The new normal

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Real estate boards are trumpeting a triumphant end to 2013 this week, with sales and prices higher than anticipated back when the year began in funk and doubt. Seems a 1% jump in fixed-rate mortgages during the summer had the absolute opposite effect on the market that rational humans expected.

Terrified rates would rise further, a ton of newbies with pre-approved cheapo loans jumped into house deals before those approvals expired. That pumped sales right into the autumn and collided with a dearth of listings in Toronto and Vancouver. The result was a pop in prices. The Frankenumber in Vancouver is back to just two Kias short of a million dollars, while the average detached house in 416 sits at $864,361.

By the way, that last number is shocking and should be deeply worrisome to a certain dinky deity and his entourage in Ottawa. In 2013 that detached home in urban Toronto increased in value by 18.9%. Meanwhile inflation is 0.7%, and the average wage gain in Canada is 1.1%.

This is what 3% mortgages bring. A tsunami of debt, pushing prices to the absurd. But the social damage is more than just unaffordable houses. Our real estate horniness, rivaling anything seen in the US before that market’s collapsed, is messing with our collective financial future.

While the Toronto Real Estate Board was shocking and awing with prices, Scotiabank was stunning financial dudes (like me) with a survey. The number of people planning to make an RRSP contribution this year – any contribution, even fifty bucks – has crashed to just 31%, a quarter lower than just last year and half the level of two decades ago.

You might argue RRSPs are out of favour thanks to the advent of the spiffy, new TFSA. True enough, but recall that just four in ten have opened a TFSA and only a small fraction are actually growing money there. It’s all looking like a meltdown. Three-quarters of people polled told the bank they can’t save anything because they don’t have any money.

In fact, 40% of folks with RRSPs are actually sucking money out, instead of putting any in. And guess what the Numero Uno reason why people dip into their retirement savings?

Right. To buy a house. And guess where the highest rate of RRSP withdrawals (at 42%) is? Right again. Delusional BC, where the average SFH price just topped $1.2 million, even as property assessments have been going down.

And now F asserts that interest rates will be going up (again) in Canada – with the central bank pulling its giant trigger sometime before the end of this year. “I think the pressure will be there, because the Fed in the U.S. should stop printing money, and taper off as they say,” he told CTV on the weekend. “The OECD and the IMF have both said to Canada we ought to let our interest rates go up a bit. So there’ll be some pressure there for that to happen.”

Just to be clear, finance ministers don’t usually make idle statements. So when F suggests the Bank of Canada might start raising rates months from now, it’s worth noting. Of course, the bond market will likely move sooner – which means we could see both higher five-year mortgages and more expensive variable rate loans by Thanksgiving.

Is this realistic? After all, higher rates would be a shock after people have gorged on loans, created a steaming mountain of mortgage debt, stolen the treasure from their retirement plans and gambled their entire financial well-being on a single asset class. The net equity of most people owning houses may have gone up this past year, but as a nation we’re becoming less diversified, less mobile, less flexible, more illiquid and at far greater risk.

From a public policy standpoint, it’s a financial Fukushima. It’s scary. It’s big. We know it’s out of control. It’s got yellow tape all around it. But will it kill us?

This week’s numbers will bring the usual gang of realtors and house-humpers to remind you housing’s hot and I’m not. Others will come to moan about not buying in the 90s, or five years ago, or last April. The moldy basement-dwellers will blame the government, the Boomers and Goldman Sachs. Spouses will weep. Children will not be born. It will not go well on this pathetic blog.

But, bite me. There is no retreat from truth. As much as most people expect another outcome, they will get the one which is coming. In writing this blog for five years I have learned (as I told you) that people’s capacity for folly, romantic construct and self-delusion exceeds what I might have imagined. That one fact makes prediction impossible.

However, when two-thirds of people no longer save, when debt is mainstream and unapologetic, when seven in ten souls own the same thing, when three-quarters have no cash at month’s end, and when houses inflate 18% in a year, we’re in serious trouble. Yellow tape everywhere. Consequences unknown.

We are now inescapably ensnared. I expect a big year.

176 comments ↓

#1 NuisanceBear on 01.06.14 at 9:11 pm

Too FIRST for words!!!

#2 Doug From BC on 01.06.14 at 9:12 pm

Really? First?

#3 wallflower on 01.06.14 at 9:14 pm

more doogie………. love the doogies…….. keep them coming

#4 The Man From Nantucket on 01.06.14 at 9:15 pm

So, who was it that was developing the hedge fund aimed at shorting this mess, and, what’s the minimum buy-in?

#5 Doug From BC on 01.06.14 at 9:16 pm

Now that’s out of the way — Garth, big heartfelt thanks for your continued yammering – You are truly one of the few preaching prudence.

#6 Derek R on 01.06.14 at 9:18 pm

I will be very interested to see what 2014 brings. It seems difficult to believe that the Canadian public can sustain even more debt. But we shall see.

#7 Tri-Guy on 01.06.14 at 9:18 pm

i dont know whats scarier…watching paranormal activity 5 or reading this blog?

#8 uncle d on 01.06.14 at 9:20 pm

sold in nov, made 250k in 5 years…now what

#9 eddy on 01.06.14 at 9:21 pm

2014 will worse than you think.

TPP?

NFG!

http://www.youtube.com/watch?v=F7niymKV91U&feature=c4-overview&list=UUhZRoC9bMegevAxFmee1oSA

#10 Renter on 01.06.14 at 9:23 pm

Time for some popcorn .. And a balanced portfolio..

#11 Matt on 01.06.14 at 9:24 pm

House prices in Toronto didn’t really inflate by 18 percent. The TRB price data is very noisy, and the number last December was way down for just that month. This is where the smoothed MLS or Teranet data is actually useful …

#12 Cow Man on 01.06.14 at 9:25 pm

Amigos:
The voters and the government are one of the same. Fiscally irresponsible. The Province of Ontario is a fiscal mess just like the majority of the voters who put them in place. The Feds keep promising fiscal responsibility. Just not now, sometime in the future. Unfortunately, when this leaky boat goes down, we all will go with it.

#13 winnipeg on 01.06.14 at 9:26 pm

You will say people say the market is always different where they live – it won’t happen here – the economy seems to churning o.k here in winnipeg. My mistake in my decision making process is 300,000 – which is what it costs you to get 800 feet in a decent not affluent neighbour hood in winnipeg will still be considered affordable, delusional or not. And if you did the math if you had two people who make 50,000 each – a 300,000 dollar house is fine. That is 3 times the income. You could almost go up to 4 times the income. And other stuff will go cheaper right?. My mistake was thinking there wasn’t enough people in that category. Had i included married /combined income in my analysis, I would have seen the error. If people wern’t so horny for big and granite countertops, these houses should have no problem selling. The people may be scared off for a bit – there might be supply coming up (not in my price range, and people are coming in, some probably looking for low end housing) but I do not see a significant drop in price happening in winnipeg. when you consider the figure for something similar in toronto is probably 750,000 , especially closer to down town, or more like a mill, you can see that is delusional

But it’s Winnipeg. — Garth

#14 FATHER on 01.06.14 at 9:27 pm

bite me. LOL

#15 FATHER on 01.06.14 at 9:28 pm

oh shoot was I 1st

#16 VanGregg on 01.06.14 at 9:30 pm

Great post, as always. Can someone please provide more details on this Scotiabank survey that Garth is talking about?

#17 Debt's Dark Embrace on 01.06.14 at 9:33 pm

Nothing will change until SHORT term rates rise to historical norms.

Why? 80% are now borrowed long. — Garth

#18 pinstripe on 01.06.14 at 9:33 pm

How many strikes will this blog need to admit DEFEAT?

One of these days this blog will make a bunt and the “I told you so” will be mind boggling.

IIRC 2013 was to be underwater, and as we all witnessed 2013 was a booming year in the housing sector.

The rent vs buy nothing more than mental gymnastics.
The renters are losing more money as each day goes by.

An increase in interest rates will have no impact on the housing sector. A lot of people have very good paying jobs and lack of money is not the issue.

The global financial policy is entrenched: People in debt are REWARDED. Savers are PUNISHED.

What did I say about realtors? Oh yeah… — Garth

#19 Paul on 01.06.14 at 9:37 pm

16 VanGregg on 01.06.14 at 9:30 pm

Great post, as always. Can someone please provide more details on this Scotiabank survey that Garth is talking about?

http://www.investmentexecutive.com/-/fewer-canadians-making-rrsp-contributions

#20 Andrew Woburn on 01.06.14 at 9:38 pm

#165 Son of Ponzi on 01.06.14 at 7:33 pm
157 Ying Yang,
Smoking Man, what is your prediction for the Asian market? My brother says big issues on the horizon this year.
—————-
My Chinese wife says Chinese papers full of talk about crash.
==============================

” China’s new home prices in December jumped by the most even as the country’s biggest cities tightened property controls to moderate price gains. The average price rose 12 per cent from a year earlier to 10,833 yuan ($1,789 US) per square metre

….. Almost one-fifth of respondents in a Renmin University of China survey gave a zero score on the government’s property policies, indicating “near despair” on housing prices …”

The only logical explanation for this is that Mao’s Cultural Revolution failed to wipe out all the Chinese boomers.

http://www.vancouversun.com/business/home+prices+jump+cent/9353278/story.html#ixzz2pfiy9oXt

#21 David Lee on 01.06.14 at 9:40 pm

In addition to all the reasons the federal government would want a “soft landing” that have been discussed before on this blog and elsewhere (e.g. votes in 2015), I’m thinking that another reason the feds would want 20, 30 & 40 – somethings to purchase ridiculously-priced housing is that boomers get bailed out. The feds and other levels of government then don’t have to support them (as much) as the boomers wind things down.

No thanks, I’m not bailing boomers out. Following boomers hasn’t been fun, so I’m really not up for helping them with their swan songs. I’ll keep renting, investing my growing deposit, waiting it out and not getting “ensnared” in 2014. Let them eat bugs and cat food in their million dollar homes.

#22 Mackenzie Brothers on 01.06.14 at 9:42 pm

You should write for the gold web sites, you fear mongerer you. You are worse than Peter Schiff who I adore. Not many single family homes being built in Toronto- condos – who cares and who wants them. SFH will keep on rising- supply and demand. Not many sellers amd buyers who marry with kids- uuhh duuuuhhh- yes they still want a home.

#23 AK on 01.06.14 at 9:43 pm

#150 Mike on 01.06.14 at 4:42 pm
“We were looking to buy a house that would last our entire life…as long as we can walk up stairs. (sounds naive I know).
I do believe the house that Garth attached has sat for a while. I think you can do much better than that for $700k in that area….but I don’t want to sound like a real estate cheerleader as the prices are still assanine….I just want to know if they’ll be assanine forever.

Or will higher rates next year (maybe) bring prices down?”
====================================Dude,

We are in the early stages of rising interest rates.

Anybody purchasing an asset at the top of a market cycle, will end up be holding “The Bag”.

#24 Rob on 01.06.14 at 9:48 pm

So in the five years that you have been writing this blog have you noticed “people’s capacity for folly, romantic construct and self-delusion” increasing, lessening, or remaining as consistent as ever? If it’s the latter then it must at times feel like you’re hitting your head against a brick wall trying to get the sanity message out to the great unwashed, eh? Not discouraged yet? Happy New Year!

