So is your ‘go variable’ advice purely based on a short term phenomenon/trade and you will soon advise to lock-in as soon as 5 year rates pull back 25 bps? If not, does that advice not risk people saving a little now on their variable rate, but maybe when they go to move to fixed that prevailing fixed rates maybe be another 100 bps higher?

#57 FATHER on 09.12.13 at 10:05 pm

espressoboob is trying to be garth’s mini me

#58 Smoking Man on 09.12.13 at 10:09 pm

Everyone is an economist, charts , forecasting all bets made from wish-fullness, Placed bets, and coin flipping.

The secrete as demonstrated by the great me. Who has proven year after year of being consistently right is this.

Start of with a blank brain, its easy for me. Get out of your body, your beliefs and bias.

Observe the herd, read body language, try and understand what the bad guy is stealing selling or hiding. Try to figure out why the good guy is so stupid.

Just today, read some body language, which told me without a doubt where I will be shortly.

It’s what I do

#59 not 1st on 09.12.13 at 10:39 pm

Garth, in reference again to the 1% income levels, I don’t believe this is telling the whole story.

Any 1 percenter worth his weight is sheltering a lot of their income in limited companies and I doubt the gov’t can get stats on that.

Businesspeople own companies which employ others. They pay tax. Their companies are taxed. This is a problem for you? — Garth/em>

#60 Aileen on 09.12.13 at 10:39 pm

#42 Yuus bin Haad

LOVE Todd Rundgren!! ;-(

#61 Victoria Real Estate Update on 09.12.13 at 10:48 pm

@ #50 OMG

“We have seen a 30 year run-up in prices in Victoria and people have just come to accept that houses cost 2 to 4 times here what they cost in other similar sized markets.”

Incomes and rents do not support house prices in Victoria. Victoria is currently extremely overvalued based on price-to-income and price-to-rent ratios. Vancouver’s housing market is the second most overvalued in the world and Victoria is close behind it.

Canada’s housing bubble will burst soon since all housing bubbles burst and correct back to where they started based on price-to-income and price-to-rent ratios. There has never been a country that has been an exception to this. Canada is not different. Victoria is not different. House prices in Victoria will corrrect back to the point where incomes and rents once again support prices.

Victoria’s economy has been weak for some time and it is getting worse. The overall availability of houses, condos, townhouses and apartments for rent in Victoria has been high for some time. The vacancy rate is currently 600% higher than it was a decade ago. This is all proof that many young Victorians are moving away to find work elsewhere. This analysis will help you understand more. Victoria’s unemployment rate has been pushed down for some time because many unemployed workers have been leaving town to find work elsewhere.

Psychologically, Victorians approach their bubble housing market the same as it is approached by people in other bubble cities. People in Phoenix had a similar sense of invincibility until the housing market in that city crashed. It’s always different until it isn’t. Vancouver’s housing market crashed about 50% in the 1980s, it was different there, also, until it wasn’t.

House prices in Victoria increased by a factor of about 2.5 times since 2000 due to excess credit that resulted from lax lending standards. House prices in Victoria did not gradually increase over the past 30 years as you seem to think. Prices in Victoria increased dramatically after 2000 as a result of external factors (excess credit), not due to factors unique to Victoria. Therefore, Victoria’s housing market will correct/crash for the same reasons that all housing markets across Canada will correct/crash. In fact, Victoria is leading all Canadian cities in terms of amount of correction from peak. Vancouver and Victoria will correct the most of all Canadian cities.

In 2009, house prices in Victoria crashed about 15% in a matter of 8 months and would have continued to crash but an unprecedented, emergency intervention aimed at the entire Canadian housing market turned house prices around.

The Canadian housing market has received much more housing market stimulus through taxpayer backed mortgage insurance (CMHC, Genworth, etc.) than the US housing market (population adjusted). That is the reason house prices in Victoria are currently in bubble territory. Take away enough of that stimlulus and house prices across Canada crash immediately.

The biggest house price declines that Victoria will experience will probably happen within the next 18 to 24 months, followed by a multi-year melt.

#62 sheane wallace on 09.12.13 at 10:53 pm

Bonds rally? In somebody’s wet dreams.

I want to be crystal clear here: Many will soon loose their shirts in the bond market. Nobody in their right mind could think that these deficits can persist and the debt problem would somehow be solved with 0 interest rates.

Inflation coming. In the process savings and currencies would be destroyed. Bull commodity markets for another 10 years for sure. Bonds? I don’t think so. Unless German.

#63 Son of Ponzi on 09.12.13 at 10:59 pm

“The Fed has more money than God”
So from now on it’s “In Fed we trust”.

#64 Son of Ponzi on 09.12.13 at 11:02 pm

#44.
A legal way to short the housing market is to rent.

#65 retired Boomer - WI on 09.12.13 at 11:03 pm

#20 Shawn

I tend to agree. Bonds generally don’t return much over inflation (right now the rates don’t even meet inflation).

That said, not everybody is knowledgeable enough to be in cash / equities and know how to manage themselves.

A sell off in equities they panic, sell and lock in losses. For them, Bonds do provide “stability” in their portfolio.

I have owned Bonds, and have done well with them in the past. I no doubt will own some in the future, when i believe they will “pay me” to own them. Right now, I do not see that opportunity, generally, in bonds. I most recently owned some convertibles, but currently out of bonds.

Right now, bonds suck. Come back in a few weeks, or a few months, I might have changed my mind, as the world is always changing.

