Race to the bottom

BOTTOM modified modified

On Thursday, BeeMo emailed everybody saying its new 2.99 mortgage rate was because of the bond market. “This rate change is driven solely by the fact that bond yields have fallen…” said banker spokesguy Paul Deegan.

Paul probably knew that wasn’t true. The yield on government bonds bottomed seven weeks ago and has been rising since. Oops.

Of course the banks really put mortgages on sale because (a) it’s spring and the sap is running, (b) real estate prices are up but volumes are down so they need more market share, and (c) that little pecker F is gone and they’re testing the big Owe. You may remember that the last time this happened the elfin deity responded quickly, telling the loan floggers that even-cheaper money would turn Canadians into vats of tepid, swimming hormones, leading to more debt and real estate risk. The Bay Streeters retreated.

But will the new finance minister also slap them down? So far Joe Oliver’s blinked. “Our government has taken action in the past to reduce consumer indebtedness and the government’s exposure to the housing market,” he said in an amusing email. “I will continue to monitor the market closely.”

Yeah, right. Scary. So you can expect more offerings of four- and five-year mortgages in the 2.5-3% range over the next few weeks, before they disappear. And what will this do to the marketplace? More of the same. A paucity of listings (people don’t sell when they figure they can’t afford to buy). Static, unimpressive sales volumes. And higher average prices.

As I’ve told you, there’s nothing good coming out of a report in which the average SFH in 416 shoots above $900,000, while the number of houses changing hands plunges 21.5% from two years ago. This is a classic indicator of a market with less participation – fewer sellers, fewer buyers and significant over-valuation.

If you ever owned Nortel, you know all about late-cycle price peaks. Or if you’ve been a real estate developer for more than 25 years, you also know trouble when you see it. Like PS (he asks that I do not use his real name), who admits building houses in Alberta has been good for him, but he seriously worries the music will stop.

“There is no doubt that the present state of the housing market in Canada is the responsibility of the policies of CMHC and the Bank of Canada,” he tells me. “The various arms of the development industry have capitalized on the opportunities created by these entities, but very few are willing to be honest about the unintended consequences that have been the result.”

Like me, he won’t go quietly. The CEO has put together a document for his management team, “to keep them aware of what we are facing.” I’m sending a copy to Joe Oliver, in the faint chance he’s not reading this.

Twenty-two Reasons Real Estate in Canada is Near a Top

1. Real estate valuations have reached record levels in their relationship to multiple long-term fundamentals.  Current Canadian real estate valuations are all at record levels in relationship to; rental cost, average income, overall debt, and equivalent global values. When valuation metrics are at all time highs, caution is generally in order.

2. Canadian household debt levels are at record levels and are largely being ignored. Canadians moved counter to the global trend of deleveraging during the recent financial crisis and instead, increased their levels of personal debt. When the inevitable day comes to begin paying down the debt, the major driver of real estate will end too.

3. Real estate debt in Canada is at all time high levels.  The growth of housing debt has substantially exceeded the growth of personal incomes.

4. Interest rates are at multi-generational low levels will not continue indefinitely.  The presently low interest rates are masking the negative consequences of household debt and the ability to carry debt will deteriorate quickly when interest rates normalize.  Low interest rates always send a message of “low risk” which results in misallocation of capital and ends with an asset bubble.

5. There is presently almost no awareness of the risk of contracting real estate values.  When the risk to any asset class has been discounted to near zero and the value is only expected to increase, irrational exuberance will often be interrupted by another reality.

6. The Canadian real estate market did not fully experience a full correction that the US market did during the global financial crisis.  Canada experienced an abbreviated version of a housing correction, in part, through extreme government intervention.  This has emboldened the market to consider real estate as one of the safest investments.

7. Investor intelligence is at a low point.  Fear and greed have taken over the real estate market and buyers will do anything to keep from being left out.  Buying decisions tend to be easily reinforced because it is a familiar, practical and emotionally comforting asset class. There is also a general inability to rationally consider the economic costs of buying versus renting.

8. Employment growth in Canada is flat.  In the past year, there has been almost no employment growth in Canada and the past six months have even shown negative growth.

9. Low interest rates and small down payments have made it possible for housing purchasers to acquire more home than would normally be possible.  The access to additional levels of debt has expanded purchaser’s ability and desire to increase the values of their homes.  Traditionally affordable properties are being turned into jewel boxes with much higher values.