#25 realtors are scum on 01.06.14 at 9:50 pm

Can any realtor use rent to price ratio to justify housing prices in the gta or Vancouver? Of course realtor scum will avoid all numbers. Even 35% down and you are still cash flow negative. Realtors are not worth more $100 per sale or buy.

#26 GTA Observer on 01.06.14 at 9:50 pm

Not seeing those price gains on ordinary houses in the York region – in fact often seeing prices drop before the house sells. And houses that come on market lower sell quicker. Maybe it’s the houses selling for $1M+ – where people don’t worry about insurance – pulling up the averages, plus the RE board’s statistical wizardry.

Meanwhile, something else to consider. Two years ago, sellers were able to attract from a larger pool of buyers who were rated by far more liberal lending standards. This resulted in quick bidding wars for far more properties — and waived inspection and financing conditions.

Today, prices might be nominally higher, but those waived inspections were worth a lot of money in terms of waived repair costs. And most resales, let’s face it, were in bad shape because of the incessant rise in property values. A good inspection (oh, that’s for another day) could turn up thousands or tens of thousands of dollars in costs, all open to negotiation. That’s real money (and real hassle for the seller).

In addition, you might attract a buyer now but you have to wait to see if their financing comes through – and deals have known to fall apart. When that happens, there are all kinds of costs.

So when you buy and sell RE, there are all kinds of considerations, not just the face value on a listing. You just have to look at all of them, and understand that some are costs that you might have been spared.

In short, it’s not what you make, it’s what you keep.

#27 Dean on 01.06.14 at 9:50 pm

I’m not old(50) OK a little old, but it seems to me in the space of one generation we have all lost our financial minds.

It’s now not what you can realistically afford, it’s about what monthly payment you can make—-future be damned.

Keep up the good fight Garth. Some are listening, most are not.
This is not going to end well for the deer in the headlights crowd.

#28 Porsche on 01.06.14 at 9:51 pm

The praires is the only thing that separates HongKong from India.

#29 Ben on 01.06.14 at 9:54 pm

Garth – read up on what happened in the UK and save yourself some time. We too have utterly irrational people and loose credit.

#30 Porsche on 01.06.14 at 9:54 pm

The prairies is the only thing that separates Hong Kong from India.

#31 Question on 01.06.14 at 9:55 pm

Garth, in the event of a serious correction of Canada’s housing market, which would have major repercussions for the Canadian economy, what monetary policy measures, if any, do you anticipate the government resorting to? Might a Canadian QE be an option? If so, do you think that would seriously lower the value of the CAD?

#32 None on 01.06.14 at 9:58 pm

Garth – you spend too much time on reddit.

What’s that? — Garth

#33 Frank on 01.06.14 at 10:00 pm

The RE market is certainly due for a minor correction in the short run but as long as Canada remains the
“chouchou” of the international financial markets, the credit market dynamics will continue to be working just fine.
— Frank

#34 OttawaMike on 01.06.14 at 10:04 pm

#13 winnipeg on 01.06.14 at 9:26 pm
I’m sorry that you have to live there.
Winnipeg is so great, the ‘peg based Weakerthans even wrote a song about it:
https://www.youtube.com/watch?v=xLlsjEP7L-k

#35 Debt's Dark Embrace on 01.06.14 at 10:05 pm

As long as 3% money is available nothing will change.

Nothing will change until SHORT term rates rise to historical norms.

Why? 80% are now borrowed long. — Garth

#36 Andrew Woburn on 01.06.14 at 10:07 pm

#134 Stoopid Idiot on 01.06.14 at 2:20 pm
Economist John Williams thinks 2014 will mark the beginning of hyperinflation.
==============================

“The site is authored by John Williams, an economic consultant with an economics BA and an MBA from Dartmouth College, New Hampshire”

If he’s an economist, so am I. No economist throws around terms like “hyperinflation” with no justification. You cannot have hyperinflation without spiralling wage increases. We have seen several years of serious asset inflation but wages are stuck in the gutter. What is going to make them suddenly increase with so many people unemployed?

#37 baddog on 01.06.14 at 10:08 pm

But it’s Winnipeg. — Garth

Is that an attempt at some sort of clever punchline Garth? Surly even someone from Toronto can do better than that. If you want to shoot down someone’s opinion at least put a little effort into it. Yes Winnipeg is not a massive city like Toronto that the entire country revolves around (sniff). The price of a house here is about a third of what it is in Toronto as well.
There has been a building boom here for over a decade now and prices have risen quite a bit although they seem to have flattened out for the last couple of years. I do expect some kind of correction in certain segments of the market and I have noticed that bidding wars are no longer the norm. Stuff is sitting a lot longer and people are lowering their asking prices somewhat. We’ll see what happens in the spring.

There is a reason Peg housing costs less. I identified it. — Garth

#38 Squatter on 01.06.14 at 10:14 pm

#25 realtors are scum on 01.06.14 at 9:50 pm
Realtors are not worth more $100 per sale or buy
——————————————————
+15% tip IF they do a good job.

#39 Sideline Sitter on 01.06.14 at 10:15 pm

pretty sad that no one saves, and are enslaved with 700K+ mortgages… no thank you.

Wife and I rent for 16% of our after-tax income, live downtown, and BANK several thousand a month (on top of restaurants and vacations).

#40 Smoking Man on 01.06.14 at 10:15 pm

Obviously F knew what the real estate numbers where before he came out calling for lower rates.

Spectacular, and ridiculous at the same time. I do see a hockey stick forming now, the question is how much more of a spike in will we go, and how much lower and when will the rest go.

Try this, Ave price in Toronto goes to 1.2 and resets to..95 for a few years.

I have telling you dogs for years how the herd thinks, no respect, fundamental thinking don’t work with these people.

They will sell, the car, the cell phone, the baby before giving up house.

The things do the talking for them.

But because I love myself and why wouldn’t I, I’m fricken right almost all the time.

I’m awesome, I have been really trying to avoid rubbing the basement dwellers noses in the mud these last few months.

I have been good about it.

#41 Suede on 01.06.14 at 10:16 pm

-50 in the prairies. OMG

what’s wrong with you people?

#42 Freedom First on 01.06.14 at 10:20 pm

Very well said Garth, and scary is right. Watching whole countries go insane world wide was eye opening, but seeing the financial insanity taking place in my home country is much more shocking. Canadians are in the state of “Denial” right now. Denial being when one is not even aware they have a problem. After denial comes the consequences, which now can no longer be denied, or avoided. It is always painful. No exception.

#43 crackservatives on 01.06.14 at 10:23 pm

Good job crackservatives bankrupting Canada one Canadian at a time. Canada is one giant ponzi scheme based on debt and building overvalued housing that no realtor, mortgage broker or banker could rationalize using numbers and facts. The game is over now and the nightmare begins. Good job crackservatives who has backed $600,000,000,000.00 in sub-prime mortgages via CHMC alone. Add another $350-450,000,000,000.00 via Gen worth and you have the world’s biggest housing ponzi bubble in the whole world. Canada is number one in debt.

#44 Freedom First on 01.06.14 at 10:26 pm

#39 Sideline Sitter

Who gave you permission to think for yourself and enjoy your life? :):)

#45 sheane wallace on 01.06.14 at 10:27 pm

Suede on 01.06.14 at 10:16 pm
-50 in the prairies. OMG

what’s wrong with you people?
—————————–
That’s why the prices will keep going up as everyone wants to live here.

#46 DaleFromCalgary on 01.06.14 at 10:28 pm

One rule in financial markets is that trends go on longer than you think they will. John Paulson lost tens of millions of dollars betting against the American housing market using MBS CDSs. He lost for yeats until the Panic of 2008. When the mortgage-backed securities market collapsed in 2008, he made $15 billion (with a b) in a few months, both from short-selling MBSs and from selling his CDSs (credit default swaps, a type of insurance policy) to Wall Street banks that needed them to cover their defaulting MBSs.

There is an excellent book by Gregory Zuckerman titled “The Greatest Trade Ever”, which explains in easy-to-understand language how Paulson did it. Every Canadian who is thinking of buying a Toronto condo or Vancouver crack house should read this.

First the Americans said that house prices would always go up. Then they said that prices would plateau in a balanced market. Then they said there would be a soft landing. Finally they ran screaming from the room.

I wish Canadian retail investors could buy MBS CDSs as a bet against our housing market. I’d love to pick up $10,000 of them, hold on for about three years to the collapse, and cash in for millions.

#47 John Prine on 01.06.14 at 10:28 pm

realtors are scum on 01.06.14 at 9:50 pm
Can any realtor use rent to price ratio to justify housing prices in the gta or Vancouver? Of course realtor scum will avoid all numbers. Even 35% down and you are still cash flow negative. Realtors are not worth more $100 per sale or buy.
____________________________________________
You sound like someone that failed the real estate course….Wow…

#48 quebec economist on 01.06.14 at 10:29 pm

Garth – Toronto increased in value by 18.9%. Meanwhile inflation is 0.7%, and the average wage gain in Canada is 1.1%.

Now garth I know you have accused RE agents of manipulating numbers. What is worst is the numbers for inflation. I don’t believe those numbers are worth much since the government tends to favor methodologies that underevaluate inflation. If we used the methods of the 1990 our inflation would be measured at about 3%….and not 0.7%…this would also change what the bank would do. Interestingly it is Statistics Canada that decides the way CPI is calculated and not Bank of Canada….

This is an ongoing topic for economic PhD students, for a primer on the controversy there is a good intro at

http://www.investopedia.com/articles/07/consumerpriceindex.asp

The take home message is 2% inflation in 1990 is not the same as 2% inflation in 2014 since the CPI methodologies have ‘evolved’ however the monetary policy of BofC have not changed inflation targets go figure. I smell a conspiracy theory.

#49 Dual Citizen in Canada on 01.06.14 at 10:30 pm

#26 GTA Observer on 01.06.14 at 9:50 pm
I concur with you. I’ve been renting in Vaughan for the last 3 years. House prices were an average $40K more when I moved in. My last rental, the landlord decided to sell at $679K, offered to sell it to me, I declined. A month later after listing, he dropped it to $649K, no bites, so he took it off the market. When I moved in in 2011, a house for sale in the area never lasted more than a week. Things are showing vastly different now. Correction is here. The gravy train’s wheels are all iced up.

#50 sheane wallace on 01.06.14 at 10:30 pm

#40 Smoking Man

smoking man is right, the whole place is a mental institution, one flew over cuckoo’s nest.

#51 Vivid Dreams on 01.06.14 at 10:35 pm

If 70% own and roughly the same amount don’t save… go figure??? The voice of 70 is generally much louder than 30. I know that voice didn’t help the Americans but is there a chance that those of us here with “greater fool trained” financial inefficiency alarm bells ringing can eventually be punished for the actions of the ignorant? Am I a wuss for not buying preferred etf’s yielding 8.3%(on sale) on loan?
Happy new year Mr. Turner!

#52 X on 01.06.14 at 10:37 pm

As long as 3% money is available nothing will change.

