Troubles

TROUBLES modified

If you have a day job like mine, you understand this. Most people are pooched. The proportion of household net worth in real estate has skyrocketed, along with debt loads. Every month that people save nothing they grow more unbalanced in their financial lives.

Without much in retirement savings – or investments of any kind – their only long-term salvation is continued appreciation of their houses. So far, so good – at least in most major markets. But with 70% of people already owning real estate, debt cresting and family balance sheets so lop-sided, how long can it last? If wages don’t leap higher, where will the money come from to keep housing alive? And in an economy where growth’s fled and the dollar sagged, surveys show most people worry about just staying employed.

Daily, realtors come to this pathetic blog to warn renters if they don’t buy now they risk being priced out forever. It’s an irrational, emotional, fear-infused message as effective as it is irresponsible. After all, we have enough real estate. More than enough. What we lack collectively is money. Wealth is concentrating in the hands of the 1%ers, while the rest of the herd chases a roof. You may remember a chart I posted here previously, showing the rich hold assets while the rest hold debt. Not a day goes by in my work that this is not reinforced.

The Canadian middle class, by and large, owns one asset. As a result, housing is a record hunk of the economy. If that doesn’t scare you, pay better attention. This will be a game-changer. It’s the reason I keep urging people to acquire financial assets. The gathering danger is enormous.

I was reminded of this when an Ontario chicken farmer named Glenn sent me the following chart. He accompanied it with this:

“The household bank accounts in Canada are running dry. This graph shows the average values in financials that are becoming more and more skewed in favor of the 1%ers every day.

“This means that the majority of Canadians have been in deficit for some time, and will soon exhaust all available sources of credit. That’s when a sudden and critical collapse of the bubble finances will occur. You can start holding your breath, for we do not have much longer to wait.”

Glenn’s chart shows savings expressed in terms of disposable income – and an annual decline of more than 8% a year. And remember where most people put those savings, inside RRSPs, TFSAs or the bank? That’s right, GICs or ‘high-interest’ accounts earning nothing. What a time bomb.

SAVINGS

Just to give Glenn’s concern a little more context, here are some other visuals adding to the story. For example, most families are falling behind when it comes to income. Wages and salaries as a percentage of the economy (a measure of whether people are keeping up with inflation, for example) have been on a serious decline since 2000…

WAGES modified

…and yet we’re spending more, certainly on real estate which has turned into the repository of almost all middle class wealth. This chart is a couple of years old (feel free to post an update, if you find one), but clearly shows home ownership levels ballooned, especially as interest rates fell.

OWNERSHIP modified

Put it all together, as this Business in Canada chart does, and the result is clear. A credit-fuelled bubble in which debt levels and real estate prices soar together. If Canadians had only 50% of their net worth in housing, the ultimate unravelling of this would be serious and painful. But with 85% of its net worth here, the middle class is simply reckless.

DEBT modified

None of the above precludes prices from rising this Spring, or your daughter from lusting after a condo she could rent for half the cost. It doesn’t mean an end to yuppie bidding wars or everybody you know equating real estate with wealth. Human nature won’t change until forced to by overwhelming circumstances.

Then, well, too late.

213 comments ↓

#1 TurnerNation on 02.17.14 at 6:25 pm

Going catatonic!

#2 Derek R on 02.17.14 at 6:31 pm

When I see graphs like that it makes me think,
“You’re doomed, people. And what’s worse is that you did it to yourselves”

#3 gk on 02.17.14 at 6:33 pm

Well , here in Burlington a 50 year old sidesplit that needs at least $80,000 just to make it seem nice, sold for $440,000. So that puts me out of this market ,hopefully the soft landing that the banks and govt warn us about is mere delusion. We need a hard landing!

#4 Null on 02.17.14 at 6:33 pm

You do your readers a disservice by publishing misleading graphs where the Y-axis does not cross the origin. Your message is valid and does not need this “trickery.”

To which trickery do you refer? They looked self-explanatory to me. — Garth

#5 Drill Baby Drill on 02.17.14 at 6:35 pm

“Human nature won’t change until forced to by overwhelming circumstances.”
For a pathetic blog this is certainly an insightful statement. Humans don’t generally change their risky behaviour until there is a wreck or death. There will be blood by Q4 2014 and it will be like watching a gory 3D film in slowmotion. By the time the masses actually figure out what is happening the film will have sped up to real time.

#6 tkid on 02.17.14 at 6:40 pm

You do your readers a disservice by publishing misleading graphs where the Y-axis does not cross the origin. Your message is valid and does not need this “trickery.”

Graphs with a Y-axis that do not cross origin are not trickery. The author’s comparing today’s data with data going back 20 to 60 years. The Y-axis would not cross origin in this instance; you’d need to go back to the 1400s to get the Y-axis back to 0. And going back to the 1400s would serve no point.

#7 Gareth Turner on 02.17.14 at 6:45 pm

Null: I sure hope that was a joke. Otherwise your innumeracy is as staggering as the Canadians who became the data in those plots.

#8 fluffer on 02.17.14 at 6:46 pm

homeownership rate is only updated every five years during the census. so this chart is up to date

#9 zee on 02.17.14 at 6:47 pm

Hi Garth,

All of these facts simply mean that the Govt will do everything to avoid any major correction.

If and when rates rise, the Govt will likely step in to slowly remove the mortgage changes it has brought in to slow down the market over the last couple of years to avoid any major correction.

You had mentioned some time ago that F was going to bring in some more mortgage changes. Any update on that.

The last thing the economy needs is more real estate exposure. You are wrong. — Garth

#10 Van Isle Renter on 02.17.14 at 6:50 pm

#4 Null on 02.17.14 at 6:33 pm
You do your readers a disservice by publishing misleading graphs where the Y-axis does not cross the origin. Your message is valid and does not need this “trickery.”

To which trickery do you refer? They looked self-explanatory to me. — Garth

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

Null wants the graphs to cross at the year 1 A.D. as it makes the recent data look better.

#11 espressobob on 02.17.14 at 6:57 pm

As a small business owner for over a quarter century, I have to admit as far as the foodservice industry is concerned, things don’t look so rosy!

More & more people pay with credit cards, including my clients who own their establishments. Just look at all the eateries & cafes in the GTA! What happens when consumers get tight and scrap their morning latte?

I don’t like whats in the pipeline! The CRFA show should be interesting?

http://www.crfa.ca/tradeshows/crfashow/

#12 mitzerboy on 02.17.14 at 7:03 pm

hi garth….
I hope your bones are healing well.
getting a warm wet nuzzle from your dog will be like medicine for you now.
Saskatchewan is a prime place for everything that you talk about in this weblog to happen

#13 Ari on 02.17.14 at 7:04 pm

Hello All,

Regarding the latest comments about low quality of buildings/houses.
A question for the experts, please:

How is this plan?
1. Buy a lot (not now, when affordable…).
2. Build log cabin on it.

Will maintenance on log cabin be less than cornflake particle board?
Will log cabin hold better/worse in earthquake?
Can it be done in Richmond BC or Vancouver?

Regards
Ari

#14 Siva on 02.17.14 at 7:07 pm

#11 espressobob on 02.17.14 at 6:57 pm

More & more people pay with credit cards
—————————-–————————————–

Many people use credit cards to rake up points or increase cash back. I always use credit card everywhere but I pay off my balance every month. I pay zero in interest charges.

#15 Paul on 02.17.14 at 7:16 pm

#14 Siva on 02.17.14 at 7:07 pm

#11 espressobob on 02.17.14 at 6:57 pm

More & more people pay with credit cards
—————————-–————————————–

Many people use credit cards to rake up points or increase cash back. I always use credit card everywhere but I pay off my balance every month. I pay zero in interest charges.
———————————————————-You see we are snow flakes lol The chosen few !

#16 ronh on 02.17.14 at 7:19 pm

If this is true, more pain coming. Food or the house?

http://www.zerohedge.com/news/2014-02-17/15-reasons-why-your-food-prices-are-about-start-soaring

#17 Rex on 02.17.14 at 7:20 pm

There should be no problem acquiring valuable “financial assets”. The Fed is magically creating these assets to the tune of $85 billion every month….out of thin air. Who needs real estate when you can own these babies.

#18 X on 02.17.14 at 7:25 pm

With any luck the US recovery will strengthen, and rates will rise (hopefully next year) eliminating many from our housing market, bringing rent/buy ratios a little closer, same for income/buy ratios.

Everyone can see this RE wreck happening, nobody in gov’t wants to have it on their resume that they put the final nail in the coffin. Just let it happen on its own and we can blame the economy…nobody responsible for that, just sucks to be us right?

#19 Ralph Cramdown on 02.17.14 at 7:27 pm

Leaving aside the questionable nature of deflating a series of percentages by the CPI, or a chart comparing household DTI with a house price index that ISN’T deflated by household income, it’s refreshing to see someone who can do an exponential curve fit.

It sure beats the daily fare of realtors who (claim that they?) don’t understand that, Yes Virginia, your mortgage payment WILL go up if rates are higher at renewal, unless you extend your amortization.

#20 ozy - REAL-IZE THIS on 02.17.14 at 7:28 pm

REALIZE THIS!

I do not like paying $6700 a year in mortgage interest
(3.09% for 5 y term, for 210000or so left) – year 2013 statement just came. Paid another $5800 in principal, roughly $1046 a month total

I realize that interest $$$ is lost like a rent (just that the rest would be $40000 a year for this house) – so I’d rather pay zero in interest and fuel my vacations and entertainment needs instead…yeah, I know I sound like Smoking Man, but I swear it’s from a different angle…no Tylenol advocate just 420 tolerant

so, I’ll stop at nothing, raid RRSP in a lower year, raid kids RESP, use large chunks of new income and pay mortgage in 5 years. that’s 50000 a year. I think I can do it. A condo we purchased years ago in most expensive postal code in Canada should bring in 100000 in profits as well when it’s ready to sell (amazing floor plan, don’t ask what I had to do for that). But the profit and deposit recouping will go toward a new investment, commercial industrial-condo property – in best area ever (city core) and open a business I dream of for years – no landlords

on my main residence (already 100000 capital gain since mid 2012) I will then have left to pay only property tax $400 and utilities $300 – for a family of 4 enjoying a full detached, large garden, 750m to walking distance subway, etc. SWIFT!!!

Realize, its FREEDOM that people chase Garth and enjoyment of their life…the 1% guys that lost their souls, chase investments, money and are gradually loosing their lives increasing their inner anger. Admit and repent.

I refuse to fall in the trap of worshiping the fiat currency no matter what. in a fractional reserve system with emergency rates…you do not want to keep cash. SAVING dropped because people got SMARTER. O course, caution is warranted (thanks for reminder) as the pendulum will swing in 10 years the other way and mortgage rates will be a healtly 6%

Fellow primates, realize, a well positioned / selected house gives shelter, fun, 10% appreciation a year, no capital gain tax (primary residence) – UNDERSTAND once for ever, the middle class of today does not have the disposable income to waste in RRSP, RESP, stock market – let them live freely. CHEERS to ALL!

anyone any comments…please

#21 Mr. Reality on 02.17.14 at 7:30 pm

I like where this blog is heading. The data is confirming what everyone has suspected. Now we wait for the next shoe to drop. Can anyone say asia?

Mr R

#22 not 1st on 02.17.14 at 7:30 pm

#13 Ari on 02.17.14 at 7:04 pm

—-

I am not sure about interior insulation in log cabins and how that is accomplished.

However, I have heard that building the entire building envelope with a single concrete ICF pour is comparable to stick framing. Even roof and floor panels can be added in as concrete. Imagine a fully concrete house and how that sucker would hold up to the elements and urban noise. If I was to build again, thats what I would do.

#23 ozy - THE SHOW WILL GO ON on 02.17.14 at 7:33 pm

THE SHOW WILL GO ON – Even Garth said it:

None of the above precludes prices from rising this Spring, or your daughter from lusting after a condo she could rent for half the cost. It doesn’t mean an end to yuppie bidding wars or everybody you know equating real estate with wealth. Human nature won’t change until forced to by overwhelming circumstances.

SEE YOU NEXT YEAR

#24 eddy on 02.17.14 at 7:40 pm

A buyer will never ask:
” under the brick, siding or stucco, is the sheathing wafer board or plywood?”

some don’t even know the difference

Buyers only want to pay for what they can see.

#25 raisemyrent on 02.17.14 at 7:41 pm

#13 Ari
Why not rent and save the trouble? Lots are hard to find in Van metro except in remote areas. Next to dumps and the like. Remember, the whole point of owning is that it makes sense; otherwise it might just be emotion.

Either way, back to my actual area of expertise, a single-storey log cabin would not necessarily fare better/worse in an earthquake. The code has standards that need to be met for any kind of construction, that allows for the different material properties. Cost is what varies.
As an engineer, I tend to think of wood in general as a sub-standard material, but that aside, I’d be more worried about fires than earthquakes for a SFH. You can then analyse how many (if any) combustible materials you will use in your construction (studs, sheathing, trusses, etc).
I honestly don’t see any real advantage/difference for logs over wood studs, drywall, and particle board (OSB for exterior sheathing), but I’m open to comments on that. As in, I’d be more inclined to compare them to concrete block, or cast-in-place concrete and/or steel construction.

#26 Spectacle on 02.17.14 at 7:45 pm

Thanks Garth.

Response to:
#13 Ari on 02.17.14 at 7:04 ……

……How is this plan?
1. Buy a lot (not now, when affordable…).
2. Build log cabin on it.

Will maintenance on log cabin be less than cornflake particle board?
Will log cabin hold better/worse in earthquake?
Can it be done in Richmond BC or Vancouver?
Regards Ari

Answers: Ari, Richmond bc is under water, build an ARC.
Log cabins are costly, won’t meet city appearance visual by-laws , they are huge on maintenance, but beautiful as are post and beam structures. Building quality costs plenty of dollars.

There is a time to buy, and there is a time to build; and now I must add that this is a time to rent ( not buy or build)! See Garth for details.

Example: a bc realtor just sold his 3 level live/work place on hornby street across from wall center. He Witnessed a $150,000+ Loss in 2 years since he bought it! $900k to $700k something.

Ouch anybody….?

#27 Mapleton on 02.17.14 at 7:50 pm

Glenn the Chicken farmer should be worried about his supply managed chicken industry
Talk About a bubble. $100 per unit of broiler quota. Communism and corporate welfare at its best. Chicken farmers are most insulated business you can have. What business can guarantee a profit. Only chicken farmers

#28 drydock on 02.17.14 at 7:52 pm

Have you ever noticed cats look embarrassed or guilty when photographed doing something goofy?

#29 Blacksheep on 02.17.14 at 7:56 pm

After five (six?) years at your Blog Garth, I have arrived at this conclusion:

One of these two things are absolutely required to cause significant correction (maybe crash?) in the Canadian RE market.

1) A full 2 % increase from the current, in national unemployment figures.

Or

2) A rapid, full 2% from the current, increase in mortgage lending rates.

Anything else that does not fall into the black Swan category is irrelevant and the Herd will absorb it due to the multi generational cult that is, home ownership.

The people whom control the ‘system’ do not want a correction/crash creating extreme hardship for the Cattle, they want a soft landing. Period. They can alter our reality at will, like they did in 2009 to kick start the market again.

Garth, do you see either of these events unfolding as described on the horizon, any time soon?

Neither do I. The market theoretically, should correct, but just don’t see it happening under these circumstances.