10. When any asset class experiences multi-year increases in valuations it is cause for concern and not excitement.  An increase in Canadian real estate prices in twelve out of the last thirteen years provides a strong indication that a correction may be overdue.

11. The combined policies of the Bank of Canada and CMHC have encouraged investment in real estate at the expense of the manufacturing sector.  Capital and credit is a limited resource and has been increasingly directed towards real estate and away from productive manufacturing.

12. The present value of Canadian residential construction in relation to the overall economy is substantially greater than it was in the US at the peak of their market. Canadian residential construction now represents about 7% of GDP, while the US housing construction never contributed more than 5% of GDP.  For more than a decade, residential housing construction has exceeded a sustainable contribution to the Canadian economy.

13. The total number of residential construction starts in Canada has remained above the long-term trend for more than a decade.  Oversupply will always be the mortal enemy of prices in any economy.

14. Real estate market cycles tend to be long and they always overshoot to the upside just as they will eventually overshoot to the downside.  Long term studies consistently show that prices in even widely diverse markets nearly always follow a similar pattern of reverting to their long term mean.  Canadian real estate prices have not been within the mean range for well over a decade and are “technically” overdue for a major correction.

15. Real estate developer sentiment appears to be universally bullish.  Record high prices are being paid with speculation on land that will not be available for development for five years and more.  The input costs of land are being fixed at record levels and have no margin of safety for a correction in real estate values in the future.

16. Numerous major global financial institutions have sounded the warning on the risks of the overpriced housing market.  These warnings are coming from some of the most unbiased perspectives and still the market remains undeterred.

17. The free market has not been allowed to operate efficiently in establishing the fair market value for real estate.  Government intervention in the housing market through CMHC with more than $800,000,000,000.00 of financial backing of residential loans has had numerous unintended consequences. If left alone, the free markets would have assessed risk much more conservatively and the easy access to credit would not have prematurely drawn many marginal buyers into the real estate market.  Housing and land would have remained much more affordable without this, and the intervention of extremely low Bank of Canada interest rates.

18. There is an investor disregard for the fact that real estate is a non-productive asset class.  It produces nothing that may be sold and pays no dividend, but it carries a significant capital liability and has the regular cost of maintenance.

19. Baby boomers will begin exiting their real estate in a growing wave.  Due to their limited financial investments apart from real estate, retiring boomers will begin a trend of liquidating real estate to fund retirement expenses.

20. Asset prices commonly accelerate towards the end of a bubble only to be immediately followed by a correction.  Canadian house prices have recently had their biggest rise in the past two years.  Fear of being left out of any remaining opportunity, the late investors panic as they finally get in at the tail end of the cycle.  The early investors, blinded by the pride of entering the market sooner, continue to hold out for even greater profits.

21. Canada has the one of the highest rates of home ownership in the world.  Spain and Ireland have higher rates of homeownership and are still experiencing a housing crisis, while Germany has a homeownership rate half of Canada’s and has avoided the global housing crisis altogether.

22. The strength of the real estate market is inspired by a false belief that “this time it is different”.  It is never different, not even in Canada.

173 comments ↓

#1 gladiator on 03.27.14 at 7:20 pm

People in the pic driving the porcelain bus?

#2 chopper on 03.27.14 at 7:28 pm

Garth thanks for your insightful take on this RE market
The banks want Business that is the reason for the announcement

#3 Jas Girn on 03.27.14 at 7:31 pm

You are the best Garth.

#4 not 1st on 03.27.14 at 7:33 pm

This correction is taking way too long. It would be faster for Garth to run for office again and get appointed FM than to let things correct naturally.

#5 Lala on 03.27.14 at 7:34 pm

It is different here, it is too cooooooold. Canaduhhhhh

#6 Sideline Sitter on 03.27.14 at 7:40 pm

still sitting on the sideline… I wonder though, how many people are also sitting on the sidelines waiting for a crash, and will their jump into the markets mean a softer landing?

Or, is it that the only “sideline sitters” are on this blog, and represent a very small fraction of the population?

#7 Debtfree on 03.27.14 at 7:40 pm

Germany has a leader that is and also surrounds herself with other scientists . We have a government that abhors science and scientists . I don’t think its a good idea to have an end of times guy setting foreign or domestic policy .