Nothing will change until SHORT term rates rise to historical norms.

Why? 80% are now borrowed long. — Garth

Short term rates don’t really need to rise, however accessibility to cheap loans, with cheap insurance, with little down, does need to change. With any luck before the spring market starts.

Too late for the 80% borrowed long. For them stricter lending rules and regulations should have been incorporated for the spring market 2008.

For those locked into mortgages that they haven’t realized have cost them their financial future…. whether they know it or not, they are over the cliff. Time will tell if they land relatively smoothly in water or crash on the rocks below.

#53 Ripped on 01.06.14 at 10:40 pm

-7C in Alberta, no power outage and the majority speak English

#54 Alex G on 01.06.14 at 10:41 pm

Your completely right Garth, the IMF, OECD, The Economist, etc… have all been cautioning Canada and pointing out the dangers of our runaway house prices repeatedly in recent months. However, the even those people that head their warnings, then come across some articles as The Economist’s post from 2 days (http://www.economist.com/news/finance-and-economics/21592646-monetary-policy-may-call-end-house-price-party-castles-made-sand) ago that concludes with: “But Canada appears to have been successful in cooling its market: its house-price inflation has reduced to 3.4%”

Sadly I fear that those individuals only pay attention that that one sentence fragment, which reaffirms their wants instead of using common sense and look at the big picture. But as you said, some people will never cease to surprise (in mostly negative ways).

#55 Smoking Man on 01.06.14 at 10:41 pm

#50 sheane wallace on 01.06.14 at 10:30 pmsmoking man is right, the whole place is a mental institution, one flew over cuckoo’s nest.

………..

An I have the lead role. Ha ha ha hooo

#56 Macrath on 01.06.14 at 10:43 pm

“F suggests the Bank of Canada might start raising rates”

Wasn`t Carney singing that song for his entire tenure and no one was listening ?

#57 Jeremy on 01.06.14 at 10:45 pm

According to assessments for property tax, property values are down for the past year, and those values are based on sales. If real estate boards report higher prices, their stats are not to be trusted.

#58 Sideline Sitter on 01.06.14 at 10:49 pm

#44 Freedom First – Who gave you permission to think for yourself and enjoy your life? :):)

Enjoy it I do! Cayman Islands next month!

#59 damdamdeo on 01.06.14 at 10:50 pm

Quick question for you Garth about RRSP and TFSA.
It seems according to you TFSA is a better deal than RRSP from a tax point of view. I might misunderstand this deal but it looks to me that RRSP is better.

When I put money in my RRSP I get money back (my marginal tax rate is around 38/40% here in Quebec….).
When I retire if I will pay myself with money from there, the average tax rate should be likely lower no? (it would be insane to have a average tax rate of 40%? It can be imaginable in Quebec though).

I put money in my TFSA that has been taxed at 38%, it is a higher rate.

To play safe I put money in both accounts.

Did I miss something obvious?

#60 bob on 01.06.14 at 10:53 pm

Garth, Any chance we could talk about subprime auto loans.

http://www.cbc.ca/news/canada/british-columbia/couple-feel-robbed-by-25-interest-td-car-loan-1.2483342

Looks like this is huge business

http://www.theglobeandmail.com/report-on-business/sales-of-subprime-car-loan-securities-soar/article9602495/

Or will our love affair with the car simply go on forever

http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/living-in-retirement-rather-than-lowering-expenses-my-car-keeps-them-up/article16089180/#dashboard/follows/

#61 totalchaos on 01.06.14 at 10:53 pm

So far, I see everything Garth has been saying come to fruition.

I’m having a hard time believing prices have been going up. A beautiful house in my ‘hood last sold 5 years ago between 1.2 – 1.3 million. It is currently listed for 1.6 BUT the current owners dropped about 500k in renos between then and now, so the sales numbers look great (or at least will once sold) but the owner will take a huge hit. Did I mention the owners have already moved and the house is sitting empty? Ouch.

My assessment was 4% lower this time around. This is the first drop we’ve had in the 20 years we’ve lived here. I am quite certain the only reason priced are up for the last 3 years in the lower mainland is the reno/extentions/granite/stainless that has been added. In fact, I haven’t seen a single house in my hood sold in the last 5 years not have a massive reno prior to the new owners moving in.

Also, I have 2 extended family members who are retired and due to run out of money this year. One had a retirement plan, but accidentally lived too long… didn’t plan on being healthy at 91. The other was half of a financial bozo team that had no pension, no RRSPs, no TFSA, no life insurance but did have a paid off house. When her husband died at 60, she was talked into a reverse mortgage. ’nuff said.

Currently, half of all mortgage holders think they will still have a mortgage when they retire. I seriously doubt it is because all their extra money is going towards a fat 60/40 portfolio that will kick of a tidy sum to finance their twilight years.

To quote a wise bearded man “we’re screwed”

#62 Marco Polo on 01.06.14 at 11:03 pm

The market had been cooling here in Edmonton for the past two years. Top end and bottom end properties don’t sell at all. All the fight is in the middle. Many expired listings here.

I think one has to have some foresight though, what will the government do to address this problem that the MAJORITY will be facing? This is the same majority which will elect a new federal government in 2015. Whichever government is elected cannot ignore this problem, and will act.

I think the most likely scenario, in post housing deflated Canada, is a simmilar approach as ‘Abenomics’ in Japan; and noone knows the outcome of that story yet, their debt is huge!

It is reasonable for the future government to inflate the debt away by devaluing the currency. I remember a 60 cent dollar. Expect some variation of this.

#63 Barry in Pickering on 01.06.14 at 11:06 pm

Garth, you told us that the rise in interest rates would cool the market in the summer, and then delayed that into the fall. And now we’re into a New Year, and more if the same calls.

Isn’t it time for another “I was wrong” column?

Actually I said mortgage rates would rise. They did. How people react to them is another matter. — Garth

#64 heineken on 01.06.14 at 11:08 pm

well garth , you would be very proud that I have finally come to my senses.

im doing a little bit of plumbing this evening and its too damn cold to go to home depot; so I decided to pull out some of my silver maples and gold 1 oz bars to solder my copper pipes. works great.

#65 quebec economist on 01.06.14 at 11:12 pm

@damdamdo (59)

Yes you missed something obvious. In RRSP you are taxed on all income (intial investement + gains) while in TFSA you are only taxed on intial investement. You must then check with you tax bracket and expected gains to see your best option.

For exemple age might help decide wich is best for you. If you are old it might be better to go towards RRSP since the tax saved on gains in a TFSA would not reach the savings of the lower tax rate of your RRSP withdrawal. It is simple math to know which is better.

Personnaly I use my TFSA for my high growth investements (risky venture stuff but I know what i am doing). Nothing makes me happier then a strong tax free gain in a TFSA, it almost feels illegal, but it is not. Garth does not necessarily agree with me on using TFSA for high growth investements, but it is simple math. Higher gains, less taxes. (you cannot claim losses, but in the long run a good portfolio will not have losses and will outperform).

#66 Musty Basement Dweller on 01.06.14 at 11:12 pm

Well put Garth. CREAs bs in the media today changes nothing. Fundamentals are fundamentals and can’t be changed. This market is only heading one way (down). Those who are patient, have a brain and passed math 9 will prosper.

#67 Son of Ponzi on 01.06.14 at 11:15 pm

It’s only 6 days into 2014 and new listings in Vancouver are already going through the roof.
Spring will be a massacre for sellers.

#68 Piccaso on 01.06.14 at 11:16 pm

Housing can only go up, they are not making any more land, buy now or be priced out forever, blah, blah. LOL

Swap the word housing with gold and there’s your answer. BUBBLE

#69 Ivanna Igloo on 01.06.14 at 11:20 pm

Still waiting for some whizkid to come on here and tell us how to profit from this pending meltdown a la Zuckerman…..maybe selling prefab igloos to the nouveau poor after it all goes pear shaped???These could actually double as a swimming pools in those balmy summer months—-dual use may qualify for some eco-award….I had better get a bigger freezer to get the cubes ready…I smells an opportunity…

#70 LJ on 01.06.14 at 11:22 pm

GenX and Y are not putting money into RRSP’s. They have seen the writing on the wall: From your post “Stunned,” two days ago:

“You put money in (an RRSP), get a tax break, grow the funds, then retire. The money comes out and is added back to your taxable income. You get taxed. You moan and bitch. Your kids hear this and swear off RRSPs.”

They can see higher taxes coming to pay for the Boomer entitlements and health care costs. Why save a couple of bucks today when you will have to pay much higher rates when the money comes out.

So, they try to game the system by buying one “non-taxable” asset, their primary residence, to try to force themselves to save a couple of bucks to retire on.

However, as you have astutely pointed out over the past several days (and years), most people end up paying nearly double the price of the house with a LOT more risk.

ME? I’ll just keep topping up the TFSA, paying the taxes on non-registered accounts as I go (before tax rates skyrocket) and cross my fingers that the entire system doesn’t blow up in the meantime due to the infinite stupidity of the masses.

FYI: Garth’s right, Winterpeg is NOT a great investment – anytime!!!

#71 JSS on 01.06.14 at 11:25 pm

Comparing Winnipeg to Toronto, is like comparing Toronto to New York.

But I do like the Peg. Good people there.

Toronto’s a great city too, but it looks like such a smelly waste infested dump. Like God reached over and took a giant dump, and voila – here’s Toronto!

What a useless comment. Don’t try it again. — Garth

#72 Bored on 01.06.14 at 11:26 pm

I agree with the logic behind what this blog represents. However, due to hgtv and income properties etc, it seems that people will do Anything to own a home. I am in my 30s and the only one of my peers to rent. It is ingrained in our society so deeply that it has become irrational. If you can’t afford a sfh on your own, rent out a suite. Do anything anything, but don’t rent!!! I thought once prices got out of control that the market would correct and the end of 2012 looked like beginning, now I’m not so sure. All those 10 year mortgages?? People can hold on by a thread. Unless jobs are lost? It will be a real rude awakening when it happens but when will it happen? Logic doesn’t count in this case.

Get better friends. — Garth

#73 learningfromyou on 01.06.14 at 11:26 pm

Thank Garth for your post.

I’d appreciate if one day you explain to us the formula used to calculate the inflation,

?does it consider the gas, foot (the ones that everybody buy weekly), increase in premium insurances for the house and car, property taxes, scholar taxes, bus pass, utilities cost?

I shake my head when I see these small percentages in inflation, sometimes I think that they are calculated considering ONLY spicy hot mexican chips that nobody buy as the only explanation for these small numbers.

#74 Basil Fawlty on 01.06.14 at 11:29 pm

#36
“You cannot have hyperinflation without spiralling wage increases.”
Yes, you can, it’s called currency induced cost push inflation.
The dollar falls and prices rise.

And it’s not happening here in your lifetime. — Garth

#75 TheCatFoodLady on 01.06.14 at 11:36 pm

It’s ironic. I’m as far from a 1 percenter as is possible without being on the streets & eating cat food. Call me a 99 percenter. I feel more fortunate than many with multiples of our annual income. We got rid of all debt before things go south. We have savings, investments.

