The fat landing

SOFT modified modified

Because only people addicted to HGTV or small children raised in the wild by Re/Max agents believe the real estate market will ascend without end, the debate now is whether there will be a soft or a hard landing.

Soft means a months-long gentle correction of 10% or so in prices, lasting for a season or two before buyers come to their senses and pour back in. Hard means a US-style houseageddon in which average prices collapse at least 30%, plunging the country into a dark place where the middle class is raped, recession ignited, and attitudes shattered before a tepid recovery takes hold seven years later.

Both are ridiculous. This is Canada. We’re special.

This blog has argued for a long time that the landing will be unique, and long. The correction will be more like 15%, but wildly uneven. Urban demand areas will be largely spared but suburban mansion pastures creamed. Rural and cottage properties will go cold and illiquid. Vancouver will fare worse than Calgary, and Calgary worse than Toronto. The big news, however, will be how long this thing lasts and what occurs after the initial plop. It will span years.

A convergence of Bad Stuff (an economic term) just about guarantees it. As the US recovers over the next three years, interest rates will normalize and bond yields rise, just in time for all those mortgage renewals on condos and hipster semis in Yaletown and Leslieville. Wait and see how much fun it will be to renew the mortgage you got for 2.7% in 2012 at 6% in 2017.

Worse, demographics. There are nine million wheezy wrinklies in this land, the greatest Baby Boom generation on the planet. As I keep showing ya, most of them never got over losing neurons in the Sixties, or rolled along on an economic boom so powerful the only strategy they needed was to keep on buying houses. Now they have mucho net worth in real estate and diddly in their retirement accounts.

Third, soft landings are next to impossible in a country where more of the GDP is devoted to building condos than manufacturing the stuff that we sell for income. Did you check out the trade deficit numbers this week? Epic. Nine times worse than economists expected and enough to crater the dollar. Oil exports have tumbled as the US gains more self-sufficiency, for example. Has that news reached Calgary yet? We\ve run a trade deficit 23 consecutive times now, for the worst performance in a quarter century.

And let’s not forget debt. Canadians have borrowed without precedent to shovel massive amounts into residential real estate, where the bulk of their net worth now languishes. Remember what I told you about RRSP contributions this year – two-thirds of us will make none and 75% say they can’t afford to. TFSAs? Disgraceful how few even use them. And 42% of people live paycheque-to-paycheque, saving nothing. So what happens to consumer spending when their real estate declines? And the poor dudes at Best Buy?

Finally, there can be no soft landing after a massive boom created by house lust, mass delusion and helicopter parents because the entire market is driven by human emotion. People desire things, or recoil from them in fear. When real estate rises in value, buyers flock to it, validated by everyone else. Even when unaffordable, it’s still sexy, since future gains will wipe away past buying mistakes.

But when things turn, they do so in an equally emotional fashion. Suddenly the young and mortgaged realize their concrete box in the sky is not only falling in value and wiping them out, but virtually unsaleable. Their house-rich, cash-poor dads awake to retirement discovering that sure-thing pile of equity they thought could be turned into cash is locked solid in an illiquid McMansion in an unloved burb, and shrinking daily.

When such things happen, fear rules. And fear is the most awesome emotion of all. It makes people in distress assume worse is coming. They move to staunch the damage. They bail.

By the way, this week Stephen Poloz, head of the Bank of Canada, told the CBC this: “In the context of a firming global economy, especially the U.S., we’d expect to see some upward pressure in market interest rates, long-term rates in particular, where the quantitative easing has its primary effect.” In case you don’t know what this means, Mr. Poloz is saying five-year mortgage rates are about to travel north. There, see the future?

Finally, those boffo housing price/sales numbers real estate boards have been reporting in the last few days? Be careful. For example in Toronto sales of single-family detached homes in December were almost 25% lower than two years ago, while prices are higher by 23%.

Dropping sales and inflating values. Guess what happens next?

177 comments ↓

#1 NuisanceBear on 01.07.14 at 10:08 pm

FIRST and foremost – never last but not least
:)

#2 Tri-Guy on 01.07.14 at 10:11 pm

Woke up to frozen pipes. But this blog cheers me up

#3 World According To Garth on 01.07.14 at 10:14 pm

Horse Manure Part DUH

http://www.thesurvivalistblog.net/mystery-disease-in-texas-h1n1-pandemic/

There is no global warming and there is no pandemic. Tens of thousands of people die from the flu every year. But the main slime media and $91,000 per year paper pushers in the govt need to keep busy pissing away your money somehow right?

Disclaimer I was a healthcare professional in Chilliwack for ten years before I had two kids and am now a stay at home mom and none of us have vaccines and we are never sick. Yeah yeah……we are ALL carriers right? Statistically impossible sorry.

#4 Smoking Man on 01.07.14 at 10:15 pm

Dropping sales and inflating values. Guess what happens next?
……………
We have a spectacular spring market in the GTA.

And with that trade deficit, few more of those, overnight rate too

0.25

VRM, who gives a crap about 5 year.

#5 question on 01.07.14 at 10:16 pm

Why would it take years to deflate here when it took less than a year in the US?

Because it didn’t. — Garth

#6 Freedom First on 01.07.14 at 10:17 pm

Right on Garth!

You know, while I was reading your post today, I got to thinking. People immersed in any one asset, like RE, are always in danger, while, and I can only speak for myself, I view asset crashes as merely another opportunity. Keep in mind, I wish no one any harm, I just call it looking after myself. I want to keep my gonads from being crushed at all times.

#7 Ken John on 01.07.14 at 10:23 pm

Garth: Does maintaining a balanced portfolio mean hanging on to bond ETF’s even when everyone agrees that interest rates are going up?

It’s called balanced for a reason. You will love them when equities correct. — Garth

#8 Terry on 01.07.14 at 10:23 pm

Too much borrowing and too much debt……..Canada does seem to be wasted on Canadians.

#9 will on 01.07.14 at 10:26 pm

And there is talk now of insurance premiums to go up too. At least one article in the G&M today on this topic. Another little bit of shite to hit the RE fan.

#10 Ruff on 01.07.14 at 10:30 pm

Is it the US is still buying from Obama’s Islamic buddies and trailing off Canadian oil?

Have you read Secret Weapon by Kevin D. Freeman, Garth? Sets up a scary scenario on what happened in the 2008 market crash. Naked short selling and dark markets. Financial terrorism, the US Administration, SEC and other agencies that had their head up their butts in 2008. Interesting read.

#11 Liquid Independence on 01.07.14 at 10:31 pm

Despite how overpriced the market is these days I think people are so emotionally attached to their homes that many will not be willing to sell theirs at a loss. Mr. Poloz is more dovish than Mr. Carney. And Ms. Yellen is more dovish than Mr. Bernanke. I believe we’re going to see a soft landing in Canada’s housing market. Many people think prices have to fall if they go up too fast, but that’s not necessarily true. It’s possible for prices to simply stay flat for 10 years or however long it will take for fundamentals to catch up to valuations again :)

#12 sheane wallace on 01.07.14 at 10:32 pm

Great post,

The decline should be 60-70 % based on income, supply and demand driven market and revert to the normal interest rates.

The decline will most likely be in the range of 30-40 % at the expense of a severely declining dollar and inflation/crashed savers.

15% will be accompanied with a complete and utter demise of the Ca dollar and rip of of the savers as it can only be achieved by artificial suppression of the interest rates for a long time, result of further expansionary monetary policy.
Such expansion however would be very risky and let’s not forget that somebody still has to pay for the fallout and support the poor savers/retirees and soon to be retirees that hold depreciating bonds and cash.

FXE brought 5 % in few months, buying European equities was even better idea.

I can’t even imagine what will happen when the rates go to 6 %, the economy will be completely crashed as all the income goes to serve that mortgage, this will result in decrease in spending viciously contracting economic activity and GDP. It is self-feeding beast that if left unattended will result in severe recession.

The solution would be to monetize which will crash the dollar and even further increase long term rates.

Like every party there is a bill coming and whoever is served with that bill will not like it. In few years the booming house prices of the last decades would be seen for what they really are (an extreme stupidity at the expense of the taxpayers), and a house would not be considered as ‘investment’ any more.

#13 pinstripe on 01.07.14 at 10:32 pm

Why is this blog devoting so much bandwidth to fear mongering?

In any market there will be some correction but overall the trend will continue upward.

In a Fixed-Market it would be political suicide to have anything worse than a soft landing.

Now is an appropriate time to borrow as much as possible and purchase any type of real estate. Real estate will always appreciate in value.

At this time of year anyone selling a product or service is fighting everyone else for buyers.

#14 DaleFromCalgary on 01.07.14 at 10:34 pm

My 2014 property tax assessment came in the mail today. Up $70,000 in one year to $588,000 for a 1956 bungalow in Altadore (central Calgary). Wheeee! Of course my property tax will also go up a couple of hundred dollars to $3,500, triple what it was in 2000.

So why don’t I feel rich? I paid the house off in 1997 and with all expenses and allowance for occasional major repairs, it only costs me $1,100 a month to run. That is cheaper than renting a decent apartment in a good neighbourhood.

In Altadore, the bungalows are gradually being replaced by particleboard twin infills starting at $700,000 but mostly higher than that. Who is buying them? Not petro-executives; the oil industry is sending their work to Texas or China. The people buying are tradesmen or Website designers, who make big bucks but will be looking for work a couple of years from now when the economy finally sputters.

I used to joke that I would have the last bungalow in this neighbourhood. Not such a joke anymore.

#15 FATHER on 01.07.14 at 10:35 pm

Great post Garth, it took years to hit bottom in the states. Soft landing or hard landing, I believe it is going to be a slow, hard, more than 15 percent and very painful landing in Vancouver

#16 bcc7 on 01.07.14 at 10:36 pm

just wondering, can underwater house market save marriages. is there any stats from the states?

#17 james on 01.07.14 at 10:36 pm

It seems to me that a correction in the 10-30% range isn’t possible. Either the faith in real estate as a perfect investment will be shattered or it won’t. If it’s not, there will be a soft landing and then price increases will continue. If prices go down and then down some more the same irrational herd mentality that’s driven prices up will drive them down and we’ll be looking for something >30%. As this blog has pointed out many times, people are not acting rationally as prices inflate, so why would we expect them not to panic when they see everyone rushing to the door on the way down?

#18 ☢ ☢ ☢ recharts on 01.07.14 at 10:37 pm

I should resume “The sucker of the day” series for Condos and SFH in Toronto just to keep you warm ☺ and focused

I ♥ Poloz
“Exports are not behaving according to our models”

This makes me conclude that the current RE bubble and the household debt are behaving according with his models.

#19 Chickenlittle on 01.07.14 at 10:38 pm

#2 Tri-Guy:

Me too! I went to bed with frozen pipes and they were still frozen this morning.

#5 Question:

My uncle (who lives in California) told me about defaults in the California housing market back in 2006-ish.
Garth is right: it was happening before, too.

#3: World According to Garth:

I used to live on Chilliwack Mountain! :) Speaking of which, my parents couldn’t sell their house for 8 years because of the traffic behind us. They eventually sold it for $250k in 2002, only to have the neighbourhood triple in value over the next 3 years. My dad never forgave my mom.

#20 sheane wallace on 01.07.14 at 10:38 pm

It’s called balanced for a reason. You will love them when equities correct. — Garth
———————–

stocks if diversified internationally will not correct significantly. Holding bonds in a time of artificially surprised interest rates in dangerous.
Rates will either correct (up) or one will be paid with worthless return.

It is true that ETFs in bonds are averaging. But when (not if) the interest rates normalize they will be crashed.

The time to buy bonds will be be at the top of the interest rates.

#21 pr on 01.07.14 at 10:41 pm

…Mr. Poloz is saying five-year mortgage rates are about to travel north…

Nope! He, like is predecessor, is lying! So a bizard event will arrive, and stop the rates from going up. Until a deflationary-depression start.