Your 24% is quite good for this year, not unheard of either

#66 sheane wallace on 09.12.13 at 11:03 pm

the US Fed (the central bank, which has more money than God)

———————————
You mean currencies/debt IOUs. They have no money.
Congrats to all retirees if Garth is right on bonds and interest rates (hint: he wont be)

#67 Smoking Man on 09.12.13 at 11:05 pm

61 not 1st on 09.12.13 at 10:39 pm
Garth, in reference again to the 1% income levels, I don’t believe this is telling the whole story.

Any 1 percenter worth his weight is sheltering a lot of their income in limited companies and I doubt the gov’t can get stats on that.

Businesspeople own companies which employ others. They pay tax. Their companies are taxed. This is a problem for you? — Garth/em>
………………………………

As a 1.5% er, and business owner, I can tell you we don’t shelter shit. In fact do the opposite, embellish revenue

We do everything in our power to show the highest sales. So I can suck some some greater fool to give us 10 x earning to unload the bitch when we get board or spot another opportunity.

What are they teaching you in school?

#68 snake on 09.12.13 at 11:30 pm

Canadian home prices to drop 15% on back of mortgage rate rise

http://www.theaffluentboomer.com/

#69 Mr. Reality on 09.12.13 at 11:47 pm

Meanwhile other chartologists are talking about the head and shoulders formation appearing on the dow. You all know what that means right?

Mr. R

#70 TJ dude on 09.12.13 at 11:52 pm

Garth, great job with the blog. I’ve been following it for a couple years, lovin it.

Moneygeek also seems to concur that there is going to be a cool down in real estate in Canada.

http://moneygeek.ca/weblog/77/

#71 broadway skytrain on 09.12.13 at 11:53 pm

I can tell you we don’t shelter shit. In fact do the opposite, embellish revenue
———————————–
my brother has a busy med/devices practice in NS- he ‘makes’ a 60k salary on paper. really he (corp) will make (gross profit) 450k or so this year. boomer age group is his target – he’s drowning in business.

he is not a 1% but is not hurtin either!

#72 economictsunami on 09.13.13 at 12:23 am

The main problem that Bernanke has with deciphering economic data is that it is either distorted by his own policies, sluggish or taken in totality, simply inconclusive.

As the Fed’s balance sheet moves from $800B pre Lehman’s, to approaching $4T, ever increasing amounts of extraordinary monetary policy (QE) and low rates appear to be accomplishing mere diminishing real economic returns but their impacts have been an absolute bonanza for the paper pushers.

Ultra low Fed overnight rates (in all probability for at least 2 more years) and a mountain of liquidity may have worked to seemingly stabilize the financial services community but many problems in this sector continue to be either ignored or simply ‘papered’ over…

Five years after the crisis, these 13 charts show what’s fixed and what isn’t:

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/11/five-years-after-the-crisis-these-13-charts-show-whats-fixed-and-what-isnt/

#73 Winning on 09.13.13 at 12:41 am

Possibly another year without a move in prime? Excellent. When I bought my current home (price only 3x my income, fear not) two years ago I went variable for the first time and have Prime -.4% for 3 more years.

#74 marthasandor on 09.13.13 at 12:55 am

#47 Smoking Man
You have left out the Hungarians, but I think you know why. They are simply unstoppable, madly inventive, fierce and claim every key invention since the aqua ducts as their own. Thank god they are a small nation.

#75 observer on 09.13.13 at 1:03 am

14 Vancouver on 09.12.13 at 6:24 pm

Go ahead. Buy at the top. Tell us how that works out. By the way, Vancouver just suffered its 13th consecutive month of falling prices. — Garth

How will we know when Vancouver hits the bottom? 13 months of drops… how many more to go?
==================

Who cares, its hard to catch the top or bottom, it will take it several years before it hits rock bottom. Note if interest rates rises tommorrow to 5/6%. It will take it several years before the effects will hit borrows.

Most people only has a short planning (paycheck to paycheck) they don’t have a 5 year plan. So when its time for these guys to renew, Bam! that is when it will hit them. Now the banks can’t sell more mortgage its time for them to milk the cow!!! poor fu**kers

#76 Jeff on 09.13.13 at 1:18 am

No Comment:

“Typical loan qualification criteria require that borrowers spend no more than 32% of their gross income (Gross Debt Service Ratio or GDSR) on shelter financial obligation including mortgage payments, taxes, utilities and half of condo fees. In addition, borrowers should spend no more than an additional 8% to 10% (Total Debt Service Ratio or TDSR = 40% to 42%) of their gross income on all other financial obligation including personal loans, car loans, credit cards and other debts. The calculation therefore assumes the total of all non-shelter financial obligations will not exceed $ 15,000, or an additional 8% of the required household income.”

#77 Chris on 09.13.13 at 1:45 am

Garth,

I’ve been reading your blog for a few years now. Watching and assessing. Finally, I have decided to move my TSFA out of my Orange Savings Account and into a self-directed Discount Brokerage Account. Might as well try to make something out of the $26,000.00 I’ve got sitting there. What I want to do is get into a good REIT or ETF, but I don’t know enough about them. I need some advice (for free if you don’t mind helping out a brother). What would you recommend?

Chris

#78 souvereigninternational on 09.13.13 at 1:47 am

#20 Shawn on 09.12.13 at 7:14 pm

Nothing like a buffett talk from shawn to bring me back, other than that I agree with you on bonds, the riskiest of the riskless “investments”. Make sure you load up on quality silver, platinum/palladium, uranium producers as the prices are cheap. That is what Buffett would quietly do.

#23 Victoria Real Estate Update

I’ve been trying to point out the insanity of Canadian RE prices for years with these comparisons. One can even see it clearly watching house hunters on HGTV. My Family and friends who own houses will never get it.

