Roll over

ROLL modified

Eight years ago Abel paid $325,000 for a one-bedroom, one-bath condo with a view in DT Vancouver. Four years ago he toyed with selling it, and Agent Bob said a good listing price would be $430,000. Cool, said Abel, then working on a short-term contract in Toronto. I’ll keep renting it out, and wait for more profit.

So he did. This week Agent Bob was back in the picture, because the Toronto gig morphed into full-time work. And the Van condo is now worth $400,000. Maybe. On a good day with a tailwind. After finding a buyer at 90% list, minus commission, Abel will walk with $365,000, or $35,000 more than he paid after closing costs and $29,000 after capital gains tax.

“I thought this was supposed to be some hot, no-lose market,” he told me yesterday. “Considering what I had to rent the place for to keep a tenant, I probably lost money.” Of course you did, I said comfortingly. If the $325,000 had been invested in a nice balanced portfolio giving you 7%, for example, today you’d have $455,000.

I didn’t have the heart to remind Abel that for years he collected rent and paid tax on it at his marginal rate, while the hit on a portfolio chunking out dividends and capital gains would have been subject to half the load. And he wouldn’t have to paint his portfolio and install a new dishwasher and toilet tank assembly in order to sell it. Or wait for an offer.

This is a glimpse of the reality for so many people – especially first-time buyers – who bought into the ‘property ladder’ myth. There’s no more ladder. If a guy owning for eight years in the bubbliest market in Canada can barely get his money back, then pity the 5%-down buyers of 2011 and 2012. Especially with what the whale says is coming.

So far, as you know, Canadians have been warned by the International Monetary Fund, most of our big banks, Capital Economics, Deutsche Bank, The Economist, Robert Shiller and even the Bank of Canada that they have turned into house-horny, lascivious, lusty, obsessed real estate fetishists. Hell, even this pathetic blog may have piled on once or twice.

The latest wolf cry comes from one of the biggest financial monoliths in the world, with almost $2 trillion under management. In fact, based on its belief that Canadian real estate “will finally roll over in 2014”, US-based Pimco has just slashed by 50% the exposure it has to Canada in its $250-billion Total Return Fund. Ouch.

Now it’s interesting that this comes on the same day Putin is being a prick, which tanked the Russian stock market, bloated Russian interest rates, spiked oil costs, sideswiped global markets and sent investors into the arms of bonds. This reminds us how close financial or economic shocks can be, thanks to events we have absolutely no control over. Remember yesterday’s post? Plan B? I hope you have one.

Lest you dismiss Pimco as another bunch of fools who do not understand it’s totally different in this northern paradise, try a little Googling. The intellectual firepower the company possesses is formidable, including lead Canadian analyst Ed Devlin, now warning house prices here will fade away by up to 30% over the next two to five years. As you might imagine, that would be enough to put tens of thousands of recent buyers underwater, and roll us back to 2006 prices in many markets. If you have a weensy condo and no equity, or need to sell so you can retire, this is not happy news. So, is it credible?

Judge for yourself. Here is the nub of Devlin’s report, in his own words:

While we think the housing market in Canada is overvalued and due for a correction, the correction will likely happen over several years. There are two important assumptions that underpin our housing forecast. First, a correction is not a bubble bursting in a disorderly manner. Second, the correction will start in 2014.

In our view, for the Canadian housing market to “burst” in a disorderly manner, one of three events would have to happen in 2014: Interest rates would need to rise substantially, the unemployment rate would have to spike higher or the supply of mortgage credit would have to be disrupted. With real growth of about 2% and a relatively subdued inflation forecast, we see no reason for interest rates to substantially rise in 2014. Given this macroeconomic environment, it is also unlikely that the unemployment rate will spike to 8%-10% (which, we estimate, would be needed to cause a disorderly housing correction). Finally, the Canadian banking system continues to provide sufficient mortgage credit to keep the housing market financed.

At PIMCO Canada, we have been bearish on housing for a while from a secular perspective, but this is the first time we are forecasting a cyclical decline in the housing market. Our forecast reflects a number of factors. First, higher housing prices show the market is more stretched than in previous years. Second, the four rounds of mortgage credit tightening implemented by the federal government are now more clearly having the desired effect. Finally, we expect the cost of capital at Canadian banks to rise in 2014 due to regulatory changes and expect the banks to pass on these higher costs to consumers in the form of modestly higher mortgage rates.

Hmm. Where have we heard this before? No disorderly, US-style crash, but a correction grinding things lower over a few years. No major interest rate surge, jobless jump or credit crunch – none of those dramatic factors real estate agents keep telling us are required for any market decline.

Instead, just crazy prices that went too high, more restrictive lending (it happened again last week) and inevitably inflating mortgage rates – exactly as one of our major banks predicted last week.

No bang. Just a whimper.

Same result. More pain.

160 comments ↓

#1 TurnerNation on 03.03.14 at 8:43 pm

But ‘it’ is going to $5000…uppa up.

#2 Smoking Man on 03.03.14 at 8:46 pm

Pimco had to raise some cash for redemptions, I like Bill Gross, but not his calls of late.

Again those PhD model makers throw no weight to Herd Dynamics…

I almost took a gig with them a few years ago. I should have, Newport Beach is a hell of a lot better than this shit, sub zero Temps for the next 2 weeks.

#3 Andrew Woburn on 03.03.14 at 8:52 pm

Give me a Vancouver. Hold the HAM.

The Housing Market With Nowhere to Go (but Up)

http://bits.blogs.nytimes.com/2014/03/02/the-housing-market-with-nowhere-to-go-but-up/?_php=true&_type=blogs&_r=0

#4 Your numbers aren't correct on 03.03.14 at 8:53 pm

I agree with your broad opinion on the real estate market (that it’s grossly overvalued), but your portrayal of the opportunity costs is not accurate. You state: “If the $325,000 had been invested in a nice balanced portfolio giving you 7%, for example, today you’d have $455,000.” You fail to note that Abel wouldn’t have had $325,000 to invest. The only reason he had that amount in the first place was because he would have taken out a mortgage to make the purchase. He likely only had a fraction of that (perhaps 25% at best) as a down payment. If so, he would only have had about $81,250 to invest in the financial markets, not the equivalent of the full purchase price of the condo.

No mortgage. — Garth

#5 Andrew Woburn on 03.03.14 at 8:55 pm

Pension? We don’t need no stinking pension.

“Japan: Robot to take top university exam”

http://www.bbc.com/news/blogs-news-from-elsewhere-26418431

QUOTE – If machines cannot replace human beings, then “we need to clarify what is missing and move to develop the technology,” says Noriko Arai.

#6 Smartalox on 03.03.14 at 9:01 pm

But if Pimco is such a heavy in the bond market, and mortgage rates are set in the bond market, won’t Pimco’s withdrawal from the Canadian bond market disrupt mortgage rates?

Isn’t that one of the three warning signs of the coming housing apocalypse?

#7 Aleksey on 03.03.14 at 9:03 pm

One of my friends who has been investing in Vancouver RE for last 5 years and always told me that I should buy too just told me that he’s changed his mind and will be selling couple of investment properties this spring. I hope he won’t loose too much money but it’s obvious that bulls are capitulating. I will wait for another year or two =)

#8 BallsyInvestor on 03.03.14 at 9:04 pm

The market is falling!
The market is falling!
The market is falling!

… and the smart cookies are snapping up the bargains -cheap!

#9 mitzerboy on 03.03.14 at 9:10 pm

Sask – a – Boom !!!

#10 Andrew Woburn on 03.03.14 at 9:10 pm

A: Interest rates would need to rise substantially, …..

Don’t know how many purchasers rely on second mortgages, but surely such lenders would demand a much greater risk premium in a declining market

B: it is also unlikely that the unemployment rate will spike to 8%-10% ……..

Not even if residential construction falls off a cliff?

#11 JohnL on 03.03.14 at 9:10 pm

Smartalox…….$2 trillion isn’t even one day of flow in the bond market. I believe the number for the US treasury market alone, is $3bil. per day.
But what do I know?

#12 JohnL on 03.03.14 at 9:12 pm

$3 trillion oops

#13 World According To Garth on 03.03.14 at 9:15 pm

Are their any economists who know anything? They pretty much have been wrong about most everything. Let’s see if pimco finally gets it right.

Harper yelling at Putin. Yes I’m sure he’s quaking in his boots.

#14 West Coast on 03.03.14 at 9:21 pm

You might also want to consider the effect that Depreciation Reports (BC), also known as Reserve Fund Studies (Alberta), will have on the market in BC. Every 3 years each strata corporation must now produce a Depreciation Report outlining the current conditions of the strata building and also file and continually update a 30-year budget for repair, maintenance and upgrades.
Until 2013 we were not legally required to have Depreciation Reports in BC. Also the amount we were required to have in our Reserve Contingency Funds was much lower than in provinces such as Ontario. As a result our monthly strata fees were quite low compared to other provinces. However we needed to pay special levies to cover large condo repair bills.
Well things have changed! Aging high rise condos (18 years +) are now entering their constant repair phase. Building envelope repair (let’s replace all those big glass windows and those balconies while we’re at it), replacement of copper piping (who knew our ‘soft’ water was so aggressive!), garage ‘roof’ repairs (what do you mean we have to dig up the landscaping – all those trees! – just to repair the garage roof….)……..repairs as we all know are never-ending.
The depreciation reports leave nothing to the imagination. Banks and buyers in BC will demand them.
In downtown Vancouver, high rises, built in the 80’s and 90’s and now entering their 3rd decade are under constant repair. The moment one building loses its blue tarp and all the scaffolding that comes along with it, the next building is covered.
I predict that there will be a glut of 15-25 year old condos on the market in the spring of 2014.