#22 DR on 01.07.14 at 10:43 pm

Bring this back in the summer,
after the spring market happens.

I said it would be sky prices last year and I was right.
This year, I have a feeling will be worse. nothing at all to buy except for one or two. They have the offer dates going on though. they will receive a lot of attention, even though its freezing and snow on the ground.

i picked up a building for less than a semi in Leslieville so i cant complain. there are very very few bargains but they do exist.

#23 aprilNewwest on 01.07.14 at 10:44 pm

#11 – I think your dreaming…..

#24 quebec economist on 01.07.14 at 10:44 pm

I vote for hard landing.

When people are hard headed emotional house horny, the only thing that can stop them is a [email protected]#king cold shower. (like a outdoor shower in GTA today…ha!). High debt levels should, in economic theory, with a rational agent, cause people to stop buying. Obviously the underlying premise of economics is flawed, since agents are not rational. The shit will hit the fan only when ‘a lot’ of people can no longer pay their mortgages. It will not happen when they should no longer take ridiculously high mortgages, since that would be yesterday. In the US the crash happened after foreclosures and defaults. Here it will happen soon: If the economy picks up, interest rates will rise and that will be the killer. If the economy slows (unlikely) that will be the killer for the obvious reasons. (loss of jobs, gov. indebtedness…)

No way out, I say 30% drop within 2 years for suburbia….downtown areas should not suffer too much!

Renting is fun…

#25 ☢ ☢ ☢ recharts on 01.07.14 at 10:46 pm

#13 pinstripe on 01.07.14 at 10:32 pm
Why is this blog devoting so much bandwidth to fear mongering?

In any market there will be some correction but overall the trend will continue upward.

In a Fixed-Market it would be political suicide to have anything worse than a soft landing.

Now is an appropriate time to borrow as much as possible and purchase any type of real estate. Real estate will always appreciate in value.

At this time of year anyone selling a product or service is fighting everyone else for buyers.

pinstripe, I told you more than 100 times that drinking will keep you warm but not rational.

Do you care to explain what was in the minds of the first 60 sellers listed in the table at the bottom of this page?

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

#26 please explain on 01.07.14 at 10:47 pm

http://www.usdebtclock.org

#27 sheane wallace on 01.07.14 at 10:48 pm

#14 DaleFromCalgary on 01.07.14 at 10:34 pm
My 2014 property tax assessment came in the mail today. Up $70,000 in one year to $588,000 for a 1956 bungalow in Altadore (central Calgary).
———————————-
It only makes sense with a dollar that is worth 1/3 of what it is today.
…….
700 k for bungalow in Calgary? Holly macaroni, this is twice an apartment in Vienna or Frankfurt. And 3 times decent villa in Spain.

It just shows how incredibly stupid F’s polices are. We trully have lost it big time.

#28 Ruff on 01.07.14 at 10:53 pm

#14 DaleFromCalgary on 01.07.14 at 10:34 pm

I also purchase a bungalow, built in 1961, in Altadore around 1989 on 21st Street near 49th Ave. R2 zone and ripe for infill’s. Hard to believe it cost $116,000 back in then and I thought that was expensive.

Most of that block is now row housing and infill’s. I don’t know how you young people make ends meet with the cost of housing now.

#29 heineken on 01.07.14 at 10:57 pm

I wouldn’t worry to much.
economy is on fire.
green shoots everywhere.
new jobs being created everyday.
gold/silver down.
stock markets are exploding.
there will be no recession.
my stocks are up 15% from jan2012, truck loads of dough .
all gov’t data indicates a strong recovery in progress.

#30 joseph [original] on 01.07.14 at 11:00 pm

Real estate prices in Canada are going to either stabilize (in the worst case) or go up again in the next few years. Arthur Laffer, Ronald Reagan’s chief economic advisor, stated a few days ago that the US economy will experience a spectacular surge during the next 10 years, one so profound that the country has rarely experienced it. When this happens, the economic spillover effect in Canada will be a huge plus, creating better pay and economic conditions for everyone. This translates into excellent news for supporting current Canadian real estate values.

#31 World According to Garth on 01.07.14 at 11:02 pm

#19 Chickenlittle on 01.07.14 at 10:38 pm

Yeah…….its around 3 Celsius and its one of the warmest places in N.America. But Crusty Clark needs her phony carbon tax to keep those Govt Pensions Plans propped up.

#32 Red Beard on 01.07.14 at 11:02 pm

Hey Garth,
CBRE reported that Calgary office vacancies went from 5.0% in Q4/12 to 9.1% in Q4/13.

Sounds like the good times are just getting started in Calgary.

#33 Mark on 01.07.14 at 11:03 pm

“The people buying are tradesmen or Website designers,”

Don’t know about tradesmen, but Website designers, you’ve got to be kidding me. Smartest one I know in Calgary sold everything and now couch-surfs between Calgary and Vancouver. She knows the gig is up. Smart girl, eh?

#34 juno on 01.07.14 at 11:05 pm

http://www.bloomberg.com/news/2014-01-07/canadian-currency-falls-for-second-day-as-trade-deficit-swells.html

Does this writer know what he’s talking about. Yeah cut rates while US is about to raise….

Short Canada, I can see the hedge fund going all in. borrow Canadien dollar at 0% buy us and collect some interested 2/3%. “ALL IN!!”. While this sink the CAD to all times lows. 50cent per dollar ? 25Cent/dollar

The reality is the Government screwed you. They now can’t raise rates due to the high debt and can’t lower rates due to a sinking Dollars.

So what do you do, lower rates to keep the housing going, but wait. Soon oil will go through the roof. and inflation will hit at EXTREME levels until we can’t even put food on the table. But we will increase exports cause canadian resources will be cheap cheap cheap….

#35 sheane wallace on 01.07.14 at 11:06 pm

#11 Liquid Independence

It’s possible for prices to simply stay flat for 10 years or however long it will take for fundamentals to catch up to valuations again :)
———————————————–
There is a song: If only…

You mean somehow average saving rates and salaries will increase 2.5-3 times in the next 10 years?

Economic miracles can not be achieved by monetary policies. You believe in fairy tales. All of us will soon find out how elastic money really are.

#36 LucyJ on 01.07.14 at 11:07 pm

It seems to me that with the devaluation of our dollar we have already lost ten percent of the value of our houses. Or is this just my misguided brain cells run amok?

#37 Fiendish Thingy on 01.07.14 at 11:10 pm

#3 WATG-

How irresponsible of you as a parent not to vaccinate your kids when you live at ground zero for a local measles outbreak, an outbreak that wouldn’t have occurred if flat-earthers like yourself had gotten your kids vaccinated.

I am glad to hear that you are no longer a healthcare professional, since you don’t appear to know the difference between seasonal and pandemic flu (try googling “1918 Spanish flu” to educate yourself, instead of wasting your time on doomer survivalist sites)

#38 Mark on 01.07.14 at 11:11 pm

“It seems to me that with the devaluation of our dollar we have already lost ten percent of the value of our houses. Or is this just my misguided brain cells run amok?”

Mortgage investments have also lost 10% of their value. And those investors don’t typically take kindly to such.

#39 Smoking Man on 01.07.14 at 11:11 pm

Told you dogs, long USDCAD.

‘What is the proper spelling for cha ching aling aling.

#40 Calgarygirl on 01.07.14 at 11:13 pm

I do not understand, Garth. If there is no soft landing, and you also said you didn’t predict a “crash”, what behaviour will house price be? I don’t want to pretend that I know… Would it be flat for ten years? Please explain.

#41 Run away on 01.07.14 at 11:13 pm

What was F, the talking gnome, going on about interest rates on CTV this weekend? Telling the central bank not to raise rates but knowing full well we have to follow the US trend. The finance minister doesn’t set rates, the central bank does, so what the heck was he going on about? Do you think he’s beginning to get nervous about the number of cube dwellers who are beginning to see the future and the rising interest rates knowing they won’t be able to pay them. Think he’s beginning to worry they’re going to bail on their mortgages and leave the tax payer holding the bag? I can’t say I blame them, you’re only young once and why not cut your losses and start again. What a great legacy for this government. What a great economic growth plan. NOT!

#42 Pulp Faction on 01.07.14 at 11:15 pm

“Toronto sales of single-family detached homes in December were almost 25% lower than two years ago, while prices are higher by 23%.

Dropping sales and inflating values. Guess what happens next?”

Hmmmm….let’s see….maybe the drug addict goes on one last big bender and then, when he has no money, no home, nothing left to sell to the drug dealer, no drugs, and is suffering from withdrawal, sits, penniless and broken, thinking maybe it was all a big mistake….maybe.

#43 Pulp Faction on 01.07.14 at 11:18 pm

I am now in the 30% (not invested in real estate) and waiting for the 50% off sale on rural properties. I will select a nice cabin too.

#44 ☢ ☢ ☢ recharts on 01.07.14 at 11:18 pm

#29 heineken on 01.07.14 at 10:57 pm
I wouldn’t worry to much.
economy is on fire.
green shoots everywhere.
new jobs being created everyday.
gold/silver down.
stock markets are exploding.
there will be no recession.
my stocks are up 15% from jan2012, truck loads of dough .
all gov’t data indicates a strong recovery in progress.

your kids are playing a joke on you
You are watching the news from 2010

#45 CK from AB on 01.07.14 at 11:19 pm

How much would the value of houses in major cities have to fall this year to return to ’09 values?

#46 sheane wallace on 01.07.14 at 11:23 pm

Run away on 01.07.14 at 11:13 pm

The finance minister doesn’t set rates, the central bank does,
——————-
That is correct in short term only.

The bond market dictates medium and long term rates and soon we will hear it’s voice/scream.

#47 High Plains Drifter on 01.07.14 at 11:27 pm

I do not believe for one minute that the price of single family homes in Toronto are driven by anything other than the most accomplished of number benders. You know, the one percenters. They been doing all right and are now fighting it out over the most desirable real estate in the country. Please do not conflate tender youth with this bunch of carnivores. It is rumoured that some of their young can pass for innocent but best to have a glance at there incisors should you luck out and catch them practicing a manoeuvre quaintly labeled , smiling.

#48 Sebee on 01.07.14 at 11:29 pm

Poloz says policy caused the RE bubble. Finally some honesty.

As for deflation, $700 goose jackets, $3 organic apples, $5 lattes, honestly, isn’t there room for some deflation?

#49 CK from AB on 01.07.14 at 11:39 pm

OH SNAP!
What if the delta between the US and Canadian housing values is eaten up by a small correction + a big drop in currency value?

The Canadian $ was worth less then $0.70 10 years ago (22% drop?)

OUCH!

#50 blase on 01.07.14 at 11:40 pm

Horse manure blog poster:

Please, for the sake of your kids and other kids they will come in contact with, watch this 1 minute and 30 second video about vaccines. http://www.youtube.com/watch?v=RfdZTZQvuCo

#51 Brad on 01.07.14 at 11:42 pm

Garth,

Hopefully a quick question: A portion of my portfolio consists of a number of bond ETF funds that have dropped 4-5 % in the last year. However, even though the price of them has gone down, isn’t this someone offset (in the long run) by the fact that bond yields are now rising (as interest rates rise)? Or do the currently higher yields not apply to bond ETF’s I have purchased previously?

Sorry if this is a goofus question – I really couldn’t find an answer anywhere.

A grateful follower of your blog for years (but a rare commenter),

Brad

#52 45north on 01.07.14 at 11:49 pm

But when things turn, they do so in an equally emotional fashion.

we’re not there yet, not by a long shot

our host here is aghast at the lack of preparation of Canadians

me too

this is the elephant in the room, which gets me to Andrew Coyne who criticizes Jim Flaherty for talking about interest rates.

http://www.ottawacitizen.com/business/Flaherty+falls+flat+rate+pressure+talk/9357447/story.html

why cannot Flaherty talk about interest rates?