Now, those prices in Austin are locked in on 4.35% 30 year loans currently, and can be refinanced if rates go down (although not worth it for only 1% gain) . If we have a free market as some believe why are these type of loans not(or anything close) available in Canada. All this talk about choosing variable, which I agree is a better choice right now, but in a free market my choices in loans should be similar and interest rates should only be affected by currency of particular country. Why woud it cost me over 8% to lock in for 25 years and not worry about interest risk. To me in this country I will rent until I can buy a house that I can easily pay off in 5-10 years, never mind the actual price.

#79 Ray on 09.13.13 at 1:47 am

“Chinese Buy Sydney Homes at Unprecedented Rate” – http://bloom.bg/1d9duz1‎

Not a myth. Happening here in canada too.

#80 Buy? Curious? on 09.13.13 at 2:07 am

Man, do I love Smoking Man! But I think I may take a page out of his play book. (No offence, SM) I’m going to go back and copy all of his posts here and from his blog, spellcheck it, twerk it for grammar and pass it off as my own.

Smokey, as payment, I’ll keep a tab open at a bar of your choosing with a $200 cap once a month of your choosing. Is that cool?

http://www.youtube.com/watch?v=a8SSDvDI5yg

#81 P. Winterton on 09.13.13 at 2:41 am

>>bonds will rally and yields drop

And why would that happen? Because bond dealers ‘calm down’? Perhaps you know more about what the Federal Reserve is planning than they do. Or perhaps not.

#82 Bob Rice on 09.13.13 at 3:59 am

http://business.financialpost.com/2013/09/12/canadian-home-prices-to-drop-15-on-back-of-mortgage-rate-rise-sun-life/

#83 Dean on 09.13.13 at 5:14 am

5 year fixed: 3.48%, 5 year variable 2.40%

For loan amount $300,000, your monthly payment is $1494.65 for fixed rate, for variable, it is $1329.00, you pay $165.65 less.

It is wise to choose variable, and make a lump sum payment using the saved $165.65, this way, you can pay off your mortgage a lot faster

#84 sly stallone on 09.13.13 at 6:56 am

Bonds are profit-free risk.

The markets are rigged. There is ‘support’ for the dollah with secret market interventions by authorities which if made public will blow big time.

Short selling, options trading, media manipulation…

It will work out until it does not.

I’m very sorry about your childhood. — Garth

#85 Ralph Cramdown on 09.13.13 at 7:31 am

Head over to Google Trends and see who in the US has been searching for ‘inflation’ and how often. Trend? Falling since 2004, and searched about half as often as it was then. Where do the most searches originate from? Probably New York, the centre of the financial universe, with Boston a close #2, right? Wrong. Washington DC takes the prize. A hotbed of economic geniuses that place isn’t.

#86 fancy_pants on 09.13.13 at 7:55 am

Bernanke will also make it clear that further cuts will take place only as the economy grows strong enough to stimulate itself.

Sure. Economic defibrillators of every kind have kept the carcass warm and now they are expecting it to get up on its own? Better for the comatose to wait for $ to fall from the sky.

#87 TurnerNation on 09.13.13 at 7:59 am

Zing. Hit me again.

Fidelity Sees Poloz Raising Rates After Bernanke: Canada Credit
Fidelity Investments says the Bank of Canada may raise interest rates after the Federal Reserve does as economic growth in the U.S. outstrips that of its northern neighbor.

#88 fancy_pants on 09.13.13 at 8:05 am

the reality of an analogy…
Economy feeding on amazon girls (the goods,RE) via ecstasy pushers (RE pumpers,media)) and loads of Viagara (cheap $,rates) .
Take away the Viagara and what do you got? A reality check. expensive, run-of-the-mill, used up girls and drug pushers you no longer trust. um, ya. Sounds like a recipe for stimulation.

#89 Smoking Man on 09.13.13 at 8:10 am

#82 Buy? Curious? on 09.13.13 at 2:07 am

Man, do I love Smoking Man! But I think I may take a page out of his play book. (No offence, SM) I’m going to go back and copy all of his posts here and from his blog, spellcheck it, twerk it for grammar and pass it off Sami-sami s my own.Smokey, as payment, I’ll keep a tab open at a bar of your choosing with a $200 cap once a month of your choosing. Is that cool?

………..
Knock yourself out, just dont mess with the spelling
You wreck the art, and the message

#90 Ballingsford on 09.13.13 at 8:17 am

#40 Dienekes

The Nude Lady at the Beach

Cut that out. This is a family blog. No unauthorized nudity. — Garth

#91 TurnerNation on 09.13.13 at 8:25 am

Yield curve (still brings tears):

http://www.greaterfool.ca/2012/04/25/emotional-rescue-2/#comment-167157

Post-Apple: Walmart will carry $189 base Iphone. It’s been commoditized. Which Buffet hates. Pricing power is gone.

#92 Etobicokehead on 09.13.13 at 8:28 am

Garth, that first paragraph was one of the best I’ve read on a blog. Creative, humorous and poignant. Part of what keeps me coming back every day.

#93 Nonno Nicola's Grandson Tonino on 09.13.13 at 8:34 am

#152 From Yesterday Big Rider

“No way nonno or any of these other mega rich Italian land owners, construction company founders etc. could repeat their success if it were all taken away from them and they had to start over.”

I am disappointed in you Big Rider. You make it seem like Nonno and his ilk just got lucky. You should know better being the son of immigrants. My friend, Nonno had a work ethic that is almost impossible to match, loads of street smarts and though only a grade 5 education, more wisdom and intelligence than a room full of PhDs. Do you think in the future, construction companies will be run by MBAs and PhDs? They will be run by guys who quit high school in grade 10 and have the same qualities Nonno had. They will be worth millions while many MBAers sit on the unemployment line. If you don’t apologize to Nonno, he told me the invitation for vino and home made pasta and sauce is off!