#15 Internal Auditor on 03.03.14 at 9:23 pm

#2 Smoking Man – Too bad you didn’t take the job, but I assume that you found something comparable. If they were considering you then you probably had some good looks here.

Things will most likely slow down, but quality properties will still sell. Areas that are in high demand will always fetch a premium over the average place.

Garth, what do you make of the BoC purchasing Sterling as part of their FX reserves? Is this completely isolated from the bond market? Their total reserves are $72B which in the grand scheme of things is not that large of a war chest.

Though I own a condo downtown I do applaud the efforts to curb the spending. We need some form of restraint, capital controls and tightening. Mind you, the gov’t could remove such controls should they need more tools down the road.

At the end of the day people should just live within their means.

#16 Babblemaster on 03.03.14 at 9:25 pm

Did PIMCO foresee the financial crash of 2008?

“Intellectual firepower?” You mean like Wile E. Coyote, aka “Super Genius”!

Yeah, I imagine they really know what they’re talking about.

#17 hohoho on 03.03.14 at 9:26 pm

> … Pimco’s withdrawal from the Canadian bond market disrupt mortgage rates?

wouldn’t it become harder and harder to sell CAD bonds if CAD/USD continue on its generally downward trajectory? expect pension funds to shift more towards USD assets this year … and very soon any shortfall will be gone

#18 tim on 03.03.14 at 9:26 pm

After four years you may finally be right….Everything goes in cycles and if you keep sticking to a prediction you will eventually be right…lol

As demonstrated last week, it is a reality now in many cities. — Garth

#19 ghost71 on 03.03.14 at 9:26 pm

Garth, people reap what they sow. If people refuse to wake up, let them sink. They the same access to information as we do.

#20 omg on 03.03.14 at 9:29 pm

Same old news – long slow grinding correction for Canada RE. That’s been my view for several years now, once we dodged any sustained correction during the great economic meltdown of 2009.

And the will be no meaningful start to a correction until interest rates start to go up in a major way. And that will not happen until the Canadian economy get markedly better.

So we may be looking at a 5, 10 or 15 year correction back to normal long-run house price to income levels. In some markets that will be a 40% to 60% correction in real price terms. So just get used to renting.

#21 Ford Prefect on 03.03.14 at 9:36 pm

Garth: I have carefully read the Pimco reasons for
believing that RE will correct this year. While I find the reasons correct and in the case of capital costs plausible, none convince me that there will necessarily be a correction this year, just that there will inevitably be at least a correction as opposed to a bursting bubble at some time in the not too distant future.

#22 Cow Man on 03.03.14 at 9:43 pm

Sir Garth:
He who laughs last, laughs hardest! Unless of course you speculated when you bought your “home”.

#23 devore on 03.03.14 at 9:43 pm

#4 Your numbers aren’t correct

The numbers are still correct for comparison purposes. A mortgaged (leveraged) property carries interest charges for the duration of the mortgage, and a lifetime of property taxes. Over a period of 30 years, a mortgaged house owner will pay more than double the purchase price to own the property clear. If you are looking at an investment, leverage comes out in the wash. It multiples returns, but also multiplies risk, aka risk-adjusted returns. A house is just a place to live when you lose money on it, a no-fail wealth builder when prices are climbing, right? You have to look at both sides of the coin.

Another thing bragging house owners forget is that it costs a lot of money to sell a property (besides the obvious realtor and lawyer fees) in anything less than a red hot market. You can easily spend thousands of dollars remediating, fixing up and dressing up the place (none of which you will get to enjoy for yourself), or drop the price to compare more favourably with shiny new properties. Just another cost rarely subtracted from the sell_price – buy_price equation.

#24 Spiltbongwater on 03.03.14 at 9:45 pm

No major interest rate hike, when, for 2014/15? So rates will have to go up substantially in 2016,17,18 for Garths often predicted doubling at renewal for virgins taking out 5 year terms?

#25 Smoking Man on 03.03.14 at 9:45 pm

https://www.coursera.org/

Teachers you’re future

#26 David Lee on 03.03.14 at 9:49 pm

In “Pimco joins list of doom-mongers on Canadian Property”, Brian Milner (Globe and Mail) trashes Pimco on their recent track record (sorry, it’s behind the Globe’s paywall, so I couldn’t figure out how to provide the link).

It’s a bit curious how quickly this came out after today’s first Pimco article, as well as how one-sided Brian Milner is about Pimco. I wonder what his motivation is.

#27 Obvious Truth on 03.03.14 at 9:54 pm

Add Ray Dalio to the list.

Looks like the big money left the building. I like how they remain neutral till suddenly they are not.

Did C$ support last week look peculiar?

Anatomy of a correction.

#28 Freedom First on 03.03.14 at 9:57 pm

Nice, Garth. Yes, many have been warning Canadians about their debt gluttony, of course Garth, you were first, and now Pimco has joined the long list of people/Organizations taking a kick at the over extended Canadian debt pigs financial gonads. And Pimco, a humongous Bond Fund is not only warning Canadians, they are withdrawing money from Canada, and they are not alone, look at our currency. In the recent past, there is now a long list of Countries whose currency has dropped in value, and had their interest rates spike upwards. It is coming. And not if, but when. Canadians were warned numerous times to get their finances under control. I prefer to always follow Garth’s path, never let your finances get out of control. Ever. When you get kicked in the gonads, you will not see it coming, just like all of the people world wide who have been financially denutted. Th #1 reason-RE.

#29 economictsunami on 03.03.14 at 9:59 pm

A little light reading:

CHART OF THE DAY: Look How Many Condominiums Are Going To Hit The Toronto Market…

https://businessincanada.com/2014/03/03/toronto-condo-overbuilding-under-construction-completions/

Closer reading of StatsCan report troubling for middle class:

http://www.thestar.com/opinion/commentary/2014/03/02/closer_reading_of_statscan_report_troubling_for_middle_class.html

#30 valleyrenter on 03.03.14 at 10:02 pm

More unemployment in the news, Bibendum cutting back in N.S.

#31 Pope Snugglebums the 666st (aka Nosty) on 03.03.14 at 10:04 pm

#149 airhead princess on 03.03.14 at 3:03 pm — “. . . where did all the money go?”
— and —
#160 TurnerNation on 03.03.14 at 4:13 pm — “See the higher pyramid levels demand more of our money and the franternals oblige.
— plus —
#171 Smartalox on 03.03.14 at 5:24 pm — “All these countries with moribund economies and growth mortgaged their futures by borrowing against the debt carrying capacity of the European Union to pay for these marquee programs that none of them could afford individually, . . .”

“I care not what puppet is placed on the throne of England to rule the Empire, … The man that controls Britain’s money supply controls the British Empire. And I control the money supply.”Baron Mayer (Nathan) de Rothschild

Most recent figures show the Rothschild’s present wealth is estimated at (on or above) half a trillion dollars, so it seems quite clear who is increasing wealth, while others are decreasing.

If Baffin Island, the Seychelles and North Korea decide to dump the Petro-dollar and work with a new-fangled gold-backed currency, with 70% of countries following it would result in a curiously interesting game-changer.

#32 Son of Ponzi on 03.03.14 at 10:08 pm

There are people called Abel?

#33 Son of Ponzi on 03.03.14 at 10:10 pm

Smoking Man predicted what Garth is gonna say.
My suspicion is getting stronger.

#34 Nemesis on 03.03.14 at 10:15 pm

@Ralph/#191PriorThread…

Evidently, you know who failed to grasp my earlier parable.

#OffTopicBonusZen

http://tinyurl.com/qx55rp4

[NoteToSaltyDogs: The English always enjoy the last laugh… and I think I can safely say that Benedict will never deign to pontificate @Davos/WEF. NoteToGT: TrueAllThat, nevertheless – one still wonders about the broader implications of the recently departed Mohamed El-Erian’s erudite retort to Mr. Gross’Boast, “I have a 41-year track record of investing excellence… What do you have?”.]

#35 Mark on 03.03.14 at 10:17 pm

Not really sure how Canada’s RE market continuing its downwards slide (which began in the 2nd half of 2013 and has only been masked by a significant shift in the sales mix) affects bond prices. After all, CMHC-insured MBS are the equivalent of GoC bonds with a bit of pre-payment risk. What is PIMPCO trying to trade here?

#36 Son of Ponzi on 03.03.14 at 10:18 pm

# 3
Give me Vancouver, without the HAM.
——————-
can’t have one without the other.

#37 Uh Oh Canada on 03.03.14 at 10:18 pm

Garth- I am glad you have been wrong for four years. Since first discovering your blog in 2010, I have since invested in RRSPs (for tax shifting), moved my TFSA from the orange guy’s shorts to a self-directed account which netted me $800 last year. When the housing correction comes, I am either ready to buy at discount prices or if I’m affected somehow, I can live two years off what I’ve saved. Thanks alot!