#30 };-) aka Devil's Advocate on 02.17.14 at 8:03 pm

The problem is; money has become a commodity. And yes Derek R @ #2, we are doomed. It is an unsustainable economic system that is doomed to fail, but not in our lifetimes. They will continue to Band-Aid it as long as they can so that we can continue down this consumerist path… no… treadmill actually. In the meantime, expect higher prices and greater income and wealth disparity as we work toward that eventual breakpoint that is not likely happen in our lifetimes.

It is what it is. Learn to live with it. We’re not going to change it overnight. But we can do our best to get there sooner than later.

I used to think one person couldn’t make a difference. Now I know I was wrong and I am out to prove it.

The movement has begun

http://www.thezeitgeistmovement.com/

#31 Robbie on 02.17.14 at 8:06 pm

Log homes are expensive to build (for example, substantial foundation because of the weight), don’t have the insulation value of new homes, tend to be dark and need a fair bit of maintenance. Also, they are costly to insure because even a minor fire that damages a single log could involve a lot of expense to remove all the logs above it so it could be replaced. All concrete homes have been around for a long time…saw one 20 years ago in a suburb of Surrey. Shipping container homes have come a long way…saw recent pictures of Vancouver ones and they looked nice!

#32 Shawn on 02.17.14 at 8:13 pm

Comments on Graphs and Conclusions

As usual, I feel compelled to make a few comments on the graphs and their meanings.

1. Stats Canada graph showing net savings at 30% to 35% of disposable income in 1980 to 1982.

That is simply hard to believe. Surely some people were at zero and some negative (boomers taking mortgages and borrowing), so was someone at 60% to make up for that?

1980 to 1982 was the age of very high interest rates and came after the stagflation years of high inflation and high unemployment. It beggars belief to think that the average savings rate was so high. If it was I’d suggest it was an anomaly and a desperate attempt to pay down high interest debt. Also some people saving money at high interest rates, that made sense. Perhaps we need to know more about how Stats Can got this data.

The equation / smoothed curve on the chart is cute but misleading. It appears the savings rate bottomed out 10 years ago and has improved steadily since then?

I don’t deny the overall situation that today savings rates are low. That is surely fact. But some would argue that is good for the economy although horrible for individuals who save so little.

#33 Role on 02.17.14 at 8:17 pm

Has Anyone Really Been Far Even as Decided for house to Use Even Go Want to do Look More Like?

#34 If you can’t convince them, confuse them. on 02.17.14 at 8:17 pm

I personally make a lot money. Far more than the national family average. Many of my friends do as well. We have no debt, no kids and no serious substance abuse issues. What’s crazy is none of us can afford to buy a reasonable place in Vancouver so we all rent. The banks are willing to lend us the cash but even a basic analysis shows it would be hard to carry. It’s basic common sense that this will end bad and nobody I know thinks otherwise.

#35 Shawn on 02.17.14 at 8:19 pm

MORE…

Lest I post a book I will go graph by graph.

Wages and salaries as a percentage of the economy (a measure of whether people are keeping up with inflation, for example) have been on a serious decline since 2000…

*****************************************
Sorry, but that is not a measure of whether people are keeping up with inflation. A positive GDP means GDP is higher than inflation. If wages merely keep pace with inflation they fall in relation to GDP.

It does mean wages failed to grow at inflation plus something extra for productivity growth. They needed to grow at nominal GDP (real GDP plus inflation) to keep up to GDP.

I suspect wages fall as a percent of GDP to the extent that an economy moves from a pure labor economy to a capital intensive economy.

As Garth argues, families should also own their share of companies and earn dividend and interest income.

The chart as is may not be cause for alarm.

#36 Old Man on 02.17.14 at 8:25 pm

#13 Ari – if your building a log cabin in the woodlands buy the best book ever written by readers digest with 456 pages called “Back To Basics.” Now another option is buying a pre-fabrication kit, as can be put up in a few days upon a prepared foundation. Also if your going green or off the grid know this all from A to Z, and you will be living in comfort as have done this for others who live in isolation. I have a gal who is going to Colorado as needs to disappear, and chose me as her consultant. This type of construction would never past zoning regulations in most cities, but outside into a county environment just about anything goes.

#37 alf on 02.17.14 at 8:25 pm

It seems to me that a 10 percent drop in the Canadian dollar should be inflationary. Any comments?

#38 Shawn on 02.17.14 at 8:28 pm

AND MORE YET (AND MERCIFULLY THE LAST… FOR NOW)

No argument with the home ownership chart or conclusions, so I skip to the last chart.

It has different right and left scales which are not consistent with each other. One rises 70%, the other 140%.

Debt to income is 160%. Oh shock and horror! But wait the debt servicing ratio is still as low as ever due to low interest rates.

Let’s see, if I get a mortgage at what some call a conservative level of 3 times my income, my debt to income ratio is 300%!

Clearly, at an average of only 160%, a lot of people are NOT borrowed out to the hilt. Not even close.

But granted and fully concede that a chunk of people are pooched. I don’t know if it is 10% of households or what but surely a pile would be in trouble if interest rates rise.

#39 Mike on 02.17.14 at 8:30 pm

#4 Null on 02.17.14 at 6:33 pm
You do your readers a disservice by publishing misleading graphs where the Y-axis does not cross the origin. Your message is valid and does not need this “trickery.”
———————————————————-
Just because the y-axis does not cross the origin, does not mean the graph is automatically misleading. In this case, if the graphs started from the origin, it would provide too little detail.

#40 Shane on 02.17.14 at 8:31 pm

I agree with post #34 most are all in denial?…I rent as well, when it only cost about $110-150 sqft to build a cookie cutter home, but in my neck of the woods they want 400-500sqft crazy!,,

#41 45north on 02.17.14 at 8:33 pm

espressobob As a small business owner for over a quarter century, I have to admit as far as the foodservice industry is concerned, things don’t look so rosy!

that’s what I see as someone who goes out for breakfast, lots of competition

ari How is this for a plan?
1. Buy a lot
2. Build log cabin on it.

dumb

logs are heavy, they are irregular in shape, they shrink , it’s hard to put in plumbing and electrical systems. I mean if you happen to be very skilled with a chain saw and your brother-in-law has a big tractor and is also very skilled and if you happen to have a supply of free trees, then it’s a nice project.

Story: My cousins were doing a logging project and I picked up a chain saw. One cousin looked up and said “just put the chain saw down”. I did. good advice.

#42 Peter C. on 02.17.14 at 8:35 pm

Log cabins suck for heating, 1 inch of foam board has the same R value as 5 inches of wood.

#43 Retired Boomer - WI on 02.17.14 at 8:35 pm

Dam – Ugly Charts you have there Garth. So what should the sheeple do?
Since I am not in the market for RE except maybe to rent a place or three will on holiday these next few weeks, I could care less.

I do use a credit card for 90% of my purchases, but pay the balance in full each month. Carrying cash is a PIA.

I could probably be persuaded to BUY RE when the market is in a full panic, and when the banks are looking to unload their repo’s at a discount for CASH. That would be about 63% off current 416 asking.
That’s a steep cut, I realize, but I AM cheap. Ask me in 2016 if that idea still has any merit It might not be too low.

No, not a 1%. Just balanced, liquid, and enjoying the markets, and looking down the road when the sales should be in progress. Debt has its repercussions, and few balloons deflates slowly – they go POP!!

Just ask Phoenix

#44 Shawn on 02.17.14 at 8:36 pm

OK ONE MORE

On wages as percent of GDP, I forgot that there are more workers each year.

Still, I am not sure that total. wages should be stable as a percent of GDP.

As an economy we continue to save and add to the stock of capital goods and perhaps due to this returns to capital should rise over time (as a percent of GDP)and returns to wages fall. I really don’t know.

The graph might lead us to believe something is wrong if wages as percent of GDP fall. I really don’t know.

Maybe we need to graph individual wages and GDP per capita..

#45 KommyKim on 02.17.14 at 8:39 pm

Wasn’t it you, Sir Garth, who said that a rainy day savings fund was for chumps. We should LOC for that because money is so cheap?

Exactly. That is why smart people invest savings. — Garth

#46 omg on 02.17.14 at 8:43 pm

JUST GET USED TO RENTING

I rent and have for 8 years. Not that bad. no worries about upkeep, a gardening service come once a week to look after the yard and I have averaged into the market all the equity from our last owned house that we sold in 2006 (suddenly I am firmly in the 1%!). Plus my cost of house rent is more than covered from my dividend and interest income from my ever growing portfolio.

BUT people sure have a hard time believing that we are renting long-term and not just doing so while we look for a new house. Even 8 years into renting we get questioning from relatives as to when we are going to start looking for our next home.

I WILL KEEP RENTING until the market comes back down to historic price-to-income levels – that I believe will take 5, 10 or even 15 years.

PEOPLE ALL over the world rent and somehow lead normal lives. We have been brainwashed in Canada to believe anything less than homeownership is comparable to living in a trailer park.

#47 Hillbilly on 02.17.14 at 8:45 pm

Some time ago Garth ran a chart showing the % of net worth the well-to-do and wealthy had in residential RE as compared to those of more modest means.

Bear in mind that these folks probably bought some time ago when prices reflected reasonable metrics of price to income and price to rent ratios. Their homes are now paid off or largely so and then they started to accumulate financial assets.

Now, buyers are looking at those well-to-do folks and saying that RE was the path to their security and wealth and think that they will do the same.

But their starting point of mortgage debt is a much higher multiple of their incomes and they will not pay off their mortgages in the shorter time frames that those they are trying to emulate did, (unless their disposable incomes / wages rise significantly, which is unlikely).

Key point here is buying a house WAS a way to accumulate wealth, but now it IS going to prevent their ability to grow wealth as it represents too much of a drain on income.

Unless, of course, house prices continue to appreciate at way above past trends, which at this point seems doubtful.

It used to be a good strategy, but odds are that it will no longer be.

#48 airhead princess on 02.17.14 at 8:46 pm

Obviously Canadians can not be expected to be responsible for their own well being. The answer is nationalization of all personal holdings and assets , public housing, transportation, employment and barn like structures that feed and inseminate people with mixed race sperm on an assembly line overseen by universally more intelligent and politically correct liberal bureaucrats.

Obviously I jest…..no duh. What needs to happen is to allow the free market to function without government interference…..When the market corrects…let it correct to the economic level of the product involved…at that point we will always have a healthy market…and not the balls up liberal prancing pony show of a manipulated market where nothing holds true value. We need to eliminate government manipulated interest rates….the CMHC’s of the world…and the rule of real estate boards.

#49 Paul on 02.17.14 at 8:47 pm

#38 Shawn on 02.17.14 at 8:28 pm

AND MORE YET (AND MERCIFULLY THE LAST… FOR NOW)

No argument with the home ownership chart or conclusions, so I skip to the last chart.

It has different right and left scales which are not consistent with each other. One rises 70%, the other 140%.

Debt to income is 160%. Oh shock and horror! But wait the debt servicing ratio is still as low as ever due to low interest rates.

Let’s see, if I get a mortgage at what some call a conservative level of 3 times my income, my debt to income ratio is 300%!

Clearly, at an average of only 160%, a lot of people are NOT borrowed out to the hilt. Not even close.

But granted and fully concede that a chunk of people are pooched. I don’t know if it is 10% of households or what but surely a pile would be in trouble if interest rates rise.———————————————–

The total number of sfh in Canada7,329,150 x 10%= 732,915 yes a big pile

#50 Michele on 02.17.14 at 8:47 pm

@#34 If you can’t convince them, confuse them.

Exactly! …basic analysis

My monthly rent (which includes heat, hydro, parking, backyard, walk to work, …) is less than, for a comparable sized unit in a less desirable location, monthly condo fee + heat + hydro + parking + municipal taxes + interest on a mortgage (i.e. exclude the principal payments). The only reason to buy in this case would be appreciation …and that’s not going to happen. Simple!

…but yes many are confused

#51 John Prine on 02.17.14 at 8:48 pm

31 Robbie on 02.17.14 at 8:06 pm
Log homes are expensive to build (for example, substantial foundation because of the weight), don’t have the insulation value of new homes, tend to be dark and need a fair bit of maintenance.
++++++++++++++++++++++++++++++++++
A woman we knew fell off a ladder and broke her back dusting her log home. The only structure where you have to dust the walls every month…Lot of work and usually not much light. Post and Beam much easier.

#52 Son of Ponzi on 02.17.14 at 8:48 pm

#13 Ari on 02.17.14 at 7:04 pm

—-

I am not sure about interior insulation in log cabins and how that is accomplished.

However, I have heard that building the entire building envelope with a single concrete ICF pour is comparable to stick framing. Even roof and floor panels can be added in as concrete. Imagine a fully concrete house and how that sucker would hold up to the elements and urban noise. If I was to build again, thats what I would do.
————-
In Germany, they call this a bunker.

#53 Smoking Man on 02.17.14 at 8:48 pm

Of cource it’s getting grim.

People are getting dumber and dumber. To bad you don’t have a cost of higher education chart. It gone strait up.

The script which everyone follows, School, the university debt, only to get crappy paying jobs. Pay bills, grow old and die.

Everyone does this when squized, they cut their life sytle. Wrong!!!!

Just make more loot find stuff to buy and sell. Potencial is limitless.

But damn it smokey, it’s not in the text book……..I don’t know what to do with out my hand being held.

Drink, smoke, dream and do…..it’s really easy…..

#54 Bob Rice on 02.17.14 at 8:55 pm

People are smartening up in the “new America” – interesting read…

http://business.financialpost.com/2014/02/13/why-many-u-s-renters-are-just-saying-no-to-buying-homes/

#55 ILoveCharts on 02.17.14 at 9:00 pm

If sh&* is about to hit the fan in weeks or months, isn’t cash a good and safe option? Surely your ETFs will take a hit once our economy tanks and I’d be better to buy at the bottom.

The economy will not tank. When it occurs, this financial crisis will be personal. — Garth

#56 Son of Ponzi on 02.17.14 at 9:01 pm

I refuse to read comments more than 2 – 4 line paragraphs long.
Pepal, think before you post.
Time is money.

#57 Chickenlittle on 02.17.14 at 9:21 pm

” Human nature won’t change until forced to by overwhelming circumstances.”

Yep! I’m telling you, my hubby and I have more money in the bank now than we did when he had full time work and I was making double what I make now.

Now we live on cash only. When that is gone, then it’s gone. It’s great! We eat well and have everything we need. We take out a certain amount and that’s it!

When things are good it’s amazing what you waste money on.

It’s hard to appreciate the value of money until it’s gone!

#58 ;-) smiley on 02.17.14 at 9:23 pm

I have maxed out tfsa less the 5500 for this year still not contributed.
Am i to withdraw it and put equities into it instead of cash, and what if those equities earn far more then say the 3% per annum the banks pays.
Would that be allowed ?

Also sir, if i withdraw it now can i immediately put some stocks in there or would i have to wait ?

Thanks in advance.

#59 Suede on 02.17.14 at 9:41 pm

y=mx+b

Charts: just so you know, i learned that in school

#60 Mythbuster on 02.17.14 at 9:41 pm

Joke: “A statistician drowned in a pool of ‘average’ depth of 30 inches!” This is as ludicrous as arguing that the ‘average’ is a valid basis for prognostications. You have to find and use ‘percentiles’ or at least the ‘median’, not averages. Averages deceive.