#8 2 More winters like this and we shall see RE prices on 03.27.14 at 7:43 pm

BMO should not lower the prices!

or maybe they should but Cap CHMC

#9 Jason on 03.27.14 at 7:46 pm

The Market Can Remain Irrational Longer Than You Can Remain Solvent Keynes

#10 Observer on 03.27.14 at 7:46 pm

I guess tangerine is the new orange…

#11 Retired Boomer - WI on 03.27.14 at 7:47 pm

Excellent Letter! Reminds me of the robot in the 60’s TV classic “Lost in Space” warning…..”Danger!…DANGER…Will Robinson.”

Yes, the facts may be obvious to anyone reading them, but those with property, as well as many of those who DESIRE property well, they just don’t “see” the danger.

That’s how the Rick’s of yesterday got hooped. That may well be how the Brian’s of tomorrow, get hooped as well.

As for me, I’ve seen this flick before… or as we say on a slippery road trip here in WI, when you’ve just lost control… “hold my beer, you’re not gonna believe this shit.”

#12 mitzerboy on 03.27.14 at 7:54 pm

the human species is a fickle bunch….thx garth

#13 Pat on 03.27.14 at 8:01 pm

San Antonio Express-News Cant happen here no way
The Montelongo family, from the left, David, Melina, Veronica, Armando Montelongo. Legal troubles now engulf the family that once started on A&E’s “Flip This House.”
David and Melina Montelongo, former co-stars of the A&E show “Flip This House,” claim they can’t pay back their debts.

Last week, the couple filed for Chapter 7 bankruptcy liquidation in San Antonio. They have about $31,000 in assets and owe creditors roughly $600,000, says their bankruptcy attorney, J. Todd Malaise.

Real estate investment was the pair’s bread and butter, but they don’t own any property, Malaise said. They rent a house, which their bankruptcy petition shows is in The Dominion.

They’ve had their share of financial troubles since “Flip This House,” a reality television show that featured the family dealing with contractor disputes and home renovations.

As the couple’s debts accumulated, David Montelongo has been locked in a legal dispute with his brother and former co-star, Armando Montelongo Jr.

“When the economy and real estate market went south in 2008, it really caused problems with their business,” Malaise said.

#14 Victoria Real Estate Update on 03.27.14 at 8:01 pm

Percentage Price Increase / Decrease Since June 2010
. . . . . . . . . . . . .All Property Types . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 15 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . ..+ . . .+ 14 %. . Canada
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 13 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 12 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 11 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 10 %
. . . . . . . . . . . . . . . . . . . . . .+. . . . . . . . . .+ 9 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 8 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 7 %
. . . . . . . . . . . . . ..+. . . . . . . . . . . . . . . . . .+ 6 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 5 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 4 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 3 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 2 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ 1 %
+*. . . . ..+. . . . . . . . . . . . . . . . . . . . . . . . . .0 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 1 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 2 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 3 %
. . . . . . . .*. . . . . . . . . . . . . . . . . . . . . . . ..- 4 %
. . . . . . . . . . . . . . . . . . . . . ..*. . . . . . . . . .- 5 %
. . . . . . . . . . . . . . .*. . . . . . . . . . . . . . . . ..- 6 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 7 %
. . . . . . . . . . . . . . . . . . . . . . . . . . . ..*. . . .- 8 %. .Greater
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 9 %. .Victoria
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 10 %
———————————————————————————
June. . . .Feb. . . . .Feb. . . . .Feb. . . . Feb. . . . . . .
2010. . .2011. . . .2012. . . .2013. . ..2014. . . . . . .

(Source: index)

Based on this data, house prices in Victoria peaked in June 2010 and have fallen 8.3% since that time. In contrast, house prices across Canada have increased by 14% over the same period of time.

House prices in Victoria remain in bubble territory.

Over the past 50 years, numerous countries have experienced housing bubbles and Canada’s currrent housing bubble is a big one.

Inevitably, house prices in Victoria (and across the rest of Canada) will experience a deep, multi-year price correction.

Lax lending standards (starting in 2000) and emergency level interest rates (since 2009) have fueled Victoria’s housing bubble. Since 2000, house prices in Victoria have more than doubled, dwarfing any increases in incomes and rents. In other words, house prices in Victoria have become detached from underlying fundamentals (incomes and rents).

By 2006, house prices in many US cities had become detached from underlying fundamentals (incomes and rents). The consequence was predictable – a deep, multi-year price correction. House prices in cities such as Los Angeles, San Diego, Phoenix, Las Vegas and Miami (all bubble markets in 2006) corrected back to a level where underlying fundamentals (incomes and rents) were, once again, able to provide price support.