#38 sheane wallace on 03.03.14 at 10:21 pm

#31 Pope Snugglebums the 666st (aka Nosty)
—————————————–
It seems Russia recently announced that all the transactions with China will be in Yuan and rubble, hence end of the US dollar as reserve currency.

This is why now we have the situation in Ukraine.
Unless US is willing to start nuclear war this is the end of the US dollar.

Hey. Let’s start a comedy blog. — Garth

#39 Blase on 03.03.14 at 10:30 pm

When did you learn how to spell Smoking man?

Condos, soon people will be astonished that anyone thought of them as an investment. Watch $500,000 turn into $150,000.

Toronto condos: future ghettos

#40 Son of Ponzi on 03.03.14 at 10:32 pm

Warren Buffett says he’s gonna pick his successor from the inside.
Sorry, Buffett wannabes on this blog.

#41 Skyblue pink on 03.03.14 at 10:40 pm

Was this an investment property and therefore the capital gains. Am I wrong to say there would be no capital gains if it were his “primary” residence.

True, but the cap gains bill was minimal. — Garth

#42 TheCatFoodLady on 03.03.14 at 10:43 pm

No bursting gas bag but a slow leak from the RE bubble/balloon. No huge change in interest rates but possibly some incremental rises this year. A stagnant unemployment rate. My read on the last is that a lot of jobs out there are ‘jobettes’, ‘McJobs’, soul sucking, minimum wage, shitty shift time employment.

If all that wasn’t bad enough, it’s not so bad that it doesn’t leave far too many with some foolish hope that: “Maybe it will be better next week, next month, next year…”

And maybe it will. But in the meantime, rather than take a cold, hard look at current, modern realities, people stay in the same life track. That increasingly, resembles a hamster wheel with the appearance of a sadistic hand remorselessly pushing the speed lever faster & faster.

I don’t necessarily blame the young for their live for today attitude – it’s inherent to the age-stage. Up until recently, one could get away with that. Suddenly it’s almost mandatory to frantically plan for a mystical, distant future – one where you might be creaky with arthritis, half blind from type 2 diabetes & wondering when your grand kids grew to be so big & mouthy.

Screw that! There’s some tandem skydiving & mondo ziplining to do.

Unless you’re crying in the basement as you stare at out of control loan bills & wonder where the hell everything went so wrong?

Where is the future you were promised?

THAT is what’s sad. We should have promised our kids the freedom to try, not the right to have.

#43 questionthis on 03.03.14 at 10:44 pm

where do you see Toronto prices in 10 plus years? I could care less about short term? Please predict if u can?

#44 Chris 2 on 03.03.14 at 10:50 pm

Garth:

A word of caution about your injured foot. An associate of mine had a similar type of accident. His foot remained blue in color long into the healing process and he became quite concerned. Twice he returned to the doctor and each time was given an antibiotic. Nothing seemed to help.

Finally my friend switched the type of socks he was wearing to non-elastic tops. A simple thing to do! This helped him greatly. Today, 10 years later, the only problem he has is with stiffness in the injured foot.

Perhaps if physiotherapy has been offered at the time of his injury his foot would have healed even better. Something you may wish to ask about for yourself.

#45 Andrew Woburn on 03.03.14 at 10:53 pm

Stratospheric property (seriously)

http://ftalphaville.ft.com/2014/03/03/1787732/stratospheric-property-seriously/

QUOTE- “By travelling outside the Earth’s atmosphere, gravitational forces will allow spacecraft to travel at over 4,000 miles per hour, so breakfast in Mayfair could easily be followed by lunch overlooking Sydney Opera House,” explains Knight Frank’s Head of Research Liam Bailey. “It doesn’t take much imagination to see the dramatic impact this innovation could have on global luxury property markets.”

#46 Relocated Canuck on 03.03.14 at 11:06 pm

As a Canadian-born Canadian citizen currently living south of the 49th, I feel ashamed by the sheer idiocy of my fellow countrymen…

…when it comes to financial matters, there’s no other way of putting it…Canadians are just idiots.

#47 saskatoon on 03.03.14 at 11:07 pm

#9 mitzerboy

nice try.

but saskatoon ain’t toronto…or vancouver.

#48 juno on 03.03.14 at 11:07 pm

A lesson to the poor, don’t bet against the ULTRA – RICH.

Notice the people all lining up to hedge against Canadian real estate. Soon they will be conditioning the Canadian Mindset to believe its going down down and down.

And at the end of the day the debt slaves will be broke and the Ultra rich will buy up everything for pennies on each dollar.

Its the same old song, they just don’t get tired of repeate eat eat eate….

#49 ozy - some PIMPS want RE DOWN on 03.03.14 at 11:12 pm

some PIMPS want RE DOWN, it happens every year they try to TALK IT DOWN a lot. Buyers get scared and 3 months later bidding erupts.

who pays those guys or what’s behind them – I do not know.

bottom line, until they sell their houses for 30% off I do not see enough supply to cause a crash. PIMPS – PLEASE Put the $$$ where your mouth is -sell AT 30% BELOW MARKET VALUE

hope you bought enough inventory 5 years ago…

PATHETIC, and we have to keep listening to this every year…..

#50 omg on 03.03.14 at 11:21 pm

#38 sheane wallace

“This is why now we have the situation in Ukraine.
Unless US is willing to start nuclear war this is the end of the US dollar.”

————————————–

So I assume you are all in with doing a leveraged short on the US dollar.

I’ll save you from yourself – the Ukraine and Russia are just a momentary blip. Putin is just sending up a trail balloon to see how far he can go.

Just think about it – Putin and his inner circle are all billionaires due to world markets. They are simply too tied into the world economy to play “Soviet Union” circa the 1960s. Ultimately, like all politics, its about power, which ultimately is about money.

Bet against the US dollar and watch your capital drain away.

#51 Smoking Man on 03.03.14 at 11:27 pm

#33 Son of Ponzi on 03.03.14 at 10:10 pm

Conspiracy Theorist…… Ha.

You not read my stuff of the power of the UCC.

The Pimco models don’t know what a track6er is, nor does it understand batman and camel toe.

Screen watchers at Union station.

There only one Smoking Man.

Catch USDCAD lately……

Oh Yeahhhhhhhhh

#52 KG on 03.03.14 at 11:33 pm

more prolonged pain.

#53 Catalyst on 03.03.14 at 11:38 pm

Summarized, he says housing prices will soften if 1 of 3 things happen which he then says all will not happen.

Then says, we are making our statements based on the following:
1) higher housing prices show the market is more stretched than in previous years (Saying it was overpriced last year but more overpriced this year is not an indicator of an imminent decline)
2) the four rounds of mortgage credit tightening implemented by the federal government are now more clearly having the desired effect. (He knows we are talking about Canada right??)
3) Finally, we expect the cost of capital at Canadian banks to rise in 2014 due to regulatory changes (Not going to happen, our new world only works with extreme liquidity and the bankers know that now)

#54 saskatoon on 03.03.14 at 11:40 pm

garth,

if i rent my primary residence (while i live/rent elsewhere) do i have to pay tax on the tenant rental income?

Of course. — Garth

#55 Jackofall on 03.03.14 at 11:41 pm

Garth,
I thought mortgage interest was tax deductible on an investment property (along with other expenses – condo fees, etc). What’s up? Did Abel pay cash?

#56 Realist on 03.03.14 at 11:41 pm

If he invested 8 yrs ago, he would have taken a huge hit in 2009. Check the historical prices on a balanced fund….he did better on the RE.

Incorrect. A balanced portfolio losing 20% in 2009 recovered completely in 2010. — Garth

#57 Smurf on 03.03.14 at 11:57 pm

I think there’s many young adults like me that have been waiting for the bubble to pop for years, and it just hasn’t happened, and won’t any time soon. The truth is, Vancouver is a destination city in a stable democratic country, with more tolerable weather than anywhere else in the country, and there’s no shortage of people wanting to move here from both in and out of the country. What’s more likely to happen instead of a price crash is that it’ll turn into a lifeless city as young people and families are forced out, like SF.

#58 Derc on 03.03.14 at 11:57 pm

Putin is protecting oil and no war on a credit card – cda/usa drained that LOC a long time ago. Soft landing thanks to cda/usa QE behaviour. The real estate downturn began 5 years ago in Hamilton and the east coast. Quebec has joined the party and many “pockets” of cda will too. 2010 was the beginning of the takeaway decade but most didn’t pay attention and continue to get gouged. PIMCO is right but should have called this 5 years ago like Garth and his pathetic bloggers did. Again usa and eu debt has not been addressed and neither has Canada’s (federal/provincial/municipal/personal). The perfect idiot storm. I joke and ask “where do you run to? Nunavit?” Ha Ha. Garth says run to RRSP’s – you know, the ones indexed to the us stock market, or as I have called it in an earlier post the ‘American casino”. The 2 bdrm condo on Islington for $70K with a $900 monthly maintenance fee – just like Vcr (except Vcr is in the $200K range yikes). Gouged! Solution? No debt! A two word answer but for most, an impossible mountain to climb. I (barely) sold 2 properties in BC last year not because I had to, but you shift ahead of the curve. I’m a sales guy in the power and transmission industry. I cover western Canada and from what I see I say….be ready to move back home with your parents. It ain’t coming…it’s here.