While in the big picture I agree with your thesis, Garth, and I am quite baffled just as you are by how long the rise in debt and real-estate prices continues in the face of apparently stagnant incomes, I realize also realize that we do not really have the relevant facts. So we guess – and mostly guess wrong – as you’ve been doing these past 5-10 years. (And me too!)

And finally, Glenn’s chart shows the decline in savings has bottomed this past decade. It is now ascending. Thus the more reason to doubt the timing of the anticipated correction-cum-crash.

#61 Ford Prefect on 02.17.14 at 9:42 pm

#32: Shawn, when my wife and I were self-employed we regularly saved 80% of our disposable income.

#62 Daisy Mae on 02.17.14 at 9:55 pm

None of the above precludes prices from rising this “Spring, or your daughter from lusting after a condo she could rent for half the cost. It doesn’t mean an end to yuppie bidding wars or everybody you know equating real estate with wealth. Human nature won’t change until forced to by overwhelming circumstances.

Then, well, too late.”

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

And all Canadians will suffer as a consequence.
And we’ll all learn the hard way…as usual.

#63 Dogs playing poker on 02.17.14 at 9:58 pm

Hey Felix,

I said “ante up for the big blind”, not “ants are on the big blind”.

“Mom’s going to blow a bolt.”

Stupid cat.

#64 Victor V on 02.17.14 at 9:59 pm

#46 omg

Well stated.

Our situation is somewhat similar. Our dividend income now just about covers our monthly rent (all-in). We owned for 8 years and have now been renting for 7 and couldn’t be happier with our simplified life.

Naturally our friends gently push us on the question of home ownership because they just don’t understand how we could choose to invest and rent.

We’re not in the 1% category as yet, but with every passing year we’re getting closer; not that our end-game is rank per se, but rather, even more financial freedom.

Every month that passes we hear more tales of woe from friends or family who have found themselves jobless or in over their heads with debt. We take no joy in their misery, but firmly believe that everyone needs to take personal responsibility in the outcome of their life. People only learn from their own mistakes.

#65 Daisy Mae on 02.17.14 at 10:02 pm

#2 Derek R: “When I see graphs like that it makes me think, “You’re doomed, people. And what’s worse is that you did it to yourselves”

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

Yup!

#66 not 1st on 02.17.14 at 10:04 pm

Heard of someone’s marginally employed 20 yr old kid buying a prebuild condo for $250k. I didn’t buy my first house until I was 31 and reasonably secure in my career.

This just has to be the jumping the shark year for RE.

#67 jeff on 02.17.14 at 10:04 pm

The uneducated realtors on here that don’t even have high school makes it sick with their stupidity and ignorance. The word is getting out that realtors do not even have high school. Realtor al.sinclair on hot property didn’t know what transparent was when asked what is more transparent an auction or a bidding war? He was like what’s transparent? I was ROTHLMFAO. Realtors are not worth minimum wage

#68 Realtor # 1 GTA on 02.17.14 at 10:15 pm

It’s not about debt to income but debt device ratio.

But the 70% ownership is my fav stat. Lol

#69 KommyKim on 02.17.14 at 10:17 pm

RE: #58 ;-) smiley on 02.17.14 at 9:23 pm
Also sir, if i withdraw it now can i immediately put some stocks in there or would i have to wait ?

Why not just buy equities with the free cash within your TFSA? Why try and move things in/out? It makes no sense and will only bring the wrath of the taxman.

#70 economictsunami on 02.17.14 at 10:20 pm

Real consumer inflation (including food/fuel & utilities) inflation adjusted stagnant wages sapping our discretionary spending, a credit cycle peaking; along with too much paper wealth effect hived into just one asset. Throw in changing consumer boomer demographic behaviour and voila flirtin’ with disaster.

Policies of a lower Loonie and also corporate taxes are failing economic tonics for jobs that were destined to be either off shored or teched away anyway…

FX Traders Facing Extinction as Computers Replace Humans…

http://www.bloomberg.com/news/2014-02-18/fx-traders-facing-extinction-as-computers-replace-humans.html

#71 Smoking Man on 02.17.14 at 10:25 pm

#67 jeff on 02.17.14 at 10:04 pm

The uneducated realtors on here that don’t even have high school makes it sick with their stupidity and ignorance. The word is getting out that realtors do not even have high school. Realtor al.sinclair on hot property didn’t know what transparent was when asked what is more transparent an auction or a bidding war? He was like what’s transparent? I was ROTHLMFAO. Realtors are not worth minimum wage.

………………………………

LaughingCon

of all the people in the world who I would love to have on my book quest adventure to Yuma, it would be you.

You trully are certified crazy…..I love it

Can you be at YYZ at 8 am tomorrow. All expenses paid. Just hang out , can you type?

I will pay you…….

#72 Hicksville Alberta on 02.17.14 at 10:26 pm

Speaking of “Trouble”, i was out at the annual oyster dinner in Hicksville on Saturday and of course there were a lot of farmers there.

I hadn’t kept up with the farm economy stuff as last i heard was the high grain prices the farmers were realizing. Apparently this has changed dramatically in the last six months or so as all the farmers were bemoaning the current prices. Wheat is now at $ 4, feed wheat is around $ 3, barley is around $ 2.50 to $ 3 and canola (rapeseed) is still about $ 8 and that is of course if you can sell it. Apparently there is way more supply than demand right now but in fairness there have been a couple of great crop years, but there is a real bottleneck in shipping.

I remember these were more or less the same kind of prices the farmers have been receiving for most of the past 25 years or so so i wonder how good old farmland prices are making out. There has been irrigated land trading up to $ 10,000 per acre and dry farmland trading as high as $ 3,000 per acre around here in the past couple of years and it wouldn’t be difficult to imagine that some people could get whacked if their eyes were bigger than their pockets.

Also, for the family day weekend the two bars in town made a big effort to entertain their customers. One had a Karaoke night and all of fifteen to twenty showed up. The other had live entertainment and ten or so showed up. After a couple of hours or so, both were more or less empty.

So when i visit this site and see all the real estate and investment spieling there seems to be a real dichotomy between fantasy and reality taking place.

A little advice to all out there is to be very very careful and watch what you are doing. A bird in the hand is worth way more than a bird in the bush and with all the b.s. and smoke and mirrors flying around there are way more birds in the bush and very few in the hand.

#73 Aggregator on 02.17.14 at 10:41 pm

How do Canadians spend and where is their money going?

Below is a table showing the average five year YoY percentage change of consumer expenditures along with a list of top increasing and decreasing items for those periods. (StatsCan 380-0085)

Table

List

See what you can find.

#74 Victor V on 02.17.14 at 10:41 pm

http://www.thestar.com/business/personal_finance/2014/02/16/why_deflation_is_a_central_bankers_nightmare.html

The danger is that the economy collapses into what is known as a deflationary spiral where prices keep falling. People stop buying everything but necessities because they believe they’ll pay less next week. Inventories build, output drops, layoffs accelerate, wages are cut and the economy slumps into recession or even depression.

As each dollar becomes worth more in purchasing power, the cost of carrying debt increases, putting more pressure on borrowers and governments. Meantime the value of real assets drops.

Think of it in terms of your home. Suppose it is worth $400,000 and you are carrying a $325,000 mortgage. Then deflation takes hold and the value of the house drops 25 per cent, to $300,000. Now the loan is greater than the value of the house, plus you have to pay it back in more expensive dollars. It’s a recipe for disaster. No wonder Mr. Poloz is concerned.

#75 Glenn - Hey Jeff on 02.17.14 at 10:50 pm

#67 jeff on 02.17.14 at 10:04 pm
The uneducated realtors on here that don’t even have high school makes it sick with their stupidity and ignorance. The word is getting out that realtors do not even have high school. Realtor al.sinclair on hot property didn’t know what transparent was when asked what is more transparent an auction or a bidding war? He was like what’s transparent? I was ROTHLMFAO. Realtors are not worth minimum wage

+++++
Could not agree more! an once in a lifetime opportunity! Become one and make a DIFFERENCE!

Success

#76 The Man From Nantucket on 02.17.14 at 10:52 pm

That first chart, time series of savings % of disposable income,

Do the values reflect total savings held in all accounts, or, amount saved per year?

If it’s the former, OH MY!

Nothing good can come of the average household not even having a lousy $4000 whatever in a savings account!

#77 toronto landlord on 02.17.14 at 11:00 pm

it will never end.
the bigger the city, the bigger the jerk offs who think that I will believe what ever comes out of there lying mouths.
new applicant: states $120k income. 33 yrs old. took the TTc. all dressed up. she doesn’t want to fill out application. nice rack. feminist. I bet divorced at least once-more to come. for sure, future lesbian-no normal man will want anything to do with this actor.
Bullshit written all over her face.

told her “bring it back when its done”.
she decided to leave the paper on the table.
do I have a dart board attached to my forehead?
go find some other sucker -lamprey eel.

#78 The Man From Nantucket on 02.17.14 at 11:03 pm

Cramdown, the inverse exponential is probably the ‘right’ trendline to forecast where this ends up.

That said, it does a really sucky job of modelling the bounce off zero after about 2004.

2nd order or higher polynomial would give better R-squared……but, end slope would also suggest that in 16 years, we’d be back up to 30% !

Whaddya think? we’re range-bound between zero and five until major change in global finance situation?

#79 Freedom First on 02.17.14 at 11:08 pm

Speaking of Troubles, like the Canadian RE market.

This is one of the definitions of this word right out of my dictionary: lemming- a person who unthinkingly joins an especially destructive mass movement.

Of course, Garth has been warning people of this behaviour, and all of the dangerous pitfalls and perpetrators of this Global (Canada included) mass insanity in a much more expansive, educational, eloquent and witty way.

Thank you Garth, you have helped me in many ways, and may your new bionic leg/ankle be a strong and healthy a$$kicker for the many people who not only need it, but would consider it a favour to have you use it on them, as I know you’re #1 aim is to help.

#80 Smoking Man on 02.17.14 at 11:09 pm

Ha my account is looking for me seems I’m a few years late paying my bill……

He notices now is all I’m saying. Because he’s so unless I’m going to string him along for one more.

I couldn’t fire him, pathetic lush, that he is., maybe he’ll fire me..

Freedom……

#81 Chris on 02.17.14 at 11:10 pm

In my circle, only losers rent.

#82 Republic_of_Western_Canada on 02.17.14 at 11:11 pm

#25 raisemyrent

Like any product, log houses are a good or the best solution under a specific set of conditions, but not so good under other conditions.

If you have a lot of large virgin stand timber like Douglas fir all around you, lots of time, few basic fittings, little access to manufactured building materials, and simple tastes, the log approach is great. That pretty much describes frontier conditions with simple tools, straightforward grunt maintenance and no sawmills or factories or efficient transport systems nearby. But not the sort of thing to be setting up in midtown Manhattan or on the Dubai coast.

However, detached housing of any kind in most urban areas these days is witless. The whole idea of condos is great – unfortunately lousy design and construction and bad maintenance politics give it a bad rep. As has suburban-like neighborhood planning. Doesn’t have to be that way though, Paris and Barcelona were well designed around independent city sectors with good architecture for their day.

Good condos do exist – even in Vancouver. But the extreme prices for an entity which really should be splitting building lot and envelope costs over a hundred units is absurd. ‘Wooden drum’ construction methods for multi-storey, multi-unit structures should be prohibited. Weather envelopes made for Phoenix should not be permitted in Vancouver or Winterpeg. Screaming kids and related domestic squalor should all be housed in the same building(s). And so on.

Large modern high-rise buildings have a lot going for them, and are preferable to detached housing, as long as they’re done right. Besides sharing base fixed costs like walls, ceilings, and building lot, they can price-effectively be made much stronger and weather-stable. During big storms like Katrina, authorities routinely told people to head for the nearest big public building for shelter, such as the stadium in New Orleans.

If you absolutely have to live in some particularly hostile environment, either weather-wise (a far north windy coastline) or noise-wise (right beside the 401 or the Orange Crush) or neighbors-wise (pick your fav civil war), you’d probably want fairly typical steel frame and concrete sandwich panel construction for a detached dwelling.

A simple rectangular footprint or enclosed courtyard depending on climate, and red-iron frame and factory-cast footing-to-eave concrete insulated panels delivered by truck/barge and hoisted by crane would be cool. Hollow-core cc panels for floor(s) and roof would work together best. Exterior finish cast into the exterior wythe and all conduit for electrical and plumbing cast into the inside wythe would make erection and finishing very quick. -Precast worked well in Fort Mac.

Cast-in-place ICF is not so good, because the thermal mass is inside the insulation where is does less good, and because high-water cement pretty much has to crack as it cures (vs zero-slump factory pour), and all the pissing around with forms and pouring takes a lot of manpower and leaves a lot of room for error, and you have to have a way to get the cement truck and concrete pump crane beside the building. Or build a ready-mix plant on the premises.

#83 Screwed on 02.17.14 at 11:16 pm

Best house I’ve ever bought is my log home cabin. Absolutely bar none. None of the recent built 2×6 townhouses or SFH can even come close to the comfort and the durability a log home offers. Some of the oldest structures from the 1800s in North America were log homes. The best structure would be a natural stone house but that’s really not affordable unless used as a detail. Logs and stones go well together also.

I grew up in a concrete / brick home and even that house is not as solid as a log home.

Concrete has little flexibility when the ground underneath shifts even just a bit. Cracks will appear and are costly to fix. Besides a concrete house cools off very quick in the winter. The walls don’t absorb any heat.

If maintained with a coat of paint every 5 years, the log home lasts 100 years – easy. Put a metal roof on it and it’s rock solid. The logs also breathe and don’t contain any chemicals that could make the resident sick with gassing.

Hang anything you want anywhere you want in a log home, no trouble getting it to hold on the wall. Kids running wild in the house aren’t libel to destroy the drywall. Same with pets or when moving furniture, hitting walls etc. But if you absolutely love drywall, you can have drywall in a log home as well.

Lighting is not a problem with good fixtures and light colored furniture.

Obviously it needs at least a half acre or acre lot to make sense. But why anyone would want to live on anything smaller is beyond me. I like my neighbors from a healthy distance!

#84 CrazyCanuck on 02.17.14 at 11:20 pm

@Smiley #58

You don’t need to withdraw anything. Get a self-directed trading account (E-trade or any bank). Have your current TFSA account transferred into your trading account. Pick your investments (etf’s, funds, bonds) to suit your plan and buy/sell using your trading account.

#85 DreamingIntechnicolour on 02.17.14 at 11:25 pm

Some interesting comparisons of other countries to Canada’s home ownership rate can be read here:

http://qz.com/167887/germany-has-one-of-the-worlds-lowest-homeownership-rates/

#86 Screwed on 02.17.14 at 11:30 pm

#72 Hicksville Alberta

Thanks for the post. Farmers know best. I hope your buddies didn’t leverage their farms and themselves to the gilts to buy the fanciest and newest equipment (aka toys) to try and cheat on their yield. When I see the prices of tractors, combines and attachments I really wonder how the guys are making a buck unless they’re on subsidies from the marketing board.

Who do they think they can offload their land at these prices to? Unless the farmer is at least 2nd or better yet 3rd generation, they’re not making money. Buying a farm or land now and trying to make a buck is insane. I can see how some are buying up sections to increase their farms but they better have a good market for their crops.

California is the biggest producer of fruits and vegetables for the US and they’re predicting a record low harvest, like a third of what it’s usually. It’s a big problem for farmers there.