In the end it’s not always about how much, (or little), you make & what you do with it. I won’t lie – some months we can’t save anything. But increasingly, we can. It’s not a lot – the ‘high rollers’ here would spend it on a really nice lunch. But it IS saved, adds to our net worth & lets us sleep at night.

I wish I’d known 30 years ago what I know now, (learned the hard way), but better late than never. It’s simply hard to fathom that I MAY see many way above me economically frantically wave as they fall past me on their way down to bankruptcy. And I don’t feel the least bit smug or satisfied about it – some are friends, some family. And it ends up hurting all of us one way or another.

#76 Uh Oh Canada on 01.06.14 at 11:37 pm

Those poor British Columbians. (And I mean literally.). Been gone for almost ten years now and I make less money than when I lived in that province. But my standard of living is much higher. I don’t pay $8 for a bottle of olive oil ($4 here) or even $1200 per year on car insurance. (And I was a roadstar according to icbc). I pay a measly $29 per month private and $280/year public. EVERYTHING is cheaper outside of BC, including housing. Not surprised they have to dip into RRSPs to make ends meet. Don’t know how anyone survives financially there.

#77 Retired Boomer - WI on 01.06.14 at 11:53 pm

WHY does this tale make me relive late 2007-2008-2009?

First markets set new records in the fall of 2007. They never went back until recent times. Grumbling about “late” mortgage payments was heard in late 2007. Early 2008 hedge funds speccing on sub-prime mortgages booking losses…. I decide the equity & REIT markets overheated / unstable went safe into various bonds.
2008 ends quite ugly.

Are we home free now? I kinda doubt it, though we have made spectacular market recoveries, the main street -the people- have not done so well. Being employed is better than being Unemployed, but debt sucks when your income has not kept up with costs. Here, still too many not employed. Sucks to be them!

I’m trying to rebalance and “plan” for this year, but it always hard when it involves an unknown future, as they always are, right?

What I see here (US) is slow growth, what I see there (Canada) is strangulation by debt, self-induced, a small month-by-month shortfall, aggravated by the media circus, human desire (greed), and bad past choices.
Of course, this is a comment only at the household wage earner level nothing more.

You have my deepest sympathies, but you also saw the folly played out here, and thought you were different.
Special maybe. “It’s different here.”

Maybe slower to get there, maybe slower to get to the realization that Debt is NOT wealth, maybe too late to change before disaster strikes but not really different.
Nobody wants to be “priced out” nobody wants to be foreclosed upon either…Money talks all others only hum…

-sorry about that-

#78 joblo on 01.06.14 at 11:56 pm

“But because I love myself and why wouldn’t I, I’m fricken right almost all the time.”

SM iz Ahhsum
Just look at those bond chartz, oops!
missed that call

#79 KommyKim on 01.07.14 at 12:06 am

RE #59 damdamdeo on 01.06.14 at 10:50 pm
Quick question for you Garth about RRSP and TFSA.
It seems according to you TFSA is a better deal than RRSP from a tax point of view.

It’s a wash if your marginal rate is the same when you contribute as when you cash out.
The RRSP wins if your marginal rate is higher when you contribute vs withdraw. (This is only true if you also invest the RRSP refund and not spend it)

For young people, the TFSA is the way to go because their marginal rate will most likely be higher in the future. Besides, how many 20 somethings put more than $5500 away each year?
Some more reading for you:
http://www.theglobeandmail.com/globe-investor/personal-finance/the-wealthy-barber-explains-tfsa-or-rrsp/article1356709/?page=all

#80 Life's a supermartingale on 01.07.14 at 12:13 am

Equity like returns come with equity like risk.

#81 Ontario's Left Coast on 01.07.14 at 12:23 am

Epic post, Garth. So glad I live in a reasonably priced home on the Bruce Peninsula. Only problem is we are getting absolutely pounded with snow and gale-force squalls tonight. Sleep easy, all.

#82 The_Iceman on 01.07.14 at 12:24 am

So much for HAM.

The Vancouver Sun reported (on the 3rd-page of Saturday’s newspaper): property assessments on ALL types of property are all DOWN in the last year in Richmond, B.C.

…so…how’s that condo purchase working out?

#83 waiting on 01.07.14 at 12:34 am

I agree with Bob #60. I thought that 7 and 8 year car loans were an atrocious idea to begin with, but the fact that someone could be charged 25% for a car loan is outrageous.
I wrote in a few months ago about being in a bank when a young [email protected] trainee piped up about being suckered into a 7 year loan.
Seriously, there should be a law limiting rates for car loans. Many states have done so, but I can’t see any links to anything like that here in Canada.
This is going to be an even bigger problem in a few years once people who took 7 and 8 year car loans start trading in their vehicles for new ones and rolling that expensive negative equity over.

#84 Son of Ponzi on 01.07.14 at 12:40 am

According to the Chinese calendar 2014 will be the Year of the (galloping inflation) Horse.

#85 TakingResponsibility on 01.07.14 at 12:56 am

Uh, oh. F said the Bad words – “printing” and “money” together.
Obvs not paying attention like the rest of us dawgs.

#86 T.O. Bubble Boy on 01.07.14 at 12:56 am

@ #82 The_Iceman on 01.07.14 at 12:24 am
So much for HAM.

The Vancouver Sun reported (on the 3rd-page of Saturday’s newspaper): property assessments on ALL types of property are all DOWN in the last year in Richmond, B.C.

…so…how’s that condo purchase working out?
——————————

wow – that reminds me: where has BPOE (Best Place On Earth) been? That guy used to pump Richmond and all things HAM in Vancouver every single day on this blog.

#87 T.O. Bubble Boy on 01.07.14 at 12:58 am

@ #83 waiting on 01.07.14 at 12:34 am
I agree with Bob #60. I thought that 7 and 8 year car loans were an atrocious idea to begin with, but the fact that someone could be charged 25% for a car loan is outrageous.
I wrote in a few months ago about being in a bank when a young [email protected] trainee piped up about being suckered into a 7 year loan.
Seriously, there should be a law limiting rates for car loans. Many states have done so, but I can’t see any links to anything like that here in Canada.
This is going to be an even bigger problem in a few years once people who took 7 and 8 year car loans start trading in their vehicles for new ones and rolling that expensive negative equity over.
————————————

Yep – subprime car loans are the only reason for the “recovery” of GM, Chrysler, and the rest.

Car loans and Student loans are 2 big bubbles (in the U.S.) that will cause some problems in the future. We’ve got houses and cars — our student loans aren’t big enough yet to cause that kind of bubble.

#88 Lurker on 01.07.14 at 12:58 am

Couple years old, but this typifies Vancouver silliness. She can see the water if she looks through the community centre across the street. She is “not allowed” to say what she paid? There is a confidentiality agreement on condo prices? This building was in the news recently because it currently has no heat.
The other guy in the video is pissed because a new condo will block his view!

http://www.youtube.com/watch?v=KQ8bbYPbBYM

#89 Ronaldo on 01.07.14 at 1:06 am

”Actually I said mortgage rates would rise. They did. How people react to them is another matter. — Garth”

For sure. And if things are anything like they were back in the early 80’s when interest rates hit 21% and people were rushing to the bank to lock in a mortgage for fear that rates would go higher, you can bet that this insanity can go on for a whole lot longer. The herd is unpredictable.

#90 Frustrated Kiwi on 01.07.14 at 1:10 am

#22 Mackenzie Brothers
“duuuuhhh- yes they still want a home.”
They may WANT a home but if prices go up by 19% and wages by 1% it doesn’t take too many years until they simply can’t afford a home. Supply and demand has to take supply of money into account, not just house horniness. That’s why in the very long term houses don’t tend to go up faster than wages (although of course specific neighbourhoods can):
http://hotelivory.wordpress.com/2010/08/29/a-very-long-view-on-house-prices/

#91 45north on 01.07.14 at 1:15 am


We are now inescapably ensnared. I expect a big year.

prophetic

Porsche: The praires is the only thing that separates HongKong from India.

in what sense? China separates Hong Kong from India.

Winnipeg: For 30 years a man lived in Winnipeg and worked in the Federal Civil Service. When he retired he planned to move to the Lower Mainland (in BC).

the man must know what he’s doing

Ripped: -7°C in Alberta, no power outage and the majority speak English

pretty funny

CatFoodLady: It’s simply hard to fathom that I MAY see many way above me economically frantically wave as they fall past me on their way down to bankruptcy. And I don’t feel the least bit smug or satisfied about it – some are friends, some family. And it ends up hurting all of us one way or another.

good post CatFoodLady

#92 KommyKim on 01.07.14 at 1:24 am

RE: #83 waiting on 01.07.14 at 12:34 am
I agree with Bob #60. I thought that 7 and 8 year car loans were an atrocious idea to begin with, but the fact that someone could be charged 25% for a car loan is outrageous.

25% is not really outrageous when you realize that the couple has already declared bankruptcy once. They are a serious credit risk and therefore should pay higher interest on a depreciating asset. Also, it was the car dealer who promised a lower rate after one year, and not the bank who fronted the actual loan. Once again, a commissioned sales person lied. Go figure!

#93 Andrew Woburn on 01.07.14 at 1:39 am

As Frank Sinatra sang, “Some people get their kicks from stomping on a dream”. That’s what a lot of grumpy visitors to this blog think Garth is doing when he cautions against buying a house in this market. If they think he’s so wrong, they should thank him for scaring off potential buyers so they can get in cheap. Here’s what I would tell my kids if they were looking to buy.

Start with the simple fact that most Canadians, most of the time, will take on as high a monthly payment as the [email protected] will give them. Now suppose said child wants to buy a East Van “heritage” home for say $850,000 and has been approved for an $800K mortgage at 3%, 10 year fixed on a 25 year amortization. I would of course ask if they can handle the resulting $3,800 per mo payments as shown on the RBC online calculator and they would of course say “Yes, Dad. We have to. It’s an investment in our future! We can’t afford to be priced out.” I would then ask if they had contemplated the possibility that, ten years out, interest rates could have moved up to 7%. They would of course say, “Don’t be silly, Dad. This time it’s different! That will never happen again.”

I would gently point out that 7% is well within historic rates and ten years is forever in finance. I would ask them to picture a nice young couple just like them who wanted to buy their place ten years out after the improbable, unthinkable 7% has happened. This couple can also just manage payments of $3,800 but now it won’t carry more than $550,000. They like really, totally want the place but they simply cannot pay more than $600,000.

Worse than that, said child would have only paid down about $250K principal over the ten years so they would now have virtually no equity. If they decide to keep the place, carrying the remaining mortgage over 15 years at 7% would bump the monthly to nearly $5,000 so they would probably have to roll the mortgage for another 25 year am just to keep the payments level. By the end of 35 years they would have paid about $1,650,000 for their $850,000 “investment”. Financially this is equivalent to buying it for $600K and financing it at 7.5% over 35 years. Brilliant.