#59 Shawn on 03.04.14 at 12:00 am

On PIMCO’s Reasons…

They say:

At PIMCO Canada, we have been bearish on housing for a while from a secular perspective, but this is the first time we are forecasting a cyclical decline in the housing market.

I say:

Anytime an analyst uses the words secular or cyclical I know they are technical traders rather than fundamental analysts and accordingly I studiously ignore whatever they say.

Now if someone points out house prices versus debt service ability, I am good with that. But mention cyclical or secular (or especially both in the same sentence) and I tune out.

But to each his own…

#60 Waterloo Resident on 03.04.14 at 12:02 am

Garth, DON’T BE RIDICULOUS.
Abel never had $325,000 to invest, all he had was $32,500 to invest (10% down). The REST WAS BORROWED.

Now if Abel had invested his $32,500 at 7% he would have had $45,500, only a $13,000 gain, probably closer to $9,000 after paying capital gains taxes.

No mortgage. — Garth

#61 High Plains Drifter on 03.04.14 at 12:18 am

O.K. now we are cooking. The door, right next door is up for sale. It is an exact comparable. I had a chance to look in and a quick power rating brings me out a % or two ahead. This, on top of my wife’s month long Euro holiday absence is the tops. I am so happy, I have promised myself I shall go and have my nagging molar extracted, just too balance my joy. Remember my point is to sell in Alberta at a price point that nets enough, so that I can come back to the most beautiful city in Canada, hint, it starts with Tor. Please do not put any more strangers in it til I get back.

#62 sheane wallace on 03.04.14 at 12:23 am

Hey. Let’s start a comedy blog. — Garth
……………………………..
guilty as charged, it was a joke.

#63 J on 03.04.14 at 12:26 am

“US-based Pimco has just slashed by 50% the exposure it has to Canada”

What they probably meant to say was that they cut their exposure a while ago, and have now established positions that will profit from a real estate decline. Now it’s time to talk their book.

#64 Piccaso on 03.04.14 at 12:32 am

Real Estate is the biggest margin game going.

Hell you can only go 50% in the stock market.

You can make a shitload being long during bubblenomics but holy crap when the bubble pops (they all do) it can be disastrous.

#65 van guy on 03.04.14 at 12:48 am

Is Pimco following this blog too? lol

#66 D.D. Corkum on 03.04.14 at 1:27 am

#43 questionthis on 03.03.14 at 10:44 pm

“where do you see Toronto prices in 10 plus years? I could care less about short term?”

He’s written on the subject of long term trends, if you look back in the history of the blog.

#67 AK on 03.04.14 at 1:41 am

I am in a bit of a bind here, and I’m hoping someone on the blog might have some insight or advice.

I’m 30, married, and currently owe $17K in student loans. My wife and I reside in Vancouver, and are expecting our first child in September. We rent for $1400 a month, but my sister and I own a townhome in Victoria that we rent out (inherited the place, it was assessed at ~240K). I gave up a 6-figure salary in healthcare to open my own business, but it has really struggled since we opened in May. My wife pulls in about 70K, which is our sole source of income.

I’m in the process of evicting the tenant in our rental, but she has really trashed the place and I don’t anticipate being able to collect damages or lost rent. I’m hoping to have her out by the middle of March (RTB-30 served today).

So I have a couple of questions for the more seasoned and savy people whose posts I read on this blog:

1) Would it be advisable to just sell the town home as is, pay off the mortgage (including penalty) and then bank the coin?

2) Put some money into fixing the place up and then asking a higher price?

3) Continue to rent the place out at $1200 a month, producing positive cash-flow of about $200 a month.

The last option is the least desirable in my eyes as I hated being a landlord (tenant lied consistently, I was far too forgiving of late rent). As well, she had a ton of noise complaints and the strata limits the number of rentals (we were renting under a hardship exemption) so I’m pretty sure they will come down on us again.

Plus the fact that I am having a baby with zero income from my business scares the you-know-what our of me. The only downside of selling the place is my wife and in-laws will put the pressure on me to use the money to buy in the GVRD :(

Any insight, any at all, would be appreciated.

#68 James on 03.04.14 at 1:44 am

30% is worst case. With small rate change, most likely a soft landing if anything. Ie 5-10%.

PIMICO hedging their predictions.

#69 TurnerNation on 03.04.14 at 2:22 am

I do believe TLT.US was portending this rout, the week last. Mid week bot Dollerama calls and XLF.US kaputs. Balanced port.? You bet. Let them eat cake.

#70 Mel on 03.04.14 at 3:14 am

I cannot see how the biggest housing bubble in Canadian history would drop only 30%. When it drops down by 30%, it will certainly fall down to 50-70%.

When the mother of all bubbles finally burst, and Canadians start to realize that their housing retirement plan is going badly, it will be over for our own Canadian economy. Since there is no money saved for the future, all hell break loose.

#71 Buy? Curious? on 03.04.14 at 3:34 am

Garth, will there be rioting in the streets as if Tim Horton’s decides to shut down their drive-thru’s?

One other question: Would you or Ross Kay be considered whistleblower type heros or busy body geezers?

Rob Ford 2014! Because we love him!

#72 PIMCOLOL on 03.04.14 at 5:09 am

PIMCO is a joke.

#73 Buy? Curious? on 03.04.14 at 7:08 am

Hey Garth, if this decline does start to happen, will Global and CTV report it? What about CREA and their made-up numbers? Do you think they’ll report the truth? If you’re the only handsome, 3-legged guy calling out the whole Real Estate industry,(How come there are no female economists commenting on the Canadian economy circling the drain?) will it ever be seen as a crash?

http://www.youtube.com/watch?v=eRnXo-ZbL1A

#74 peter on 03.04.14 at 7:24 am

I agree with you but this correction is taking so long I bet many people have died waiting for it!

#75 neo on 03.04.14 at 8:10 am

It is pretty hypocritical of you to pooh pooh everything thing that comes out of Bill Gross’ mouth as him being an opportunist and alarmist. Yet when he says something that corroborates your agenda it is now golden. Hmmmm. Even Al-Erian had enough of Gross/Pimco and left and he was his right hand man many years.

Where did I quote Bill Gross? — Garth

#76 Ralph Cramdown on 03.04.14 at 8:39 am

Nemesis: All in all, the Brits have a bit more class in the way they leak to the press than the Yanks’ “a senior official, on double double secret background, stated that Senator Bafflegab is a moron,” don’t you think?

http://www.theguardian.com/commentisfree/2014/mar/04/o-10-ukraine-sanctions-gaffe-city-profits-diplomacy-britain-russia

#77 Sparky on 03.04.14 at 8:44 am

#73 pimcolol

If Pimco is a joke then why is it their assets are greater than the Canadian economy? What are your assets worth? Ever heard of the pile theory? He who has the biggest pile of money quite likely knows more about it.

#78 jess on 03.04.14 at 8:53 am

i saw this on one of those buy and sell anything sites

http://www.sagecondos.ca/
recession proof investment?

#79 Daisy Mae on 03.04.14 at 9:25 am

DEVLIN: “….Second, the four rounds of mortgage credit tightening implemented by the federal government are now more clearly having the desired effect.”

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

You mean the 0/40, 5/35, 5/30…and finally the 5/25 amortization periods? THOSE four changes? That, if not implemented by ‘the little rascal’ would not have put us in this tight spot?

#80 fixie guy on 03.04.14 at 9:29 am

“Hmm. Where have we heard this before? …. a correction grinding things lower over a few years.”

From memory, the US around 2009. Guess it all depends on what you call a ‘crash’.

#81 Paully on 03.04.14 at 9:38 am

AK,

I would clean up the condo and sell it. You don’t have to fix it up large, but it has to be sparkling clean. Buyers can live in lots of dirt, but only their dirt, not someone else’s.

Your experience shows what a PITA being a landlord can be, and your positive cash flow is minimal, or quite likely negative once you factor-in the eviction and remediation costs.

Use the proceeds to pay off the student loan and max out your TFSAs. Once all that grief is cleared away, you can focus on your business and family.

If your extended family really think that buying a place in Van is such a good idea, tell them to buy it for you, or piss off!

#82 Uh Oh Canada on 03.04.14 at 9:52 am

#68 AK- Any insight, any at all, would be appreciated.
—————————————————————–

I suggest you sell the townhouse and split the profit 50/50. The tenant troubles along with the ferry ride to Victoria makes it all too much to handle at this moment. Find a good R/E who will advise you according to the area if you should make small renovations or not.

I suggest you invest the capital of the sale in your business if you believe in your company. It takes about 3-5 years for a company to establish itself and become profitable. (was the case for me) It’s worth the effort in self-employment, not having a master and making your own schedule. Also, my income has grown consecutively each year while I work less hours. This is impossible when working a regular 9-5 job.

All the best.