The same will happen in Victoria and across the rest of Canada.

Let’s look at an example from the US:

This 4 bed, 3 bath, 1938 sq. ft. West Palm Beach, Florida house was built in 2004.

Value in 2006: $375 K
Value in 2011: $119 K
Current value: $199 K

A comparable house in Victoria (with at least 1900 sq. ft. of (above ground) primary living space, 4 beds, 3 baths, 2004 or newer) would probably cost $700 K or more.

By 2006, house prices in West Palm Beach Florida had become detached from underlying fundamentals (incomes and rents). Inevitably, house prices in that city experienced a deep, multi-year price correction. House prices declined until incomes and rents were, once again, able to provide price support.

Housing bubbles always deflate. It isn’t different in Victoria.

Girls and guys, Victoria’s price correction will continue until prices reach a level where incomes and rents are, once again, able to provide price support. If you buy now you will soon be forced to deal with the financial problems associated with an underwater mortgage. Thousands of US families continue to deal with the negative financial consequences of buying at or near the peak of the 2006 US housing bubble. Don’t put yourself in that position.

Renting for now is a no-brainer. Wait for lower prices.

Until next time – Cheers!

#15 Andrew Woburn on 03.27.14 at 8:08 pm

Labor Force Participation Doesn’t Mean What It Used To

Good, plain English account of US unemployment figures from the new 538 blog organized by Nate Silver, the whizkid statistician who called the last US election results just about perfectly.

http://fivethirtyeight.com/datalab/labor-force-participation-doesnt-mean-what-it-used-to/

#16 Steve on 03.27.14 at 8:13 pm

Sell house, eliminate debt, invest what’s left, exit the so called middle class and live at your actual means. Live small and paid off. Not big, and in deep. Wait and watch, be thankful you pulled out before it all went BLAM!

As we sell our stuff off, it seems like people are very eager to spend money. If we list anything in the classifieds it’s sold in only a few days. Our crappy little house even sold in nine days. Last year people were much less willing to spend money around here. It’s like the general populace has reached a point where they are fatigued. Spending feels good, bad news is exhausting. Let’s carry on. My little personal goal is to own almost nothing. Literally. So I’m selling a lot of stuff. I’m done with this way of life man. I want nothing… That’s where the freedom is. When I die, I want to be thrown away along with my shoebox of possessions. It should take about ten minutes. That’s my goal now.

#17 crowdedelevatorfartz on 03.27.14 at 8:18 pm

All the statistics in the world cant stop Global TV or your local Sun newsrag from pumping pumping pumping…………

#18 TnT on 03.27.14 at 8:18 pm

~yawn~

Wonder when the wolf will show up….

#19 Hickster on 03.27.14 at 8:22 pm

Garth if you had to pick between fixed or variable right now, which would you go for?

Assuming you’re right and the economy stagnates over the next few years, that should mean variable may even go lower. On the other hand, it’s hard to imagine ever getting a fixed rate lower than 3% again.

#20 sheane wallace on 03.27.14 at 8:22 pm

What do we know.. Canada is dirt cheap.

http://www.zerohedge.com/news/2014-03-27/planet-arkadia-sells-worlds-first-1-million-virtual-property

$20 billion yesterday for a “virtual” reality corporation… but it gets better, as Property Guru reports, Singapore-based game developer Planet Arkadia is offering investments in what is believed to be the world’s first million dollar virtual property. It offers the ‘investor’ a chance to participate (by spending real money) in the “vibrantly growing economy of Planet Arkadia” – which we note is entirely virtual. Top, much

#21 Freedom First on 03.27.14 at 8:25 pm

Beautiful Title Garth, and the pic is befitting of the *****Title****

Twenty Two Reasons………………..Top.

And yet, only One Reason if you are someone who is going to hit The Greater Fool Bottom. There will be blood.

Another learning experience for many. When TSHTF in the U.S., Europe, Japan, etc., millions upon millions of people were financially bankrupted. Millions of people did not even see it coming as they thought they were different, and like Garth said, the already crushed have been trying to warn Canadians. Nice to see the 22 reasons all put together. If you find yourself scoffing at the 22 reasons, that is ok. You were warned.

#22 Doug from Victoria on 03.27.14 at 8:25 pm

“There is also a general inability to rationally consider the economic costs of buying versus renting.”