#94 Larry Laffer on 09.13.13 at 8:37 am

@Chris #79
For REIT, you can look at XRE (Blackrock iShare) and ZRE (BMO ETF). ZRE is equal weight, meaning that each holding weights around 6% of the fund, while in XRE the holdings are weighted according to their respective market capitalization.

And for preferred shares, you can look at XPF (about 50% Canadian and 50% American) or at CPD (100% Canadian), both from Blackrock.

That’s a start – look at it yourself and make your own decision.

#95 Nemesis on 09.13.13 at 8:37 am

“Businesspeople own companies which employ others.” – HonGT

In theory, AuldPol. In practice, that’s so ‘OldSchool’.

Take Vancouver’s FairmontPacificHotel, for example… which is now ProudlyOffering Unpaid ‘Internships’ for…

BusBoys.

[CBC] – Unpaid bus person internship offered at Vancouver hotel: Fairmont Waterfront Hotel blasted on Twitter over unpaid interns

http://www.cbc.ca/news/canada/british-columbia/story/2013/09/12/bc-unpaid-interns.html

#96 TurnerNation on 09.13.13 at 8:42 am

#68 dienekes on 09.11.13

Brett Wilson (dragon)- watch his cancer recovery vid on Google Videos. Recommended.
I agree with your take – he’s still searching. His facebook news feed is a mis mash, not sure where he’s going.

I talked to him at booking signing then kept bumping into him at airports in Canada. Re-introduced myself as have connection to one of his old businesses.
Raises a ton for charities, heart is in right place. Hopefully it’s wholly so.

#97 Brian Romanchuk on 09.13.13 at 8:49 am

#79 Chris

A lot of people recommend the Canadian Couch Potato site for discussions of ETFs (I don’t read it myself).

Until you get a better understanding of the mechanics, there’s a lot to be said about paying for a fee-based advisor. A good advisor should be able to reduce the information you have to wade through, and provide a reality check on the advice you get for free from random strangers on the internet. Later on, you can evaluate the value-added provided by the advisor.

As for ETF’s, it is a very wide range of products. A lot of them nowadays are for people who want to use them for short-term trading. If you do not want to do that, you need to filter those out, and just look for the low cost ETFs that track broad indices.

#98 Shawn on 09.13.13 at 9:10 am

I WANT IT FOR FREE…

79 Chris asks…

I need some advice (for free if you don’t mind helping out a brother). What would you recommend? – See more at: http://www.greaterfool.ca/2013/09/12/the-yield-curve/#comments

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

Advice is a strange product where the value of the service has almost no correlation to the price paid. So maybe free advice is okay but one should be careful.

Chris also says he read this blog for two years. If so he ought to know Garth has given loads of free generic advice on what to do with a TSFA. Keep reading and then when it gets mentioned again, perhaps act.

Also no one can give you personalized advice without a lengthy interview about your finances and attitudes and without taking on liability. Sound free?

#99 George on 09.13.13 at 9:14 am

In Nonna Nicola’s day, busboys at restaurants were paid. Today, the bus person at the Fairmont Hotel is an unpaid intern. From CBC:

“An ad seeking unpaid interns to bus tables at Vancouver’s Fairmont Waterfront Hotel has sparked a debate about whether unpaid internships take advantage of students…

But John-Carlo Felicella, head of Vancouver Community College’s culinary arts department, said interns often have no prior restaurant experience and internships provide them with a way to find out if they’re cut out for the industry.

“Even dishwashing, it’s education,” he said. “It’s a lower-end job, but from there it stems to many other things.”

http://www.cbc.ca/news/canada/british-columbia/story/2013/09/12/bc-unpaid-interns.html

#100 Hh on 09.13.13 at 9:29 am

The government has been buying up bags of its own bonds, injecting money into the economy ….

What? You wrote couple months ago that all this cash is sitting on the bankers balance sheet and doesn’t make it into the economy. Now you change you tune. You make this stuff up as you go along?

Of course I make it up. Research is for unemployed guys like you. Actually money provided to banks is loan capital. The goal is jobs. Seems to be working. — Garth

#101 amazon girl on 09.13.13 at 9:43 am

YESTERDAY AND TODAY WAS THE REASON WHY I KEEP READING THIS BLOG.
THANK YOU ….

#102 lawboy on 09.13.13 at 10:07 am

More than 700k for this ugly semi, but apparently it’s been “permanently” improved (!??) so it’s worth it…

http://www.theglobeandmail.com/life/home-and-garden/real-estate/multiple-bids-for-toronto-semi/article14299901/

This price range in Toronto ($600K-900K) is a death spiral. — Garth

#103 Yo on 09.13.13 at 10:25 am

I use to work in Debt Capital Markets/Credit Trading at the big US banks, and I am amazed sometimes how people I have talked to are so certain about how way interest rates will stay low, but have no idea how they actually work. It is quite amazing how someone can put 5% down on a $1M home, and take a $950K mortgage for 25 years and not realize the “risk on” ( the term we use in trading) they have just signed for… for an asset they will live in and generate no return. To simply buy a house and say the number one reason is interest rates will stay low or to buy before your pre-approval expires, is insane. It is like buying more of stock that you know is overvalued because your bank has told you they will decrease your margin next week.

#104 Willy2 on 09.13.13 at 10:50 am

Nope. Central Bankers DO NOT set/determine rates. There’s a force called “Mr. Market” and that guy sets BOTH short & long term rates.

Nope. the yield curve has been become flatter since Arpil of this year. But I look at the ratio of the 30 year vs. the 5 year yields and I expect the yield curve to steepen any time soon.

Nope. — Garth

#105 Milk in the Cowtown on 09.13.13 at 11:05 am

Garth…long time follower, first time commenter.