#83 Logic on 03.04.14 at 10:14 am

The comparison being done is misleading.
To gain $455k, that math is based on 5 yrs at 7% gain.
The opportunity cost needs to be factored in so that some less mathematical readers won’t be misled.
It seems like you are saying the seller is getting $130K gain compared to $29K gain, which is not even close. I can agree that an investment outside of RE may win in this scenario, but not by much.

The property, since as you said is paid off, has the income potential of around $1100 (A 1+1 in DT Vancouver is fetching around 16-1800)? conservatively speaking – assuming expenses are deducted. Do that over 5 yrs and that will be an estimated opportunity cost of $66K. Also that investment portfolio will be taxed (50% of the investment gain at maybe 20%?) which was not accounted for.

#84 Bottoms_Up on 03.04.14 at 10:34 am

#68 AK on 03.04.14 at 1:41 am
————————————-
Children are expensive; you are going to want cash, cash, cash over the next few years.

Baby ‘start-up’ costs can easily cost a few thousand dollars (stroller travel system, crib/mattress/bedding, swings/chairs, activity mats, books, clothes, diapers/wipes/cream, vitamin D, medicines, toys, snacks/food etc.).

Then daycare until school age is going to cost you net ~$30,000. Throw in funding an RESP during those years and you can tack on another $10,000.

So ask yourself how you are going to fund $50,000 in expenses over the next 3-4 years and the answer should become pretty clear.

#85 Grantmi on 03.04.14 at 10:56 am

#25 Smoking Man on 03.03.14 at 9:45 pm

https://www.coursera.org

Teachers you’re future

What’s the catch??

Course Free ≠ money for Teacher

#86 Barry in Pickering on 03.04.14 at 10:56 am

)) No mortgage. — Garth

So this was a Vancouver 1 bedroom condo with a water view, rented out. You didn’t included any net rental income in your analysis. But you remebered to include dividends in your comparison to a stock portfolio. Rents are high in Vancouver, esp. with a water view.

Sensibly the condo owner realized his sizeable investment was underperfoming, and looked to capital appreciateion to fill in the difference. — Garth

#87 Penny Henny on 03.04.14 at 11:05 am

#61 Waterloo Resident on 03.04.14 at 12:02 am
Garth, DON’T BE RIDICULOUS.
Abel never had $325,000 to invest, all he had was $32,500 to invest (10% down). The REST WAS BORROWED.

Now if Abel had invested his $32,500 at 7% he would have had $45,500, only a $13,000 gain, probably closer to $9,000 after paying capital gains taxes.

No mortgage. — Garth
————————————————
No mortgage??
Then please make sense of this line from Abel-“Considering what I had to rent the place for to keep a tenant, I probably lost money.”

If he was renting and had no mortgage how could he have possibly lost money by collecting rent? And please don’t refer back to comparison of what he could have made by investing it.
And if he had lost money for whatever reason then he would have no taxes to pay on the rental income.
Garth-“I didn’t have the heart to remind Abel that for years he collected rent and paid tax on it at his marginal rate”
Why must you embellish?

Most people have no idea rental income is taxed the same as employment income, while dividends and capital gains attract 50% less tax. — Garth

#88 rosie "moving forward" in the knowledge that, "this won't end well" on 03.04.14 at 11:15 am

The comments section #71 starts off well.

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/think-gen-y-will-prop-up-canadas-housing-market-think-again/article17225753/

#89 Smoking Man on 03.04.14 at 11:17 am

#86 Grantmi on 03.04.14 at 10:56 am

My point is education is going to go through a radical change. Just need an accredited out fit, to take the entire program on line. Someone’s going to do it, others will be forced to follow.

So if your considering a gig in education, don’t.

Having baby sitters make six figures with huge pensions, not sustainable..

Only risk takers deserve hire incomes.

#90 Tom from Mississauga on 03.04.14 at 11:46 am

So the Canadian banks (ticker ZEB) would that be a head and shoulders pattern? That would make Pimco right…

#91 Aggregator on 03.04.14 at 12:06 pm

Hangzhou, China: On Feb 21 property owners angrily destroyed an estate agents office of one particular developer because the selling property project suddenly reduced the selling price, which causes the existing owners to hold "negative assets".  

Trampled Investment Photos

That's the mentality the Canadian government is going to have to deal with one day after it promised the Canadian visa and all its FREE welfare incentives was an opportunity to a better quality life.

#92 Ray Skunk on 03.04.14 at 12:25 pm

#68 AK:

Sell. All day, sell.

Unless this townhouse complex has major demand then you can’t really get away with selling it in a wrecked state.

I hear Victoria is on its arse. If it is the buyers market I hear it is, you will have a lot of competition.

This is where a good realtor can advise on what fixings offer your best bang-per-buck.

Good luck.

#93 Son of Ponzi on 03.04.14 at 12:32 pm

I think it’s time to close all tax loopholes on investment incomes.
A good day’s work should be taxed at the same rate.
Only then, Canada will be proud and mighty again.

#94 rosie "moving forward" in the knowledge that, "this won't end well" on 03.04.14 at 12:33 pm

Bubble brains.

http://www.kiplinger.com/article/investing/T038-C023-S002-wanted-bubble-detector.html#8QPsDOtTodOw6Ol2.99

#95 Suede on 03.04.14 at 12:51 pm

#68 AK

Sell the place.

Fix up as much as you can to make it presentable to a buyer. Fix the holes in the wall, new paint, new carpet. Make it feel nice.

Slap lipstick on that pig.

Then sell sell sell.

You have your own business. Best to not to have any other headaches in your life so you can concentrate on that and getting your way into the 1%.

Plus your wife will be on mat leave making peanuts. You need cash.

#96 Big Brother on 03.04.14 at 12:55 pm

#2 Smoking Man on 03.03.14 at 8:46 pm
Pimco had to raise some cash for redemptions, I like Bill Gross, but not his calls of late.
Again those PhD model makers throw no weight to Herd Dynamics…
I almost took a gig with them a few years ago. I should have, Newport Beach is a hell of a lot better than this shit, sub zero Temps for the next 2 weeks.

………………………………………………………………………

MKULTRA says BS with the gig, Unfortunately Smoking Man Pimco will not look at anyone without at minimum a Bachelors Degree, and or perhaps CFA /MBA. That is a fact! Although they are an equal opportunity employer. We programmed them too!

#97 CJ on 03.04.14 at 12:59 pm

I like this blog. But the fact is home ownership makes sense for a lot of people. Twice in the last week, friends of mine have been booted from their rental houses because the owners have “other plans.” Guess what? I will never be booted from my home. Because I own it.

#98 Randman on 03.04.14 at 1:05 pm

“Putin being a prick”?

You disappoint me Garth…..He may or may not be…but
do you have info we don’t? There are two sides to every story and the facts about what has happened there are still murky!

Besides these days,given their track record..I’m more inclined to believe the opposite side of the USSA position.

In a staggeringly hypocritical statement, John Kerry said
(roughly) That country has no right to make up and invent stories as a justification to invade….

Iraq..
Panama..
Vietnam…
Cambodia…

…and on and on..

Buehler?….Buehler…??? ….Buehler????

#99 WhiteKat on 03.04.14 at 1:18 pm

Speaking of rolling over, Canadian visitors to Washington sometimes wonder why their embassy stands at the foot of Capitol Hill.

The answer? To be close to where Canada’s laws are made.

Read more about Canada’s latest mind boggling capitulation to the USA in this Mar 3, 2014 Toronto Star Article written by James Jatras, a former US diplomat and US senate staffer: http://www.thestar.com/opinion/commentary/2014/03/03/enforce_canadian_law_not_fatca.html

#100 robert james on 03.04.14 at 1:28 pm

Just when you thought you saw it all.. LOL http://www.theglobeandmail.com/news/world/rich-chinese-angry-over-cancellation-of-canadian-immigrant-program/article17269390/

#101 Son of Ponzi on 03.04.14 at 1:35 pm

Mar 3. Russia invades Crimea. Stocks down.
Mar 4. Russia still in Crimea. Stocks up.
Is this what SM would call “herd dynamics”.

#102 WhiteKat on 03.04.14 at 1:46 pm

For those Canadians with a US connection, or those Canadians who care about maintaining the integrity of the Canadian Charter of Rights and Freedoms, some individual Canadians have joined forces to launch a Charter Challenge against the Canadian government for agreeing to send the private financial account details of Canadians deemed ‘US persons’ by USA (for example, border babies).

Leading constitutional lawyer Peter Hogg, has deemed that the FATCA ‘agreement’ signed by Canada with the USA violates the Canadian Charter of Rights and Freedoms (article 15) which prohibits discrimination based on national origin. Constitutional lawyer Joe Arvay, had been retained to do a formal legal opinion for the proposed Charter Challenge. To read more about this proposed legal action, and to see how you can help, please check out the Canadian Charter Challenge Fund: http://site345738.webydo.com/

#103 World According To Garth on 03.04.14 at 1:47 pm

Most people have no idea rental income is taxed the same as employment income, while dividends and capital gains attract 50% less tax. — Garth

———————

With this presumption, doesn’t this mean that owning a property and receiving rent which is taxed is a safe type of investment like a bond but paying more?

Own $350k house
Rent $20,000 per year

And can’t you shelter it somehow as an investment? Like a stock? Or is this impossible.