#87 REAL Estate is real on 02.17.14 at 11:37 pm

Those doomers who fret about the instability of our financial system should also try to remember that the “bricks and mortar” component of our stock of wealth is called REAL estate for a good reason. It is REAL and tangible and it provides superior shelter to any house built of straw or stock certificates.

Alwyn

#88 Ralph Cramdown on 02.17.14 at 11:37 pm

#77 toronto landlord — “new applicant: states $120k income. 33 yrs old. took the TTc. all dressed up. she doesn’t want to fill out application. nice rack. feminist.”

“Luncheon special: Broiled hothouse tomato under generous slice of ripe cheese.”

#89 Obvious Truth on 02.17.14 at 11:41 pm

Sure, the RE industry has been in hyperdrive for a while now. But can we blame them for media sensationalism? After all ‘home sales down slightly’ doesn’t make for much of a headline. ‘Bidding Wars’ brings in the readers.

No worries. On the other side they’ll tell you that you’d better sell now before your house drops another 10%.

One sales guy is as predictable as the next. Always adapting and refining the pitch. Feeling out the client. More predictable than politicians. Host excluded.

#90 Son of Ponzi on 02.17.14 at 11:48 pm

Cramdown, the inverse exponential is probably the ‘right’ trendline to forecast where this ends up.

That said, it does a really sucky job of modelling the bounce off zero after about 2004.

2nd order or higher polynomial would give better R-squared……but, end slope would also suggest that in 16 years, we’d be back up to 30% !

Whaddya think? we’re range-bound between zero and five until major change in global finance situation?
———–_
I agree, but first we should use the binomial EQ to further project the zero boundary until mortgage payments intersect rent payments.

#91 Kris D. on 02.17.14 at 11:48 pm

Alternative 1: Cut off the spigot of foreign buyers, and let real estate implode, thereby sending the economy as well as a sizeable proportion of the voting population into distress – Which politician would think, “Let me do this on my watch, bcuz that’s sure to get me re-elected” (?)

Alternative 2: Find a way to let those foreign affluent buyers (59,000 HAM + untapped tens of thousands from 150+ other countries) continue to enter Canada, thereby sustaining real-estate demand. Nobody particularly minds this scenario (except greaterfool readers), and Govt avoids/postpones the crisis.

Which politician, in his/her right mind, would choose #1?

#92 Renter's Revenge! on 02.18.14 at 12:03 am

Clearly the high interest rates of the early 80’s were intended to slay inflation. High rates encouraged saving, which causes deflation (disinflation?). If there is still some net saving, then some disinflation must still be required. How could the net savings rate be non-zero in a balanced economy? Remember, my spending is your earnings, and vice versa. No wonder there’s no wage growth – someone’s still saving… or am I out to lunch on this?

#93 Ralph Cramdown on 02.18.14 at 12:04 am

#78 The Man From Nantucket — “Whaddya think? we’re range-bound between zero and five [percent for the Canadian personal savings rate] until major change in global finance situation?”

No, I think we’re going to have a made in Canada housing bust recession. Others think we need unemployment or higher interest rates to lead a Canadian bust, but I think running out of buyers could do it. Here’s the US bust leading unemployment and savings rates.

http://research.stlouisfed.org/fred2/graph/?g=sdp

It may be that debt forbearance is considered savings. Declare BK and “save” a bunch.

#94 Cici on 02.18.14 at 12:04 am

Good post tonight Garth. And while those charts are scary, what’s even scarier is that there is still a lot of air left in this bubble, regardless of how fast it could inflate, because most people just don’t care about what’s going on beyond their particle board walls.

Credit is there drug, and in the event of an emergency, bankruptcy is their crutch. The masses are entitled: they’ll keep ringing up the credit cash register until they die or go bankrupt, with the plan being to leave the fallout on everyone else’s shoulder.

So, if the panic button does ever go off…this country’s economy could find itself in a catastrophic mess.

#95 Catalyst on 02.18.14 at 12:05 am

You need to add another line over the same time period which shows interest rates. 18% down to 0.25%. This activity has been fully supported and encouraged by the government to reduce savings and encourage spending.

If we had real leadership we would have seen interest rate increases but you will hear propaganda that it would hurt our manufacturing base if we did that. Similar to how the dropping currency was constantly reported as a boon for our manufacturing industry. News flash, there is no manufacturing industry. Just more smoke being blown by economists. Look at their actions and not their words. The actions have been, lower interest, more programs to allow purchasing, renovation tax credits, the list goes on and on…

#96 Cici on 02.18.14 at 12:06 am

oops…falling asleep: meant “regardless of how fast it could deflate”

#97 Cici on 02.18.14 at 12:10 am

#28 drydock

Definitely – They have a lot of pride and want you to believe that only dogs are capable of goofy.

#98 Led on 02.18.14 at 12:16 am

the answer to all this is inflation. the dollar devaluing will bring in higher prices across the board. Then wages will go up. Then houses will go up and we will all yearn for the time we could buy a house for a million, just like I yearn for the time I could buy a house for 300k in Vancouver but decided that I should wait for prices to come back down to reality….

#99 mark on 02.18.14 at 12:32 am

O’Leary is starting to sound O’Turner

http://www.cbc.ca/player/News/Business/ID/2437758777/

#100 DocInWaitingRoom on 02.18.14 at 12:35 am

Probably best real estate post backed by great data for some time with a new perspective I havent seen awesome

I totally agree with yesterdays commenter sure even the banks said 10% or even 5% decrease with stagnation of market in next few years but that will be a drop in the bucket to what is coming in 5 to 15 years.

That graph is mainly a representation of old boomers at peak earnings, with years of credit growth on real estate over decades with no future growth.

Now throw up some graphs on student debt, recent grads and house hold formation / debt, number kids with costs, newly wed debt, unemployment or part timers in gen x and ys etc, and living preferences. Sure single people may enjoy a 5 bedroom home or even a couple without kids but is it a good idea? Seems most young people want to be in city and not necessarily in suburbs with kiddie parks and gardens but I am generalizing.

Sure the banks may lend to us young ones with senior backing but who is that crazy to give or even take that enslavement?

#101 DocInWaitingRoom on 02.18.14 at 12:37 am

If that is the peak earning rich middle class id love to see who are the future buyers. …

I certainly will buy only when the knife has hit the floor

#102 Notsy, a.k.a. God #3 1/4 on 02.18.14 at 1:05 am

SMan — Sound familiar?! This would certainly stir sheeples of the world into a near-life experience!

#103 chinagirl on 02.18.14 at 1:10 am

I don’t understand how housing price can still keep going up while everything is falling apart. Employment, the loonie, … Have not bought a house yet and am absolutely not getting into the market now. Either the housing price here corrects or I am moving to the US to avoid spending my life laboring for the bank. Why don’t we all.

#104 Setting the record straight on 02.18.14 at 1:16 am

Why are wages and salaries falling?
One possible contibutor is immigration.

Immigration produces relatively minor net benefits tothe evonomy. It does significantly redistribute income from labour to capital.

http://cis.org/immigration-and-the-american-worker-review-academic-literature

#105 Vamanos Pest on 02.18.14 at 1:17 am

#68 Realtor
I guess if you say so it must be true. After all, to get where you are in life you do have to pass a six week online course. Thanks for sharing that expertise with us. What do we owe you?

#106 DocInWaitingRoom on 02.18.14 at 1:35 am

For some indication what will unfold you need a lot of data

I think some indication is provided here
http://www.housepriceindex.ca/Default.aspx

Interstingly uses nice Case Shiller for Canada but even better shows it with solid data you can download as excel files too

To be included in the calculation, properties must have been sold at least twice. The two prices are used to measure the increase or decrease in property value in the period between the two transactions.

So for Vancouver tripling index since 90s I see price going down 2 /3rds

For Toronto I see prices falling 50% or half as historical index doubled

#107 VHNWI on 02.18.14 at 2:11 am

Every nation on the planet is printing fiat currency without any real backing and racing to the bottom. The great reset will happen soon and it will be a shocker when all the fiat currencies have to account to gold just like it did over and over throughout history. The devaluing currency give an illusion that homes cost more to buy now than in the past but reality is the purchasing power of the dollar buys you less today than ever before.

Money is backed by the power to tax. A great power it is. — Garth

#108 4 AM Sunrise on 02.18.14 at 2:25 am

#32 Shawn

Short answer: YES. When Trudeau opened the doors to immigrants in the mid-70’s, a lot of Cheap Immigrants came in. Okay, maybe my vantage point is skewed – I’m in a large, multicultural urban area. If you’re a Russell Peters fan, or have friends who are fans, you know what a Cheap Immigrant is.

Cheap Immigrants save like CRAZY as a result of the uncertainty they grew up with in the old country. And rolling over T-bills at 10% made it easy. Real estate was priced reasonably. Schools actually PROVIDED supplies like pencils and paper and didn’t gouge parents for field trips. If I remember correctly, when I took band class in grade 7, my instrument rental was free!

Cheap Immigrants made 30% down payments on houses in the 70’s, and paid off those houses in 10 years. Back then, one realtor remarked that the locals didn’t have down payments that big, took out 25+ year mortgages, and tended to do unnecessary things like change the drapes year to year (even back then!)

Boomers and their spending habits make better headlines than Cheap Immigrants and their savings tendencies. That’s why you don’t hear much about them. They’re certainly not the ones writing to financial advice columnists, fretting about their HELOCs.

#109 Rural Rick on 02.18.14 at 2:53 am

About log buildings they need to be protected from insects and wildlife. The exterior needs to treated regularly to keep boring insects out and the damage a pileated woodpecker can do in a few minutes has to be seen to be believed. They look nice but are a headache to maintain and repair.

#110 Vancouver Renter on 02.18.14 at 2:58 am

Garth, long time lurker here. I’m a bit disappointed you let comments from people like “toronto landlord” get through. Misogynistic / homophobic rants aren’t really constructive, yeah?

Personally, my spouse and I make good money, but no way can we afford to buy a house in Vancouver, like many yuppies in this town. Instead we save 40% of our income monthly, maxing out our RRSPs and TFSAs. Initially we invested conservatively because we thought we might move somewhere more sane (anywhere but Toronto, Calgary, Vancouver), but this might change, as are more balanced RRSPs are doing well, and we are slowly deconditioning our brains from thinking that owning real estate is a must in our lives. Renting has worked out alright: low carrying cost, no maintenance, freedom to move, a lot more disposable income, enough savings to last A LONG TIME unemployed. We don’t even have to live in a basement, and our landlords have not raised our rent in 3 years and promised another 2 years of the same. Anyone buying in Vancouver right now hasn’t done a proper cost / benefit analysis, or is already rich and wouldn’t care if their house depreciated by 50%.

Bottom line: a big house with a big mortgage won’t make me happy, but having to go bankrupt if I can’t pay my mortgage sure would make me very very unhappy.

#111 Julia on 02.18.14 at 3:12 am

Garth,
Why is it that your loyal female readers get to be subjected to sexist (not to mention homophobic) gibberish like that from
#77 toronto landlord on 02.17.14 at 11:00 pm
while if someone wrote the same kind of post about black, Chinese or Jewish people you would delete it or at very least call them on it?

I noted the words and reflected on whether to post or not. I decided that they should remain as they spoke volumes of the speaker. — Garth

#112 Razbo on 02.18.14 at 3:17 am

The chart for Home Ownership Rate as a Percentage doesn’t show a single decrease since 1971. It can be used to argue that it may be asymptotic (approach a straight line) at some percentage but will never show a decrease?

#113 Happy Renting on 02.18.14 at 4:04 am

Well, lonely if you don’t follow the crowd, but painful when the SHTF and you do. I agree with the previous long-term renters who posted. You’re made to feel very socially-poor as a renter. People can’t conceive of an alternate point of view.

#114 Nemesis on 02.18.14 at 5:15 am

Well! Charts! From ChickenFarmers?

Ok. But perhaps we’d better have a SoundTrack to go with those.

Regardless, what would Hop say?… GotIt:

http://youtu.be/BU4NRYV92Qk

[NoteToHicksville: Thank you. This is for you and all the HicksterVilleOysterDiners: http://youtu.be/BnNfFxK1i18 . NoteToGT: I was once a prisoner on a ChickenFarm and it wasn’t pleasant. At all. I did manage to escape, though. A word of advice… The Fields of Dreams are vastly superior to the fetid barns… especially when you’ve got a new Massey: http://youtu.be/tb63PdPweDc ]

#115 Buy? Curious? on 02.18.14 at 5:28 am

Garth, no need to go all nerd on us with charts, pie graphs and fancy numbers. One has only got to walk around Toronto, Canada’s biggest city, to see its collective stupidity. All the milfs I’ve spoke to always bring up the cost of living. Their husbands/boyfriends talk about the rising values of their homes because a Starbucks is opening down the street and their kids tug on my cape begging me to take them with me. They are all so screwed it’s funny. Not because they’re are just stupid but because they ignore your warnings and advice. And you’re giving good advice for free! Anyone who is over 30 should move down to Windsor and leave Toronto to 20 somethings with copies of Atlas Shrugged.

You know what’s sad too? My main man, Garth Turner, is being demonised. And for what? Trying to help people? Canada has no heros. It’s insecure. It’s where talent goes to die. The closest thing to patriotism is drinking that gawddamn Tim Horton’s crap. On CTV News, they were gushing how there’s not one but TWO Tim Hortons stores in Bancroft! Canada, True North, Strong and Free? More like Cold, stupid and disllusional.

Canada, you’re so facked!

http://www.youtube.com/watch?v=JjZu7LK2NiM

#116 live within your means on 02.18.14 at 5:41 am

#52 Son of Ponzi on 02.17.14 at 8:48 pm

In Germany, they call this a bunker.
………………………

LOL – The other day I watched the History Channel about Hitler’s defence of Berlin & all the bunkers he had built around Berlin – not just the one he died in.

Many European homes are made of concrete or concrete (?) blocks. Most of my PIL’s interior walls are cement I think – house built 50+ yrs ago. Not very easy to renovate on the interior. He did some renovations several years ago upstairs where we sleep & used wood from Canada, but not the crap we mostly find here. They are now in a maison de repos & 3 sons will have to sell it. Sons already own it legally once parents don’t return to live in the house. Anyone who buys it will have to do major renovations. On the main level they have 3 good sized bedrooms, a huge dining room, but no living room. MIL did not want one. She won’t sit on a living room chair or sofa anywhere. To be diplomatic, she is now called ‘special’ by family members. I have another word for her.

#117 live within your means on 02.18.14 at 5:52 am

#2 Derek R: “When I see graphs like that it makes me think, “You’re doomed, people. And what’s worse is that you did it to yourselves”
……………..

Totally agree. Sadly, I have a younger sis & a niece who fit into this category – brainwashed that RE always goes up. I have lost sympathy for them. Sad.

#118 jess on 02.18.14 at 9:00 am

…”According to information provided in court, Gounis and his firm advised Rihanna she had the money to buy a $7m (£4.1m) Southern California house in 2009, describing it as a ‘good investment’ even though the singer was having financial difficulties at the time and her expenses had more than doubled. …

https://www.accountancylive.com/rihanna-wins-%C2%A36m-settlement-against-accountants

#119 maxx on 02.18.14 at 9:03 am

“Wealth is concentrating in the hands of the 1%ers, while the rest of the herd chases a roof.”

Makes me wonder if part of that is because we live in a world in which people feel less and less secure, and having your own roof might make many feel they have some, or more control.
What so many don’t realize is that assets and mobility are an unbeatable combination for conferring a sense of security. I personally believe that keeping your options open is more important than ever.