As Garth has shown (and I have learned from), it’s not always intuitive to see the true cost of ownership-vs-renting. We currently rent with our house money invested. To help determine when or what we might buy, I built a spreadsheet that compares multiple rent/own options and incorporates investment income, inflation, etc. based on our own “crystal ball” for the future. It’s free to anyone who wants it at this link: http://1drv.ms/OGea8i

#23 Matt Hughes on 03.27.14 at 8:28 pm

I was curious just how strongly mortgage rates contribute to property values, so I ran a little thought experiment.

Let’s say I can afford a $1,950 monthly mortgage payment. Using PV of an annuity with a market rate of 2.99%, that means I can get a $411,000 mortgage. This is the average house price in Canada at present.

Now, let’s try the same thing if I had the same income with the 14.5% mortgage rate we had in the early 1990s. The PV of the same monthly payment is a mere $157,000.

I’m having trouble finding the average house price from 20 years ago, but if it was around $157,000 would that not mean that the change in interest rates are the primary driver for the change in house price?

#24 Daisy Mae on 03.27.14 at 8:35 pm

“Of course the banks really put mortgages on sale because (a) it’s spring and the sap is running, (b) real estate prices are up but volumes are down so they need more market share, and (c) that little pecker F is gone and they’re testing the big Owe.”

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

Everyone is so full of s**t their eyes are brown….

#25 gut check on 03.27.14 at 8:36 pm

#16 Steve,
My spouse and I just had that conversation today. We also sold, got rid of some stuff, and as we did the physical move into our rented 1200sqft space yesterday we were thinking the same way you are about possessions.

We were thinking though about the way that life pushes you in to needing things – particularly in Canada, the land of unpredictable and extreme weather. The clothing and footwear varieties alone take up so much space. And also.. we don’t know our neighbours the way we used to as a community so we can’t/don’t borrow things. Ladders, tools, etc.

I want fewer and fewer things, too. I curse most of the stuff in these boxes, believe me. But it is tough to get down to that shoe box. Good luck, I’ll see you out there on the road to freedom.

#26 Smoking Man on 03.27.14 at 8:39 pm

Good reasons to sell. But even better to wait for the hockey stick.

What a beautiful day. Ford eats chow and everything else at the debate.

Wynne is going Down… Down Down…. No pun intended..

I nearly wee weed myself when she used the words in pure teach decadence.

Inappropriate Behaviour describing McSlimes chief of staff.

Sent a pall into Queens Park to delete hard drives……

Now if we can only figure out how to out Trudeau….

I might just stay in thus shit country.

#27 jess on 03.27.14 at 8:42 pm

SPIEGEL has viewed a 24-page, Russian-language dossier of Aksyonov’s wheelings and dealings from a credible source.

“Sergei Aksyonov, who was installed as Crimea’s prime minister by pro-Russian forces and is known in mafia circles under the alias “Goblin,”

http://www.spiegel.de/international/world/dossier-suggests-crimea-prime-minister-aksyonov-had-crime-ties-a-960644.html

#28 Victor V on 03.27.14 at 8:52 pm

http://www.theglobeandmail.com/report-on-business/oliver-wont-meddle-with-mortgages/article17711607/

Canada’s new Finance Minister is taking a hands-off approach to the mortgage market, signalling that, unlike his predecessor, he does not want to interfere in the rate-setting decisions of the banks.

Joe Oliver had been the nation’s Finance Minister for one week on Wednesday when Bank of Montreal CEO Bill Downe called to say that BMO was about to bring back its controversial 2.99-per-cent five-year fixed-rate mortgage.

#29 George on 03.27.14 at 8:57 pm

Interesting study out of UBC. Here is the abstract:

“We provide the first solid evidence that Chinese superstitious beliefs can have significant effects on house prices in a North American market with a large immigrant population. Using real estate data on close to 117,000 house sales, we find that houses with address number ending in four are sold at a 2.2% discount and those ending in eight are sold at a 2.5% premium in comparison to houses with other addresses. These price effects are found either in neighborhoods with a higher than average percentage of Chinese residents, consistent with cultural preferences, or in repeated transactions, consistent with speculative behavior.”

http://faculty.arts.ubc.ca/nfortin/Superstition.pdf

#30 Shawn on 03.27.14 at 9:00 pm

BMO lowered to 2.99% to gain Market Share?

That won’t work. To a borrower, a five year mortgage is pretty much a pure commodity, they will choose the lowest rate.