Bond $350k
Return MAYBE 2% if your lucky $7000 per year

#104 WhiteKat on 03.04.14 at 1:48 pm

Re: prior comment, please excuse my incomplete thought in the first sentence. To clarify, the Canadian government has agreed to send the information of Canadians deemed ‘US persons’ TO THE IRS.

#105 WhiteKat on 03.04.14 at 1:51 pm

Garth, you need an edit function here! (or I need to proof read better).

Joe Arvay HAS been retained (not HAD been retained), and will commence work on the legal opinion, once the requisite funds ($18500) have been raised. We are getting close to the target mark. Phase two will involve funding for the actual law suit.

#106 Son of Ponzi on 03.04.14 at 1:51 pm

Self-explanatory.
http://www.theglobeandmail.com/news/world/rich-chinese-angry-over-cancellation-of-canadian-immigrant-program/article17269390/

#107 robert james on 03.04.14 at 1:56 pm

Their hopes now dashed, a small group of those millionaires is now lashing out and demanding compensation, saying they have given up much in waiting to come to Canada – and deserve something for their pain. WHAT A PITY !!! lol http://www.theglobeandmail.com/news/world/rich-chinese-angry-over-cancellation-of-canadian-immigrant-program/article17269390/

#108 chickenlittle on 03.04.14 at 2:02 pm

#37 Uh Oh Canada:

Do you actually read this blog? if you do you’d realise that Garth would have told you to do all of that.

AK:

Hang in there…you’re a smart guy! I don’t know what to tell you, but I’m sure you’ll figure it out. BTW: congrats on the little one!!! I love babies. If kids stayed babies I’d have some myself, but they don’t so I’m out.

#109 Spectacle on 03.04.14 at 2:02 pm

Big Thanks Garth.

#68 AK on 03.04.14 at 1:41 am
I am in a bit of a bind here, and I’m hoping someone on the blog might have some insight or advice.

We love giving free advice on here….

AK, your already behind in $ on that Vic condo!
Your time is valuable now, concentration required to develop your business.
Income split w your lovely spouse, etc etc, get disability insurance!!
Read the last 20 or so blogs here, complete with comments, and you won’t be buying real estate.
Hope you are paying those income taxes on the real estate.
Yes, quick refresh to remove yuck factor, doing work yourself one weekend trip. Called a quick “hug & kiss” to the place for resale. Paint, silicone, touch ups!
Get a great realtor, not just a good one.

Hire Garth to invest , REITs , Tax Free S acct…….

Regards all

#110 late learner on 03.04.14 at 2:04 pm

“Baby ‘start-up’ costs can easily cost a few thousand dollars (stroller travel system, crib/mattress/bedding, swings/chairs, activity mats, books, clothes, diapers/wipes/cream, vitamin D, medicines, toys, snacks/food etc.).”

I do not agree with you. It takes about 10 months for a baby to arrive and you can plan ahead. You can buy or get lots of stuff for free in craigslist. I go to children swap twice a year and spend about 50 dollars for cloths for my daughter for a year. Toys also you can get a lot for .50 cents to three dollars. Later, you can sell them all at the swap. you can make lots of toys at home with house hold stuff. IN my experience, kids get bored with the bought toys in two days, but they love things around the house. Playing with water, mud, sand, going for a walk, reading etc.
for diapers, use cloth diapers. You can make it yourself or pay one time and can be used for next two years. When you use cloth diapers, you tend to have zero chances of rash. Feed home cook meals–pureed rice, speenech, lentils, legumes the options are endless.

They don’t need designer cloths, strollers or a brand new nursery. we do that for ourselves. Its all show off.

#111 Oceanside on 03.04.14 at 2:14 pm

#8 BallsyInvestor on 03.03.14 at 9:04 pm
The market is falling!
The market is falling!
The market is falling!

… and the smart cookies are snapping up the bargains -cheap!
_____________________________________________
No bargains yet, the “smart” cookies shouldn’t be so impatient. The market has just started “falling”. There is a bit of pent up buying taking place by people that are desperate for a home in a market without much choice and value in the offerings..

#112 late learner on 03.04.14 at 2:20 pm

A Strata Depreciation Report is now legally mandatory in British Columbia, with a final deadline of December-13th, 2013.
what will be the impact of this on management fee on strata properties. anybody has any idea?

#113 OffshoreObserver on 03.04.14 at 2:26 pm

SMURF:

I just paid 6 months’ rent for my Villa in Da Nang, Vietnam just 2 blocks from China Beachwhere I had lunch with my 27 year old GF for $15. She had the clams and I had squid with fruit and beer.

My rent is $450/month.

Today I am getting fibre optic internet put in–I went upscale for a 13mhz/sec/up/down for about 110/month. The ping should be <5 milli.

#114 airhead princess on 03.04.14 at 2:36 pm

DELETED

#115 Enthalpy on 03.04.14 at 2:40 pm

Even a slow leak and correction over time is terrible.
Who wants to see their newly purchased 500k house(400k mortgage) correct to 350k?

Yikes. Its like losing money on a brand new car purchase over time…except x14.

#116 Republic_of_Western_Canada on 03.04.14 at 2:45 pm

#86 Grantmi on 03.04.14 at 10:56 am

#25 Smoking Man on 03.03.14 at 9:45 pm

https://www.coursera.org

Teachers you’re future

What’s the catch??

Course Free ≠ money for Teacher

A generally more intelligent population is important to some people.

In addition to the esthetics of that -which includes the feeling of doing something significantly positive for society, it helps prevent systemic catastrophes.

An analogous example would the the millions of development hours dedicated by Linux programmers and system designers for free over the years, to develop solid software, as a counter to the money-grubbing defective ‘windows’ crap cranked out by micro$oft.

#117 airhead princess on 03.04.14 at 2:54 pm

BTW…One of the more interesting points in the disgruntled HAM artice is this quote “Father-of-two Yu Qingxin, who manages commercial buildings, schools and hospitals in China, said he had already bought a house in west Vancouver for nearly $2 million Canadian dollars ($1.8 million) in preparation to emigrate. The most impressive thing about Canada, said Yu, is its “sense of morality.”

Read more: http://www.vancouversun.com/business/Chinese+millionaires+urge+trustworthy+Canada+ditch+their+immigration/9576623/story.html#ixzz2v1O4HM8N

Which proves what has been stated on this blog before, that HAM has been a major contributor to the volume of sales in Vancouver…..because they were buying in advance of their status being granted.

Given the numbers of HAM anticapating the rubber stamp ( 65,000 +++ and having dealt with quite a few myself) I am comfortable with restating a previous statement that tens of thousands of residences in Vancouver are HAM owned and are now in play because of the HAM being turned down by an ‘immoral and untrustworthy Canada’.

Many HAM had already been playacting as bona fide….and now they are not likely to gain entrance…even as tourists given their status…..where does that leave their willingness to retain ownership of the thousands of empty homes that now line the streets?

#118 stop lying on 03.04.14 at 3:08 pm

I bought ZDM and VEE yesterday and overnight earned me 2%. the only problem with that is you need cash in your account to take advantage of these quick dips. does it make sense to have large sums of money doing nothing to buy dips? or do you sell something stable like XPF to get the cash quick and then buy?

#119 Van Isle Renter on 03.04.14 at 3:18 pm

#68 AK on 03.04.14 at 1:41 am

+1 on dump the condo. Do a full clean up, make it spotless, but make sure you fix whatever is broken. Use the cheapest Home Depot fixtures that you can get away with. House Hornies will always want to fix stuff up so keep it neutral and cheap. They may want to replace it anyway. Paint is also cheap and you can DIY.

Use a realtor, like the Bearded Prophet says, price it realistically and get out from under. Pay off your student loans and invest the rest.

Think long and hard about your decision to be self-employed. You may want to follow your bliss, but turning down six figures to do so is a massive opportunity cost, especially if your wife is the one who has to pay for it.

Stay at home new mom time and a working dad with a six figure income will be your new kid’s dream.

Oh, and some advice to new dads: use a blow dryer on the baby’s bum after you change the diaper and the kid will never get diaper rash.

And that is the sum total of my knowledge.

#120 stop lying on 03.04.14 at 3:31 pm

http://www.thestar.com/news/immigration/2014/03/04/chinese_millionaires_plead_for_canada_to_let_them_immigrate.html

boo hoo… funny how the Chinese gov’t was worried about house prices so put a cap on the number these people could buy, yet HAM is a myth here?

#121 hohoho on 03.04.14 at 3:50 pm

> if i rent my primary residence (while i live/rent elsewhere) …

IIRC if you live elsewhere then you are talking about an investment property, not primary residence. you pay capital gain tax on your gains, and of course marginal income tax on the rental income.

Many have been evading taxes this way, and one day CRA will come knocking …

#122 Shawn on 03.04.14 at 3:59 pm

KNOWING RIGHT FROM TECHNICAL ANALYSIS

Nuber 91 Tom From Missisauga said:

So the Canadian banks (ticker ZEB) would that be a head and shoulders pattern? That would make Pimco right…

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

No, because unlike three lefts, two wrongs do not make a right.