Owning RE has become similar to SM’s tax-farm analogy. You are tagged, quantified and will pay the demanded nut. You have NO control over tax hikes, condo fees, special assessments, utilities increases, and life altering events.

Some feel that money manifest increases their presence and there is some truth to it. However, much of that is smoke and mirrors on loan.

#120 jess on 02.18.14 at 9:39 am

China removes $8bn from money markets to control lending
http://www.bbc.co.uk/news/business-26236593

Washington Post
PBOC Drains Funds Using Repos for First Time in Eight Months
3 hrs ago

#121 jess on 02.18.14 at 9:42 am

pay packets …Why?

Lee Raymond retired from Exxon-Mobil in 2005 with $321 million. (That’s 22,140 minimum wage work years.)

http://truth-out.org/opinion/item/21908-corporate-cronyism-the-secret-to-overpaid-ceos

#122 Detalumis on 02.18.14 at 9:55 am

As a woman I like reading comments like #77, they are all from bitter men who were financially burned by going after the hotties so no, please don’t delete them. It’s part of “know your enemy”. I avoid sites that are more of a “mutual admiration society”.

#123 toronto landlord on 02.18.14 at 10:08 am

#109 Vancouver Renter on 02.18.14 at 2:58 am
#110 Julia on 02.18.14 at 3:12 am

I don’t have a union or an association or anyone else that I could run to for protection of MY interests if I make a bad decision or if things go bad about renting a unit. Once there in, good luck getting them out. I’ve been ripped off so many times in various ways. Live and learn. I have been in this game for over 25 years and my parents were in this game for a lot longer.
So, when a person comes into my world I have to size up that person right away- and I have a high percentage of accuracy.
Strip away the paint, lies and cosmetics, and see if the pieces fit into the puzzle. This one was a no-brainer. All show and no go.
I’m not a spring chicken and have grown a thick skin. More importantly I don’t get easily offended by words. You want to live in happy, non-judgemental, long vacations, no child labour, and people act with compassion and respect for one another, no greed or need to accumulate possessions, etc… i will remove myself from this blog if Garth asks me. No problem. There are lots of other internet forums who value my opinions and thoughts.

BY the way, I have yet to see one shining star tenant who fills out my application with rrsp, reits, etc investments. I haven’t seen it and i believe it doesn’t happen.

#124 Realtor # 1 on 02.18.14 at 10:26 am

All those stats are good reasons to believe a crash will come.

BUT

debt/service ratio is still low-
People are renewing at a lower mortgage -2009-3.60%
No recession
No desperate sellers
Low inventory

Yes, things can change, but I remember reading this blog in 2010/2010 and you guys were talking interest rates and its 2014 and still low interest rates.

I know “wait till next year”

#125 Smoking Man on 02.18.14 at 10:27 am

#110 Julia on 02.18.14 at 3:12 am

Feminists, my delema, biggest market for fiction, females are biggest consumers.

I’m a man’s man. Don’t understand females, never did never will. Had no idea chirping soft men, calling them feminized would be so taboo.

Any way, screw it my book, theam opinions. I will not deviate to satisfy 75 % of the market…

The talking monster stays….

#126 Penny Henny on 02.18.14 at 10:39 am

To-#46 omg on 02.17.14 at 8:43 pm

In one sentence you state-PEOPLE ALL over the world rent and somehow lead normal lives. We have been brainwashed in Canada to believe anything less than homeownership is comparable to living in a trailer park.

But just before that you also state-I WILL KEEP RENTING until the market comes back down to historic price-to-income levels – that I believe will take 5, 10 or even 15 years.

Don’t you see that you are one of the brainwashed people you speak of. No offence intended.

#127 };-) aka Devil's Advocate on 02.18.14 at 10:42 am

#81 Chris on 02.17.14 at 11:10 pm

In my circle, only losers rent.

Literally YES, because they haven’t learned to play the game and are in denial of the true facts. Yes it sucks. Yes it’s a failed system. But it is reality. If you don’t play “the game” you are not entitled to the winnings. And, yak all you want about the benefits of renting it is nothing more than cognitive dissonance white noise. The segment of the population which is homeowners by a huge margin is doing a better job of winning the game than those who represent renters.

#86 REAL Estate is real on 02.17.14 at 11:37 pm

Those doomers who fret about the instability of our financial system should also try to remember that the “bricks and mortar” component of our stock of wealth is called REAL estate for a good reason. It is REAL and tangible and it provides superior shelter to any house built of straw or stock certificates.

Alwyn

Right on brother };-)

#128 };-) aka Devil's Advocate on 02.18.14 at 10:48 am

Yes there is plenty of rental inventory available. That’s why the city is giving away money to help create more…

http://www.castanet.net/edition/news-story-109151-1-.htm#109151

Supply and Demand never did make particularly good bedfellows.

#129 John B. on 02.18.14 at 10:52 am

The prices (at least in Toronto) are slowly climbing up. This is no surprise for me. I believe they have to. The mentality has not changed. People believe they have to invest in housing – exactly as Garth says. Only way how to make yourself rich is to buy a big house in a good location. Do you agree?. The situation is not good and buying is dangerous. But I still believe there can be some important change in the future, so I still keep my hope that I would buy one day (probably when I’m 60).

#130 45north on 02.18.14 at 10:58 am

toronto landlord told her “bring it back when its done”.
she decided to leave the paper on the table.
do I have a dart board attached to my forehead?

pretty funny

we rented out the upstairs to a young girl with a baby, my wife and I cleaned up a stroller and gave it to them. A few days later, the boyfriends moved in. According to the Ontario Landlord Tenant Act I couldn’t kick them out. One dark night, two of Toronto’s finest stood behind me while I told the boyfriends to leave. The next day the girl and her friends moved out. Thank God for the Toronto police.

http://www.greaterfool.ca/2013/04/26/all-in-this-together/#comment-238876

#131 Joe on 02.18.14 at 11:01 am

It’s very simple: people aren’t saving because they see their wages stagnating while real estate prices are going through the roof. Also it doesn’t help that the banks/investment firms offer next to nothing in terms of investment options for folks earning normal wages ($20-50k/year). Basically “savings” has turned into something only big fat whales with millions of dollars can pull off with a nice profit. Average canadians just get ripped off by banks and brokers and see no other option than real estate.

In defence of ignorance. — Garth

#132 gladiator on 02.18.14 at 11:03 am

I’m offended that some people here get offended.
Getting offended means you feel weak or inferior in some way and need others’ help to get the offender punished.
It’s all about your attitude.

#133 ponerology on 02.18.14 at 11:04 am

I will stick with my home buying plan of buying one Princess Margaret Lottery ticket every year although I seriously doubt I would want to pay the property tax on some of those houses.

Speaking of savings rates I find it interesting that for all we mock Western Europe for their debts and government spending policies, the personal savings rates there are much higher than ours (other than the UK).. house of glass and all that.

#134 heineken on 02.18.14 at 11:05 am

Is anyone following the precious metals?
Au up 5% since Jan 1.
Sorry Garth.

#109 Vancouver Renter on 02.18.14 at 2:58 am
#110 Julia on 02.18.14 at 3:12 am

Im not offended the least bit by toronto renter.
As a matter of fact, i value his opinion.
Straight forward, telling it like he sees it and to the point.
No bullshit.
I have shut off my “sensitivity meter” along time ago!!!

i’m also older, and haven’t been indoctrinated by those gov’t spineless wimps who “ride for free” on the backs of taxpaper’s money.

Homophobic ,misogynistic , rights and diversity are words that gov’ts like to use so they can control the people.

Wrong. Respect others. It’s not all about you. — Garth

#135 not 1st on 02.18.14 at 11:15 am

#122 toronto landlord on 02.18.14 at 10:08 am

Yeah nice life and attitude you have cultivated there. If renters have made you this way, thats sad, even if justified.

Me, I will just avoid all that, stay happy and keep buying REITs.

#136 Penny Henny on 02.18.14 at 11:17 am

#101 Notsy, a.k.a. God #3 1/4 on 02.18.14 at 1:05 am
—————————————————
Your second link was for “Turner radio Network”.
Spooky.

#137 heineken on 02.18.14 at 11:21 am

Wrong. Respect others. It’s not all about you. — Garth
.
___________________________________________
What did i say wrong?
That gov’ts like to control people.

Maybe deep down inside, your really upset because gold and silver are up!

#138 4 AM Sunrise on 02.18.14 at 11:30 am

#122 toronto landlord

I’m female, and I don’t take offense with your post. You were just blowing off steam with some choice words. If your applicant were a douchey G-wannabe in an Ed Hardy t-shirt, wearing sunglasses indoors, I’m sure you’d be going off about him, too. Your livelihood depends on your ability to size up people. And on that note, let me spend two hours with a man and I can tell you his credit rating. Who needs Equifax when you have me?

When I applied to rent last year, the property managers raised their arms and cheered periodically throughout the interview. (They’re fun like that). I thought they were going to shout “opa!” and break dinnerware. Their reaction was unnerving. This is an above-average income part of town, so what kind of riffraff usually walks through the door that they’re so overjoyed to see me?

Later on, they told me that they have good instincts for sizing up people, and they could tell just by looking at me that I had my sh!t together. Of course, they were right, and I haven’t disappointed them. They also give me unsolicited dating advice and demonstrate great concern for my single state (they’re both married with kids and no, they don’t hit on me), but that’s another story…

I didn’t even have a regular day job at the time, so I had to submit proof of assets. I picked the account with the smallest balance – my maxed-out TFSA. I didn’t show them my non-registered account because I don’t like showing my cards when I don’t have to.

They even coached me on how to fill out the application form so that my lack of day job doesn’t raise red flags with head office!

#139 Cdn flier on 02.18.14 at 11:32 am

#133 heineken

I am on of those who “ride for free” on the backs of taxpayers. Tell me, did the 158 soldiers who died in Afghanistan ‘ride for free’? You and ‘the World According to Garth’ like to bash Gov’t employees, but forget that the majority of gov’t employees are the ones who defend Canada, keeps the streets safe, put our fires and educate your children. Instead of crying about their salaries and benefits, you should say a silent thank you, while you sleep in your warm bed in a safe and free country.

#140 Andrew on 02.18.14 at 11:39 am

In defense of Null, having a graph make a 10-percentage-point rise look like a quadrupling is one of the classic techniques outlined in the excellent book, “How To Lie With Statistics”:

http://www.amazon.ca/How-To-Lie-With-Statistics/dp/0393310728

#141 bill on 02.18.14 at 11:45 am

the amount of bleating from the realtors would indicate that you are feeling the pain and have been for some time now.
even with their mammoth propaganda machine they still feel its necessary to come here .
you have bought every paper in the land and touted real estate to all who would listen [hows that going?]
and yet Garth brings you out in droves to counter his very sensible discussion of the facts….your running scared realtors and it shows.

#142 rosie "moving forward" in the knowledge that, "this won't end well" on 02.18.14 at 11:46 am

131 gladiator

By your logic we can assume that you are weak and inferior.

#143 JL on 02.18.14 at 11:51 am

“your daughter from lusting after a condo she could rent for half the cost.”

Garth, care to share some actual concrete examples of being able to rent a property for half the cost of ownership. I’m in Calgary by the way, so an example from here would be approportate since you said “you’re daughter” and you write a blog that supposedly refers to Canada as a whole.

Let me know what you find because condo’s that cost $330,000 here rent for $1800.

Assume 10% down-payment gives you a $300,000 mortgage which is $1433 per month.

Typical condo fees about $425

Maintenance: $25 per month (if that in a condo).

Taxes: approx. $150 per month.

Insurance: negligible in a condo and not much more then renter’s insurance.

Total is about $2035. But don’t forget that about $700 per month is going to principal pay down, so actual cost is $1335 per month.

And I’ll give you opportunity cost on the $30,000 down payment of 10% AFTER TAX (pretty generous but I don’t like to fudge numbers to make my arguments better). So that’s worth $250 per month.

Looks like renting is a flat $1800 per month.

Owning is about $1600 per month.

I await you identifying the flaw in my argument. And don’t say my price to rent numbers are wrong. They are not, I own rental properties in Calgary and I manage 100’s for clients.

#144 heineken on 02.18.14 at 12:15 pm

#138 Cdn flier on 02.18.14 at 11:32 am
#133 heineken

I am on of those who “ride for free” on the backs of taxpayers. Tell me, did the 158 soldiers who died in Afghanistan ‘ride for free’? You and ‘the World According to Garth’ like to bash Gov’t employees, but forget that the majority of gov’t employees are the ones who defend Canada, keeps the streets safe, put our fires and educate your children. Instead of crying about their salaries and benefits, you should say a silent thank you, while you sleep in your warm bed in a safe and free country
_______________________________________
You forgot a few more.
Ontario Power Generation has the cheapest electricity prices for ontario consumers. the employees in this outfit are the most trained, talented individuals bar none. The “cadillac” nuke stations are the safest in the world, no matter what the japanese say.
also, prison guards are also overworked and underpaid and deserve a 2 hour nap in the evenings.
By the way, on the last teachers uprising, weren’t the teachers upset because they were losing there paid sick days?
I hope you take plenty of breaks and don’t go home showing any signs of fatigue and malnourishment from doing your gov’t job. we certainly dont want to you to break a finger nail or have a accident in these road conditions.

#145 TEMPLE on 02.18.14 at 12:17 pm

#143 JL on 02.18.14 at 11:51 am

And I’ll give you opportunity cost on the $30,000 down payment of 10% AFTER TAX (pretty generous but I don’t like to fudge numbers to make my arguments better). So that’s worth $250 per month.

Looks like renting is a flat $1800 per month.

Renting looks more expensive on the surface, but with your hypothetical $250 return on investment on the downpayment each month, renting is actually only costing $1550. Even better, as savings accrue, renting gets cheaper because the returns increase. At your hypothetical 10% return after tax, it only takes about 216000 in savings to pay rent.

In contrast, money that pays down principal doesn’t make much money. It just sits there, at the mercy of the real estate market, lack of liquidity and high transaction costs. Maybe it keeps up with inflation if you are lucky. It is true that the equity technically goes on the household balance sheet, but it isn’t productive or easily accessible.

TEMPLE

#146 Aggregator on 02.18.14 at 12:17 pm

Tower Hill unveils new incentive program for 2221 Yonge in Toronto

After revealing a host of appealing incentives at the grand opening for 2221 Yonge Condos back in October, Tower Hill Development Corporation is raising the bar yet again with another special promotion for purchasers.

Those who invest in a unit at the high-rise residential tower in Toronto can take advantage of the developer’s two-year rental leaseback program. This means buyers can earn a potential return up to 22 per cent and will be offered three per cent cashback on select suites.

That's the name of the presale game: use any gimmick or ROI figure possible to lure the next fool to sign an obligation for future delivery of a 400 sq.ft. and 8 ft. ceiling condo — then comes the comes the delivery where the purchaser gets handed a 350 sq.ft. unit with 7 ft. ceilings.

Developers may not be able to control the market price, but they sure can control what they're building. Just imagine what would happen in the investment world if a buyer purchased 10,000 shares of company XYZ (on paper) and was handed 7,500 shares. The Feds would be all over them in no time. Yet in real estate, it's legal.