“Oh, Dad, you miserable old POS, you and your greedy generation have ruined our lives and we’ll never be able to get a house!” Well, maybe. But if you wait until interest rates creep back to 5%, your $3,800 will only get you $670,000 but the same is true of every other house horny kid. Assume the same bug mansion will now cost $720K. Better yet, if rates stay at 5%, you can actually pay down that balance over 25 years,not 35, and it will cost you “only” $485K in interest plus $720K so a total of $1,205K versus $1,650K. You are not financing today’s inflated cost for 35 years. You just have to be patient. You know, the P-word. “What did you say, Dad? I’m checking Twitter”.

#94 Debtfree on 01.07.14 at 1:50 am

@37 bd . I spent a few years in the peg . Post secondary . Work . Found my better half there .thanks . The best veiw of the peg we both saw there was through our rear veiw mirror . She wants to never go back even for a visit . I wouldn’t even consider it . We’d rather be poor in bc than rich in the peg . If we had stayed I’d never have been debtfree. There’s a really good reason they built a parameter highway . I can still hear you guys saying . Ya it’s cold but it’s a dry cold . I guess you guys coined the term ,cold comfort . Minus 2 tonight here . How about you ? Brrrrrrrrrrr. I almost forgot the wood ticks and Mosquitos . Eeew.

#95 bob on 01.07.14 at 2:11 am

@#83 waiting the most astonishing part is “The credit agreement spells out that $2,048 is interest, bringing the total price of the car to $34,759. Since the term of the loan is 60 months but the amortization period is 84 months, at the end of the five years, I will still owe $10,000 for which I can arrange for yet another loan. Rather than cutting down on expenses in retirement, my car keeps them up.”

http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/living-in-retirement-rather-than-lowering-expenses-my-car-keeps-them-up/article16089180/#dashboard/follows/

Something tells me that 10 000$ loan in 5 years will not be in the 0 – 2% range…..The bank may not accept the depreciated vehicle as appropriate collateral at which point some people will get a new vehicle roll the 10K into a new loan :)

#96 Peter on 01.07.14 at 2:15 am

With all due respect Garth, you said the same thing last year. And the year before.

And the year before that.

Maybe it is time to throw the towel. Savers in the past decade are doomed to a life of mediocrity, while the home owners have ensured their future finances.

People from all the world seem to flock to Canada, and especially Toronto and Vancouver. Maybe that’s why it keeps going up.

Nope. Prices rise (even as sales lag) because money is cheap and people are one-trick ponies who like doing what everybody else does, even it if means swallowing epic amounts of debt at rates they cannot control. That sounds sustainable, doesn’t it? — Garth

#97 MEANWHILE IN FRANCE on 01.07.14 at 2:41 am

Sold high (YYC), bought low (France).
The average house price here is around 100.00/sqft. RENOVATED! If you are a DIY kind of buyer, the average is closer to 50.00/sqft.

http://theceliachusband.blogspot.fr/2012/03/la-maison.html

#98 Observer on 01.07.14 at 2:55 am

4 The Man From Nantucket on 01.06.14 at 9:15 pm

So, who was it that was developing the hedge fund aimed at shorting this mess, and, what’s the minimum buy-in?
================
The min buyin is 200,000 dollars (not sure if its USD or CAD)

But what I’m hearing is there is a huge demand and I believe they have raise their money. This thing doesn’t spark up til April. (I’m not in myself, Hedge funds are risky)

But just think about it, the people who paid 5% down that thinks they are richer than they think are going head to head with actual rich people and also Goldman Sac and the IMF) (the Pure Ones).

Guess who’s making the rules folks. Yeah the freakin banks. Who can print money with deriviatives and take no risk via CMHC. Ontop of that they pay you no money for the money you keep in the banks. This forces people to find better financial Vehicles (real estate).

Look at what Kyle Bass and his boys did to Greece in just a short period of time)

#99 Derek R on 01.07.14 at 3:03 am

#75 TheCatFoodLady on 01.06.14 at 11:36 pm wrote:
It’s ironic. I’m as far from a 1 percenter as is possible without being on the streets & eating cat food. Call me a 99 percenter. I feel more fortunate than many with multiples of our annual income. We got rid of all debt before things go south. We have savings, investments.

You’re a 99 percenter but more significant than that you’re a survivor. There are quite a few commenters here who are part of the 1 percent (if you believe their bragging anyway) and they impress me when they tell us how well they’re doing. But not half as much as you do.

You’re an inspiration, CFL, because you do it on next to nothing. You may not be in the top 1% of wealth but you are definitely in the top 1% of commonsense.

#100 Blase on 01.07.14 at 4:39 am

#70 : You’ve forgotten one very powerful force in an Rrsp: untaxed compounding.

#101 Buy? Curious? on 01.07.14 at 5:38 am

Hey Garth! You’re a regular Don Rickles with your one-liners! You embarass them so badly but very politely for saying so stupid, that is the only enjoyment I get when reading the the same story for the past 6 years.

When people say that Canada is at levels that crushed the US housing market, or Ireland’s housing market, they feel to realise that everyone was caught off-guard. But with Canada lagging behind, they were able to navigate the crisis and make small but incremental gains to continue growth. Toss in a healthy dose of immigration and VOLIA, housing prices that keep growing, and growing, AND GROWING!

http://www.youtube.com/watch?v=s9siMXbuc5o

Rob Ford 2014!

#102 The Man From Nantucket on 01.07.14 at 8:22 am

#92 KommyKim on 01.07.14 at 1:24 am
………..Once again, a commissioned sales person lied. Go figure!

Yeah, surprise about this is one thing that never ceases to amaze me.

Easy way to tell if a used car salesman is lying – check to see if his mouth is moving.

Does you employment involve selling anything? — Garth

#103 ponerology on 01.07.14 at 8:23 am

@100: by the same logic there should not have been any kind of major stock market crash after 1929.

#104 Ontario's Left Coast on 01.07.14 at 8:45 am

I spent years as an auto finance rep for one of the chartered banks. Back then, 48-month terms were the maximum and it worked because the compressed amortization forced buyers to select a vehicle they could actually afford. I really started to lament the 60, 72 and 84-month terms because people would invariably jam themselves into ‘more’ vehicle than otherwise possible. The only problem is that said vehicles are virtually beaten / worthless at the end of these epic contracts, causing a never-ending payment cycle for those who must always have the latest and greatest. So glad I’m no longer in that racket!

#105 TurnerNation on 01.07.14 at 8:50 am

Reminiscent of a shlock operator.
Bucket your fiat currency here! Will check out their tulip bulb stock in the summer.

“The Bitcoin Co-Working Complex in Canada Gets Toronto’s First Bitcoin ATM

The location in which the ATM resides is dubbed Bitcoin Decentral, a described 5500-square-foot property in downtown Toronto four stories tall. The location is slated to be co-working space for bitcoin-related organizations like the Bitcoin Alliance of Canada, KryptoKit, Cointalk.ca, Etherium, The Toronto Bitcoin Meetup, The Bitcoin Expo 2014, and others, according to an announcement post on Reddit.”

http://newsbtc.com/2013/12/31/bitcoin-decentral-bitcoin-co-working-complex-canada-gets-torontos-first-bitcoin-atm/

#106 Herb on 01.07.14 at 8:55 am

#40 Smoking Man,

“… I love myself … ” Congrats on finally having found love, Dear Boy!

#107 Sparky on 01.07.14 at 9:31 am

I think it was Warren Buffett who said ‘No market cycle is determined by how many times the earth rotates around the sun, but the cycle will occur.’

With big mortgages these days, big LOC’s and CC balances. This is where the first attack is coming to those that are stretched. Mortgage arrears are at an all time low, but how many are pulling ‘equity’ to make the monthly?

At some point the piper must be paid and the banks will make sure they get a sweet cut along the way.

#108 bigrider on 01.07.14 at 9:31 am

According to the CREA announcement on price increases and increased sales volumes:

Roof rubbing, front porch fornicating, eavestrophe entering, brick boinging , granite groping, window wanging, stainless sexting and Kohler toilet trists are still all the rage in the GTA.

#109 ☢ ☢ ☢ recharts -A late Christmas gift for blog dogs on 01.07.14 at 9:32 am

Too bad that I don’t have the time to put up with all this MSM bullshit regarding the home prices in Toronto
The reality is totally different and I am even afraid to manifest any sort of enthusiasm when I look at this very few sales that are happening these days. The below might be just a temporary trend but I am believe it is not

To show you the real situation I posted the December stats here

http://recharts.blogspot.ca/2014/01/416-sfh-sales-and-stats-2013-12-01.html

Please notice the unusual price distribution (lots of high end properties sold) AND note that
-when you consider the declared price (under or above) the Avg sale price barely went above the asking price (0.09)
-if you consider the table at the bottom of the page then the situation changes dramatically and the market is UNDER big time!!

Months ago real discounts of 20% were rather the exception than the norm. As you can see in that table MORE THAN HALF of the records have sales under the 89% mark. Go back to August and September and see if you can spot such discounts.

With a very low inventory you would expect the seller to have it his way but the contrary is happening.

Here is what was sold yesterday,
http://recharts.blogspot.ca/2014/01/416-sfh-sales-and-stats-2014-01-07.html#more

This is a lot less cluttered heat map showing more obviously what is going on: HIGH END PROPERTIES are being sold discounted and they are driving the AVERAGE price UP. I can tell you that for SFHs in To the MEDIAN is actually going down compared with the previous months.

Notice the table at the bottom, again, the same symptoms
Ex:
C2732174 80% of asking after 107 DOM
C2756043 84% of asking after 96 DOM

These are guys who should have benefited from the low supply but no, this is not happening!
These are properties in the central area!

I used to see this a lot in GTA only (many properties sold under asking) but now it is happening in TO even with this low supply. Go and look back at the maps for September and August , they are visible now on my blog and compare with December…

Enjoy the data for these next 2-3 days… the blog will go dark again till February unless something unusual like above happens.

#110 Penny Henny on 01.07.14 at 9:58 am

Hey Crackhead Conservative! You’re famous! Garth just might have well mentioned you by name!
Garth-The moldy basement-dwellers will blame the government,

#111 T.O. Bubble Boy on 01.07.14 at 10:12 am

Checked out the full report from TREB:
http://www.torontorealestateboard.com/market_news/market_watch/2013/mw1312.pdf

Some interesting notes:

Detached SFH sales in the 416 (447 total sales) were down 9% from the 491 sales reported last year:

http://www.torontorealestateboard.com/market_news/release_market_updates/news2012/nr_market_watch_1212.htm

And, those December 2012 sales were down over 12% from December 2011 (581 reported sales)… so, over 23% drop in SFH sales over 2 years while the average price increased from $701,846 (2011) to $864,351 (2013) — a 23% increase over 2 years.

Wait – isn’t one key characteristic of an asset bubble when you see extreme increases in values with lower and lower volumes? (are the “soft landing” chances over?)

#112 Steven on 01.07.14 at 10:19 am

Three-quarters of people polled told the bank they can’t save anything because they don’t have any money.

Next to the required 6 figure income needed to buy real estate these people polled probably do not make any kind of credible income either. Particularly if 10 to 15 dollars an hour is the norm. For such people they would have to form a syndicate in order to buy a house safely and all syndicate members would live in the house as co owners. From a white perspective that sort of thing just won’t fly. Left to our own natural tendencies we have to have our own space and be kings of our own castles. We are not communists or gangsters. If we have one weakness it is our sense of tolerance and fair play that allows communists and gangsters to gain power ,rule over and deceive us.
It is as Thomas Jefferson said long ago.