Andrew Coyne talks about the independence of the Bank of Canada but independence does not mean isolation. It’s not like the Governor of the Bank of Canada is a judge. Of course interest rates are political and of course politicians talk about them. Is Andrew Coyne the offspring of James Coyne?

http://en.wikipedia.org/wiki/James_Coyne

if so he’s coy about it

no Andrew Coyne knows that interest rates are central to the housing market where Canadians have all their hopes and dreams. He instinctively censors Flaherty in order to cut him off from meaningful discussion.

#53 Victor V on 01.07.14 at 11:50 pm

http://www.thestar.com/business/economy/2014/01/07/toronto_construction_sites_go_into_hibernation.html

“The last two or three weeks have been a disaster,” veteran construction expert Anthony Pignetti said Tuesday. “This has been a very unique winter between the ice storm and the deep freeze and everything in between.

“There are apparently 120 construction cranes in Toronto right now — and none of them are working today.”

Pignetti, vice-president of construction and site operations for Cityzen Real Estate Group, says this winter’s extreme start has already added millions in costs and will likely delay move-ins at some of the eight condo and office projects his company currently has underway across the GTA.

#54 DR on 01.07.14 at 11:55 pm

#45

i think about 30-40%

#55 DUI on Money Road on 01.07.14 at 11:57 pm

#3 World According To Garth on 01.07.14 at 10:14 pm
—————————————————–
Not getting your kids vaccinated is the equivalent of child abuse (or worse). Your inaction here is a window into your ignorance of the health benefits of vaccines.

Garth you really should ban posts such as these…and I wished more bloggers would call these idiots out.

#56 Smoking Man on 01.08.14 at 12:02 am

So funny listing to Prozak talking to Amanda Lang.

Our models are not working, he says,ha. That’s because smoking never built them. My models never break,

Plus I have the UCC and the herdomoter.

See what happens when all the boys go to the same school.

Anyone want me to do a tea reading.

#57 no jobs on 01.08.14 at 12:02 am

You clueless realtors have no economic understanding which is why you advise people to buy grossly overvalued housing and even more grossly overvalued condo’s. The economy in the gta is overweight on RE and that imbalance is choking off the real economy which will crash the RE market. Spin, lie and talk all you want but the game is over and the nightmare begins. Realtors have done a huge disservice to Canada and many should be locked up in jail.

#58 fleetwoodboy on 01.08.14 at 12:10 am

With all the talk of the new property assessments, I checked out three properties which are for sale on my street. Seems like a number of owners have high expectations.

1. Been on the market for 18 months, at $769k (started at $823k) – assessment $690k.
2. Been on the market for 12 months, at $799k – assessment $719k.
3. Been on the market for 2 months, at $690k – assessment $620k

#59 NoName on 01.08.14 at 12:11 am

I hate to say that a inspector Clouseau, would do a better job running Canada than people in charge now.

#60 45north on 01.08.14 at 12:11 am

blasé Please, for the sake of your kids and other kids they will come in contact with, watch this 1 minute and 30 second video about vaccines.

I’m thinking 1952, the girl 4 houses down got polio and died. The boy around the corner got polio and is crippled to this day.

#61 T.O. Bubble Boy on 01.08.14 at 12:15 am

Garth – you forgot:

“This will not end well.”

#62 TRT on 01.08.14 at 12:20 am

Poloz ( traitor ) destroying Canada’s Currency at expense of Interest rates and Export sector.

Been telling you for 4+ years. Canada will not raise rates but let the currency crater..

Get ready for $1000 iphones, $1.75 Gas, $ 40,000 Honda Civics….while having the highest per capita immigration in the world ( No wage increase).

Enjoy :)

#63 T.O. Bubble Boy on 01.08.14 at 12:20 am

Wow – look at that $CAD in freefall… 0.9264 USD as I type this:

https://www.google.ca/finance?q=CADUSD

Still waiting for 90 cents to start calling up the online broker to do some Norbit’s Gambit conversions back to $CAD.

#64 Canadian Watchdog on 01.08.14 at 12:21 am

#53 Victor V

Potential delays in condo occupancies are difficult to determine this early on: “It's not as simple as just counting the days we were shut down because making up the lost time usually takes longer due to clean up and scheduling.”

Read between the lines. This was a press release by Cityzen announcing that somewhere buried deep within a purchaser's assignment contract lies a clause stating the builder will not be responsible for any delays due to natural causes, so don't try to wiggle your way out of the contract cause our lawyer is better then yours.

#65 KommyKim on 01.08.14 at 12:28 am

RE: #7 Ken John on 01.07.14 at 10:23 pm
Garth: Does maintaining a balanced portfolio mean hanging on to bond ETF’s even when everyone agrees that interest rates are going up?

If you don’t like bonds, go for a GIC ladder. The yield is about the same. The catch is that GICs aren’t a liquid as bonds nor do they have the same inverse correlation with equities as bonds do.
I have gone with short corporate bonds (CBO) in my portfolio to mitigate interest rate risk.

#66 Vancouver MLS Listings on 01.08.14 at 12:31 am

No Jobs, locked up in jails? Seriously?

#67 KommyKim on 01.08.14 at 12:31 am

RE: #3 World According To Garth on 01.07.14 at 10:14 pm
There is no global warming and there is no pandemic.

It’s funny that every winter the global warming deniers come out of hibernation.

#68 IC on 01.08.14 at 12:33 am

@ #51 Brad

Bond value is dropping because the yield on those bonds at the old value is lower than competing offers. Ie. If I charge $100 for a bond paying a $5 coupon that’s 5% yield. If I charge only $50 for it your yield is now 10% but you still get the same $5 coupon.

So your ETF value is not offset by the increased yield. It still gets it’s ‘$5’ either way and now people see options for $6 coupons so they sell your ETF’s bonds and the price drops because the assets it presently owns have declined in value.

If you own the bond itself maybe you don’t care and sit on it until maturity but with an ETF you have to sell it for better or worse at some point.

#69 NoName on 01.08.14 at 12:35 am

#57 no jobs on 01.08.14 at 12:02 am

I think that core foundation of acceptance that RE is an ultimate financial vehicle in Canada is the firm conviction of RE cratel that they will never be at the receiving end, so they are so confident in their “product”so its easy for them to convince a guy like me (i am bit on a stupid side) to buy house that comes with magical equity powers, and extraordinary tax exempt on equity gain, on principal residence.

When I challenge most of my friends and their wisdom on RE, there is always a strong push back from them, that i will be wrong again. It is sad to see how grown ups believe that equity appreciation will last indefinitely, and that everyone will exit on peak. but is interesting that frends preaching that are not selling, they are waiting another HIGH….

When RE crisis hits, all of us collectively will try to cope by changing or behaviour, but harder we try more difficult it will get, because race to the bottom is not leaner process. and at the bottom, the real sacrifices begins, not from us from our children…

#70 Ontario's Left Coast on 01.08.14 at 12:41 am

#55 – vaccinations
__

Anyone else’s crazy meters going off?

#71 MEANWHILE IN FRANCE on 01.08.14 at 12:45 am

Calgary will fare worse than Toronto. If the kids want to stay in Canada, we might have to look at an entry point sometime down the line for them.

Or not. Let them be renters!

#72 Toronto RE Transaction costs on 01.08.14 at 12:48 am

RE prices in Toronto may fall to some unknown extent in 2014, but, before rushing to sell, then rent for some (unknown number of) years before reentering the property market have lower prices, have a look at the long list of transaction costs for selling / buying RE in Toronto, listed here –

http://www.torontorealestateboard.com/buying/buying_&_selling/additional_costs.htm

The Realtor fees, ‘double’ Land Transfer Taxes and more total some 10% of the sale price of a Toronto house. It makes you wonder how moving house within Toronto can be justified.

Alwyn

#73 Hollywood on 01.08.14 at 12:58 am

#28 Ruff, #27 sheane Wallace
“I don’t know how you young people make ends meet with the cost of housing now.”
Yes, I agree with your statements. Several relatives and my uncle in Calgary has mentioned a few times that his house is worth 8 times more than what he paid for it. To my recollection house was bought around 1980.
On that point, I really feel for the young generation as delaying children and face serious debt, and poor job markets in comparison to their parents. However, people have lots of choices and there are definitely considerably cheaper places to live in the country apart from the main centers i.e. Thunder Bay, Moncton, SW Ontario. The pay in similar jobs are not much different than the big urban centers.
I do criticize the gov’t in 2004ish creating the 40 year mortgages. To this day do not understand why that was introduced in a strong economy. In my opinion 2003-2007, the Canadian economy throughout the country was firing on all 8 cylinders if you did a comparison to the present time.

#74 Questions on 01.08.14 at 1:18 am

Were just arriving at the point that the verbage from central bankers has become so important that it’s now unimportant. Priced in. Their lips will move, articles will disseminate every pause and comma, but at last the market and the economy will do it’s thing based on the data. They’re like Kanye now. Loud, predictable, and thankfully (finally!) irrelevant.

#75 D.D. Corkum on 01.08.14 at 1:20 am

#51 Brad on 01.07.14 at 11:42 pm

—-

The shares of a bond ETF will shrink in value as interest rates rise, reflecting the lower price of the holdings.

However, this only matters if you intend to sell the ETF shares. If you are only interested in the yield, then you don’t have to actually do anything. The ETF will continue pumping out distributions as the bonds it holds continue to pay interest at the same rate they did before.

In the long run, several of the bonds held by the ETF will mature. At this time, the ETF will likely re-invest in new bonds at whatever prices happen to exist at the time. If bonds are cheaper around this time, then the ETF will enjoy better interest rates. So eventually you could benefit from better distributions, sort of, but that is not an immediate impact.

As for the attractiveness of the ETF, the yield is higher now that the price of the ETF (and its holdings) has declined. If you found the yield attractive earlier, surely you find it even more attractive now.

#76 Joe calgary on 01.08.14 at 1:30 am

I don’t see Calgary faring worse than Toronto, the incomes are higher, unemployment lower and RE values lower.

#77 Son of Ponzi on 01.08.14 at 1:48 am

#51 Brad,
That’s why people like you should stick with GIC’s.
Too many sharks out there.

#78 Infused with Opiates on 01.08.14 at 2:32 am

58 fleetwoodboy – nothing unusal having asking prices higher than assessments. You can always sell for less. I
am assessed at $381 but would probably list at $399 just
to break the $400 barrier. But I dont have to sell – it’s
paid for.

#79 betamax on 01.08.14 at 2:34 am

#3 World According To Crazy: “none of us have vaccines and we are never sick.”

It hasn’t happened yet, therefore it will never happen.

Nice logic. Well, good luck with that.

#80 World According To Garth on 01.08.14 at 2:39 am

#67 KommyKim on 01.08.14 at 12:31 am
RE: #3 World According To Garth on 01.07.14 at 10:14 pm
There is no global warming and there is no pandemic.
It’s funny that every winter the global warming deniers come out of hibernation.
———————————————————-

And the socialists come out in force to defend the govt poppycock. How did that N. Korea and USSR work out for you kimmy? I see the USS Euro is doing peachy keen these days with riots in many countries over there. But it’s different in Kanada right?

#81 Mister Obvious on 01.08.14 at 3:07 am

Re these heated discussions about vaccinations:

Consider polio and smallpox. These are both hideous diseases of unimaginable horror. The reason they are practically wiped off the face of the earth is because of science and social inoculation programs. There are (or once were) only a few strains of these viruses and they were technically easy to eradicate globally once they were fully understood.

Influenza is another matter entirely. There are dozens of influenza virus strains and subtypes that are continually undergoing annual yearly variation (antigenic drift) and occasional twice-per-century pandemics (antigenic drift). Unfortunately, influenza will always be with us. We will not defeat it like smallpox or polio.