Saw this article in the Calgary Herald yesterday, and thought of you:

http://www.calgaryherald.com/news/alberta/National+survey+shows+Calgary+home+ownership+leads+country/8900913/story.html

Poor lady has no money to scratch together a downpayment, for a place where her sole objective was to “find something livable.” She’s obviously not going to be able to afford any kind of interest rate increase, on round #2 of her mortgage. That said though, the worst line of all is:

“It has opened up a lot of doors for us. Building equity means the world for us. It can hopefully pay for my child’s education down the road,” she said.”

And this is after she’s been through a course in financial literacy.

#106 jess on 09.13.13 at 11:19 am

side profile of the disqualified
“extraordinary rewards” for those “extraordinary risk (y)”.

RE: demise of MG Rover. -conflicts of interest
https://theconversation.com/columns/prem-sikka-4302
http://www.frc.org.uk/News-and-Events/FRC-Press/Press/2013/September/FRC-publishes-Final-Report-of-Disciplinary-Hearing.aspx
http://www.frc.org.uk/Our-Work/Publications/Professional-Discipline/Tribunal-Report-Deloitte-Touche-and-Mr-Maghsoud-Ei.pdf
Deloitte fined £14m for conflict of interest over MG RoverAccountancy firm receives record-breaking fine for ethical breach, with former director banned for three years
http://www.theguardian.com/business/2013/sep/09/deloitte-record-fine-mg-rover-deal
http://www.mirror.co.uk/news/uk-news/phoenix-four-what-happened-to-the-men-127615#ixzz2emnk7F9j

===========
http://www.rollingstone.com/politics/blogs/taibblog/16-major-firms-may-have-received-early-data-from-thomson-reuters-20130905
http://qz.com/92786/more-evidence-that-data-thomson-reuters-gives-its-clients-may-be-leaking-out-even-earlier-than-its-meant-to/

“common carrier”
Verizon Communications Inc. v. Federal Communications Commission

http://www.freepress.net/blog/2013/09/10/legal-gymnastics-ensue-oral-arguments-verizon-vs-fcc

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

#107 hh on 09.13.13 at 11:29 am

#103Hh on 09.13.13 at 9:29 am

Of course I make it up. Research is for unemployed guys like you. Actually money provided to banks is loan capital. The goal is jobs. Seems to be working. — Garth
……
Funny … your alzheimer’s or reporter’s mind must be kicking into high gear. And the Canadian or American need more debt today.

#108 45north on 09.13.13 at 11:41 am

rising interest rates are going to hurt. The Liberals in Ottawa South (where I live) will feel threatened. With reason.

A confidential report prepared by Finance Ministry officials for cabinet expressed concerns about a possible credit downgrade: “No amount of talk about ratios or the Canada brand can disguise what we are hiding in plain sight: seventh largest of all non-sovereign borrowers in the world and greater reliance on borrowed capital than any other statelevel government that we know of.” These types of worries are not just the stuff of secret cabinet documents. When economist Don Drummond was brought in to chair a panel that assessed the province’s public service, he produced a report that said Ontario “faces more severe economic and fiscal challenges than most Ontarians realize.”

http://www.ottawacitizen.com/business/Ontario+ticking+time+bomb/8906750/story.html

#109 45north on 09.13.13 at 11:54 am

Victoria Real Estate Update: great post Victoria!

Nonno Nicola: From Yesterday Big Rider

“No way nonno or any of these other mega rich Italian land owners, construction company founders etc. could repeat their success if it were all taken away from them and they had to start over.”

well there’s no way that 1967 is going to come again.
http://www.greaterfool.ca/2013/03/19/what-f-knows/#comment-230535

second generation Italians are seamlessly integrated, they’re not their parents

#110 T.O. Bubble Boy on 09.13.13 at 11:55 am

From a tweet on CanadianMortgageTrends… the Mortgage Brokers celebrate Karen Kinsley (CEO of CMHC during the 2003-2013 period, i.e. queen of the bubble):

—————————
CMT @CdnMortgageNews
@caampaccha paid tribute tonight to the tremendously accomplished Karen Kinsley, CMHC’s recently retired CEO

pic.twitter.com/KSwrvWKi9j
——————

I guess when you turn CMHC from a niche insurer into the biggest debt machine in the country, you get your own celebration from the debt peddlers.

#111 Victor V on 09.13.13 at 11:58 am

http://www.theglobeandmail.com/report-on-business/top-business-stories/gold-sinks-as-goldman-sees-threat-of-price-slipping-below-1000/article14302413/

National net worth rose 3 per cent in the second quarter of the year to $7.3-trillion, Statistics Canada said today, climbing on a per-capita basis to $207,300.

Among Canadian families, household net worth rose 0.7 per cent, to $205,900 on a per-capita basis, led by rising property values.

But at the same time, a key measure of consumer debt rose again to a record level, having declined over the previous six months, raising questions again about the ability of some households to juggle their finances. While it may be some way off yet, interest rates will rise, which is why the Bank of Canada and Finance Minister Jim Flaherty have urged Canadians to mend their ways, particularly on mortgage debt.

According to Statistics Canada, mortgage debt stood at about $1.1-trillion by the end of the second quarter, up by $18-billion, while other consumer credit hit $500-billion.

The key measure of the debt burden – credit market debt to disposable income – rose in the quarter to 163.4 per cent from 162.1 per cent in the first three months of the year. That’s seen to be a dangerous level.

#112 Smoking Man on 09.13.13 at 12:03 pm

Ever get that feeling your the lone cowboy, the mob is circuling around you, you just know they are going to pounce at any second.

Cowboys are not allowed anymore. Join the collective or perish.