—-

Working paper: Pricing of Presale Properties with Asymmetric Information

Apart from defaults in the middle of construction, inferior building quality and incorrect information are also problems of presale properties.  In China the poorly-built quality of presale properties derives not only from the use of substandard building materials but also from mismatches between the decoration and what has been promised in the presale promotions. Similar problems have also been found in other countries like Singapore, Taiwan, Canada and the U.K.  In Taiwan, developers can pre-sell uncompleted properties once they obtain the building permit. Presale property buyers will usually have to pay 5% of the house price for a deposit and sign the forward contract afterwards.  Once the construction starts, the buyers have to pay 2-3% of the house price at each construction stage so that a down- payment of at least 40% of the house price is settled before completion of the properties. On the other hand, more than half of the housing complaints in Taiwan come from presale transactions and they account for 65% of the total housing complaints filed.  The three main types of complaints include poor quality building work (30.6%), shrinkage of housing space (11.9%) and incorrect housing information (21.2%).
..

#147 Godth on 02.18.14 at 12:20 pm

Unconsciously drifting through time and space, manipulated masses of desire willing to be directed by authority.
Neuro Linguistic Programming / NLP – Derren Brown
http://www.youtube.com/watch?v=IVlqTPSpMU8

One day the question will be “what happened?” Not long now.
“Can I buy some of your soul?”
http://www.youtube.com/watch?v=dy75GtKsOAw

You’re getting sleepy…sleepy…

#148 OnlyTheBankersLaugh on 02.18.14 at 12:21 pm

Well, even though everything looks dire as it looked in 2007 but most folks now believe that interest rates will be low for 20 years or else the economy will crash. Many large puffery guys over past few years saying that they are taking away the punch bowl but no one does. All decisions are made on debt servicing at todays variable rates as realtors and banks prey on young and horny. I applaud Garth’s commitment to warn people but it is too easy to deceive and craft a story when women want a house.

What I have seen in major project engineering field over the past 20 years in terms of wage stagnation or even depreciation along with outsourcing to low cost zones very similar to manufacturing aligns with those charts. Legal, accounting and all processes continue to make their way over to those low cost zones and I expect even government services, gasp, would have to go that direction if we don’t want health care to implode. With our current state of debt servicing which directly impacts the biggest part of our consumer spending economy and with huge charges coming in health care, how will Kanada survive? Hope we win the Gold in hockey or all hell will break loose. We’re a collective donkey on the edge .

#149 Yo on 02.18.14 at 12:22 pm

I think the rent vs owning payment per month is not the right way to decide to buy or rent. Its totally two different things. Taking a mortgage is taking debt, and a long term obligation, renting is not.

But here is why things have gotten so extreme. I sold my bungalow for about $1.1M. I put most of that money in high dividend yielding stocks, with a yield of around 4%. I make about $40K in dividends. After taxes, about $30K or so. I then rented a even nicer bigger bungalow for $1950 a month, or $23,400 a year. Therefore, not only does the dividends cover all my rent, I have about $6-7K in “profits”. If you add in the fact I don’t have to pay property tax of about $7k a year, thats really about $14K in “profits”. The landlord this spring has to replace all the windows, the roof and even the basement. Probably $20-30K in repairs, and probably has already spent about $2-3K this year on repairs, and replacing appliances. Not only that I don’t have to pay for the owners insurance and get a tax shield as well by renting. That is why prices are so out of whack. Now, if that house was worth more closer to $400-500K, then the maths would not be so extreme, but because the prices are so high, and rental yields are so low – long run it is not sustainable. Also, I am debt free. You can call a mortgage what you want, it is debt. And if that house value drops below that debt level, you are in big trouble. I would not buy a house based on the fact the mortgage payment is the same or below the rent. It is two different things.

#150 Old Man on 02.18.14 at 12:24 pm

#122 Toronto landlord – I am really disappointed in your attitude about renters as in my sordid business operation had a property management division for losers. An application wasn’t worth the paper it was written on as they were all liars, so never judge a tenant by the way they dress, income declaration, or bogus investments declared.

My rental clients were unique as most were a bunch of deadbeats, and if they went in arrears on me a couple of months called my collection agent to pay them a personal visit, and after meeting Tony they not only paid up, but on time thereafter with a meeting of the minds. Most of my tenants worked in the black and could never justify earned income, or made too little to justify my higher than normal rents.

I had a power of sale with a 2 bedroom condo tower on the books, and with the sheriff took possession; cleaned it up; and rather than kick it out; placed it up for a rental with an ad. I did a showing with two young women who were dressed up fit to kill, and said we will take it on a lease, but when it came to the application this became a problem, as they could only pay in cash. I cut a deal as gave them a 6% discount for a years cash in advance.

They had no problem anymore, so took the cash and bought a VTB second mortgage at a discount for a one year term yielding 16%. They were good tenants as only worked at night; never at home; no wild parties; had the best of furniture; bought new appliances; did some renovations; and eventually bought the condo. I say I did some good property management for my clients.

#151 tkid on 02.18.14 at 12:31 pm

122 toronto landlord, gee no one is providing you with their investment information? Could it be because they want to rent the damn unit, and not go with the financial services you provide?

Oh right, you provide no financial services. Credit checks are one thing, but my net worth is none of your business.

#152 HD on 02.18.14 at 12:31 pm

@ Detalumis

I never realized that you are woman.

Keep on posting. We need more of you guys.

Shout out at Julia and Vancouver Renter as well.

Best,

HD

#153 Van Isle Renter on 02.18.14 at 12:41 pm

#143 JL on 02.18.14 at 11:51 am

I await you identifying the flaw in my argument. And don’t say my price to rent numbers are wrong. They are not, I own rental properties in Calgary and I manage 100′s for clients.

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

Firstly, $25 maintenance is a pathetic joke. Responsible condo boards will charge several times more than that and put it into a sinking fund for when something really goes wrong. All this guarantees is a huge surprise unfunded liability at sometime in the future.

Secondly, what is the risk on your capital? In a falling market you can get wiped out in a nano-second.

Thirdly, the condo is illiquid. The cost of selling it and getting out of the mortgage will wipe out most if not all of your downpayment.

Fourthly, you assume flat interest rates forever. When they climb, you’re hooped.

Fifthly, you assume 100% employment. A job loss, even temporary for someone stretched to the max is a disaster.

Sixthly, your flexibility is limited. A job transfer or new opportunity would trigger a large loss that needs to be added into the equation.

If you want to do an apples to apples comparison, you need to take all of that into account. Where I live, prices have been falling steadily for several years. A house down the street listed 3 years ago at $750K and sold for low $500’s. That is market risk.

As to Calgary, if you think it is special or bullet-proof you’re just too young to remember what happened in the 80’s and into the 90’s. Jingle-mail, bankruptcies and moving into your parents basements. It ain’t different this time.

#154 airhead princess on 02.18.14 at 12:48 pm

If sh&* is about to hit the fan in weeks or months, isn’t cash a good and safe option? Surely your ETFs will take a hit once our economy tanks and I’d be better to buy at the bottom.

The economy will not tank. When it occurs, this financial crisis will be personal. — Garth”

Indeed….you should always have a healthy lump of cash….and go to sleep relying on the fact that the market can correct on a regular basis ..but that the world is never going back to the dark ages …for long. Regardless of black swan events good companies will continue to plod along and pay dividends of some form or another until the pendulum swings back. In an ideal world the market would correct on a regular basis and remain healthy….Think of it like a human lung breathing in and out. Only when governments get involved and manipulate the market does the system get out of whack for irregular periods. But the government needs markets because these are a basic element of human psychology ( just ask the Russians and Chinese) and this movement is hardwired into the human brain.

Look over the valley, a senior broker once said to me….and indeed the outcome is always progress in some form or another…..You just have to have enough cash to get you over the government shenanigans and pitfalls of global interests.

Zombie apocalypse movie plots , doomsday prepper shows, NDP nonsense and the worlds end according to the worlds major religions are just noise to the finely tuned ear of a professional investor. Think long….just remember to pack a change of shorts ( cash) for the inevitable gut spill.

#155 Westcdn on 02.18.14 at 1:01 pm

I was at a party and gave my view that deflation/recession was a greater threat than inflation in North America. I concluded that eliminating demand debt was my best guard to protect my financial wellbeing. However, 2014 is shaping up to be a good year in the Cdn stock market and I think 2015 will be a goodies year due to called elections (will Quebecers decide they had enough of confederation – personally, I don’t mind). I think I can put debt reduction on the slow burner for now.
The thing about boomers is how much they like to travel extravagantly (at least the ones in this party). I would talk about the joys of camping and hiking. My experience has been that people are very slow to change their spending patterns until the future becomes now. Our economic ship has not yet changed course from the reefs ahead. Swimming in choppy waters is not my idea of fun.
I am surprised by the US$ weakness – I have missed something, or more likely, I am not nearly as smart as I like to think. The weakness has been good for the Cdn$ and gold but I fear my tea leaf readings and biases are misleading me. Time to look for an explanation why the US$ is weaker recently. It could be as simple as overshooting to the upside and intervention by Central Banks but I don’t think so at this moment.

What a fun guy. No wonder they invited you. — Garth

#156 airhead princess on 02.18.14 at 1:05 pm

PS…..as we’re talking about macro investing….take a look at China’s ‘Third Plenum’…..an investment plan that is far and away more sophisticated than anything in the west. I would suggest that China bears looking at as a part of the overall portfolio for the long term macro allocation. Simply put…they’re smarter and way more organized than the OBUMMER ADMINISTRATION and the EU/

http://www.forbes.com/sites/junhli/2013/11/24/highs-and-lows-from-chinas-third-plenum/

#157 HD on 02.18.14 at 1:10 pm

#137 4 AM Sunrise on 02.18.14 at 11:30 am
#122 toronto landlord

I respectfully disagree 4 AM Sunrise.

Had I show up to apply for one of toronto landlord’s units, he would have turned me down right away. His so called radar would have gone off like crazy. And it has happened with the toronto landlord and the like before.

On the surface: Tall black male, facial piercing, dreadlock, tattoos, single, 29 yrs old

In reality: Top 5% earner, work 65 hours a week on average, 4 hours of voluntary work every week, Big Brother, exercise regularly, no debts, perfect credit score, 6 figure balanced portfolio.

When I applied for my current place, the manager reminded 3 times that smoking pot wasn’t tolerated in the building. I told her 3 times that I never did any drugs in my life. She also reminded me multiple times that I couldn’t stack up the unit with 3 or 4 other ppl to live there and split the rent. I then proceeded to tell her several times that I was looking to live alone.

I provided my T4, references and they ran a credit cheque. Apparently I look fantastic on paper. Been living there for a year now……she admitted that I am by far the best tenants.

I am with Garth on this one:

Wrong. Respect others. It’s not all about you. — Garth

Best,

HD

#158 45north on 02.18.14 at 1:13 pm

Public Consultation on Prostitution

http://www.justice.gc.ca/eng/cons/curr-cours/proscons-conspros/index.html#2014_02_17

the Supreme Court of Canada is misguided. Under its judgement, a landlord would be compelled to rent to a prostitute – what would be the basis for throwing one
out? Working class people living in an apartment building will be compelled to live next to a prostitute – how could they object? This judgement will harm decent working people

– grease the skids.

#159 4 AM Sunrise on 02.18.14 at 1:15 pm

#155 Westcdn

Are you in an airline town, by any chance? Those Boomers travel extravagantly (to outsiders’ eyes) because they can drink their way up and down France and back for less than what you pay for a regular plane ticket.

#160 Victor V on 02.18.14 at 1:17 pm

http://ca.finance.yahoo.com/news/tsx-may-open-lower-soft-140258103.html

TORONTO (Reuters) – Canada’s main stock index hit its highest in nearly 3 years on Tuesday, extending gains to a tenth straight session, as global equity markets responded positively after the Bank of Japan stuck to its stimulative measures to boost the economy.

#161 Victor V on 02.18.14 at 1:20 pm

How a renter can build more wealth than a home owner

http://www.theglobeandmail.com/report-on-business/video/video-carrick-talks-money-how-a-renter-can-build-more-wealth-than-a-home-owner/article15734549/

#162 Linda Mulligan on 02.18.14 at 1:22 pm

You have to show your financials to rent these days? Seriously? I would have thought having a certified cheque for first & last month’s rental plus a damage deposit would be all one would need. Plus money in the bank no indication of being a good tenant – it could be your income comes from illegal activities if you catch my drift – so yes, the bank accounts are stuffed but no, you do not want that applicant as your tenant. Plus plenty of white collar criminals out there who could leave you in the lurch as well. Point being, anyone can present well on paper & look good in person, too.

#163 Blacksheep on 02.18.14 at 1:24 pm

VHNWI #106,

“The devaluing currency give an illusion that homes cost more to buy now than in the past but reality is the purchasing power of the dollar buys you less today than ever before.”

“Money is backed by the power to tax. A great power it is. — Garth”
——————————————-
The ‘power’ portion of Garth’s response is not based on the ability to collect tax revenue from the Cattle, as most would think.

The ‘power’ lies in the tax DEMAND created by the sovereign currency issuer which forces that, you, I and every other revenue generating Canadian, MUST acquire Can. $’s to cover our personal tax liabilities, on an annual basis, till we die.

Sovereign currency Issuers have printing presses and key boards, they don’t need your dirty money, but they do need at all costs, you to believe you need it, or faith is lost.

By the way, the creation of massive new $’s on a global scale, regardless whether lent or printed, is absolutely necessary or the system will collapse on itself.

The spice must flow.

#164 Ralph Cramdown on 02.18.14 at 1:28 pm

#143 JL — “I await you identifying the flaw in my argument. And don’t say my price to rent numbers are wrong.”

Comparing only the monthly costs in an own vs. rent calculation is only a useful starting point. Most younger people don’t live in condos for too many years, so factoring in sale costs (the big ones being realtor commissions and mortgage break fees or bridge financing) is prudent.

As well, there’s the intangibles. What if the owner gets a better job offer across town and then, instead of moving, spends 90 minutes a day commuting? What if the job is in another city? Questions which are no-brainers for renters to answer are often more complicated and expensive for owners.

And I think your maintenance estimate is low. To keep up with market appreciation, even condos need to be freshened/renovated periodically, or they’ll be “dated” come sale time.

#165 Form Man on 02.18.14 at 1:32 pm

I would like to add my thoughts to the discussion regarding different types of house construction.

The best overall type of construction for SFH is wood frame. Reinforced poured in place concrete is the most robust, but is also very expensive. Wood frame is affordable, energy efficient, and provides convenient cavities between the studs to accomodate plumbing and wiring. If one does not like the waferboard sheathing, simply substitute plywood ( it costs only slightly more in the total price of the building ).

Traditional log homes are not very energy efficient, must be built to accomodate significant settling ( 8 to 10″ per storey ), and in the case of post and beam log, not very resistance to earthquakes.

ICF is stryrofoam blocks filled with concrete. Styrofoam is flammable, and gives off poisonous gases when burned. It is expensive and provides challenges for wiring etc, as there are no cavities.

Each situation is unique, and people should research which type of construction best suits their needs.

#166 Mike in Surrey on 02.18.14 at 1:39 pm

#143 JL on 02.18.14 at 11:51 am
Calgary has a median family income of about $100,000, so only a family with about $72,000 income per year would rent that $330,000 condo. So why would renter paying $1800 a month rent for a long time as buying is cheaper. The cost to find a new renter is about halve month rent every year. I would agree if you or renter live in the Condo for 7 or more years.