The vaccines we have are at best only partially protective. The centres for disease control try their best to predict which strains will show up in a given season and specify which virus subtypes should be targeted for a seasonal vaccine. Sometimes they are right on. Sometime they are quite a bit off.

In addition, some folks are better at creating protective antibodies from these vaccines than others.

There are other purely social problems. For example, every now and then an idiotic rumor is started such as autism being related to vaccinations. No amount of evidence against these claims can sway a certain percentage of gullible people from such nonsensical beliefs.

With all that said influenza vaccinations are a very safe way to afford some reasonable protection from a bout of influenza which can range in seriousness from mild to life threatening.

However, if somebody chooses for themselves (or their children) not to be vaccinated they are most definitely not in the ‘criminal’ category like someone who would deny smallpox or polio vaccine to their children if they were still modern day threats.

#82 thedoubter on 01.08.14 at 3:35 am

The BC Assessment shows price drops in residential dwellings in most regions in BC for 2014. The assessment, I think, is based on sales mainly in the first half of 2013.

#83 Ronaldo on 01.08.14 at 7:02 am

#59 No Name – ”I hate to say that a inspector Clouseau, would do a better job running Canada than people in charge now.”

Or this guy.

http://www.redgreen.com/

#84 Ronaldo on 01.08.14 at 7:06 am

#57 – no jobs.

”Realtors have done a huge disservice to Canada and many should be locked up in jail.”

If nothing else it would be good for the economy since Mr. H. would have to build more jails and that would mean more jobs. Is that what you were getting at?

#85 economictsunami on 01.08.14 at 7:35 am

Soon we will witness how well thought out the strategy was of staying in school to get better educated and the added debt this entails…

As good paying jobs gradually give way to more austere contracting out; (due in large part to HS internet enabling architectural, accounting, legal and financial services jobs to be done overseas) less retiring boomers jobs will need to be refilled.

Six, seven and eight year car loans are increasingly the norm. Many have bought more car then they can afford. Good luck paying for the 5 & 7 year maintenance schedule costs. Resale BMWs will become more prevalent then Kia’s at a Seoul tuner show & shine…

Just as our elected leaders at all levels of government, have been able to kick the can down the road because of an over extended period of low rate binges, individual balance sheets are very quickly succumbing to the unsustainable inevitability of accounting.

Sooner or later there is a payback price to pay for our over stay at the credit buffet.

When you’ve dug yourself a financial hole, sooner or later you’ve got to realize, you’re not really tunneling to somewhere for a reason.

You’re just digging a little deeper…

#86 Someone on 01.08.14 at 7:51 am

The correction will be more like 15%, but wildly uneven. Urban demand areas will be largely spared but suburban mansion pastures creamed. Rural and cottage properties will go cold and illiquid. Vancouver will fare worse than Calgary, and Calgary worse than Toronto.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Nice post Garth, getting back to your roots. I agree with most of what you say, less the captioned above. I beg to argue that the Toronto correction will be the worst of them. Please keep in mind that Vancouver real estate has always sold at a premium to Toronto for reasons unknown, and I don’t think that premium has ever been smaller than now, so if Van is in for a big correction, again I’d argue that Toronto will be worse.

Some people will try to argue that Toronto will fare better because of jobs, and population. To them I suggest to go and ask their friends looking for jobs how the job market is, and what kind of salaries are out there. Salaries being offered seem to decrease each year for the same positions. I know people taking pay cuts from what they were making 2 years ago, and with people like Mr. Hudak trying to make it so that even government workers won’t make as much (directly and indirectly through pensions entitlements), what will this do to the greater population? My guess is that corporations will have less competition for workers overall and can lower salaries further. It is funny.

You have highlighted many times how companies are laying off, and I think people look around and say ‘whatever’, won’t happen to me, but it sure can. You have also mentioned the 50 somethings that have been let go, and finding it near impossible to find jobs, and could possibly never work again. As you have mentioned today, the ones I know are counting on the 20-30 fold returns on their house over the last 20+ years as their parachute, so let’s see how that turns out.

Back to my original point, housing prices in desireable urban centres in Toronto have realized unexplainable gains. Take townhouses in Toronto’s club district that have increased 3-4 times in value since 2008 where one can’t even get a good nights sleep, and look at Forest Hill, where prices have essentially doubled or tripled in the same times period. Again, incomes are falling and there are less jobs, so what is driving it? My guess is cheap debt and emotion as you have accurately described.

I have friends that are real estate agents, and they always have the same argument, ‘real estate’ is local/regional, which is fair, as Oakville is way more than say Milton, however, you have to look at realistic comparables. For example, I have some friends in Finance, and one recently obtained his CFA, and an onslaught of job offers right away. 1 in New York, and several in Toronto. Not only will he make 2 times more in NY, so his wife can quit her job and after the lower tax rates they’ll be further ahead, but his research shows he’ll actually save $200+ dollars a month on rent there, and other living expenses will actually be lower. Keep in mind that several credible organizations (including the Economist) have repeatedly raised alarm bells regarding how drastically overpriced real estate is in Toronto in historic terms relative to rents.

That about sums up Toronto, the littlest brother in a group of global cities with an adrenaline rush.

#87 Fortune500 on 01.08.14 at 8:10 am

” I really feel for the young generation as delaying children and face serious debt, and poor job markets in comparison to their parents.”

This point is so important, yet does not get as much attention as it should. Those who decided not to buy in 2001, 2004, 2008, etc. may or may not have ‘missed out’ and may be to ‘blame’ according to the bull crowd, but very little concern or care seems to be given to those just starting their lives.

Salaries are not keeping up, and housing just continues its unabated climb. So you won when it comes to your housing value or net worth, but what are today’s young Canadians to do? In the past, we used to care about each other, but now it seems to be a winner takes all mentality.

Sad

#88 Vaccines#55 on 01.08.14 at 8:41 am

#55, and others giving #3 a hard time.

Is she deciding for your children? No, this is her choice to make as a parent, trying to control other people is really disgusting. If your child is vaccinated, you should have nothing to worry about. Your getting angry at a mother doing what she feels is right for her children suggests you are either ‘crazy’ (as someone else suggested), or you are scared that your child’s vaccines didn’t work, in which case, #3 would be right.

Do people come up to you and tell you what job you should do? Likely not, so let people make their own decisions.

With that said, I agree things like Polio should eventually be vaccinated against, but the idea of getting a flu vaccine is bonkers unless you really have some immune system deficiency, or are exceptionally old (and medical workers). Getting the flu and colds is part of life. It is your body telling you you are run down and caught something as a result, maybe you should listen and get some needed rest, and allow your body to naturally learn how to fight the ailment, so it is stronger later.

Along the lines of your thinking we should all take steroids as it would make us stronger. It will, but at what cost, and who really benefits, drug companies…

Not a vaccine blog. Knock it off, everyone. I am immunizing this debate. — Garth

#89 heineken on 01.08.14 at 9:22 am

#44 ☢ ☢ ☢ recharts on 01.07.14 at 11:18 pm

#29 heineken on 01.07.14 at 10:57 pm

I wouldn’t worry to much.
economy is on fire.
green shoots everywhere.
new jobs being created everyday.
gold/silver down.
stock markets are exploding.
there will be no recession.
my stocks are up 15% from jan2012, truck loads of dough .
all gov’t data indicates a strong recovery in progress.

your kids are playing a joke on you
You are watching the news from 2010
————————————————-
Actually i read all about it recently on this financial blog site.
The dialogue is all there, for everyone to see.
Don’t remember the exact date, but it was around the last FOMC meeting in washington (dec 17, 2013) when bernanke annouced tapering was ending.
check it out.
I was shown the error of my ways.

#90 learningfromyou on 01.08.14 at 9:34 am

Thank Garth for your post.

A few day ago you sent me to do my homework about how you can finance 100% the ETF purchases with non secured line of credits. I went to the bank and I learned that non secure line of credits with high interest rates that are not used are worthless for them, in some cases they will like to be less greedy and reduce and lock the rate to a lower value for certain period of time if they see you taking all the money out from it.

Now I wonder.

If people are willing to take any risk buying boxes to put stuff on it (we name it houses), then it would make sense to take some risk and buy a portfolio of ETF.

I’ll keep doing my homework.

#91 Tony on 01.08.14 at 9:36 am

Re: #9 will on 01.07.14 at 10:26 pm

Only a complete moron would take out house insurance on a house in Canada. When was the last tornado or major earthquake in Canada? There is no bigger waste of money on Earth than throwing money away needlessly. Think of all the people who made money in the long run by taking out house insurance in Canada? Get a clue and pay off your mortgage and settle down to a life with no house insurance thus retiring wealthy. Plan ahead and don’t look back in retrospect and wonder what you did wrong and why you ended up broke upon retirement. House insurance… the house always wins and Canada has the highest rates in the entire world of any other country compared to money paid out.

#92 TurnerNation on 01.08.14 at 9:39 am

Kind of a vaccine blog? At age 10 or so I had bad outbreak of measles. Was vaccinated like everyone else back in the day. Doc mumbled something about a bad batch. Life goes on. I won’t touch any more vaccines now. Not because of doomer sites, not because of (good) science, but because of bad pharma. Haven’t needed a doctor for over 15 years. Must be doing something right. Been popping pills like Limbaugh lately; Vit C, D, E as co-works are all sick. Sleep and the body heals itself.

#93 seren on 01.08.14 at 9:41 am

“The correction will be more like 15%, but wildly uneven.”

If it is one thing I have learned over the years in equity markets no one knows when the bear will strike or how much. Same goes for this market. No one really knows when this correction will start or how deep. Could still be a sideways correction or still a deep one. But if this a perfect storm brewing, a huge correction will ensue sooner or later. Sounds to me like a perfect storm but is it really.

#94 Stoopid Idiot on 01.08.14 at 9:42 am

Economist John Williams thinks 2014 will mark the beginning of hyperinflation. Williams contends, “You are going to see, early on, a crisis in the dollar that will start to trigger the inflation . . . as the inflation picks up, that’s going to savage the economy, which is already in a depression. It never recovered.” Forget what you have heard about the so-called recovery. Williams says, “The consumer is in trouble. There is nothing happening to turn the economy around.” The weak economy is bad news for the dollar. According to Williams, “Anything that would suggest deficit deterioration here, and a weak economy would do that, will have a devastating impact on the dollar.” And if foreigners start selling some of the 12 trillion U.S. dollar based assets, such as bonds and currency, things will turn ugly fast. Williams says, “We’re dependent on the rest of the world continuing to go along with us and continue to support the dollar. That’s not going to happen.” So, the big question everyone is asking is when will the buck take a hit in value? Williams says the dollar will likely begin selling off before the middle of this year, and he adds, “It’s really going to be a currency panic . . . when the fundamental selling pressure really starts to pick up, when the selling gets heavy . . . in turn, the weakness will be seen in a spike in oil prices and a spike in gasoline prices.” Williams says there will be a panic out of the dollar and he predicts, “Once you see a massive sell-off here, I see the game as being over.” Join Greg Hunter as he goes One-on-One with John Williams of Shadowstats.com.

http://www.youtube.com/watch?v=dQt-FFDM_5k

#95 TurnerNation on 01.08.14 at 9:43 am

Ps. my #1 fear is not disease but industrial chemicals and cancer. Therefore use extensive water filtration system at home (VOC, fluoride, even), chlorine filter in shower, local organic meat, wash all fruit/veg with a rinse.

As I said, read the first 50 pages of the Secret War on Cancer book.
http://www.amazon.ca/The-Secret-History-War-Cancer/dp/B003STCMWO

#96 Tony on 01.08.14 at 9:52 am

As the US recovers over the next three years?

You mean as America deteriorates over the next three years beyond the edge of the abyss. Two hundred percent debt to GDP in three years time. Hopefully in three years time they’ll be telling the truth about GDP as right now it’s negative in America.