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation,
the banks and corporations that will
grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”

I’d say it also could apply to Canadians as well.

#113 Ralph Cramdown on 01.07.14 at 10:26 am

#83 waiting — “I thought that 7 and 8 year car loans were an atrocious idea to begin with, but the fact that someone could be charged 25% for a car loan is outrageous.”

Believe it or not, that’s a competitive rate. TD probably bought its way into the business by underbidding Carfinco, a specialty car finance company which charges its worst (best?) borrowers 29% plus a fee to install a GPS tracker.

The outrageous thing I see in the article is the sales guy saying he could only finance a (year old?) unpopular model he had on the lot, but that’s how they move the metal. TD would likely have financed any reasonable vehicle for the client, and a client that has to pay that high a rate should only be paying $4k or $5k for a used car until he’s reestablished better credit.

The big thing for deep subprime in the US is “buy here pay here” where buyers need to make their payments in person at the dealer, who self-finances. At this end of the used car market, profits are made both in the vehicle and the interest. Sure I’m only charging you 19% Gomer, but I charged you $5,000 for a car only worth $3,500.

In most places in North America, even those with the worst credit need cars, and people who think that they can underwrite that business profitably will find a way to try.

#114 Renter's Revenge! on 01.07.14 at 10:27 am

My cats go crazy when it gets really cold out. They run around the house and bite each other and dig in the carpet after being repeatedly told not to. Maybe the same thing applies to people buying houses in Winnipeg.

“A darker grey is breaking through a lighter one…”

#115 Dave on 01.07.14 at 10:31 am

Here is why I am learning to love the bomb and stop worrying: I read this last Friday.

http://business.financialpost.com/2014/01/03/forget-house-prices-and-debt-inflation-is-canadas-new-bogeyman/

And then, as of this weekend, the sky is falling again- but for a different reason:

http://fullcomment.nationalpost.com/2014/01/06/andrew-coyne-jim-flaherty-playing-with-fire-in-politicized-monetary-policy-meddling/

How does the average Joe react to this? I am going to stop worrying about it. Who knows what they’ll be saying next week. Or in a month. Or two.

So today, I might even nip down to the booze store and buy a nice bottle of single malt and pay for it with my credit card.

#116 Obvious Truth on 01.07.14 at 10:33 am

Canada and US data this morning is like a tale of two cities.

Houses are getting devalued again today.

#117 Raven on 01.07.14 at 10:36 am

Flaherty Tries To Suck and Blow

My feelings for Flaherty (sorry to have to use the “F” word) are tempered by his willingness to follow his bosses orders.

Get Canadians to spend and borrow in 2008 then get them to stop in 2012. You can’t prime an economy with the lowest rates in history, along with Q.E. then expect a complete turnaround in four years ( while leaving all the stimulus in place)? In his defense he has warned Canadians of the impending danger of over debentured households, but continues to take his orders from Steverino, who just may be seeking reelection. Such a dangerous mix, awaiting the final reckoning!

Although F has outright “suggested” that rates should rise to contain the beast, eyebrows were raised at the thought of the Finance Minister even attempting to sway the arms length Central Bank? F doesn’t want to go down in history as the guy who crashed the Canadian economy, but obviously he is following bosses orders.

This will leave the already, debt gorged, R.E. engine of growth( which is the worst engine to run on, as it doesn’t materially increase the countries wealth selling each other higher priced bricks and mortar), woefully unprepared for the Tsumami approaching. Debt never goes quietly into that good night!

” When in doubt, mumble; when in trouble, delegate;
When in charge, ponder ”

Seems like some pondering is going on!

#118 Ret on 01.07.14 at 11:01 am

Lots of expensive German automotive jewellry
on the road even in Hamilton. These are very expensive cars to buy, insure and maintain but give you that all important social status.

Mere mortals drive a car but I drive a “___________” name of a German car only .

Resale after 6-7 years is pennies (yes, gone but still important!) on the dollar as second owners fear inevitable horrendous repair costs.

Lots of $45-60,000 Big Horn (???) and King Ranch pick-ups too. I didn’t realize that Hamilton was also in a horse country area.

Party on Canada!

#119 not 1st on 01.07.14 at 11:02 am

Garth, people have no idea about the utility of money. Thats where a $20,000 car gives you exactly the same utility as a $40,000 one. Or when a $400,000 house provides the same living and shelter as one that costs twice as much.

Yet the mad men marketers have blown this out of the water and you have people fawning over granite and moen taps. How will they make your life any better? Even a vacation which is a totally sunk cost has better utility.

#120 tony w on 01.07.14 at 11:11 am

TREB year end sales numbers for 2013: 87,111 reported.

If you add the monthly totals as released each month during the year, total is 89,003.

So 1,892 sales never firmed up.

#121 Ralph Cramdown on 01.07.14 at 11:36 am

#93 Andrew Woburn

Your analysis is exactly on the money, but surprisingly most people just don’t get it. Yesterday handle ‘heineken’ was bragging that buying a house in Toronto was the best financial decision he ever made because in the time he’s owned, interest rates have gone from 10% to 3%. Not that he put it that way, of course. It was the usual implied sob story of “you people think you have it tough with 3.5% mortgages? Well when I bought, I had to borrow at 10%!”

#122 World Traveller on 01.07.14 at 11:44 am

#60 bob on 01.06.14 at 10:53 pm

Yup, The car, another financial ponzi scheme devised by Ottawa, the banks and the car industry. I have resisted the new car smell for years, used is the way to go, as long as you know which brands to stay away from and research, research, research. A few hours of research will save you 1000’s in the long run. Most cars, especially japanese are designed to run for 10+ years without major issues. Buy a Corolla or Civic and invest in the savings. Then you can buy the Rolls or Bugatti with cash.

#123 Digital Steve on 01.07.14 at 11:55 am

2005 – rates to move up, market is set to implode, 2006 ditto …same for 2007,2008,2009,2010,2011,2012,2013….2014 – well, we all heard Garth tell us that rates are ready to move up –

Sorry Garth, this market is defying logic – yes, the markets like everything else will adjust itself. Has anyone seen what is happening in parts of Florida – bidding wars all over again. Prices will l eventually see pre-2009 prices once again.

Don’t people get it – the only real money people perceive as making – is in real estate. Plain Jane. Those who tell you to sell and dig a hole for the next 10 years as prices crush the average family – please – if this ship is really going down – “everything” is going down – no escaping it. And one final note garth – of all my buddies, not ONE – has a mortgage – all paid for. People are wise and the smart one’s gotta this puppy paid off in 7 years. The reckless and naïve get hit – but they get hit on every corner anyways…

You are a Re/Max poster boy. Congratulations. — Garth

#124 Pr on 01.07.14 at 12:17 pm

…By the way, that last number is shocking and should be deeply worrisome to a certain dinky deity and his entourage in Ottawa. …

If some one like , carney, poloz , harper, etc. really want this madness to stop, the madness in real estate had been stop over night. And it should take place a long time ago.

#125 Son of Ponzi on 01.07.14 at 12:53 pm

Cold snap is threatening the orange crop.
Watch “Trading Places” on how to make money in this situation.

#126 Herb on 01.07.14 at 12:56 pm

#108 ☢ ☢ ☢ recharts,

thanks for the Christmas present.

May you long evade the TREB assassins!

#127 Retired Boomer - WI on 01.07.14 at 12:57 pm

Sub-prime auto loans have their place for the credit-poor.
A couple that has gone BK over credit cards and gets an auto loan for “only” 25.44% should consider themselves gifted. Someone who has gone belly-up once is more likely to be a bigger risk.
Think about this for a nano-second. You could NOT pay your bills, you went BK. A year later you “need” a car, and have no money to buy one. Poor planning? Then why did you buy more car necessary? Gee, it was the only place to buy a car (on credit for idiots like us)…..

Sub-prime auto loans DO serve a purpose. They help the dealer make money, the lender help money, and the fools paying high rates on a depreciating asset…business!

#128 Alwyn on 01.07.14 at 1:22 pm

Economics is supposed to help us to make forecasts about what will happen in our economy. All economics models make assumptions.

Each of the dawgs here has different economic circumstances and each of us makes different assumptions.

Long live us dawgs in 2014.

#129 Alwyn on 01.07.14 at 1:28 pm

BTW – if you are going to forecast, forecast often and as close as possible to the time of the expected event.

#130 Realtor #1 on 01.07.14 at 1:36 pm

If I were waiting for a crash in prices I would not feel comfort in your words. The criteira always changes.
Before it was because we had sub 3% mortgages now its
we need to wait till 4% mortgages(although mortgages are the most expensive it has been in years) and wait till supply is greater than demand.

2010 price levels are out of reach. You will now need a 22% decline in prices.

fixed interest will move slowly upwards – 2015 before
>4% mortgages. Variable even slower.
You need a SPIKE in job losses and a spike in interest rates for a crash.

Where did I forecast a crash? This will be way more insidious. — Garth

#131 Realtor #1 on 01.07.14 at 1:40 pm

I will say this- Banks and private lenders are making it more difficult to take out a mortgage. I have seen it where appraisers walk into a home and tell the Lender this house is worth 25-50K less than the agreed price and the buyers pull out because they can’t come up with the difference.

#132 Doug in London on 01.07.14 at 1:44 pm

@TheCatFoodLady, post #75:
Good posting! I don’t know what you mean by the 1% or 99%, but otherwise agree and am in a similar situation. It’s great to be financially stable, living well within your means, and having savings. As the U.S. economy recovers (even at a very slow pace) the economy in Canada appears to be going downhill with many layoffs, such as at Kelloggs and Heinz in the part of the country where I live. In this environment I’ll gladly trade status (and the debt or lack of savings that often goes with it) for financial stability, freedom, and ability to weather the coming storm. That’s starting the new year off on the right foot.

#133 Renter's Revenge! on 01.07.14 at 1:47 pm

Everybody thinks they’re special. Everybody thinks they “need” a car in North America. You don’t need a car. You can plan your life around public transit, which is available in every major city. It might suck, but it’s doable. I know professional engineers that do without cars, in Winnipeg no less.

#134 Detalumis on 01.07.14 at 1:50 pm

#21 sounds like sour grapes. Maybe you should get to know older people instead of complaining about them. The bulk of boomers are under 55, not 75. I am one of that hated cohort and live in an 1,153 square foot bungalow not a mini mansion. The people who buy my kind of home and tear them down to build a palace are not boomers they are 40 at the oldest. My neighbours don’t sell up until they get carted away to LTC or the boneyard well into their late 80s so if you wait for boomers to sell in a fire sale you will likely be retired yourself.

If there’s a downturn I won’t be eating bugs I will add some chickens, cabbages and potatoes to the backyard and take in a boarder. It’s people without real estate who will be suffering, I have 1/4 acre and can be self-sufficient.

#135 Tony on 01.07.14 at 1:57 pm

Re: #18 pinstripe on 01.06.14 at 9:33 pm

Edmonton resale condominiums are still down about forty percent from the June 2007 peak. Calgary condos are down about 30 percent from the 2008 peak.