#123 stop lying on 03.04.14 at 4:09 pm

#92 – with the Chinese concrete they used that could be what the actual place looks like in 20 years…

#124 Same story since 2007 on 03.04.14 at 4:14 pm

If you want to be rich…
Don’t listen to rich people, just do what rich people do…

#125 Aggregator on 03.04.14 at 4:19 pm

Rich Chinese angry over canceled Canadian immigrant program

There are still ways into Canada for a wealthy immigrant, who could, for example, buy a Canadian company and then bring himself or herself in to work for it. But that is a more complicated process, with less assured results. – G&M

Exactly what I said before, that wealthy immigrants wishing to flee China can do so by opening some bogus Canadian company and hiring family and friends as skilled plumbers or whatever.

They canceled 69,000 applicants…big deal! That's only 5% of China's multi-millionaires that right now are all desperate get their money out of China before the PBC's anti-graft crackdown squad comes knocking on their door.

How many times are you going to let the government fool you? Canada is a harbor for dirty money and will remain that way because the GG Commander-in-chief says so. At least one G&M poster figured it out.

yuknon: Waterloo University, my alma matter, has already sold our most space in its Geology Department to China. As a reward for his service to the Chinese the last President of UW got to be Governor General and was recently over in China selling pipelines for the Conservatives.

#126 Brutus on 03.04.14 at 4:19 pm

Tipping over into political and financial chaos is much closer now.

Russians have just fired off an ICBM.

WTF!!!!???

http://www.bbc.com/news/

#127 Same story since 2007 on 03.04.14 at 4:26 pm

As demonstrated last week, it is a reality now in many cities. — Garth

Not in Calgary and Edmonton…

#128 espressobob on 03.04.14 at 4:40 pm

#119 stop lying

Trying to time short term market moves is a mugs game. When does one enter or exit a position?

Better to own it all, take some profit when the opportunity presents itself and rebalance ones portfolio. And its easier on the nerves.

#129 gladiator on 03.04.14 at 4:49 pm

@127 Brutus:
it was a test missile launch.
Just rattling sabers.

#130 Uh Oh Canada on 03.04.14 at 4:57 pm

#37 Uh Oh Canada:

Do you actually read this blog? if you do you’d realise that Garth would have told you to do all of that.
—————————————————————–

When I said Garth has been wrong, I’m referring to comment #18 regarding his prediction on the timing of the housing correction. If you were following in the early days, you would know that Garth has been calling for a correction/rate increase for years.

He is correct, however his timing was early. I believe that it is happening as we speak and we will clearly see it as of 2015. I thank Garth for the years of warning because this mammoth of a correction will affect all of us. I hope you all have been listening to the man with the squirrel hat and have been squirreling away.

#131 Old Man on 03.04.14 at 4:58 pm

#124 Brutus – fear not, as its just a signal for the Pentagon to pay attention. This ICBM that Russia developed is 25 years ahead of anything they have, and no so-called defense shield can stop it. Relax as there is nothing to worry about, or is there?

#132 LP on 03.04.14 at 5:02 pm

#120 Van Isle Renter on 03.04.14 at 3:18 pm
#68 AK on 03.04.14 at 1:41 am

Oh, and some advice to new dads: use a blow dryer on the baby’s bum after you change the diaper and the kid will never get diaper rash.

And that is the sum total of my knowledge.
***************************************
addendum from an old mom – put that dryer setting on LOW (tender skin burns in the blink of an eye!) and keep that diaper handy; kids leak from the darndest places in the blink of an eye too.

#133 Aggregator on 03.04.14 at 5:07 pm

So the Canadian banks (ticker ZEB) would that be a head and shoulders pattern?

Head and shoulders? Pfft. That's old school T&A. Today you need the "missle" and "test" text analysis to know what direction the market is heading. Chart

#134 devore on 03.04.14 at 5:11 pm

#118 airhead princess

where does that leave their willingness to retain ownership of the thousands of empty homes that now line the streets?

Probably same place as their willingness to retain ownership of millions of empty houses that line the streets (even entire cities) all over China.

The “comfort in restating your previous statements” comes from your unwavering belief supported by false premises.

#135 Smoking Man on 03.04.14 at 5:12 pm

#97 Big Brother on 03.04.14 at 12:55 pm

You of all people should know I have a PhD in Herdonomics from an un accredited University. UOG

My thesis was on the shrinking universe..

Oh and wrong about Pimco. That’s there fte policy. Contractors exempt.

North American Leading expert on Data Synapse.

#136 docteurfolamour on 03.04.14 at 5:21 pm

There are two important assumptions that underpin our housing forecast. First, a correction is not a bubble bursting in a disorderly manner. Second, the correction will start in 2014,…april 28 at 5h30 p.m to be exact.

#137 espressobob on 03.04.14 at 5:30 pm

#68 AK

You gave up a 6-figure income to try your hand at a business? What the hell Where you thinking?

#138 Becca on 03.04.14 at 5:34 pm

I have friends that are learning the hard way that condos aren’t really a great investment. They basically knew nothing when they bought their 2bd/2bath condo in the Lower Mainland and are trying to sell it, hoping to break even with their mortgage and closing costs. They completely skirt the issue of the fact that they “threw money away” on interest and capital the past four years. They bought for $230K, are hoping to sell for $207K to meet outstanding mortgage and will just, very simply, go into debt for the closing costs and commission. Unfortunately a comparable unit in the same building received an offer for $189K, so $207 is probably a fantasy. Let’s not forget the money they spent putting in a stainless steel fridge and stove. It’s a train wreck. Making matters worse, his parents are giving them $20K as a DP on a bigger place so they can grow their family. They are actually considering getting a fixer-upper townhouse with a smaller down payment so they can use part of the $20K to get themselves out of the mess they’re leaving behind. Apparently they only need $15K as a downpayment, not the full $20K! Amazing times we live in. Financial geniuses. And then they’ll need more cash to fix up whatever dilapidated townhouse they end up with. With no cash cushion, whatsoever. But it’s all okay, because this time they’re going to stay there forever! It’s frightening. Interest rates need to rise and something drastic needs to be done. I don’t love my rental living situation, but seeing what my friends are going through, the alternative isn’t worth it.

#139 PIMCOLOL on 03.04.14 at 5:40 pm

Sales volume and prices to record highs in Calgary and Vancouver. Pimco is such a joke.

Higher prices mean higher risk. No joke there. — Garth

#140 Smartalox on 03.04.14 at 5:42 pm

@Penny Henny #88:

There are many ongoing costs to owning a condo, that might cause a landlord to lose money despite renting the place out.

Strata fees
Property Taxes
Management fees (if the landlord is in another city, he’s probably paying someone to manage the place for him)
Maybe a special assessment?
Tax on rental income,

Also, the landlord may have lowered the rent to keep a good tenant in his place. A $325k condo is pro ably located in a tower, with lots of competition. If the landlord prices the rent too high, a good renter can find a better deal somewhere else – and possibly never have to leave the building.

Happened to friends of mine, found a better deal in the same building, just two floors up. Moved all their stuff over in less than 3 hours on a rainy Saturday.

#141 Spectacle on 03.04.14 at 5:59 pm

Greatly Appreciated Garth.

#113 late learner on 03.04.14 at 2:20 pm
A Strata Depreciation Report..now legally mandatory in BC……what will be the impact of this on management fee on strata properties….?

Better “Late Learner” than never. A whole new unforeseen level of “ownership” strata management costs, that’s what is headed our way!

Was just with a successful realtor, near the 2010 Olympic site, the building has its lobby hallway on ground floor torn open, 8 months now! Big disput about who is Paying the ever growing flooded ceiling, repipe, insulate etc costs. Unanticipated by strata & had no clue about planning/budgeting for these costs.

BC Buildings are seeing the 50-60 year re-work coming on strong in as little as 2-10 years!

Say ouch …anyone?

#142 Humpty Dumpty on 03.04.14 at 6:05 pm

Is that cute!

Two commies rubbing each others belly…

China Backs Russia on Ukraine

Despite its principle of non-interference, domestic and international interests have Beijing siding with Moscow.

http://thediplomat.com/2014/03/china-backs-russia-on-ukraine/

#143 Son of Ponzi on 03.04.14 at 6:09 pm

I think SM is a disgruntled former teacher who was stuck teaching Kindergarten because he was a poor speller.
We all have our demons.

#144 Shawn on 03.04.14 at 6:12 pm

Number 68 AK said:

I gave up a 6-figure salary in healthcare to open my own business, but it has really struggled since we opened in May. My wife pulls in about 70K, which is our sole source of income.

To which 138 expressobob said:

You gave up a 6-figure income to try your hand at a business? What the hell Where you thinking?

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

Perhaps AK was thinking that life is too short to work for others if you can help it. I hope the business works out.

The more you make in salary the more beholden you are to (usually) insufferable bosses and beuarocracies.

Work for yourself if you can make a good living.

#145 Son of Ponzi on 03.04.14 at 6:15 pm

#130
it was a test missile launch.
——————
It is a test missile until it lands in your backyard.

#146 neo on 03.04.14 at 6:19 pm

#76 neo on 03.04.14 at 8:10 am
It is pretty hypocritical of you to pooh pooh everything thing that comes out of Bill Gross’ mouth as him being an opportunist and alarmist. Yet when he says something that corroborates your agenda it is now golden. Hmmmm. Even Al-Erian had enough of Gross/Pimco and left and he was his right hand man many years.