#97 fixie guy on 01.08.14 at 9:55 am

The US housing market isn’t ‘recovering’, prices almost certainly reflect Obama’s massive election year quantitative easing. Real prices are still significantly above a 120 year point of stability. They will go down again.
Shiller updates his home price graph regularly, the latest version here: http://oi42.tinypic.com/2m44sv4.jpg

The same holds for Canada. To claim otherwise entails demonstrating the incentive for a small population in an empty country to forever pay double what previous generations did for an asset at the expense of all other assets, which has its own negative consequences for national industry. The incentives now are crystal clear: appreciation, cheap federal money targeting real estate and faith in mathematical impossibilities. The last will evaporate shortly after the first two.

#98 Bottoms_Up on 01.08.14 at 10:14 am

#86 Someone on 01.08.14 at 7:51 am
—————————————-
I know someone that RENTS a small 1 br in NY for around $3600/mo, and recently moved up to a 2 br for $4500/mo.

Thus the Toronto option, even though earning 1/2 as much, may be a better gig. Obviously would have to compare rental unit and location in each city to aide the decision.

#99 ozy- the debate heats again, while market advances like crazy on 01.08.14 at 10:16 am

The debate heats again, while market advances like crazy

I think Garth sees baby boomers everywhere, I see 25y old students from koreea, rusia, Australia, brazil, china of course, you name it. And I see the young parents demographics cramped in condos. only few were smart enough to escape 1-2 years ago. the rest are facing an uphill battle for FREEHOLDs. my guess is that LOCATION and type of prop. will determine a 20% increase vs a 20% decrease in what u buy. I am happy even Garth did acknowledge that in today’s article. So, yeah, most of you guys are toasted either way, in my opinion only 10% of properties are GOLDEN in the GTA. The rest, Garth’s God help! That being said, there are still smart buys out there and of course smart sells as well. If your asset appreciated 50% in 3-4 years, you might want to take the chips of the gambling table. Unless it’s in the 10% percentile that will still increase.

OK, now u can stop reading blogs. Do something in real life.

#100 Penny Henny on 01.08.14 at 10:25 am

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
——————————————————–
When I first read this I thought to myself, what does gold have to do with this?
Now I get it.

#101 dosouth on 01.08.14 at 10:37 am

Kind of lost here. Is he or is he not going to drop rates – again? Denial then acknowledgement. Do you think we are in for a rough ride and soon…?

Rate adjustment coming??

#102 gladiator on 01.08.14 at 10:47 am

@30 joseph [original]:
this Arthur Laffer?
http://www.youtube.com/watch?v=lYkFYdLTTw8

#103 Mike T. on 01.08.14 at 10:50 am

‘I don’t see Calgary faring worse than Toronto, the incomes are higher, unemployment lower and RE values lower.’

yeah but

WAY less diversified economy

as soon as the oilsands companies re-do the math on pipeline costs….

wait and see I guess

#104 Toronto_CA on 01.08.14 at 10:56 am

Well killing the Loonie is one way to get inflation going above 2% I suppose. Sucks for those of us who live to travel outside of this frozen hell every few months!

If it drops below 85% I may even consider going back to Bermuda where I cut my teeth earning US tax free dollars back in the $1 CAD = .67 cents US.

#105 OttawaMike on 01.08.14 at 11:08 am

So funny listing to Prozak talking to Amanda Lang.

Our models are not working, he says,ha. That’s because smoking never built them. My models never break,

Plus I have the UCC and the herdomoter.

See what happens when all the boys go to the same school.

Anyone want me to do a tea reading.
_______________________________________

Meh, your UCC has been wrong big time on YLO, shorting HD and that junior energy stock were all dogs recommended by you.

You did however make a good call on the CAD recently and have been prescient on the T.O. housing market..

#106 OttawaMike on 01.08.14 at 11:13 am

#56 Smoking Man
So funny listing to Prozak talking to Amanda Lang.

Our models are not working, he says,ha. That’s because smoking never built them. My models never break,

Plus I have the UCC and the herdomoter.

See what happens when all the boys go to the same school.

Anyone want me to do a tea reading.
_______________________________________

Meh, your UCC has been wrong big time on YLO, shorting HD and that junior energy stock were all dogs recommended by you.

You did however make a good call on the CAD recently and have been prescient on the T.O. housing market..

#107 HD on 01.08.14 at 11:15 am

@ #51 Brad on 01.07.14 at 11:42 pm

Please review this:

http://canadiancouchpotato.com/2013/09/23/how-not-to-prepare-for-a-bear-market-in-bonds/

http://canadiancouchpotato.com/2013/09/16/ask-the-spud-should-i-fear-rising-interest-rates/

Hopefully it’ll help.

Best,

HD

#108 James on 01.08.14 at 11:15 am

I get the 15% correction. I get that condo and burn will suffer. I don’t get why you discourage sfh in core Toronto area for instance. As you admit it, they won’t be much affected. And clearly there will always be high demand for folks wanting to live closer to the city. It’s pretty safe bet.

#109 seren on 01.08.14 at 11:19 am

hmmm. Not sure my post through before…

“The correction will be more like 15%, but wildly uneven.”

If it is one thing I have learned over the years in equity markets no one knows when the bear will strike or how much. Same goes for this market. No one really knows when this correction will start or how deep. Could still be a sideways correction or still a deep one. But if this a perfect storm brewing, a huge correction will ensue sooner or later. Sounds to me like a perfect storm but is it really.

#110 Oceanside on 01.08.14 at 11:22 am

#57 no jobs on 01.08.14 at 12:02 am
You clueless realtors have no economic understanding which is why you advise people to buy grossly overvalued housing and even more grossly overvalued condo’s. The economy in the gta is overweight on RE and that imbalance is choking off the real economy which will crash the RE market. Spin, lie and talk all you want but the game is over and the nightmare begins. Realtors have done a huge disservice to Canada and many should be locked up in jail.
_____________________________________________

You are obviously spending time with the 1% realtors. As in any occupation there are always bad and dishonest people. We admittedly live in a smaller centre than Toronto. The advice the unaware get out here is not from realtors but from watching the daily news, Global Vancouver is the main ignitor of real estate panic here, all their stories are sourced from developers or executives from either real estate boards, mortgage brokers or bank representatives. The challenge the realtors face in most places is trying to counter the television news and keep vendors from listing their $399,000 homes for $549,000 and having them on the market for 400 days wasting everyones time before cancelling the listing. Prices on Vancouver Island are down over 10% now and are slowly sinking. Anything over $500,000 just doesn’t generate any interest …Market deflation has set in…….. I’m not a realtor but have friends that are.

#111 Ralph Cramdown on 01.08.14 at 11:32 am

Time for a bit of the bear case:

I continue to believe that the post-2008 portion of Canada’s housing and credit bubble was deliberately engineered by Ottawa to bridge our economy over an export gap until the US and our other lesser trading partners recovered. It worked, at least in that sense.

We are now at the point where an improving US economy should start importing more of our stuff, giving a boost to Ontario’s decimated manufacturing economy. Well?

Some things have changed since the start of the slump, and some things haven’t. The Detroit-Windsor border is still a bottleneck. From a historical perspective, the Canadian dollar is still pretty high. Ontario has been experimenting with the price elasticity of electricity demand. The US now has universal-ish healthcare. Michigan, among others, has become a “right to work” state. Labour in the US is generally cheap and plentiful. Respected international business publications say Canada is in a big housing bubble. Ontario has fewer auto assembly plants, several of which build anachronistic gas guzzling rear-wheel-drive cars. The future of several of those remaining plants is in doubt, and with them a whole ecology of parts, logistic and engineering infrastructure and expertise.

If you were an American manufacturing executive deciding whether to locate a new plant or do a deal with a supplier, would you be more or less likely to pick an Ontario location than ten years ago?

Moving West, let’s talk energy. Remember when the goldbugs were pointing to Iran’s being paid in gold for its oil heralded the end of the Dollar? Right, that was less than two years ago. US tight oil revolution! Our fearless leader’s bull-in-a-china-shop approach to getting US approval for Keystone XL has caused a delay so long that now probably the only US interests in favour of it are independent refineries, landowners directly benefiting from right-of-way levies and steel tube manufacturers. Welcome back, Canadian double discount to falling world prices! Meanwhile, Asian countries are keen to lock in long term LNG supply contracts at today’s very low prices, and we’ll probably agree just to get a few years’ work building the pipelines and plants.

The Harper Government, lacking any broadly appealing alternative, is going to run for re-election on tax cuts, meaning the budget will have to be balanced or nearly so by then. Since it isn’t balanced now and tax revenues aren’t exactly skyrocketing, that means more spending cuts, a.k.a. contractionary fiscal policy, which our current economy could use like a hole in the head. The provinces don’t have budget room to counteract it and Poloz is down to his last bullet.

Real estate bulls say we need a recession to trigger a bust. I say that if we took out the employment impact of our continuing passion for building ourselves more housing than we need, we’re already in a continuing recession. Why else would the BoC be holding rates so low?

The GTA, as the centre of the manufacturing decline, the housing boom and the financing boom for the rest of the country’s housing boom doesn’t have a lot of remaining props if it all goes sideways.

#112 [email protected] on 01.08.14 at 11:32 am

You did not mention Montreal, Garth. Does that mean there will not be a significant correction there?

Montreal’s market is comatose. — Garth

#113 bobbyt on 01.08.14 at 11:36 am

Garth

|I enjoy your blog and read it most every day but wonder if you should stop predicting when and how the real estate correction will occur …you seem to be consistently wrong with these predictions. Yes I agree there will be a correction but no one knows when or exactly how it will happedn.

Already is. — Garth

#114 bentoverpayingtaxes on 01.08.14 at 11:39 am

You said “A convergence of Bad Stuff (an economic term) just about guarantees it. As the US recovers over the next three years, interest rates will normalize and bond yields rise, just in time for all those mortgage renewals on condos and hipster semis in Yaletown and Leslieville. Wait and see how much fun it will be to renew the mortgage you got for 2.7% in 2012 at 6% in 2017.”

Thats OK for now…but don’t forget that by the time this transpires there will be a whole new crop of idiots who see those that have gone before them as complete morons and will embark on an entirely ‘new to them’ paradigm of real estate investing…..ie…the new normal will be the new reality. Those who owe too much will be laughed at, scoffed at and disregarded as dinosuars and business as usual will progress.

Don’t forget also that we have been barking up the demographics tree for four decades now since the invention of boom bust echo…..nothing has happened yet and money by the pot has been lost in retirement investments along the way…..apparently the wave we expected as far back as the 70’s will only occur if all the wrinklies sell off and downsize at the same time.

Don’t forget also that the global warming scare was called global cooling in the 1970’s and they were predicting an ice age…this was front page news…even portrayed on a Time Magazine front page story in 1974. When global cooling didn’t take off as a fund raising tool global waming took off as a tax tool to subsidize third world economies under the guise of sustanable development and fill the coffers of the ivory towr greens. Headline news is no place to form your long term investment decisions.

The BOC gov is nothing more than a figurehead meat puppet…like all those before him….thinking there is an independant BOC is wowee naive. There wll be no rate changes before the election cycle concludes. There is no way F can create the ‘surplus’ he is telegraphing if the government has to start paying back higher interest on the multi trillion dollar aggragate debt of.

#115 Landscaper in Vancouver on 01.08.14 at 11:47 am

The chickens come home to roost

#116 Canadian Watchdog on 01.08.14 at 12:07 pm

Where stocks go, so goes home sales. Chart

You see what happens when central banks print money and boost share prices owned by yuppies? They just end up growing a bigger set and go out and start bidding wars because their net worth is bigger then they think; all while FTBs who are trying to save are punished with negative interest rates.

Alas, stocks (extra market income for investors) and home sales/price are more correlated then ever before, thus, you won't see a decline in one without the other.

Welcome to the era of The Great Distortion.