#167 Grantmi on 02.18.14 at 1:45 pm

Love this…

Budget Tweaks to Canada’s Housing Market Hardly Surprising
End of Immigrant Investor Program could tone down Vancouver housing market

In the budget, it was noted that “the government continues to implement measures to increase market discipline in residential lending and reduce taxpayer exposure to the housing sector.” http://bit.ly/1oNpP2O

Yea THINK!!!!!

#168 Glenn Black on 02.18.14 at 1:55 pm

Thanks for the positive and other comments on the Canadian Household Savings as a % of Disposable Income, inflation adjusted.

Income is a highly skewed distribution, so median data is better than averages for this analysis, but StatsCan didn’t have median data available, just averages.

A 2nd order polynomial had a slightly higher correlation coefficient than the exponential curve fit I used, but the polynomial predicted a dead cat bounce back up to a false recovery, so the asymptotic exponential was more likely, so that is what I used.

The StatsCan data that I started with were Canada-wide averages, expressed in $. It is customary to adjust these $ averages with CPI inflation.

Household savings are expressed as a % of Disposable Income as this indicates the average safety maintained by Canadians (ie. # of months of income held as savings).

It would be more correct to average the individual household savings ratios, rather than taking the ratio of the Canada-wide average income and savings, but again, that preferred data wasn’t available from StatsCan.

If these were median data, half the population would be above the curve, the other half below.

Due to the skewed distribution of income, the majority of Canadians are below the trend line shown, while all the 1%’ers and a few other Canadian are above the line. That means that the majority of Canadians are close to no savings, or negative savings (ie. using credit). On this basis, the Canadian reality for most people is worse than what this graph indicates.

#169 Ray Skunk on 02.18.14 at 2:03 pm

Financial reasons aside…

http://news.nationalpost.com/2014/02/17/neighbourly-dispute-ends-with-400000-bill-after-hunter-dumped-bloody-coyote-carcass-on-couples-truck/

Another benefit of renting is that if you don’t like your neighbours, or as in this case if they’re borderline certifiable, you can move.

I’ve never quite understood the type that like to get into six figures of legal debt for a strip of land a few inches wide either.

#170 Blacksheep on 02.18.14 at 2:11 pm

Cdn flier # 138,

“Tell me, did the 158 soldiers who died in Afghanistan ‘ride for free’?”
————————————————
Of course not, they paid the ultimate price, following orders as trained, but since you brought it up.

The real questions that should be asked are:

When exactly did Afghanistan attack Canada? (please don’t say 9/11)

What the hell are they (Can. Mil.) doing there to begin with?

Why do we allow the sacrifice of young lives, to secure corporate resources?

I have a senior friend that lost one, of his only two sons in Afghanistan. His second son, being so distraught at his brothers death, disappeared years ago now and is assumed dead.

This kind gentleman is now lost with out his children.

You probably know of whom I speak. The problem is we simply place to little value, in the average soldiers life.

This has to change.

#171 Calgary Rip Off on 02.18.14 at 2:22 pm

“Daily, realtors come to this pathetic blog to warn renters if they don’t buy now they risk being priced out forever. It’s an irrational, emotional, fear-infused message as effective as it is irresponsible. After all, we have enough real estate.”

This statement is too global to pertain to all regions of Canada. It just doesnt apply to Calgary. Calgary has tons of useless farmland just waving in the wind that cannot be built on, so no, there is a limited supply of real estate. The federal government owns that lame excuse for a park called North Hill that is a waste of space.

There’s nothing emotional about noting facts and trends. Facts: Real estate(all of it including rentals)is overpriced crap in Calgary. If you choose to live here unless you were one of the privileged clueless that bought before 2005(and hence dont have a clue of the reality of what mortgages and rent now costs in Calgary) and you wait, you may get screwed. I got a mortgage for $410K in 2011. Now a couple years later the city says my house “value” is now $465K. What a joke. I havent done anything to the place and now it is worth more? Right…..real estate…..Guess what? I could have kept renting and feared the landlord jacking the rent up come each year renewal term. No rent controls! Of course for those that want to be able to move quickly this may work, but it doesnt and didnt for me.

No, there isnt enough “real estate” in Calgary. If a person chooses to live here they must cope with the nature of the market. You must be very very patient and then be prepared to strike like a viper if a house arises(either rental or mortgage) before others do. And why do people choose to live here? Good opportunities for work and to raise a family.

One thing to remember is that in terms of everything there are always people worse off or better than yourself. Always. Justification is all due to self talk. Last time I checked the things that count are still intact: Edible food. Clear clean drinking water. Lack of warfare and gunfire. Reasonable health. Finances are really irrelevant nonsense if you lack those key things.

#172 Holy Crap Wheres The Tylenol on 02.18.14 at 2:22 pm

#124 Smoking Man on 02.18.14 at 10:27 am
#110 Julia on 02.18.14 at 3:12 am
Feminists, my delema, biggest market for fiction, females are biggest consumers.
I’m a man’s man. Don’t understand females, never did never will. Had no idea chirping soft men, calling them feminized would be so taboo.
Any way, screw it my book, theam opinions. I will not deviate to satisfy 75 % of the market…
The talking monster stays….

……………………………………………………………………….

I thought you where on the 3:10 to Yuma this morning, or should I say 8:00 AM at YYZ? Why are you targeting women in your book? Hell there’s nothing saying that you have to write to a universal audience. Playboy certainly doesn’t target women, although I’m sure there’s a certain type of women that likes reading the articles, wink, wink, nudge, nudge.
Good luck with the monster writing, I hear there is good money in Horror movies these days. Not like us old guys from the sixties. Creature from the Black Lagoon……………Psssssssssssssstttttt

http://www.traileraddict.com/310-to-yuma-1957/trailer

#173 John Locke on 02.18.14 at 2:36 pm

re: #46 omg

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

I concur with you: renting has one major advantage in that it frees up your capital and enables you to allocate it to income-producing assets, which is of course one of Mr. Turner’s major themes, especially given the scary data contained in the charts in today’s blog post.

A few thoughts in support of this theme:

1. I rent, and have always done so for the past 30 years, because to do so otherwise ties up productive capital.

2. While I’ll admit that the pre-tax gains in the Vancouver housing market have been quite juicy since 2001, they’re not as great after annual property taxes and repairs are factored in, plus the foregone annual return on those expenses. Furthermore, in the long run, excess rates of return usually revert to the mean, and as such housing is due to flat-line or decline for that reason alone, not to mention what rising interest rates will do to Canadian housing values as well as demographics and F’s moves. Lastly, housing cannot outperform the stock market returns over the long run (made up of actual businesses earning medium to high rates of return on capital), or everyone would just own houses and nobody would put a nickel into running a business. A house is not a business – it’s just a place to live, and occasional financial distortions aside, it’s just a store of wealth, not a creator of wealth, and should be, and usually is, valued accordingly. Check Germany out in that regard: 52% of them rent – http://en.wikipedia.org/wiki/Housing_in_Europe

3. A person I know, who has in excess of $50M in net assets, also rents a modest apartment, and has done so all his life.

4. All of my assets are fully invested in either the stock market or private equity. So far this year on one Canadian REIT investment alone I am up 52% pre-tax, and expect that to increase to a total gain of 340% (not a typo) by year-end once a few more increasingly good quarterly financial results are announced and the REIT approaches its diluted Book Value, or near to it. If I had most of my equity tied up in a house I would not have had the financial freedom to invest in this somewhat speculative turnaround opportunity, or my other more conservative investments which throw off significant cash flow.

5. I have contributed every year to my TFSA and have thus maxed it out, even though I do not have a “job” at present in the classical sense, as I manage the family financial portfolio as well as my own. I also draw down my RRSP because it benefits me tax-wise. As Mr. Turner says, contribute money to your RRSP when you’re paying high tax rates (as I did for most of 34 years, aside from the University days), and draw it down when you’re taking an extended break, as I am now. I might get back in the saddle again in the next few months, but I’m enjoying the time off, as it’s my first work-break I’ve had since I was 18, and if I was carrying a mortgage I would not have felt the same freedom to choose as I have now.

6. Should my parents ever sell their house (currently worth $2.4M), I estimate that even if they had to rent an equivalent house at $4K per month, they would conservatively earn $52K of incremental after-tax income each year (or 2.2%) due to the following math:

a) $2.4M @ 5% yield = $120,000 income (easily achievable with a multitude of conservative, diversified, investments, all of which they are currently invested in, which have a total yield just over that level)

b) less tax of about 25% after factoring in the Dividend Tax Credit = $90,000 left over (or more, if you invest in companies that have high levels of “Return of Capital” that is non-taxable)

c) less rent of about $48,000 per year = $42,000 left over

d) add back in $10K minimum of avoided property taxes and basic maintenance = $52,000 net, which, when added to their existing income, would push them even further into the top 1% in Canada.

So, in closing, the finances and freedom associated with renting appear to outweigh the benefits of ownership, in the long run, assuming you are financially literate or have access to an unbiased and skilled adviser who is.

#174 Holy Crap Wheres The Tylenol on 02.18.14 at 2:47 pm

#170 Blacksheep on 02.18.14 at 2:11 pm
Cdn flier # 138,
“Tell me, did the 158 soldiers who died in Afghanistan ‘ride for free’?”
————————————————
Of course not, they paid the ultimate price, following orders as trained, but since you brought it up.
The real questions that should be asked are:
When exactly did Afghanistan attack Canada? (please don’t say 9/11)
What the hell are they (Can. Mil.) doing there to begin with?
Why do we allow the sacrifice of young lives, to secure corporate resources?
I have a senior friend that lost one, of his only two sons in Afghanistan. His second son, being so distraught at his brothers death, disappeared years ago now and is assumed dead.
This kind gentleman is now lost with out his children.
You probably know of whom I speak. The problem is we simply place to little value, in the average soldiers life.
This has to change.

…………………………………………………………………….

We are part of NATO Blacksheep. After world war two the discussions between the Western nations concluded on April 4, 1949, when the foreign ministers of 12 countries in North America and Western Europe gathered in Washington, D.C., to sign the North Atlantic Treaty. It was primarily a security pact, with Article 5 stating that a military attack against any of the signatories would be considered an attack against them all. When U.S. Secretary of State Dean Acheson (1893-1971) put his signature on the document, it reflected an important change in American foreign policy. For the first time since the 1700s, the U.S. had formally tied its security to that of nations in Europe–the continent that had served as the flash point for both world wars.

The original membership of the North Atlantic Treaty Organization (NATO) consisted of Belgium, Britain, Canada, Denmark, France, Iceland, Italy, Luxembourg, the Netherlands, Norway, Portugal and the United States. NATO formed the backbone of the West’s military bulwark against the USSR and its allies for the next 40 years.

There that is the reason we are involved! I too have military members that were involved, my brothers son when over for two tours of duty, by the way most of them volunteered for those tours. He came back thank God but with PTSD, he will never be the same but he said it was his choice to go. I have talked to many of these soldiers that have gone over, they all say they had a job to do and they did it. Please do not sully their names and heroic efforts while performing their duties by saying ” What the hell are they (Can. Mil.) doing there to begin with?” I can tell you if you can not stand beside them and support them in any way then please feel free to stand in front of them. Please do not say that to military people. I’m ex military and I can tell you after having people try to kill you in battle it takes a certain individual to stand and not run.

#175 4 AM Sunrise on 02.18.14 at 2:48 pm

#157 HD

I’m sorry to hear that. I would think that once the credit check comes through, all her doubts would be put to rest. I guess the landlady didn’t have the sense to judge you on the way you present yourself (I assume you’re well-spoken and intelligent). Men have been complaining for a long time that landlords are biased in favour of female tenants.

I forgot that I also have a history of inspiring trust in people. I guess it’s just a vibe I put out. Complete strangers ask me to watch their kids when they duck into Starbucks!

On the downside, LGBT people get uncomfortable around me at first. I’m a serious person, strict with myself, and push myself really hard…and that makes me look like a judgmental homophobe.

I think what ticked off “toronto landlord” is that his applicant had an attitude problem and didn’t even want to fill out an application. And then he extrapolated from there.

…or maybe he’s the one with the attitude problem and she felt uncomfortable giving him her personal information?

#176 liquidincalgary on 02.18.14 at 3:03 pm

@ 48
“balls up liberal prancing pony show of a manipulated market”

bwa ha ha haa!

best line ever

#177 late learner on 02.18.14 at 3:03 pm

about construction quality:
I do not know anything about construction. hell i cant fix even simple stuffs around. I live in sullivan heighs in surrey, BC, where they are building crappy, narrow, without inch of an yard townhouses in every possible empty land. I have witnessed how these building were built everyday while going for a run. I will never move my family in these townhouses as I question the quality, the materials they have used to build–mostly stapled cardboard box houses. They look nice once finished–I have gone to almost all of the open house and show homes just to check out. and know their foundation is not very strong–very little concrete poured in foundation. THese townhouses will start to fall apart in about 10 years.
The quality is such that i will not even move my dog there.
I m not sure how true is this but I remember someone saying that houses that were built between 1970–to 1990 have better foundation, are built to last at least 100 years. he also suggested not to buy anything built after 2000. not sure how true is this but looking at todays construction quality, he is probably right.

#178 HD on 02.18.14 at 3:19 pm

@ 175 4 AM Sunrise

Not to worry, life is good. Could be way worst ;)

I just think that it is a slippery slope when people use ‘gut feelings’ or physical appearance to judge the character/capabilities of an individual.

Strangers don’t offer me to look after their kids at Starbucks but they do walk up to me to ask for drugs ( I kid you not, it happens regularly).

How ‘s their ability to seize people? Not very good in my opinion.

You sound like a decent person and I suspect that we are very similar in many ways.

Please, keep on contributing to this blog. I’m not the only who enjoys your posts.

Have yourself a wonderful day and thanks for the exchange.

Best,

HD

#179 Victor V on 02.18.14 at 3:20 pm

#122 toronto landlord

BY the way, I have yet to see one shining star tenant who fills out my application with rrsp, reits, etc investments. I haven’t seen it and i believe it doesn’t happen.

You can ask for a credit report, employment letter, references, income verification — but what makes you even think that you’re legally entitled to have access to the value of a potential tenant’s investment portfolio?

#180 gladiator on 02.18.14 at 3:23 pm

@142 rosie:

Haha. Good catch! Kinda screwed myself there :)))
I’ve read this phrase on the net and found it funny (about being offended by others being offended).
But I meant what I wrote about weak and inferior.

#181 Smoking Man on 02.18.14 at 3:24 pm

#172 Holy Crap Wheres The Tylenol on 02.18.14 at 2:22 pm

flight was delayed This ship has wi fi, problem two small to make it to vegas, need to land in kansass for more gas. I diden’t know that.

Snaping a pic and putting it on blog

#182 boycott the military on 02.18.14 at 3:28 pm

Please do not sully their names and heroic efforts while performing their duties by saying ” What the hell are they (Can. Mil.) doing there to begin with?” I can tell you if you can not stand beside them and support them in any way then please feel free to stand in front of them. Please do not say that to military people. I’m ex military and I can tell you after having people try to kill you in battle it takes a certain individual to stand and not run.


There is a difference between dupes who were drafted and mercenary dupes who volunteered and think they are heroes. The first group are Veteran Dupes and the second group are Retiree Dupes

#183 anon on 02.18.14 at 3:38 pm

Blog dogs, I have an investing question about stock options.

My company got bought out by another company, and my old stock options are now options in the new (US) company. The vested options are worth $17000 pre-tax, and there is another $17000 that will vest monthly over the course of two years. My investment account net worth is ~ $57,000.