Why cant I get this smerk of my face..

That damn bugs bunny cartoon got me again.

But then again, l have 2 amazing plan B’s

#113 calgaryPhantom on 09.13.13 at 12:13 pm

Cut that out. This is a family blog. No unauthorized nudity. — Garth

———————————————-

Not a family blog. I hope my wife never finds out that i don’t buy a house because of this blog.

#114 Uwinsome on 09.13.13 at 12:18 pm

Canada household debt ratio hits record high:

http://www.bnn.ca/News/2013/9/13/Canada-household-debt-ratio-hits-record-high.aspx

#115 Old Man on 09.13.13 at 12:19 pm

I had an invitation for todays big event to hit the road to Port Dover on a Goldwing Trike, but it is too damn cold, and will not camp out in some park freezing my ass off. I need some comforts in life, so about 12 went off without me early this morning. :(

#116 Canadians Maxed OUT on 09.13.13 at 12:56 pm

Uwinsome on 09.13.13 at 12:18 pm Canada household debt ratio hits record high:

http://www.bnn.ca/News/2013/9/13/Canada-household-debt-ratio-hits-record-high.aspx
———————————————————-

Canadians will spend and spend until they are bankrupt. The sad fact is they are already bankrupt and living a lie.

#117 Holy Crap Wheres The Tylenol on 09.13.13 at 12:58 pm

Took a day off work to (I can do that I own the company) to freeze my ass off down here in Port Dover. I don’t take the Harley out too much anymore but I must admit it was fun to ride this far again. Saw CityNews anchor Tom Hayes, Looking for Garth?????
No investing today just fun.

#118 Canadians Maxed OUT on 09.13.13 at 1:06 pm

45north on 09.13.13 at 11:54 am Victoria Real Estate Update: great post Victoria!

Nonno Nicola: From Yesterday Big Rider

“No way nonno or any of these other mega rich Italian land owners, construction company founders etc. could repeat their success if it were all taken away from them and they had to start over.”

well there’s no way that 1967 is going to come again.
http://www.greaterfool.ca/2013/03/19/what-f-knows/#comment-230535

second generation Italians are seamlessly integrated, they’re not their parents
———————————————————-

Back in those days people could save money and buy a car for CASH! That was the norm. When I talked to the old guys from work and they tell me stories of the 60’s how one hours work could buy two cases of beer(don’t drink beer but cases are now $30-40) you can see that it was like making $60-80 in todays money. These are skill tradesmen who depress me at how many jobs were around at the time and the type of pay they were getting. Jobs everywhere in Canada. Now it’s a nightmare. That doesn’t mean Nonno didn’t work hard and saved and invested which they did. Could they do it again? I don’t know but it would be harder I would think.

#119 Old Man - WHY on 09.13.13 at 1:22 pm

Oh why do you think anyone here is interested in your social/personal life?

Please keep it on topic. If you must be OT limit it to something even slightly interesting – most of us have wives to complain about the cold, we don’t need you too.

carry on. like this…..
———————-
the wife and i decided , thx to G’s ‘nagging’ to drop 100k into some reit and pref etfs. the acct is funded , but the trigger has not yet been pulled. xre looks like it may resist further drops – should we buy now?

#120 Donald Trump on 09.13.13 at 1:29 pm

Job market weakens for B.C.’s young workers

http://vancouver.24hrs.ca/2013/09/11/job-market-weakens-for-bcs-young-workers

QUOTE:

A growing trend has resulted in fewer and fewer workers aged 24 or younger in the province, as their older counterparts continue to expand in the workforce.

The trend has people wondering if young people just refuse to “move their butt” off the couch or are employers simply not hiring less-experienced youth.

BC Stats found there are 7,400 fewer youth aged 15 to 24 with jobs in B.C. as of August 2013, compared with the previous year. The trend started five years ago and now there are 38,100 fewer jobs held by the province’s youth compared to 2007 pre-recession levels.

In the same time period, according to the data, adult jobs for those age 25 or older have grown by 128,200.

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

QUOTE:

Heather Tait, a Lower Mainland mother of four, believes the problem could be a lack of programs to encourage “unmotivated” youth — such as her 19-year-old son — to seek employment or schooling.

“We have to disconnect our Internet when we leave the house,” Tait said. “(My son) much prefers to be sitting at home playing video games … I don’t know where he gets this idea the world can be handed to him on a silver platter.”

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

Yes , the lady is correct…. and it is all by design.

#121 Alberta Homeowner on 09.13.13 at 2:18 pm

Buying Silver

I’ve been thinking of buying a little silver for a long term investment so went about inquiring at Scotiabank.

The spot-price of silver today is about 22.50 CAD – Scotiabank’s selling price for one ounce of silver is 36.20 and their buy price is 12.46. Talk about robbing from the retail market~!

Does anyone know of a fairer market to trade physical silver?

Why not go straight to lottery tickets? — Garth

#122 Donald Trump on 09.13.13 at 2:53 pm

Coming Soon! Changed Expectations! And More! Yes, Definitely More!

http://vancouverpeak.com/Thread-Coming-Soon-Changed-Expectations-And-More-Yes-Definitely-More

QUOTE:

For some time, I have been watching 4988 Chancellor Boulevard in the University Endowment Lands in Vancouver West as an ‘indicator’ of the market. That is a 7,700 square foot lot with an old house in an exclusive area of mostly older homes, with a few new builds.

Sold under MLS V951758 in June 2012 for $2,600,000 (listing was at $2,688,000). Shortly after the house sold, a sign appeared on the site, advertising a new 4,500-4,750 square-foot modern architectural home to be ‘built in 2013′ with completion by 2014, priced at $5,188,000 (would have sold if they had added more ‘8’s!) under V989612 (no longer active, but ‘Exclusive’ listing at http://robzwick.com/mylistings.html/details-32129708 for a while said ‘completion in 18-24 months’).