#117 Oceanside on 01.08.14 at 12:14 pm

I do criticize the gov’t in 2004ish creating the 40 year mortgages. To this day do not understand why that was introduced in a strong economy. In my opinion 2003-2007, the Canadian economy throughout the country was firing on all 8 cylinders if you did a comparison to the present time.
______________________________________________
I wonder who the lobbyists were for the 40 year mortgages? Bankers?

#118 GsAmazon on 01.08.14 at 12:14 pm

I hear ya, Uncle Garth.

This is so embarrassing…celtic tiger, frozen beaver, whatever…just like the last time neon was the new black, the hangover of shame will probably last longer than the party itself….

Eventually, houses will be bought with money again….and certain colours will be the domain of hi-liters and pylons once more…phew.

#119 Derek R on 01.08.14 at 12:17 pm

#114 bentoverpayingtaxes on 01.08.14 at 11:39 am wrote:
There is no way F can create the ‘surplus’ he is telegraphing if the government has to start paying back higher interest on the multi trillion dollar aggregate debt.

I’d go further than that. It would actually be dangerous, both for the economy and for his re-election prospects, if he tried to run a government surplus while exports are costing more than imports are bringing in. You’ve got to be running a trade surplus before it’s safe to run a government surplus.

#120 live within your means on 01.08.14 at 12:28 pm

#50 blase on 01.07.14 at 11:40 pm
Horse manure blog poster:

Please, for the sake of your kids and other kids they will come in contact with, watch this 1 minute and 30 second video about vaccines. http://www.youtube.com/watch?v=RfdZTZQvuCo
………………

I get a flu vaccine every fall, especially as I have an immune deficiency. I rarely suffer from flu for more than a day or 2. I make sure hubby gets one too.

My younger sis (born in 1950) at 2 or 3 got polio, contacted from an uncle when we visited the prov. where I now live. Fortunately I did not. There was no approved vaccine at the time. Uncle ended up with a limp.

We lived in a small town in PQ at the time. She couldn’t walk nor crawl. Dr. said not to worry. Parents finally took her to the Montreal Children’s Hospital & she was diagnosis was polio. Remained in hospital for 3 weeks. IIRC, a nurse would hold her & encourage her to move her legs in water. A renowned Dr. at the hospital called Dad to pick her up, but said nothing else. My parents thought the worse. When Dad arrived my little sis ran into his arms. She was one of the lucky ones & so far has no signs of recurrence.

I’ve 5 siblings & many of us ended up in the hospital at one time or another. I can’t imagine how frightening it must have been for my parents.

#121 frank le skank on 01.08.14 at 12:31 pm

I believe Toronto a will be hit hard. Given that the median total income of a Toronto household is less than most other cities in Canada and its dependency on Real Estate construction, its hard to be optimistic unless your selling RE (by optimistic I mean soft landing). The American recovery may offset this a bit but I don’t believe it can save the near sighted economic polices which have led us to the slaughter. Anecdotally, most of the people I know suffer from the wealth effect caused by housing. Throw in the decline in manufacturing and all the job losses in southern Ontario and we have a recipe for disaster.

#122 not 1st on 01.08.14 at 12:35 pm

Garth, doesn’t it get you down to know that about 30% of your blog readers belong to the god, gold, guns, doomer conspiracy and anti-vacc crowd.

While the rest of serious knowledgeable people are wisely investing for their families future including their health, this crowd just keeps shooting themselves in the foot day after day after day. Sad, really.

Recall only 1% of daily readers make comments. They are usually the unbalanced ones… – Garth

#123 Ronaldo on 01.08.14 at 12:39 pm

#85 Economicpsunami – good post.

#124 Geofferson on 01.08.14 at 12:43 pm

Garth, do these correction percentages roll over year to year or are they fixed to the original date? Seems a 15% correction guess from 2011 would have to account for any growth since then.

#125 TheCatFoodLady on 01.08.14 at 12:43 pm

The post Christmas ‘hangover cures’ are in full force. It seems I’m the luckiest person in Canada – according to the phone calls, over the last 3 days, I’ve won 7 cruises.

The [email protected] has phoned a few times too. She ‘just wants to make sure I’m taking full advantage of the latest “improvements” in services offered by the bank. She must be in contact with the cruise people because they offered to replace our no cost, cash back credit card with a travel points card. What’s a little annual fee between friends? She was horrified we were ‘wasting the earning potential’ of the cash in our chequing account & offered us a nice little GIC. Right. How about an increase in the limit for our unsecured LOC? Nope. She tried a few other dead ends.

Fast forward a half hour – same number, different operator calling for our adult daughter who no longer lives here. Undeterred by that info, she asked for me by name – the investments are in my name. Why didn’t I make an appointment with a financial advisor ‘to discuss how your investments are doing; expert help might help me do better.’

Every retail outlet we’ve shopped at in the past 6 months has sent junk mail in the past two weeks; so have the local fast food joints & not so fast food joints.

No, no, no and no.

On a brighter note, I was just loaned a really neat little book. 70 house plans from 1956. I’ve only skimmed through it – I’ll be curling u with it this weekend. The book sold for $1.00 plus the 5 cent BC tax in play at the time. Remarkably, the plan designers seems to be feel families could grow a family in homes around 1000 sq. feet & those measurements, they specify, were from the OUTSIDE of the walls. Gonna be fun looking at what were considered cool & modern features back then. I suspect I’ll see few master retreats or media rooms!

#126 frank le skank on 01.08.14 at 12:53 pm

Recall only 1% of daily readers make comments. They are usually the unbalanced ones… – Garth
—————
By unbalanced do you mean one leg is longer than the other?

What else would I reference? — Garth

#127 Ronaldo on 01.08.14 at 12:54 pm

#91 Tony – re: house insurance. I presume you don’t have any large trees surrounding your house or have never had a major flood occur from within your home. One major flood could equate to 100 years worth of insurance premiums.

#128 Crash Callaway on 01.08.14 at 1:02 pm

Is there anything worse than the N1H1 virus?

Yes … the C1Bi1 virus

Symptoms: victims get house horny to the point of seeing one and buying one.

Sources of virus transmission: Elfin deities and realtors

Treatment: unfortunately no one is working on a vaccine at this time.

#129 Dale Walker on 01.08.14 at 1:18 pm

Hi All:

Its been a couple of years but I’ve returned to make a “cameo appearance”; the first perhaps since mid 2011. I found some of the comments made regarding rate increases interesting as I have heard similar comments on the Lang & O’Leary Exchange a few weeks back.

From a personal perspective, higher rates would encourage more people to become savers as opposed to borrowers and debtors. I paid my mortgage off October 2013 and honestly, there is something akin to feeling free when not having to worry about interest rate hikes and the potential carnage that those hikes can wreak on mortgages that come open for renewal.

Happy (belated) New Year all…

the phantom

#130 KommyKim on 01.08.14 at 1:23 pm

RE#80 World According To Garth on 01.08.14 at 2:39 am
#67 KommyKim on 01.08.14 at 12:31 am
RE: #3 World According To Garth on 01.07.14 at 10:14 pm
There is no global warming and there is no pandemic.
It’s funny that every winter the global warming deniers come out of hibernation.
———————————————————-
And the socialists come out in force to defend the govt poppycock.

It’s scientists.

#131 Quest on 01.08.14 at 1:35 pm

I am not an economist. But I foresee the real significant RE market correction begin when US Fed is about to raise their benchmark interest rate.

I remember I read news and article about past Asia financial stock crash and the term “Yen carry trade”. For few years until 2008, Japan kept its interest rate at 0% while other countries’ interest rate are significantly higher. Investors borrowed Japanese Yen and invest in stocks / assets in other countries for much higher return.

In 2008 when global economy has entered a recession, the interest rate in other countries dropped and narrow the difference. There is no longer the same incentive to borrow Yen and invest oversees and people start selling shares oversea and trigger stock market fall and unwinding Yen. As the Yen Rises, people will rush for the exits selling their foreign currency to repay their Yen loans.

I foresee similar happens to US and rest of the world. When US began drop its interest rate and print money (QE), we see the assets around the world going up crazy and un-affordable. A big reason was (big) investors borrowed US cheap low and chased after higher return investment in other countries like China, Hong Kong, Australia and Canada where the economy was stable and healthy.

What if US economy getting stronger? It usually reflects on its currency (US dollar trades higher) and more pressure on interest rate to go up. When the trend of US dollar getting stronger and interest rate goes up, it would be much expensive to borrow. Investors would tend to sell non-US over-priced assets to capture the profit. When everyone rush to do so, it leads to a crash.

Also, since the interest rate near to zero, the leverage ratio people borrowing is much higher. A small % increase in interest rate would lead to a large adjustment in price.

#132 bdy sktrn on 01.08.14 at 1:35 pm

#126 frank le skank on 01.08.14 at 12:53 pm
Recall only 1% of daily readers make comments. They are usually the unbalanced ones… – Garth
—————
By unbalanced do you mean one leg is longer than the other?
—————————-

i have a cousin like that. her name is Eileen.

#133 Smoking Man on 01.08.14 at 1:37 pm

#106 OttawaMike on 01.08.14 at 11:13 am

YLO was dog, said it was a dog when I bought it, and took the train to basement. Why wishful bias, the urge to prove to so many that I was right.

Energy, don’t remember.

HD was a call on fundamentals, it never drew in the second batman ear.

You forgot, the most epic call, long Samsung, Short Apple, that was huge, they day of the call apple peaked.

Today FOMC at 2

Was going to go with 10 billion taper, but markets should have gone higher with those great ADP numbers.

Not so sure now.

#134 Snakes 'n Ladders on 01.08.14 at 1:39 pm

We are mostly in agreement here that RE prices are unlikely to rise significantly, and may very well fall a little or a lot, from this point. As an investment RE in Canada is a slippery Snake, for now.

When Wayne Gretsky was asked how he was able to be such a successful hockey player, he replied, “I skate to where the puck is going to be”.

So, where is the Ladder to the next asset bubble going to be? Who has any thoughts on this?

Alwyn

#135 -=jwk=- on 01.08.14 at 2:12 pm

You are wrong Garth. Prices can go up irrationally, emotionally with no supporting economics forever. But they can only come down with sound economic principles and some sort of trigger that will never manifest. Or so the masses say…

#136 Son of Ponzi on 01.08.14 at 2:20 pm

#131-Quest.
“I’m not an Economist”.
———-
this is a good thing.

#137 Jeannie on 01.08.14 at 2:21 pm

As retirees living outside Canada, our Canadian dollar bank account is losing steam versus the U.S.Dollar.
Time to switch into U.S. dollars until we can find a better way to invest? anyone?

#138 chickenlittle on 01.08.14 at 2:26 pm

The “it (Chilliwack) is one of the warmest places in N.A.” Comment wins for the silliest comment of the night. What place number constitues “warmest”? Number 2, or number 5? So warmer than Mexico or LA?

That is silly!! Most people from an actual warm climate would consider that cold. The dampness factor is also something to consider.

Top 25, not a chance! 49th out of 100, maybe. That doesn’t even count.

#139 eddy on 01.08.14 at 2:40 pm

re: ‘normal’ mortgage rates.
Rates are erratic:

http://www.ratehub.ca/1-year-fixed-mortgage-rate-history

#140 Mick on 01.08.14 at 2:46 pm

We don’t care how many people did and didn’t buy RRSP’s. With the market at all time highs and corporate share buybacks hiding numerous dead bodies in the closet, this market is a dead man walking.

#141 Shortymac on 01.08.14 at 2:52 pm

I’m a permanent resident from the US with about 10kUSD left in student loans.

Would it make sense to take out a small Canadian loan to pay off the US loans now to avoid even the Canadian Dollar devaluation?

As of now I am set to pay off the loans in 10 months anyway. I also would like to build off credit in Canada.