For that reason competitors will match.

It’s just like gasoline. Prices are the same not because of collusion but because as a pure commodity, the price pretty much has to be the same.

Interest rates are low because the country is awash in money to lend. Especially to lend at zero risk (due to CMHC). It’s supply and demand.

BMO went first because they predicted some other bank was going to lower to 2.99%. They know the others will match and wanted to get the advantage for the first few days until the others match it.

No one should hold their breath for a decline in house prices. It may come. It may not.

Surely the last five years of this blog have taught us that the market can remain offside to one’s predictions for a very long time.

Asking for higher interest rates or the demise of CMHC has no political traction and will not happen.

If 70% own a home they are sure as heck not going to support policies that push down house prices.

house prices will go down if and when lenders demand higher interest. But interest rates are set in the market and no one player can control them. They are also very hard to predict.

The best one can do is react to low interest, not predict. When rates are low there may be opportunities to borrow for investment. Perhaps investments in preferred shares, for example.

#31 HD on 03.27.14 at 9:05 pm

@ #16 Steve on 03.27.14 at 8:13 pm

I respect that.

Best,

HD

#32 Shawn on 03.27.14 at 9:05 pm

Your Tax Dollars at Work

Interesting study out of UBC. Here is the abstract:

George at 29 says:

“We provide the first solid evidence that Chinese superstitious beliefs can have significant effects on house prices in a North American market…

**************************************
Such a study passes for “research” and is what university professors are paid to do instead of teaching classes.

Usually, their scholarly articles in prestigious journals are read by up to say a dozen people world wide.

Snobbery defined… (not there is anything wrong with being a snob, but let’s not do it with tax dollars please)

#33 saskatoon on 03.27.14 at 9:16 pm

“numerous unintended consequences”

???

100s of billions of dollars.

of course they were intended.

please don’t create and promote excuses for them.

#34 Cow Man on 03.27.14 at 9:17 pm

Sir Garth:
Those 22 points could be a PhD thesis.

#35 Nemesis on 03.27.14 at 9:17 pm

#Karma #RoseBud #That’sMathematics #BigLeagues #ALittleLove

Funny thing about the race to the bottom… it’s a lot like Karma… as, sooner or later, in that eventually – she catches up with everyone – no exceptions:

http://youtu.be/-r0b_XeRkG4

[NoteToHD: You don’t have to subscribe to MagicalThinking or any kind of orthodox FalseMetaNarrative to believe in Karma… try to think of it in terms of ComplexConglomerateSystems, ThermoDynamics and Entropy, instead – this may help: http://youtu.be/y7VQFfusQJk NoteToRick: Loser?… Hardly. Karma plays out over generations/epochs you know… in Nemesis’ books, you’re already in the BigLeagues: http://youtu.be/eoDDnOUKDQI NoteToSaltyDogz: This is egregiously silly… but thematically apropos… and if you FreezeFrame @ 2:05 you might even catch a glimpse of Nemesis. It’s a KarmaThang: http://youtu.be/Gl6z-UWBimg ]

#36 Ken R on 03.27.14 at 9:17 pm

Garth can help me on this one. Number one occupation reported to revenue Canada, truck driver. I’m guessing number two is real estate flipper?

#37 SameOld on 03.27.14 at 9:24 pm

#32 Shawn

If you haven’t read the book how do you judge it? By it’s cover?

#38 Cici on 03.27.14 at 9:25 pm

Great post PS, and thanks for hosting it Garth.

Question for Garth and PS: This $800,000,000,000.00 of financial backing by the CMHC is worrisome to me. Can you please give us some ball-park figures as to how much CMHC can really guarantee in the event of a prices. What percentage level of a drop could CMHC really support? Given that most Canadians have little savings, and that the majority of Canadians are already struggling in meeting basic monthly and household expenses even at their relatively low taxation levels, how much room does the government have to raise taxes to cover CMHC without doing more damage than good to an already flailing economy?

Thanks!

Christine

#39 Cici on 03.27.14 at 9:25 pm

Oops, meant in the event of a price drop.

#40 Retired Boomer - WI on 03.27.14 at 9:27 pm

#16 Steve

Nice Post

my sentiments, too!