Where did I quote Bill Gross? — Garth

He has said numerous things on twitter that others have pointed out that you disagreed with and said he has a “personal agenda”. Yet he says something that aligns with your agenda and you take it as gospel. That is all I am saying.

Gross did not write the report I quoted. — Garth

#147 Steven on 03.04.14 at 6:21 pm

I would like to congradulate the Canadian Real Estate market. It’s unlimited greed and avarice has reduced the value of wage rates to whale crap. Employers don’t want to pay their employees enough to buy a house any where near a job. The only affordable homes near a job in Barrie Ontario are in Kapuskasing and Geraldton. There was only one house in each place that caught my attention and with out work up there what is the point of being there? Garth after the end of this month there is a good chance I will be off line may be for a long time.

#148 calgary rip off on 03.04.14 at 6:27 pm

What I have said all along: Not enough land in Calgary. http://www.calgaryherald.com/news/calgary/City+poised+limit+areas+available+suburban+growth/9574514/story.html

i can see my shack nestled among the other in the centre of the picture. This picture shows my domain. I regularly bombard this area with high frequencies from my Fender Stratocaster pumped through my Marshall stack. The whole area suffers from the shockwave of extreme high volume shredding. I also use binaural beats at lower frequencies. (To instill real estate insanity.)

In the centre right of the picture is stoney trail. I rode my bike up and down that parkade before it was opened to traffic. That was around 2008. Notice the golf course(more wasted space-there could be houses there on Beddington Trail).

This is why people pay double to live in Calgary: Enjoyment of urban sprawl in the hood.

#149 Humpty Dumpty on 03.04.14 at 6:31 pm

Now Roll over and bark… Good Boy….

Kerry Tuesday warned Russia it faced further punitive steps from the international community if it did not act to reduce tensions.

http://voiceofrussia.com/news/2014_03_04/US-condemns-Russian-politics-in-Ukraine-Kerry-9522/

But then Kerry says this…

The US is also working closely with the International Monetary Fund (IMF) to draw up an assistance package for Ukraine to ensure its economic stability, Kerry said. The US is also rendering expert assistance to Ukraine to support its economy on the way of its restoration, he said.

http://voiceofrussia.com/news/2014_03_04/US-to-extend-1-billion-loan-to-Ukraine-wants-to-defuse-tensions-Kerry-3011/

But they say this…

The EU has no plans to impose santions against Russia in relation to the situation in Ukraine, Vladimir Chizhov, Russia’s envoy to the UN, has said Tuesday.

http://voiceofrussia.com/2014_03_04/EU-has-no-plans-to-impose-sanctions-against-Russia-now-Russias-EU-envoy-2830/

Followed by this..

The European Union needs Russian gas, EU Energy Commissioner Gunter Oettinger said on Tuesday after a meeting of the European Union’s Transport, Telecommunications and Energy Council

http://voiceofrussia.com/news/2014_03_04/European-Union-needs-Russian-gas-EU-energy-commissioner-3091/

So which tree is Amerika barking up..

#150 Smartalox on 03.04.14 at 6:45 pm

Breaking News: Vancouver Canucks Goalie Roberto Luongo traded back to Florida panthers.

Ladies and gentlemen, I predict that this will be the unforeseen event that triggers the Vancouver proprty crash. When Luongo was last in south Florida (2006) property values there were in a bubble. When he cemented his contract in Vancouver (2009) property values in south Florida cratered, just as the bubble began rapidly inflating in Vancouver.

Now as he goes on his way (good riddance) any number of mass delusions about value and long-term performance stand to be shattered. Also note that property values are once again on the rise in South Florida these days.

Coincidence?

#151 Say no to Yoga Pants on 03.04.14 at 6:48 pm

#140 PIMCOLOL on 03.04.14 at 5:40 pm
Sales volume and prices to record highs in Calgary and Vancouver. Pimco is such a joke.

please provide one (1) singular example of something that has risen in price indefinitely and never gone backwards…just 1.

I have 7000 plus years of boom bust cycles on my side, just so you know.

#152 rosie "moving forward" in the knowledge that, "this won't end well" on 03.04.14 at 7:03 pm

#150 humpty dumpty

It’s a two way street.

http://www.reuters.com/article/2014/03/03/us-urkaine-crisis-russia-economy-analysi-idUSBREA221D020140303

#153 espressobob on 03.04.14 at 7:22 pm

#145 Shawn

Self employment is a funny animal. I”m hoping things work out for AK!

The problem with most who worship owning a business is putting up with competitors!

I can assure you if anyone where to set up shop beside me as a competitor I would take every legal means available to crush them into the pavement! And thats with extreme prejudice! Thats business!!!! And its reality!

Think about it before you enter the ring!

#154 Derek R on 03.04.14 at 7:38 pm

#150 Humpty Dumpty on 03.04.14 at 6:31 pm asked
So which tree is Amerika barking up…

Here’s an interesting essay on the possible reason behind the mixed messages.

http://www.golemxiv.co.uk/2014/03/ukraine-some-thoughts-on-who-is-playing-for-what/

Maybe it will make things clearer for you. Maybe not. But at the least it gives another perspective on the situation.

#155 jess on 03.04.14 at 8:02 pm

…”By 2007, 75% of all mortgage originations were securitized. According to investment banker and financial analyst Christopher Whalen, the purpose of securitization was to allow banks to avoid capitalization requirements, enabling them to borrow at unregulated levels.

Since the real estate trusts were “off-balance sheet,” they did not count in the banks’ capital requirements. But under applicable accounting rules, that was true only if they were “true sales.” According to Whalen, “most of the securitizations done by banks over the past two decades were in fact secured borrowings, not true sales, and thus potential frauds on insured depositories.” He concludes, “bank abuses of non-bank vehicles to pretend to sell assets and thereby lower required capital levels was a major cause of the subprime financial crisis.”

In 1997, the FDIC gave the banks a pass on these disguised borrowings by granting them “safe harbor” status. This proved to be a colossal mistake, which led to the implosion of the housing market and the economy at large. Safe harbor status was finally withdrawn in 2011; but in the meantime, “financings” were disguised as “true sales,” permitting banks to grossly over-borrow and over-leverage. Over-leveraging allowed credit to be pumped up to bubble levels, driving up home prices. When the bubble collapsed, homeowners had to pick up the tab by paying on mortgages that far exceeded the market value of their homes. According to Whalen:…

http://truth-out.org/news/item/22232-the-stone-that-brings-down-goliath-richmond-and-eminent-domain

#156 FOR: #68 AK on 03.04.14 at 1:41 am on 03.04.14 at 8:04 pm

RE#68 AK on 03.04.14 at 1:41 am

ozy – consult a number of honest agents, it depends on demand for scenario 1 or 2 in that market.

it sounds cheap, so must be a bad area or very small, old and crappy finishing – so do not keep it

sell privately to a buddy contractor….use the agents to get a listing value and realistic sold value

#157 Daisy Mae on 03.04.14 at 8:26 pm

#138 espressobob
#68 AK

You gave up a 6-figure income to try your hand at a business? What the hell Where you thinking?

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

I’m inclined to agree… :-(

#158 jess on 03.04.14 at 8:41 pm

Publishers withdraw more than 120 gibberish papers
Conference proceedings removed from subscription databases after scientist reveals that they were computer-generated.

http://www.nature.com/news/publishers-withdraw-more-than-120-gibberish-papers-1.14763

#159 UTSBLUE on 03.05.14 at 11:14 am

I looked at these numbers pretty quickly so you might want to do a quick double check for accuracy. I reviewed past press releases. However:

1. TREB reported sales are UP year over year from Feb 2014 to Feb 2013 by +2.1%. They are actually DOWN 0.5%.
2. Sales are actually DOWN from Feb 2014 v. Feb 2008 by 4.7%.
3. Sales are DOWN from Feb 2014 v. Feb 2012 by 18.5%.
4. Based on their double counted listings, the avg. sale price is up Feb 2014 v. Feb 2008 by +44.8% – not including Taxes, Insurance, Maintenance, which means the real number is less than +44.8%. Good. Except the share prices of stocks such as Bank of Nova Scotia, CN Rail and Metro, are up +66.1%, +140.3% and +150% – NOT INCLUDING DIVIDENDS. And for stocks, there are no taxes, insurance, maintenance or any other fees.

Avg Price # Sales
Feb-08 382,048 6,015
Feb-09 361,305 4,120
Feb-10 431,509 7,291
Feb-11 454,423 6,266
Feb-12 502,508 7,032
Feb-13 510,580 5,759
Feb-14 553,193 5,731
Feb 14 v. 13 8.3% -0.5%
Feb 14 v. 12 10.1% -18.5%
Feb 14 v. 11 21.7% -8.5%
Feb 14 v. 10 28.2% -21.4%
Feb 14 v. 09 53.1% 39.1%
Feb 14 v. 08 44.8% -4.7%

#160 Check your facts! on 03.05.14 at 6:53 pm

#4 is correct, you’re numbers are wrong and the argument is invalid.

This person would have to pay to live SOMEWHERE. So if they took out a $325k mortgage to invest they’d need to make payments on it and rent. Good luck… easy to fool those that read this though.