What should I do? I can either a) hold on to the options, b) exercise and sell, or b) exercise and hold on to the shares.

a) I think holding on to the options is the least optimal strategy compared to the following 2 options.

b) I could sell, make sure I set aside enough for taxes (or they will deduct it if it’s a cash exercise, I’m not sure), and use the cash to follow my modified couch potato strategy. The benefit here is that I won’t have the concentrated risk of having 17% of my investments and my daily job all involved in one company.

c) I could exercise and hold the shares, and set aside money for taxes. In my brokerage account I can hold the shares with a few stop-loss orders. This way I can catch the upside if there is one, but if it drops too much I will avoid getting slaughtered (in light of all the tax I had to pay on exercising). There’s also the added benefit in that I spread the tax burden for all the options over a few years.

Regarding where the company stock can go, I have no idea.

#184 Form Man on 02.18.14 at 3:58 pm

#177 late learner

Your friend is wrong. The national building code of Canada has tougher standards now than at any time in the past. While the use of composite wood materials is open to argument, the structural components ( concrete, wood studs, trusses etc ) have to meet more stringent standards. As I pointed out in an earlier post, one can request the builder use plywood sheathing rather than waferboard ( OSB) if that is important to you. The manner in which the materials are put together can be incorrect, but if the inspecter is competent, this will not be accepted. If the inspectors ( and builders )are not competent, that is hardly the fault of the building code

#185 Longterm on 02.18.14 at 3:58 pm

#171 Calgary Rip Off on 02.18.14 at 2:22 pm

You are a bitter sounding person.

It’s Nose Hill Park by the way and it isn’t a lame excuse for a park, it’s a natural prairie reserve [there is precious little praire left] and has about 30 archaeological sites on it. It took a monster citizen effort for that park not to be developed by Carma into more of Edgemont back in the 1980s.

As for all that useless farmland that food grows on, yeah cement it over mate. Who needs bread. And while you are at it increase the sprawl so commutes get even longer. This means more roads to build, more pipes to lay and more gas to burn. It’s all economic activity and oil and gas. More please.

Calgary’s problem isn’t not having enough real estate, it’s not having enough density. 1960s and onwards planning norms that still prevail and the Shane Homes lobby have saddled Calgary with a bloated footprint that is ever more expensive to build and service and virtually impossible to retrofit. Oh, and its other problem is the prevailing narrow-minded narrative of how the world works.

I grew up there and would never move back.

#186 BCD (D for Doomer) on 02.18.14 at 4:00 pm

#97 Led on 02.18.14 at 12:16 am
the answer to all this is inflation. the dollar devaluing will bring in higher prices across the board. Then wages will go up. Then houses will go up and we will all yearn for the time we could buy a house for a million, just like I yearn for the time I could buy a house for 300k in Vancouver but decided that I should wait for prices to come back down to reality….
__________________________________________
Read between the lines. . .half the people on this board that spout about the “glory” of renting are too ashamed to admit that they missed the last Mustang out of Dodge city. . .they had a chance to buy and they squandered it listening to doom and gloom blogs (errrrr. . .not unlike this one). I also missed out on my chance to triple (yes triple) my investment on a great property by not buying it when I should have (thankfully I got in a little later on a modest property that went up substantially in value).
Understand this: If the fools are right about a housing bubble it will be the same way that a broken clock is right twice a day.

#187 maxx on 02.18.14 at 4:07 pm

Garth and dawgs:

I hope that not too many of you have already seen this video.
We all need a good belly laugh from time to time, so with a bit of latitude from Garth (as the comedian’s family name is Banks, and toast is what many of the overextended will end up, perhaps it can squeak through!?), I thought you might enjoy this:

http://www.youtube.com/watch?v=SHptn_3RyYE

#188 Cowpoke on 02.18.14 at 4:16 pm

‘The rich hold assets while the rest hold debt’,… the rich like the governments feeding off the public trough no doubt and getting away with it.

Now, that was dumb. — Garth

#189 Happy Renting on 02.18.14 at 4:21 pm

#162 Linda Mulligan on 02.18.14 at 1:22 pm

Applied for my current apartment in Toronto in 2010. I think it was just first & last’s rent, letter of employment and salary, and list of previous residences (they might have called for a reference, no idea.) I assume they do a credit check in the background, too. Have yet to be asked about financial assets as can show employment income sufficient to cover rent and history as a reliable tenant.

#190 Tony on 02.18.14 at 4:46 pm

Re: #186 BCD (D for Doomer) on 02.18.14 at 4:00 pm

Almost every city around the world has tanked when it comes to real estate. All these people would be broke if they took your advice. Hong Kong, Canada and Australia are among the very few that didn’t tank. Hong Kong’s tax rates are quite low so Canada and Australia will be among the last markets to tank.

#191 Jeremy on 02.18.14 at 4:49 pm

HD:
“How ‘s their ability to seize people? Not very good in my opinion.”

Well, they obviously made a mistake in your case, but that does not mean that their ability to seize people is not good. What fraction of the people with piercings and tattoos are as well doing as you.

#192 not 1st on 02.18.14 at 4:57 pm

Garth, an MP from the UK basically said what the world already knows – that is half of the worlds population have a substandard IQ especially when it comes to matters of finance.

So why vilify the rich? They aren’t the ones who go stand in line for iphones, or gush at granite or buy crap peddled on Oprah or shell out a couple hundred bucks to watch people play sports. The 99% do that and thats why they never get ahead.

#193 Tony on 02.18.14 at 4:58 pm

Re: #183 anon on 02.18.14 at 3:38 pm

b) exercise and sell and convert to Euros or something other than American dollars. Since Bernanke left everything has changed in America. Janet hasn’t learned the ropes yet and we’re hoping she never does. On paper and in theory the stock market should be worth less in ten years’ time than at the present time.

#194 Holy Crap Wheres The Tylenol on 02.18.14 at 4:59 pm

#182 boycott the military on 02.18.14 at 3:28 pm

Please do not sully their names and heroic efforts while performing their duties by saying ” What the hell are they (Can. Mil.) doing there to begin with?” I can tell you if you can not stand beside them and support them in any way then please feel free to stand in front of them. Please do not say that to military people. I’m ex military and I can tell you after having people try to kill you in battle it takes a certain individual to stand and not run.


There is a difference between dupes who were drafted and mercenary dupes who volunteered and think they are heroes. The first group are Veteran Dupes and the second group are Retiree Dupes
…………………………………………………………………….

I wasn’t drafted neither was my nephew. I graduated from University and received further education and training compliments of the USAF. It helped launch my career and the corporation I now own and run! Electronics Engineering thank you! As a so called Veteran Dupe I guess I’ll take that as a compliment. My nephew trained as a medic and when he returned decided to complete his education as a doctor, which is what he was doing before he joined the Canadian forces. Two of his best friends also joined to do the same. Not only did they treat our soldiers in the field they treated locals with medical assistance, especially children in the villages. So I surmise he is a Dupe too, Thanks for your help Boycott, its nice to count on people like you! Try doing something with your life to help others!

#195 djealas on 02.18.14 at 5:06 pm

Hey Garth,

I enjoy your blog, even without agreeing with all that you rant and foam at the mouth over. I help evaluate and train new paramedics in the city of Toronto, and one of the things they are most interested in after they get a paycheck is, where can they buy a house?
I refer them to your site routinely, as part of my lecture. They are often astonished, never having heard the points of view expressed here. Most of them believe whatever hogwash is thrown at them by spouses, friends, or parents. I’ve talked more than a few out of buying right away, and just to sit back and wait.

Thanks for what you do. When there is so much disinformation about owning a home out there, a contrary view is like a breath of fresh air. Keep up the good work.

#196 Blacksheep on 02.18.14 at 5:12 pm

Holy Crap Wheres The Tylenol # 174,

“There that is the reason we are involved!
——————————————————
What reason….cause we are in NATO? Why the hell is NATO there?

Which NATO country was attacked by Afghanistan?
——————————————————
“I too have military members that were involved, my brothers son when over for two tours of duty, by the way most of them volunteered for those tours.”
——————————————————
I’m glad your family members survived, because apparently the indoctrination process is very effective.
——————————————————
“I have talked to many of these soldiers that have gone over, they all say they had a job to do and they did it.”
——————————————————
Of course they did. Being well trained solders, what other possible action could they take? When one enlists with the military, one forfeits control of his person and his beliefs.

What…..is the whole military complex supposed to take a vote on what action the enlisted men believe should taken? A show of hands, if you want to invade?
——————————————————-
“Please do not sully their names and heroic efforts while performing their duties by saying ” What the hell are they (Can. Mil.) doing there to begin with”?”
——————————————————-
They only reason they are anywhere is because that’s were they’ve been ordered to go.

Leave emotion out of it and analyse the situation.
——————————————————-
“I can tell you if you can not stand beside them and support them in any way then please feel free to stand in front of them.”
——————————————————-
Not this lame, emotionally charged as bumper sticker again.
——————————————————-
“Please do not say that to military people. I’m ex military and I can tell you after having people try to kill you in battle it takes a certain individual to stand and not run.”
——————————————————
All, non decision making participants involved in military actions are 100% heroes, in my opinion.

Including you HCWTT.

The military (specially the US) is a very powerful tool that should be employed, only when absolutely necessary and even then, with great caution.

Wars are for profit. It harmed your brothers son and killed both my great grandfathers. The cycle of spin has to end.

#197 Hank Rearden on 02.18.14 at 5:14 pm

Soft landings. Ask yourself: Has there even been such a thing?

#198 BCD (D for Doomer) on 02.18.14 at 5:18 pm

@190 Tony

I think I saw you on Doomsday Preppers preaching the merits of limited “bean protein” intake in bunkers sized under 300 square feet.

Last time I checked and MA in bro-economics is only required in the most specialized of fields (i.e., peep-hole repairman, human shoe-shine chair etc. etc.).

Seriously. . .sweeping generalizations like “Almost every city around the world has tanked when it comes to real estate.” make you KNOW that MENSA recruiters are waiting in the shadows to anoint a new prophet.

#199 not 1st on 02.18.14 at 5:25 pm

Garth, perhaps this site will make some of your whiny readers feel better about themselves.

http://www.globalrichlist.com/

#200 Aggregator on 02.18.14 at 5:28 pm

Ooop, here comes the T-bomb on corporations.

Ontario Liberals facing skepticism from NDP on transit-funding plan

Ms. Wynne, meanwhile, hinted she might adjust the transit plan to make it more amenable to the NDP. This could be done, for instance, by relying on increased corporate taxes instead of tolls or a gas tax.

It's been good times for Ontario over the last few years and I hope all you Ontarians enjoyed it, because now it's time to start paying it back. Or just kick the can down the road and leave more debt for the rising unemployed Gen-Y to pay.

As they say, this is the best government money can buy.

#201 45north on 02.18.14 at 5:31 pm

Victor V : You can ask for a credit report, employment letter, references, income verification — but what makes you even think that you’re legally entitled to have access to the value of a potential tenant’s investment portfolio?

whether someone is a tenant or an owner, he is still asking to move in and once in he has rights. The body that approves him has a right to ask questions. Like a lot of questions.

the laws in Ontario are archaic even feudal. One of the big themes of this blog is that an owner could be a serf whereas a tenant could be free.

co-ops in NY City are a special kind of condo organization. From what I’ve read in the US blogs, they are a very successful model of urban living. They have very stringent requirements and they ask whatever they want.

#202 james on 02.18.14 at 5:31 pm

Nice graphs, but it won’t change the fact the correction will be temporary and people won’t see 2009 nor 2010 prices. If you do then you must be delusional.

#203 tkid on 02.18.14 at 5:58 pm

#201, any landlord who asks me to provide details of my investments has then irrevokably removed themself from my list of potential landlords. And I’m an excellent tenant.

Any landlord with an attitude like that is going to be a problem and won’t appreciate good tenants. Why sign on board when one can already spot the red flags?

Yes, yes, I know. Your precious apartment is the only decent apartment left in the entire city and I should be grovelling at your feet in gratitude for even being allowed to view the place. I’ll take the chance on the flea-pits thank you very much.

#204 Linda Mulligan on 02.18.14 at 6:01 pm

#189 Happy Renting: Just surprised that landlords are now (apparently) doing much the same credit checks as if you were actually going to buy. When we went for a mortgage, we had to provide letter from employer stating income earned etc. but I think if one is renting asking to see financials is a bit much. Also, #175 re ‘Toronto Landlord’ – that individual doesn’t sound like someone you’d want to know or be around if you are female. Way too nosey about what someone is worth & commenting on prospective tenants ‘rack’ & possible sexual orientation tells me she probably was more than happy to walk away from being accepted as a tenant.

#205 Castaway on 02.18.14 at 6:51 pm

Garth, your blog is great, keep em coming. One thought, can you put a limit on the amount people can type. None of us want to read through posts the size of War & Peace!

#206 jess on 02.18.14 at 6:54 pm

-It is illegal to run an ad with paid actors without running a disclaimer stating they’re paid actors

“It appeared that no one at the Star-Telegram even attempted to run a background check on the sources, or fact check their stories,” Mahar wrote. “I couldn’t help but wonder: ‘Why?'”

http://www.thewire.com/politics/2014/01/lessons-obamacare-horror-stories/356728/
http://thinkprogress.org/health/2014/02/14/3293291/koch-brothers-paid-actors-louisiana/

#207 Rabbit One on 02.18.14 at 6:55 pm

#204 Linda

For lower end rental units / houses require way more stuffs than buying indeed.

It’s apprently much easier to BUY these days – lol.

On the other hand, higher end rental units process are easier.
You don’t encounter landlord like “Toronto Landlord”, but rather, you deal with owner’s agents most of the times.

Since it is high-end ($3~4K and up), there is no line-ups, no openhouse for rental applications.
Agents know what to do.

#208 jess on 02.18.14 at 6:57 pm

Hank Rearden on 02.18.14 at 5:14 pm
Soft landings. Ask yourself: Has there even been such a thing?
========

maybe if your on this guest list
How A Reporter Got Busted Crashing A Super-Secretive Wall Street Fraternity PartyBusiness Insider ‎- 2 hours ago
Kappa Beta Phi has been around since before the 1929 stock market crash. It’s an invite-only frat that includes some of the biggest names on …

#209 Dean on 02.18.14 at 6:57 pm

right now a townhouse in richmond hill ontario can sell for more than half million, close to 600 grand, wtf ?!

#210 Tony on 02.18.14 at 7:40 pm

Re: #198 BCD (D for Doomer)

It’s a question of when not if for Canadian real estate. You did the right thing by not buying.

#211 The American on 02.19.14 at 3:15 am

At #193: Tony, oh how you make me laugh so much.

#212 airhead princess on 02.19.14 at 8:03 pm

Carney works his magic on the BP….while our bozo hand puppet BOC Gov Poloz kicks the $CDN into the gutter.

http://www.bnn.ca/News/2014/2/12/Bank-of-England-points-to-2015-rate-rise-blurs-guidance.aspx

What went on between the elfin MOF and the excellent BOC gov Carney? To foist Poloz on the Canadian people is an act of treason.

#213 espressobob on 02.20.14 at 7:40 pm

#41 North

I missed your comment. Actually I’m real handy with a financial chainsaw. My views are my own and possibly add a bit of light to this forum?

But I digress! I’ll go back to making all this boring profit, & log cabins are the same.