#142 bentoverpayingtaxes on 01.08.14 at 2:53 pm

#67 Fortune 500…you said..”” I really feel for the young generation as delaying children and face serious debt, and poor job markets in comparison to their parents. This point is so important, yet does not get as much attention as it should. ”

You’re right of course….I have written to several ‘crack reporters’ recently pointing out the lack of focus on core issues such as you mention. I have directed their attention to the horrendous moral coruption among civic service unions in promoting retired police, teachers, civic functionairies, firemen etc etc etc in allowing members to ‘contract back’ into the positions thy have retired from. The hundreds of thousands of police , teachers etc are collecting full pensions and contracting back their positions for higher salaries than they left . Many positions are paying second subsidized pensions so that the person will recieve a second pension on top of the first…both government subsidized.

Lets take the teachers in Ont and BC for example…collecting full pensions and contracting back into the same classroom they left at $500 and $600 dollars per day plus benefits. Look at the BC Transit Sytrain Cops…retired VPD cops on full pensions earning in excess of $200,000 per year while collcting full pensions……the list of the corrupt goes on .

Heres the question….are there no young graduates at the justice insitutes hoping for their first job at entry level salaries in security and policing? Must we pay five times that amount for an old boyz club to gorge at the trough? Why must we pay outrageous salaries to wealthy pensioned ex VPD spokespersons when young graduates with commnications degrees are left in poverty and debt?

Are there no teaching college grads better educated and energetic…those more in touch with todays youth and the technolgy that will drive the new economy…? What about all the young unemployed geologists and engineers and specialist technicians who have trained in university for a decade to get a good job and now find that a piggish retired cadre of affluent civil servants already collecting lavish pensions won’t stand aside from their decades of wallowing in the public trough?

I ask the reporters to consider…” There are laws to save jobs for new immigrants and certain ethnic groups….why is there no proposed legislation to safeguard Canadian youth from the greed of unions?” Hundreds of thousands of good jobs would go to eliminate youth unemployment…and build an economy in the future….instead we have a slavish political status quo that sees the wants of a few over the needs of the majority. Want a brighter future for Canaa…then make labour laws more equitable…demand it…write your MPs and newspapers.

#119..Derek R….you’re right…what I suggested is only the tip of the ice berg….we as Canadians should be demanding better financial governence.

#143 Smoking Man on 01.08.14 at 3:04 pm

Ya I know Jan 29,

#144 Blacksheep on 01.08.14 at 3:05 pm

In the winter when sun shine is rare, take 5000 UI
(5 pills) of vitamin D3, daily. Feel a cold coming on, double it to 10,000 UI for a few days. Don’t worry,
cant overdose unless you get into something like 25,000 UI per day for months on end and even then, not dangerous. My family hasn’t had a cold or flu in four years. Big pharma makes large $ selling ‘cures’ that make you feel better, but not actually avoid the cold in the beginning.

Not a doctor, due your own research.

http://www.webmd.com/osteoporosis/features/the-truth-about-vitamin-d-can-you-get-too-much-vitamin-d

“Some recent studies suggest that healthy adults can tolerate more than 10,000 IU of vitamin D per day. John Jacob Cannell, MD, executive director of The Vitamin D Council, notes that the skin makes 10,000
IU of vitamin D after 30 minutes of full-body sun exposure. He suggests that 10,000 IU of vitamin D is not toxic.”

#145 screwed on 01.08.14 at 3:10 pm

#85 Economictsunami

[..individual balance sheets are very quickly succumbing to the unsustainable inevitability of accounting..]

How about a balance sheet that has debt of :

$17,000,000,000,000

Let’s assume the US economy is really recovering. How can it manage to recover and at the same time service and/or pay off debt of that magnitude?

The US can’t and everyone should know by now that they’re just full of hot air, just like that former stupid Vice President of theirs, namely Al Gore who is said to claim to have invented the internet but who is definitely the worst global warming scaremonger out there. All the while living in several mansions and singlehandedly creating a carbon footprint the size of Burma.

They’re all full of s..t! It’s all bull and bogus. 10 yr UST is over 3% today. The paper ponzi is going to kill us all in the long term. For what? So that a few hundred individuals can sit on 100s of billions of wealth created from debt?

Stop playing their game. Underground is where its at.

#146 Babblemaster on 01.08.14 at 3:11 pm

“As the US recovers over the next three years, interest rates will normalize and bond yields rise, just in time for all those mortgage renewals on condos and hipster semis in Yaletown and Leslieville.” – Garth

——————————————————

US in recovery? Really? I think the US economy is more like a ICU patient on life support.

Then you think wrongly. — Garth

#147 Babblemaster on 01.08.14 at 3:19 pm

“The correction will be more like 15%, but wildly uneven. Urban demand areas will be largely spared but suburban mansion pastures creamed.” – Garth

———————————————-

Hate to say it, but housing in Canada has gone up way more than 15% in the last 6 years. Those who ignored this same cautionary message in the past have been richly rewarded. Eventually, the market will correct, but it may still have legs. So, while there’s risk in buying now, no one can tell how much.

Read it again. Each market and housing type is a market in its own. Each will react (and is) to substantially changing conditions. Your generalization is that kind that often leads to misfortune. — Garth

#148 Shawn on 01.08.14 at 3:33 pm

The Value of a Canadian Dollar

Lucy J at 36 said:

It seems to me that with the devaluation of our dollar we have already lost ten percent of the value of our houses. Or is this just my misguided brain cells run amok?

*****************************************
Canadians lose 10% when our dollar falls 10% only to the extent that they plan to spend the money in the U.S.

Generally a 10% decline in the Candain dollar will add to inflation here but not by 10%, not even close, maybe 2%.

The value of a Canadian dollar in Canada is not necessarily related much to how many U.S. dollars it will buy.

When our dollal was 67 cents people said, oh how we have lost. When it rose above $1.00 few of us got richer because of that. (in fact the opposite as our U.S. stocks fell in value). But it was a Golden opportunity to buy U.S. assets.

#149 Balance on 01.08.14 at 3:42 pm

Garth,

Do you a balanced portfolio model (consisted of ETF) that you can share with us?

Thank You

No. Everybody is unique. — Garth

#150 TnT on 01.08.14 at 3:44 pm

#144 Blacksheep

Everything you ever need to know about Vitamin D and every Canadian should have their levels checked…

https://www.youtube.com/watch?v=Cq1t9WqOD-0

PS.. I know this is a financial blog but it’s winter and we can all use some sunshine :)

#151 Wanting Waiting on 01.08.14 at 3:59 pm

My assessment numbers arrived. How F’d up can this be?

Mine went up substantially eventhough the local paper reported sales down over 30% yoy and avg prices down 10% !!

Again, another example of the direct link between gov’t and real estate industry. You just can’t win.

Btw Garth, remembet the Trudeau years? (early 70’s)

Didn’t values triple and then somewhat eroded over a 25 year period? But adjusted for inflation, they never did drop significantly.They nevet really went anywhere.

#152 Rocko on 01.08.14 at 4:03 pm

Garth, I read Money Sense magazine every so often and they are always talking about indexing. I realize the couch potato strategy may not produce the yields you are after, but what are your thoughts on a balanced, low cost, broad-spectrum index portfolio tracking the Canadian, US, international and bond indexes? A yield of ~5% per year should be attainable and relatively safe, no?

I ask because indexing is relatively easy and extremely low cost for the DIY investor, particularly when using ETFs or the TD e-series funds.

Perhaps a post on this strategy vs what you are saying would be interesting.

Cheers!

#153 TnT on 01.08.14 at 4:10 pm

#134 Snakes ‘n Ladders

The future is with South America

A super corridor (rail and highway) will be placed down the center of USA right down through Mexico.

Free Trade agreements are / will be hammered out by the power house that encompass The Clintons (Bill and Hilary)…

China and Asia manufacturing in general will be replaced by South Americans.

We will have a unified dollar called the Amero

All goods will use the central corridor for logistics

Search all these topics for details….

Thank me in 20 years for being a gazillionaire…

#154 :):(Ying Yang on 01.08.14 at 4:22 pm

Smoking Man my brother just told me about this.

http://www.ibtimes.co.uk/worlds-second-bitcoin-atm-be-installed-hong-kong-taiwan-blocks-launch-1431104

He was there for the grand opening. He said a lot of who ha about nothing with old Chinese bussinessmen showing off their designer suits. It is very important to be well dressed and designer labels are impressive. Anybody who is successful would want to appear successfull. Hong Kong is Chinese and, therefore, basically Confucian in its thinking. Many years of colonial presence have undoubtedly influenced local ideas, but centuries’ old beliefs such as respect for age and seniority run very deep. Therefore, managers in Hong Kong would expect to adopt a fairly paternalistic attitude to subordinates. Instructions are given and the manager expects them to be carried out without too much debate.
He says it is time to leave as big changes are coming in HK. Oh yes he already knows about the real estate market there.

#155 :):(Ying Yang on 01.08.14 at 4:25 pm

Smoking Man, when they get the machine up and running he is going to send me a pic of the ATM with him beside it. That is if he is still there, he is leaving for Singapore soon! New bank, new bank job.

#156 Shortymac on 01.08.14 at 4:29 pm

@ 142, Bentoverpayingtaxes

The whole “contracting back” into jobs is extremely popular with Boomers, regardless of public or private sector.

Both of my in-laws are doing this, FIL is a private employee and MIL is a public employee.

MIL retired at 55, and after taking a few months off is contracted back into her old job 3 days a week while drawing pension.

FIL is due to retire at 62 and is going to “consult” part-time with his old position.

Drives me nuts, many organizations are management heavy with boomers and now are taking jobs from the my generation because they didn’t plan ahead and dine on debt.

My FIL tends to have a pretty good head on his shoulders and isn’t indebted like most other boomers. But he did sell the paid-off house to buy the MIL the lakehouse she always wanted and still has a 10-year mortgage on it!

#157 economictsunami on 01.08.14 at 4:37 pm

“A majority of [Fed officials] thought that the MARGINAL (emphasis mine) efficacy of the program was likely declining as purchases continue.”

Just as many had assumed.

Tapering is being carried out mainly because of the liquidity trap/ pushing on a string effect.

You can chase money out of USTs and MBS but where it ultimately ends up in these long-term QE programs is in useless, non productive assets. This is precisely why Japan had several start/stop QE programs.

Whether the US economy is getting stronger, there is no doubt. Unfortunately the sustainable breakout velocity needed to escape this economic quicksand has yet to be experienced. Almost every year since 2010 has been a seasonal/ cyclical replay of the last.

When you’ve been KO’d, laying on the floor unconscious, sitting up and sipping your meals through a straw could be considered an improvement…

#158 Canadian Watchdog on 01.08.14 at 4:45 pm

ZH: 95% Of Total Consumer Credit Lent In Past 12 Months Is For Student And Car Loans

Canadian Chartered Bank Loans For Private Passenger Vehicles Soars by 18.5% y/y in Q3 – Chart

What else can one say other then they've managed to fuel growth and boost GM's share price with more of what led us into the 2008 crisis: subprime lending.

I guess owning a car is given birth right too these days.

#159 Nureddunna on 01.08.14 at 5:01 pm

About vaccines. Interesting video from a spanish medical doctor/ Benedictine nun
http://www.youtube.com/watch?v=A0JqQyl09zQ&list=PLD65D94C875EBE6C4

Not, not interesting. Stop it. — Garth

#160 recharts on 01.08.14 at 5:19 pm

#111 Ralph Cramdown on 01.08.14 at 11:32 am
Time for a bit of the bear case:

I continue to believe that the post-2008 portion of Canada’s housing and credit bubble was deliberately engineered by Ottawa to bridge our economy over an export gap until the US and our other lesser trading partners recovered. It worked, at least in that sense.

Insane assumptions insane conclusions
With all due respect sir, if the unprecedented household debt level and a sinking economy is called success or bridging then you remind me of the communist propaganda.
Our idiots in charge are now admitting that it did not quite work by their models and you are telling us that they succeeded.