#136 research on 01.07.14 at 1:59 pm

Distributions for xpf seemed to jump significantly recently, any insight into why that happened? Thanks

#137 Cow Man on 01.07.14 at 2:03 pm

Amigos & # 21:

I am an leading edge Boomer. Recently there has been a push to bash the grey hair set. Complaints about senior’s discount etc. I can understand the envy. However please consider that the “senior generation” paid their way. They paid for WW II and left the next generation with health care EI and Workers Compensation. With the tenure of Paul Martin they also had left every thing paid for. Along came the next generation that has run up debt not only in Canada but world wide beyond the ability to ever pay it down. So stop basing the “seniors”; as they paid their way and don’t owe the rest of us anything.

#138 Alwyn on 01.07.14 at 2:16 pm

JPMorgan to pay over $2-billion to settle Madoff case

http://www.theglobeandmail.com/report-on-business/international-business/us-business/jpmorgan-to-pay-17-billion-to-settle-madoff-case/article16228122/

#139 learningfromyou on 01.07.14 at 2:24 pm

#123
you remind me the proverb when a man with money approaches another with experience doing business to do something together, at then the one who had experience got the money and the one with money got the experience.

Realtors, you need the mental bubble that everything will continue “business as usual” to get your commissions leaving behind clients with mountains of debts, at the end there is not such thing as moral hazard in your business, and no regulation in the way the numbers are manipulated.

Garth, keeping my path while searching for the truth I found the following link
http://webcache.googleusercontent.com/search?q=cache:gCw-2NroozMJ:www.migratorynerd.com/journal/finance/the-real-inflation-rate/+&cd=1&hl=en&ct=clnk&gl=ca&client=opera . ademas mira esto http://www.desjardins.com/en/a_propos/etudes_economiques/actualites/point_vue_economique/pv130402.pdf

It raised on me the question about the investments that will overcome the inflation I fell while going to the store.

Come on Garth, lets face it!!! 2%, 3% is not the reality of what we feel in real life as inflation per year.

#140 Alwyn on 01.07.14 at 2:24 pm

Benjamin Tal, respected economist at CIBC, is quoted today in the Globe saying, “According to pure economics, we should be seeing (house) prices softening … The fact that it is not happening suggests the market is more resilient than we thought”.

That must be where I’ve gone wrong. I’ve been using the impure kind of economics to make forecasts.

Alwyn

#141 not 1st on 01.07.14 at 2:42 pm

#123 Digital Steve on 01.07.14 at 11:55 am

—-

Garth, this guy has a point. Since only 20% of the public are in the equity market, the only way to give the other 80% a wealth effect so they start spending in the economy is to have their house go up in value. Big Ben is doing the same thing in the U.S. again.

#142 Just some freezing guy on 01.07.14 at 2:51 pm

I learned one lesson years ago, none too soon, and it was this: never finance vehicles; always pay cash. That limits vehicle choices to what I can afford and so I tended to focus on what I needed. It also meant that I learned something about car maintenance. I am an expert at skinning my knuckles, pinching my hand into the wrong end of a vice grip, and being able to make small metal parts magically disappear into thin air. I can also do the loaves and fishes thing but only with springs and washers as I usually had some left over when I put things back together.

My wife and I just bought a new car, paid cash, and even got some loyalty discounts. Despite what car dealers may appear to prefer (finance, finance, finance), the honest truth is that car dealers, and car companies, make more money from buyers who can afford to service their vehicles. It is my understanding that the service side of any dealership is five times more profitable than the sales side.

Debt has become too acceptable. I got a laugh out of that commercial that shows a big bear of a man dressed in a costume that suggests he is a credit card bill. But the scary part of that commercial is the suggestion that one should pay cash rather than use a credit card. While on the surface of it, this is a good message, the real message I think is that the ad is pushing the use of a line of credit, based on, wait for it, home equity to provide that cash. In other words, people are being steered not away from using debt to finance lifestyle but towards it and they are setting themselves up to prolong the life of their mortgage.

For that matter, another finance institution is exhorting people to think about their home as their retirement. In other words, despite their poor planning, focussing on too much invested in a single asset (as Garth the voice of reason in this barren wasteland of a country points out), they are being given the message that it is acceptable to now try and look at some type of retirement planning that involves bricks, mortar, and yummy roofing tiles. What is that all about? More borrowing on a line of credit to invest in whatever [email protected] can foist upon them?

#143 Toronto_CA on 01.07.14 at 2:56 pm

I don’t understand how Poloz can say this:

“The export side does seem to be at least firming and the U.S. economy’s looking a little better around the edges so with that we expect to see that kind of positive cycle begin,” he said. (January 7, 2014)

In light of this:

“The expanded trade deficit comes on top of a revision for the previous month. The data agency originally announced a $75 million surplus for October before revising that to a $908 million deficit due to lower than expected oil prices.

Statistics Canada reported Tuesday that imports edged up to $40.7 billion while exports remained unchanged at $39.8 billion.

The deficit was more than nine times as large as what economists were expecting.”
http://www.cbc.ca/news/business/trade-deficit-widens-to-940-million-1.2486790

So….yeah. No wonder the Loonie dropped below 93 cents today.

#144 RainBird on 01.07.14 at 3:04 pm

”Actually I said mortgage rates would rise. They did. How people react to them is another matter. — Garth”

For sure. And if things are anything like they were back in the early 80′s when interest rates hit 21% and people were rushing to the bank to lock in a mortgage for fear that rates would go higher, you can bet that this insanity can go on for a whole lot longer. The herd is unpredictable.

Bang on. Small interest rate increases will not change people’s behaviour.

You just said they do. — Garth

#145 screwed on 01.07.14 at 3:20 pm

Lower Mainland BC is the only place to live in Canada. Rest of this country may be occupied temporarily until these people can either retire in BC or go to an even warmer climate. Seriously, with health care costs increasing and out of country medical coverage more and more expensive, there is no alternative to this pocket of BC. Lower Mainland has the most temperate climate in Canada, bar none. Add the constant stream of Chinese and Indian immigrants to the mix and you will understand why real estate prices here will never ever collapse again. Good properties will sell – always.

As far as your comments to F and BoC are concerned, there won’t be a rate hike this year. You may be surprised to see a rate cut before you see rate hikes. Poloz pretty much said so. Mortgage debt is the least of Canada’s overall debt problem.

Where to put the money? You’re talking 7% average annual return as if that was gospel. That return is not available to most investors unless they gamble a portion of their money with stocks. Good luck with that.

For every home run, there are dozens of losers.

You obviously would not know risk if you fell over it. — Garth

#146 HD on 01.07.14 at 3:30 pm

#133 Renter’s Revenge! on 01.07.14 at 1:47 pm

Everybody thinks they’re special. Everybody thinks they “need” a car in North America. You don’t need a car. You can plan your life around public transit, which is available in every major city. It might suck, but it’s doable. I know professional engineers that do without cars, in Winnipeg no less.

I ditched the car about 8 months ago and got a commuter bike.

Never looked back.

Granted, I’m in Vancouver and live 10 minutes away from
work.

Best,

HD

#147 Canadian Watchdog on 01.07.14 at 3:39 pm

#140 Alwyn

What Tal and many others are missing from their forecast is government policies towards immigration. You're not going to have an economy with softening home prices while i) the Canadian dollar declines (higher inflation) and ii) running the world's largest per capita immigration policy, especially one that welcomes dual citizens who live in Canada part-time or work here and send money abroad to support their families. Not to mention, corrupt officials and oligarchs who come here as a safe haven.

It all comes down to government policies (CMHC, CIC), exchange rates and what prices are in local currency terms. Things may look bad here (to you), but if things are worse off then in other parts of the world, Canada looks great to those inculcated third world citizens who believe home prices always go up! Chart

And that is exactly what the government is betting on; trying to avoid a Japan-like economy by adopting reckless immigration policies like Ireland, selling the country as a land opportunity based on credit expansion and rising household debt.

In the short-term, prices look poised to retrace, however, as we head into 2015 (which is the government's target for immigrating a fresh batch of new citizens – now qualified with higher incomes), prices will head higher as banks head to the back of CIC's backlog to welcome new Canadians with a nice fat mortgage they can't refuse.

Don't read into the stats too much because from here on it's all government, lender and central bank driven. The notion that for every seller there must be a buyer doesn't apply anymore when savings are at historical lows. Instead, for every seller, there must be a willing lender (and insurer) to offer a loan.

These polices will remain until they lose control and cause another crisis. No soft landing.

#148 Doug in London on 01.07.14 at 3:43 pm

@research, post #136:
I guess that’s why the price of XPF has been creeping up lately. Wow, I’m glad to have bought some while it was still on sale!

#149 Oceanside on 01.07.14 at 3:47 pm

#133 Renter’s Revenge! on 01.07.14 at 1:47 pm
Everybody thinks they’re special. Everybody thinks they “need” a car in North America. You don’t need a car. You can plan your life around public transit, which is available in every major city. It might suck, but it’s doable. I know professional engineers that do without cars, in Winnipeg no less.
——————————————————————
What about the 99% of areas in Canada without public transit. I have lived and worked all my adult life in places where the only public transit is Greyhound a couple of times a day, even that is being cut back. Only doable in large centres.

#150 bentoverpayingtaxes on 01.07.14 at 4:00 pm

Minister F is using a well oiled policy of ‘moral suasion’ to make adjustments to the market. He says rates are going up and scares people into the market…he says the opposite and scares people into the market…..BOC govs have been doing the same posy dance frver and sheeple keep falling prey to the siren song….. Ex gov Carney was famous for it…..he’s doing it in Britain. The current BOC gov has torpedoed the Canadian dollar by using the same approach. But thats because we have an election cycle starting.

#76 Oh Can…you said “Those poor British Columbians. (And I mean literally.). Been gone for almost ten years now and I make less money than when I lived in that province. But my standard of living is much higher. I don’t pay $8 for a bottle of olive oil ($4 here) or even $1200 per year on car insurance. (And I was a roadstar according to icbc). I pay a measly $29 per month private and $280/year public. EVERYTHING is cheaper outside of BC, including housing. Not surprised they have to dip into RRSPs to make ends meet. Don’t know how anyone survives financially there.”

I agree…its amazing to se how weak and gullible Canadians are by letting cost inflation rip them off to ther point where mosy Canadians would rather live in poverty and debt rather than speak out against the real problem ..which is the cost of government and services. ….that has to be paid in outrageous taxes…so that a few can enjoy a higher standard of living than the masses.

I live in Texas where the opposite is true….and we receive full service from government…even free museums and housing for artists…subsidized daycare…healthcare…..sports…and vastly better physical and social infrastructure than exists in Canada. And yet…..everything is 30 t0 50% cheaper here…including rents, mortgages, groceries, gas, clothes, cars, insurance…all with far lower taxes. We eat steaks….not geasy fat hamburger helper….btw..a family pack of T Bones (3) IS ON SALE AT kROGER FOR $10 TODAY…YUM.