QUOTE:

Now, about 20 August 2013, a Development Permit Application (DP No. 2/13) sign appeared in front of the house advising that the architect applied to construct a house with a floor area of 2,646 square feet. So, no more custom McMansion with exotic hardwoods and a kitchen resembling a bowling alley. I bet, it is now an ‘off-the-shelf plan’ they built on Fraser Street in 2011. Granite and stainless steel still evident, but now they are similar to what you would find at Home Depot and the custom copper gutters and down spouts have been replaced with painted galvanized. They can ‘value engineer’ that sucker until it bleeds money instead of pain!

QUOTE:

As of 12 September 2013 Realtylink shows in Vancouver west: 108 single family houses for sale that are ‘0′ years old (cheapest: $1,698,000.00; costliest: $14,888,000.00 (would have sold if they had added more ‘8’s!)) and 188 if you change the age criterion to ‘1’ (cheapest: $1,698,000.00; costliest: $22,800,000.00).

So, good luck with building another ‘spec’ house and listing it for $4,000,000.00 or thereabouts.

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

Now THAT is interesting.

The builder is going to build a house smaller than what is permitted from approx. 4800 to approx. 2700 sq ft.

I thought the UNwritten rule is to build to maximum allowbale….and to fit in with the neighbourhood. The builder should take a loss and sell off what exists now.

#123 Old Man on 09.13.13 at 2:59 pm

#122 Old Man – Why: my response is simple _I_ and that is my middle finger, as will not back down from Caesar or you in a NY minute.

#124 jess on 09.13.13 at 3:05 pm

cash n’ condos washing

How To Launder Drug Money: Start An LLC And Buy Real EstateAn explosion in cash-only home sales reveals a possible loophole in laws designed to prevent money laundering.
By Frederick Reese | September 12, 2013

http://www.mintpressnews.com/how-to-launder-drug-money-start-an-llc-and-buy-real-estate/168778/

….In June, the White House introduced the G-8’s Action Plan Principles to Prevent the Misuse of Companies and Legal Arrangements, which would make companies directly responsible for the knowing misconduct of bad actors. The plan, which would require congressional approval, would make a developer that accepts money from someone on the Office of Foreign Assets Control list liable — forcing a complete forfeiture of all revenues received and the incurrence of a $50,000 fine per transaction, regardless of whether the developer is aware of the person’s status on the list.

FACT SHEET: U.S. National Action Plan on Preventing the Misuse of Companies and Legal Arrangements
http://www.whitehouse.gov/the-press-office/2013/06/18/fact-sheet-us-national-action-plan-preventing-misuse-companies-and-legal

#125 Ralph Cramdown on 09.13.13 at 3:09 pm

#124 Alberta Homeowner — “Does anyone know of a fairer market to trade physical silver?”

Maybe ask about a bigger size? What was the quote for a 100oz bar?

http://www.cmegroup.com/trading/metals/precious/silver_contract_specifications.html

Or, if you’re a piker, just admit that they’ll get you coming and going trading physical, and that trading SLV for $5-10 flat is the way to go. And ask whether the part of the internet you hang out on seems to be full of banner ads and commentators hawking physical metals, almost as if the smart money is getting rich off commissions and the retail spread rather than from owning the metals themselves, whose performance has been abysmal…

P.S. Funny quote from Scotia Mocatta’s website: “Precious metals products can be used as a collector’s item, as a gift or simply for the pleasure of owning them.” Notice any reasons missing? Like yours?

#126 Old Man on 09.13.13 at 3:20 pm

#127 Shawn – I would be riding, and what is the problem? It is too damn cold, and am too old to camp out to freeze my ass off with the bikers for a camping scenario for the next day. Now for the other idiot called at #122 do not mess with me, as will fight for Canada with my heart and soul for the citizens of this country to take it back from fascism back into a sense of freedom; otherwise all with be lost.

#127 Victor V on 09.13.13 at 3:29 pm

http://business.financialpost.com/2013/09/13/canada-debt-mortgages/?__lsa=7385-ceed

The ratio of Canadian household debt to income rose to a record high 163.4% in the second quarter from 162.1% in the first quarter, Statistics Canada said on Friday. The increase followed two consecutive declines. Statscan revised the first quarter ratio up from an initial 161.8%. The news is unlikely to please the federal government and the Bank of Canada, which have both repeatedly warned Canadians against taking on too much debt – in particular cheap mortgages – at a time when interest rates are at near record lows.

The previous record was the 162.8% recorded in the third quarter of 2012. The 1.3 percentage point increase in the debt-to-income ratio in the second quarter of 2013 from the first is the highest such jump since the 1.5 percentage point advance recorded in the second quarter of 2012. Mortgage borrowing led the demand for credit in the second quarter, rising by $18 billion to a total of just over $1.1 trillion. National net worth in the second quarter rose 3.1% to $7.31 trillion from the first.

#128 broadway skytrain on 09.13.13 at 3:51 pm

not pumping , just answering a question

220/237 spread at
http://goldsilver.com/buy-online/10-oz-silver-bar/
if you buy a toolbox full

220/240 if u buy one

a 9% hit to for a roundtrip buy/sell, just about like RE costs, yes? but seems way cleaner. no lawyers,neighbours,bylaws,lawnmowing,taxes etc.
just need more metal humping bullion lovers to take it off your hands later. seeing what the herd does , it just may work.

#129 Center of the world on 09.13.13 at 3:56 pm

So when does this all translate to a dip in prices? Prices are soaring without an end to sight.