The rest of your tirade is just hot air. I can’t find my words to comment more on your post. No wonder why common sense doesn’t work in this country anymore

#161 World Traveller on 01.08.14 at 5:21 pm

Ooops, not a good sign for gold

http://www.cbc.ca/news/business/moody-s-drops-gold-price-assumption-to-1-100-an-ounce-1.2489253

#162 ☺recharts -Do you have sinkhole insurance on 01.08.14 at 5:29 pm

Read this :
http://www.facts.fm/holes-in-the-earth/6/

#163 Hillbilly on 01.08.14 at 5:59 pm

I think Mr. Turner’s post today illustrates some of the prime reasons for the existence of this housing bubble in Canada.

However, I believe that the average Canadian doesn’t see it as a housing bubble as they have no frame of reference with which to gauge the state / pricing of residential realty.

Canadians, like the many consumers worldwide, lack the critical thinking, math skills and discipline to be able to adjudicate for themselves the concepts of value and true affordability.

Compliant lenders, insulated from the effects of their lending irresponsibility by government backed CMHC insurance, have absolutely no problem in lending out un-repayable sums to these Canadian consumers.

The home buying consumer assumes that if the loan is made by the lender that somebody (who knows better than they about finance) must think that it is okay.

Attitudes towards debt and savings have been changed by the insanely easy access to credit (and cheap credit at that) provided by government (read CMHC executed) policies and general ignorance.

In addition, most first time buyers have only seen housing appreciate or have forgotten the serious corrections that have occurred in the past and have little or faulty knowledge of saving / investing alternatives.

In short, they have no ability nor yardstick with which to measure the sensibility of their home purchase, save and except the person issuing the loan and their similarily badly informed peers.

Add to this context;

1) their emotions (house lust);
2) their weak egos seeking status (keeping up with the Joneses);
3) their sense of spoiled entitlement ( I deserve this);
4) an inability to delay gratification ( gotta have it now); and
5) a desperate need to belong (all my friends / family are buying / have a house);

and it is not a stretch that they cannot comprehend the argument made against buying a home given current “affordability” metrics.

#164 Ralph Cramdown on 01.08.14 at 6:05 pm

#147 Babblemaster — “Hate to say it, but housing in Canada has gone up way more than 15% in the last 6 years. Those who ignored this same cautionary message in the past have been richly rewarded. Eventually, the market will correct, but it may still have legs. So, while there’s risk in buying now, no one can tell how much.”

The risk is actually the easy part to quantify. You just don’t know how to do it. Some people know how to discount a dollar.

#165 Viral Comment on 01.08.14 at 6:42 pm

#3 none of us have vaccines and we are never sick. Yeah yeah……we are ALL carriers right?

And #80something: the idea of getting a flu vaccine is bonkers unless you really have some immune system deficiency, or are exceptionally old (and medical workers).


I know it’s not a vaccine blog and I’m late to the party but in addition to HS biology we should institute a mandatory public-health course, it would probably be more useful. Even if you feel (IE based on belief, not on evidence) that you personally don’t need a flu shot, there is such a thing as ‘herd immunity’ – the more people take the vaccine, the more the population can suppress the virus. That makes the virus less available to infect people who might get really sick or even die from flu — including babies, old people, AIDS patients and others with weak or suppressed immune systems. Maybe you think you won’t get sick (you will, at some point) or maybe you think that getting the flu every year makes you stronger (it doesn’t), maybe it’s inconvenient to get a flu shot (it is), or maybe you think you’re smarter than biomedical researchers (you’re not) or maybe you’re just plain ignorant and happy to share your ignorance. Or maybe you’re afraid of needles (distract yourself). Find some way to get around it, folks, because even if you carry the virus but don’t show symptoms you may easily pass it along to someone else who will show symptoms and could really suffer. That’s not nice. All these “tough guys” who brag about not getting the shot – they just sound like inconsiderate babies. It’s staggering that people with direct patient contact are not required to get flu shots. They might as well just cough and sneeze directly into someone’s face…oh wait, people do that, too.

Let’s stop differentiating between diseases such as polio and influenza. Both range in severity depending on the strain you catch, both can be deadly depending on the strain and the patient’s vulnerability. The original Salk vaccine (killed virus) was based on 3 strains of different levels of virulence. Plenty of carriers survived, but they passed it to others who didn’t or who were paralyzed for a lifetime. One of the reasons polio was eradicated in most countries was mass vaccination that, in addition to allowing a child’s immune system to fight the virus, created a powerful “herd immunity” as well – it simply erased available hosts for the various viruses. It choked off the supply, like cutting off oxygen to a spreading fire. We could do a lot better with flu, similarly, if shots were mandated. Instead, we let people die because of paranoia and ignorance. Tsk, tsk … especially if you visit your parents in a nursing home or work in a preschool, or health care settings. Do you need to see someone you love, or someone someone else loves, die of influenza before you roll up your sleeves for 5 seconds? Society used to shame people who were this inconsiderate.

#166 bentoverpayingtaxes on 01.08.14 at 6:45 pm

#156 Shorty Mac…. Thats exactly right….its a glaring issue and should not be allowed…particularily in government jobs….retiring boomers should either take a pension or forego it until they retire….while there should be an exact time where employees must retire…..and not be allowed to contract ba into the same position…this is good policy for the country and MPs must act before we see a mass politcal movement towards something radical has to happen. Young people are being screwed and everyone knows it. You’re generation should be pounding on the doors of the politicians and the media to force change before the entire generation craters.

#167 T.O. Bubble Boy on 01.08.14 at 6:46 pm

@ #152 Rocko on 01.08.14 at 4:03 pm
Garth, I read Money Sense magazine every so often and they are always talking about indexing.
—————————–

The “Canadian Couch Potato” is one of the columnists for Moneysense, which is why you get a lot of passive/indexing content.

Garth has commented on this topic many times in the past, but I agree that a summary comparison of the 2 approaches would make good blog post.

Garth’s approach:

1) use mainly ETFs vs. individual stocks (unless you are a millionaire investor)

2) define the portfolio according to age, net worth, and other factors… including the “Rule of 90” for the max % of net worth to have in RE

3) re-balance regularly

4) apply a few specific rules around which Preferred Shares, Bonds, etc. to focus on (e.g. Preferreds from Big 5 banks)

5) Go all-in on Gold, obviously

Hey. Hold on a minute… — Garth

#168 jess on 01.08.14 at 7:38 pm

Fakethrough! GMOs and the Capitulation of Science Journalism
Wednesday, 08 January 2014 12:21
By Jonathan Latham, Independent Science News | News Analysis

GMO cassava paper retracted after data “could not be found”
http://retractionwatch.com/2012/09/14/plos-one-gmo-cassava-paper-retracted-after-data-could-not-be-found/

http://kurunziafrika.wordpress.com/2013/11/15/nigeria-catholic-medics-want-bill-gates-out-over-gmo-cassava/
…”In effect, the medics state, the much touted benefits by the Bill and Melinda Gates Foundation that justified the BioCassava Plus Project Nigeria is a scientific hoax.”

Monday, January 06, 2014
Bill Gates: Is he just a hypocrite?
http://taxjustice.blogspot.co.uk/2014/01/bill-gates-is-he-just-hypocrite.html

#169 Blacksheep on 01.08.14 at 7:54 pm

Viral Comment # 165,

“maybe you’re just plain ignorant and happy to share your ignorance.”

“Let’s stop differentiating between diseases such as polio and influenza.”

“We could do a lot better with flu, similarly, if shots were mandated.”

“Society used to shame people who were this inconsiderate.”
——————————————
Biggest load of systemic crappola I’ve read on this blog in a long time.

A significant % of nurses won’t allow these toxic mix of chemicals in their blood stream and that’s good enough for me.

#170 Agnes on 01.08.14 at 8:13 pm

Hate to say it, but housing in Canada has gone up way more than 15% in the last 6 years. Those who ignored this same cautionary message in the past have been richly rewarded. Eventually, the market will correct, but it may still have legs. So, while there’s risk in buying now, no one can tell how much.

Read it again. Each market and housing type is a market in its own. Each will react (and is) to substantially changing conditions. Your generalization is that kind that often leads to misfortune. — Garth

By this reasoning, we can deduce a SFH in cities like Toronto has very little downside risk as there are always demand.

#171 Cici on 01.08.14 at 8:17 pm

#164

Well said Ralph. Glad you’re back!

#172 EB on 01.08.14 at 8:49 pm

Since we’re due for a blog update any time now anyway, I thought I’d add one small item – Penn & Teller on Vaccines, Autism, and Risk Ratios.

https://www.youtube.com/watch?v=RfdZTZQvuCo

fair warning – nsfw language though

#173 Dual Citizen in Canada on 01.08.14 at 8:51 pm

I would like to thank all participants on this blog for making me more financially savvy since returning from the the US 3 years ago. I still have property in the US, which is still appreciating today and with the loonie tanking, all the better. Where would I be if not for this blog to steer me away from selling my property in the US and foolishly buy in Canada? My hat’s off to you, Garth! Rent, baby, rent!

P.S. Please stop the vaccination comments on here. My son is autistic and the burden of the proof lies on the vaccine manufacturers to prove vaccines do not cause autism, not us.

#174 screwed on 01.08.14 at 9:05 pm

Canadians are planning to pay down debt this year is the consensus of several surveys.

Sounds good at first but on the flipside, this also means Canadians will make no major purchases including furniture, appliances or cars unless they break down. No expensive vacations and also no real estate purchases.

That will do wonders for the economy. Only insulated jobs are public service sector and federal jobs (for now). They can pretend all is well but the private sector is going to feel pain and suffering.

F has been barking long enough and Canadians did get the message.

#175 Rexx Rock on 01.08.14 at 9:33 pm

Don’t sell your $600,000 house in Calgary and put in a 2% gic.You make way more money renting it out for monthly income.Maybe invest in reits ,etf or prefered bank shares but lose in principal.

#176 Enthalpy on 01.09.14 at 11:59 am

Just had a friend finalize a purchase yesterday….and the amount of people who were virtually high-fiving them. SMH. I just kept scrolling.

#177 Dwilly on 01.09.14 at 3:51 pm

Garth,

Would you consider writing another post about Gold and its place in a portfolio. I know you’ve touched this several times, and for the record I am not a Gold Bug (I own zero, and I do own all of the other great passive investments you advocate), but I am not entirely convinced that Gold is as much “dead money” as some suggest. Specifically I wonder if Gold can still play a small but important role in a portfolio during times of extreme crisis – recognizing that those are typically once-in-a-generation events.

http://mebfaber.com/2013/07/31/asset-allocation-strategies-2/

Mebane Faber’s analysis here shows that of all passive portfolios, the Permanent Portfolio (25% gold allocation) had by FAR the lowest drawdown (12%) versus any other (30%). Presumably this is due to the fact that gold has performed well during 2-3 times of severe crisis in the last 100 years. (Could also be that the PP also holds a 25% cash allocation, essentially dampening all ups and downs – but even factored out the difference is stark) I think you believe like I do that one’s greatest enemy is one’s self, and fear. And that for most, watching their portfolio drop only 12% during a crisis (again, admittedly a once in a lifetime one) vs. 30-40% is a substantial difference. To me, the psychological benefit/relief alone may justify it? Granted, that same analysis shows the total return of the PP to be lower than most others by a % or two, to be sure. I want high returns as much as the next guy, but I guess I question whether a loss of 1% of return is going to make or break anyone’s retirement.

So I guess my question is: Yes, gold pays no dividend, returns “nothing”. It’s surely overhyped at times. It does not grow or re-invest. It’s value is not intrinsic – only established by what people will pay for it, usually out of fear, hype, delirium, or some combination. But, throughout recorded financial history, it has always provided some measurable benefit in those rare times of extreme panic. To wit, could one not be justified in including some MODEST allocation to gold as part of a balanced portfolio? Say, 5-10%?

No. — Garth