Texas also enjoys the best business climate and the highest international immigration and low unemployment…… The CBCers will scream that Texas isn’t Toronto…..well duh…..but you get into a hospital faster if you’re sick ….no one dies in the emergency room hallway like Winnepeg and BC

#151 Tony on 01.07.14 at 4:03 pm

Re: #65 quebec economist on 01.06.14 at 11:12 pm

Taxed on your initial investment??? Can you explain that one as you must be the only person in Canada taxed on your initial investment. All you have to do is know when you’re going to die and take out all your TFSA’s before then for as long as they exist in the future.

#152 Tony on 01.07.14 at 4:05 pm

Re: #65 quebec economist on 01.06.14 at 11:12 pm

Just remember this saying for the TFSA. Cash then all in before you cash in your chips.

#153 The Mayor of Transcona on 01.07.14 at 4:09 pm

Lots of Winnipeg chatter today, I like it!

#13 winnipeg on 01.06.14 at 9:26 pm

You’re correct that it’s up around $300K now to own a decent house in most respectable neighbourhoods in Winnipeg. And you’re correct that that price is on the fringes of affordability for a family earning $100K combined. Except one thing, the median family income in Winnipeg is around $76,000.

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108b-eng.htm

Like you I don’t see a crash in Winnipeg’s future. I see a long period of very low % growth and no real growth when compared to inflation (exactly what happened here in the 90’s). Assuming wage growth that will get more people back into “affordability”.

#154 James on 01.07.14 at 4:11 pm

Nope. Prices rise (even as sales lag) because money is cheap and people are one-trick ponies who like doing what everybody else does, even it if means swallowing epic amounts of debt at rates they cannot control. That sounds sustainable, doesn’t it? — Garth

But one can lock in long term low 10 year rates still

#155 Mister Obvious on 01.07.14 at 4:58 pm

#134 Detalumis

“It’s people without real estate who will be suffering”
—————————————-

No, it will be people without money.

#156 Mister Obvious on 01.07.14 at 5:04 pm

#133 Renter’s Revenge!

“You don’t need a car. You can plan your life around public transit, which is available in every major city. It might suck, but it’s doable.”
———————————–

Agreed. But it seems few people want to plan their lives around ‘suck’ these days.

#157 devore on 01.07.14 at 5:10 pm

#21 David Lee

another reason the feds would want 20, 30 & 40 – somethings to purchase ridiculously-priced housing is that boomers get bailed out. The feds and other levels of government then don’t have to support them (as much) as the boomers wind things down.

This is a false premise. There is no free lunch, and someone must always pay. If boomers are being bailed out, it is at the expense of the current generation. If real estate prices come down and stay down for a couple of decades, then the same will happen. One way or the other, someone will pay.

High house prices support the illusion of prosperity. Rising prices support the appearance of robust economic activity. A declining real estate market removes those fantasies immediately. That is all the reason you need, don’t have to look for complicated plots.

#158 Mister Obvious on 01.07.14 at 5:17 pm

#130 Realtor

“2010 price levels are out of reach.”
————————–

You can say that again, pal. I couldn’t hope to get what I did when I sold back in 2010.

#159 ozy - the NEW normal on 01.07.14 at 5:34 pm

I think Garth is trying to say guys, you are TOAST. DREAMING vs REALITY shows cheap money (that u did not want) left you house-less and the TREND is going to continue…

The new normal is RE prices accelerating a crazy increase and CAD dollar going poo-poo long term. That’s our smart canadian SOLUTION to the global US$ problem.

CONGRATULATIONS FOLKS IN OTTAWA, indeed smart, hats off.

Saved a country from becoming a new-global-colony and made us RICH too

#160 Babblemaster on 01.07.14 at 5:36 pm

“And now F asserts that interest rates will be going up (again) in Canada – with the central bank pulling its giant trigger sometime before the end of this year.” – Garth

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Empty threats and BS from the “elfin deity”. Garth, you say that finance ministers usually don’t make idle statements. Perhaps not, but regarding the “thruthiness” of what he syas, well, I say that his record speaks for itself.

#161 Derek R on 01.07.14 at 5:54 pm

#143 Toronto_CA on 01.07.14 at 2:56 pm
Statistics Canada reported Tuesday that imports edged up to $40.7 billion while exports remained unchanged at $39.8 billion.

The deficit was more than nine times as large as what economists were expecting.”

Ouch. Now that’s deflationary!

#162 Hicksville Alberta on 01.07.14 at 6:36 pm

#147 Canadian Watchdog

I think you about nailed it. Immigration is real and probably needed and since Asia and East asia probably contains around 2/3’s of global population it is only logical to assume that is where most will likely come from and i have absolutely no problem with that as for the most part they have been great additions to the country.

Probably safe to say that the population of each of India and China increase at least by the population of Canada each year and there is massive wealth in these countries even if less well distributed.

So unless Fukushima is real and ultimately has or will have profound effects on the West coast of North America the trend has to continue for the forseeable future and if anything, the real estate prices in Canada, especially with a now confirmed declining dollar are cheap in the eyes of so many, especially in that Canada so far offers a good sense of peace and security to others from other countries.

It’s no accident that there are so many empty houses and condos in the lower mainland of Vancouver and probably in Toronto as well that have been purchased and ratholed by offshore people. It is just cheap insurance and also allows family planning and transitioning over time in the event the owners elect to come to Canada.

An interesting article that shows that a lot of the China Wealth Bubble is based on debt can be found at http://www.arabianmoney.net/gold-silver/2013/12/24/china-bans-journalists-from-writing-about-its-24-trillion-debt-bubble-the-biggest-in-history/

The world will unfold as it may and i have no prejudice towards new immigration in a more and more globalized world. In fact i invite them.

#163 Spectacle on 01.07.14 at 6:38 pm

Great big thanks to #90 Frustrated Kiwi
on 01.07.14 at 1:10 am …….” That’s why in the very long term houses don’t tend to go up faster than wages”
http://hotelivory.wordpress.com/2010/08/29/a-very-long-view-on-house-prices/

Greatly appreciate the texture your Dutch real estate link brought to the Turner blog today! Everyone should read it. Reminds me when I lived there…sigh…another lifetime ago. Love the 400 year real estate price averages and related cause of changes. Top marks to you today!!

#97 Meanwhile in France. Um…I am up for adoption for several months a year. Just putting it out there. I had coffee with the owner of a petite cafe near the louvre some years back, and he backd you up with the affordability of a Paris apartment , in comparison to the rest of the world markets! Great renovation you did, I am in awe of the real estate pics for sale, that you included. Merce,

And big thank you word-smith Mr Turner!

#164 Alwyn on 01.07.14 at 7:19 pm

#147 Canadian Watchdog

And here’s me thinking I’ll hang up my “Reasonable Hat” and put on my “Fun Hat”. You know, Pure Economics v. Impure Economics.

Anyway, I substantially agree with you regarding immigration. Thousands of people are waiting in line up to emigrate to Canada. Half of the (variable) annual quota of some 250,000 come to multi-cultural Toronto each year and they all need somewhere to live.

Also, our federal government has created a class of immigrant who can “buy their way” into Canada if they have at least $800,000; China and India have a burgeoning middle class and already have many more millionaires than Canada.

BTW, property values in Ireland have bottomed and there are signs that it’s now a good time to buy there – but I have more good reasons to stay here than return to that beautiful land.

#165 Smoking Man on 01.07.14 at 7:59 pm

BOC governor to talk to Amanda Land, on lang and oleary

He will say as I told you, rates to go no where till trade leads balance in our favor.

I called it long ago.

#166 Julia on 01.07.14 at 8:23 pm

#146 HD on 01.07.14 at 3:30 pm
#133 Renter’s Revenge! on 01.07.14 at 1:47 pm

Everybody thinks they’re special. Everybody thinks they “need” a car in North America. You don’t need a car. You can plan your life around public transit, which is available in every major city. It might suck, but it’s doable. I know professional engineers that do without cars, in Winnipeg no less.

I ditched the car about 8 months ago and got a commuter bike.

Never looked back.

I walked to and from work today in -37 wind chill Toronto, 35 plus minutes each way. Bundled up and LOVED it. The rare times I need a car I call a cab. Much cheaper and no stress.

#167 Benchwarmers on 01.07.14 at 8:40 pm

Things are so hot in Calgary the cities Attainable homes program is now gifting the down payment.
http://www.attainablehomescalgary.ca

#168 sheane wallace on 01.07.14 at 9:02 pm

#123 Digital Steve on 01.07.14 at 11:55 am
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Make no mistake, with CMHC there is no market, the normal price discovery was lost and a humongous real estate asset bubble was formed.

We either pop it and see 60-70 % real estate prices decline for Toronto and Vancouver or continue it and ultimately crash the Ca dollar and our economy under the enormous burden of debt.

The smartest thing to do is to diversify out of Ca which I firmly believe is in far worst shape than US.
Europe and Asia might be the right choices.

#169 Cici on 01.07.14 at 9:15 pm

Garth,
David Madani claims there is a 30% chance of rate cuts in Canada’s not-so-distant future: http://ca.finance.yahoo.com/blogs/balance-sheet/canada-2014-economic-outlook-boom-bust-190352451.html

Does than mean there’s a 70% chance of no rate cuts? — Garth

#170 DR on 01.07.14 at 9:18 pm

Benjamin Tal…hey isn’t that the guy that said in the Star that this spring would be the last kick at the can for housing then declines after that….in spring 2011?????

Look it up

Doesn’t he lose any credibility? or what?

Every third article you read he is being interviewd and quoted. To this day.

#171 Dean on 01.07.14 at 9:25 pm

Garth, Happy New Year!

I am surprised you do not put any ads on your website. Given its ranking, the financial institutions will fight to put their ads on your site.

This is a non-commercial site. I often even ban myself. — Garth

#172 lanser on 01.07.14 at 9:47 pm

Hi Garth / Everyone.

Question: What is your opinion on foreign real estate speculators purchasing Canadian properties? Is there a significant amount of this going on to look at this further as a possible contributor to prices rising or is it strictly domestic?

Don’t get the Yellow Peril guys going again. — Garth

#173 Julie on 01.07.14 at 10:11 pm

Where on earth do you find the photos for your blog, Garth? This one is just bizarre!!! :-)

#174 it keeps getting better on 01.07.14 at 10:55 pm

#56
“F suggests the Bank of Canada might start raising rates”

Wasn`t Carney singing that song for his entire tenure and no one was listening ?
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This is a pure manipulation; the government needs more borrowers to be sucked into their economic stimulus plans through consumer credits and use of personal savings.

#175 Iconoclast on 01.08.14 at 1:31 pm

#137 Cow Man

Seniors left everything paid for? Are you kidding?

To Martin’s credit, he ran a surplus… which meant he didn’t ADD to the pile of debt. He didn’t pay down a penny of it. (Well, maybe a penny…)

The generation that grew up in the depression and fought WW2 is almost gone.

Everyone after that has spent their whole life in a golden, defined-benefit bubble which we have no idea how to pay for.

#176 mick on 01.10.14 at 3:28 pm

hi garth

curious to hear your rationale for no significant correction in key toronto markets? according to the data that i look at, this assumption would not likely to hold.

also, curious to hear your main thoughts as to why 15% is a reasonable expectation for a national correction?

thanks.