Soaring? Really? Where? — Garth

#130 bill on 09.13.13 at 4:00 pm

#124 Alberta Homeowner on 09.13.13 at 2:18 pm
here you go man:

http://www.vbce.ca/rates/precious-metals

it could be a hold for a very long time indeed ok?
gotta say that scotia buy price of 12 bucks or so sounds about where its going to end up eh? sooner that later.
why dont you wait a year or two and see what the news is going to be?
personally I dont recommend it.nor does Garth, I think I can safely say.

#131 Greed is God on 09.13.13 at 4:03 pm

According to this study, 33% of active homebuyers in the US have upped their pace because of the increase in interest rates.

http://www.redfin.com/research/reports/real-time-market-sentiment

If Canadians are anything like Americans, this supports Garth’s claim that higher rates and ravaged hormones are to blame for the current state of affairs.

#132 Robbie on 09.13.13 at 4:17 pm

#133 Center of the World

Here’s an excerpt from an Assessment from the Greater Victoria area..it’s fairly typical. It seems to suggest that prices are not soaring quite the way you say.

This is an ocean waterfront property but on an inner channel so not an expansive view. It’s on one of the southern Gulf Islands and has a main house and a much smaller “coach house” over the garage.

2008 $951,000

2013 $632,000

#133 Donald Trump on 09.13.13 at 5:17 pm

Re NoNo Ricolo etc.etc.

These stories are always amusing.

If you recall, we had (2) World Wars and a Depression in between..all rigged by Bankers.

Many immigrants, especially the younger ones, were actually subtely purged from their native countries so all that talent would come to North America , help fill the void left by dead Allied soldiers and leave Europe with a void.

A lot of these immigrants had lost everything, property that had been passed down for generations. When they arrived here, they wanted security and often pooled their resources to buy Real Estate. Many got their foot in the door during post war boom, and when CMHC actually helped families acquire homes.

I have heard lots of stories of how anyone with a pulse and a few bucks was into flipping properties even sight unseen. The smart ones knew when to get out.

However, therein lay the start of House horniness…”that they aren’t making any more RE”…prices never go down..it was like a psy-opp.

The Boomers, children of the post war parents…became puppetts who bought into the inflationary spiral seeded in about the early 1970’s.

The music has stopped and their aren’t any more chairs…everyone is staring at each other with a “WTF happened” look?

Like I say… All Wars are Bankers wars..and most certainly they also have a peacetime plan to milk the public, its all a cyclical ponzi scheme.

#134 Alberta Homeowner on 09.13.13 at 6:39 pm

#129 Ralph Cramdown on 09.13.13 at 3:09 pm
and
#134 bill on 09.13.13 at 4:00 pm

Thanks for the tips, next time I’m in Vancouver I’ll check them out.

I’m not a metals freak, just diversifying enough (say 5-10K) for the long run. We’ll see how much the Fed tapering effects metals price these next coming months.

And yes, Garth, I also invested in 649 too, estimated jackpot tonight is 14M.

#135 espressobob on 09.13.13 at 6:48 pm

#56 Shawn

As a Growth investor myself, you have a point. Thing is no-one knows the future! Yeah, the yields on fixed income suck. For those that have retirement goals, this becomes an issue.

How much risk does one take? Some a lot, others a little. Depends on ones financial situation.

Dissing an asset class without those considerations doesn’t make any sense!

#136 MarcFromOttawa on 09.13.13 at 6:57 pm

Good article about contrarian investing:

http://blogs.wsj.com/moneybeat/2013/06/28/the-intelligent-investor-saving-investors-from-themselves/

#137 broadway skytrain on 09.13.13 at 7:02 pm

Would you be driving or just ridin’ Bit*h?
——————————————-

oh i would say he’s def riding bit*h, as he gets all bent out of shape because we don’t want to hear him whine like a girl , and replies to a civil request to keep it ot with personal insults.

#138 Bill Gable on 09.13.13 at 7:19 pm

Mr. Turner – I learn more from this blog than I did in 400 level economics, at University.

You explain things in English, so even dim witted fools like me have a glimmer of what the heck is happening.

Many thanks.

#139 Bill Gable on 09.13.13 at 7:20 pm

Oh, and its “The Nice Lady at The Bank”…..a Garthism.

#140 a prairie dawg on 09.13.13 at 7:47 pm

#35 Kurt on 09.12.13 at 8:23 pm

“the economy grows strong enough to stimulate itself.”

Given the suggestive nature of much of this blog, this statement provokes many curious and disturbing images…

– — –

Econobation.

#141 Daisy Mae on 09.13.13 at 7:50 pm

#119 Canadians Maxed OUT: “Canadians will spend and spend until they are bankrupt. The sad fact is they are already bankrupt and living a lie.”

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

I have friends renovating their homes, taking cruises, spending months in Mexico…totally oblivious to the real world around them. Two have switched their portfolios to ‘high interest’ savings accounts much to the dismay of their advisors as you can imagine…and they’re spending. I am hunkering down. It’s not fun as a retiree. But right now it’s necessary. *SIGH*

#142 espressobob on 09.13.13 at 8:24 pm

#124 Alberta Homeowner

The best place to trade scrap gold or silver is a ‘pawn shop’ style outlet. Take it!!!! While you still can!!!

As an investment? yEEEEESH.

#143 Questions on 09.14.13 at 1:09 am

If the commenters on this blog were a valid representation of the movers and shakers of “the market” and broader economy, life would be such a bummer.

#144 TurnerNation on 09.14.13 at 9:13 am

#108 Milk in the Cowtown

Programming is completed. Is anybody asking ‘where’s the dad’? Why he isn’t contributing to his family and child’s well being?