#41 Waterloo Resident on 03.27.14 at 9:28 pm

2 Years ago my lady friend bought a nice little 1-bedroom condo close to the CNE in Toronto (Fort York Blvd.) for $310,000. She says that the condos in her place are now selling for around $350,000+ and she was thinking of renting it out to cover the mortgage, and then buying a nice little townhouse somewhere in North York so she could live there.
I TOLD HER SHE WAS NUTS if she tried such a thing because she already has way too much exposure to debt. I told her that if she cannot make the payments on her current place then yes, her best bet is to declare bankruptcy and walk away from the $50,000 deposit she made on that condo, that is not such a big loss that it would destroy her, but if she bought a second place she would need a $70,000 deposit and right now she has only about $500 in savings, not enough for anything. So I told her to go to bed, get a good night’s sleep, and forget about trying to buy something that she cannot afford.

#42 Bobs ur uncle on 03.27.14 at 9:34 pm

#30 Shawn
As they say : The market can remain irrational longer than you can remain solvent.

#43 Mark on 03.27.14 at 9:34 pm

b) real estate prices are up — simply not true. Look at the sales mix, it should be pretty obvious what’s going on! Sure, a few higher-end units continue to be traded amongst baby boomers, but the real situation “on the ground” is that prices have been falling in most of Canada if you compare like properties to like properties.

If Frank Stronach’s mansion is the only house that sells in Aurora on a given month, does that mean that Aurora prices have gone up 10-fold?

#44 Ralph Cramdown on 03.27.14 at 9:37 pm

#30 Shawn — “BMO lowered to 2.99% to gain Market Share? That won’t work. To a borrower, a five year mortgage is pretty much a pure commodity, they will choose the lowest rate.”

It won’t work on some people. Recall George Carlin’s dictum: “Think of how stupid the average person is, and realize half of them are stupider than that.”

Some people are poor negotiators, lazy, excessively loyal to their longtime bank, etcetera. CIBC points out, on its quarterly conference calls, that it has had success predicting how rate sensitive its mortgage customers are, and varying the timing (and offered terms, obviously) of renewal offers it mails to them on that basis.

Others will see BMO’s move as brave and worthy of reward (their business), rather than correctly analyzing it from a game theory perspective as you do.

When you get to 70% home ownership, many are bound to conform to Carlin’s maxim.

#45 DigDeep on 03.27.14 at 9:38 pm

All twenty five points have merit.
The banks know this. They have smart people in their backrooms.

These smart people know that based on loan reserves, that 3% is actually exponentially higher on a dollar basis. The same dollar is loaned several times.

The riskier the market gets they are still protected by the mothership, CMHC. Which is the Canadian taxpayer, correct?

We underwrite CMHC, yes?

So they make billions while we carry the risk.
I want to be a bank. Don’t hate me.

#46 Steven on 03.27.14 at 9:52 pm

If real estate is as illiquid as suspected and incomes as limited as I believe then we may see a situation where there are no sales at almost any price. You can’t sell the average home to a minimum wage slave that has the ability to think and manage money especially if such people make up the bulk of those that need a place to live. Sales will dry up and then prices will implode as too many homes chase too many financially incapacitated potential home buyers. With out immigration we probably would have had that moment already.

#47 Andrew Woburn on 03.27.14 at 9:53 pm

#217 Daisy Mae on 03.27.14 at 7:36 pm
#163 Steven: “The solution is to return to the time honored basics that people followed back in the 1950s and 60s.”
Ya think? Life then was simple. And life was good. Then the sixties happened. And all hell broke loose…
==============================

Actually the seeds of destruction were sown in about 1955. Detroit created car lust by peddling a new generation of stylish, colourful (garish?) cars through mass television advertising. The current hysteria over new cellphone rollouts is trivial in comparison. In those days automakers introduced their latest models in the early fall supported by lavish advertising on major Sunday evening shows that everybody watched. Children debated the merits of GM’s offerings over Chrysler’s. You could actually tell the difference between model years so everyone knew who was driving yesterday’s auto.

The Depression generation was still pretty young in those days. They forgot the hard lessons of the past and were seduced into car loans. In 1968, Chargex (now Visa) rolled over the US border. Eventually some financial Frankenstein discovered you could bundle packages of consumer debt contracts for sale to the unwary and here we are today, bent double over granite counter tops.

#48 jan on 03.27.14 at 9:54 pm

I also no longer believe there will be any correction in house prices in Canaduh.
To many conman’s livelihood depend on it to go on indefinitely and so it shall.

Garth, you’re against not just banks realturds mortgage broker developers RE boards flippers horny immigrants but also the %70 of home-owners who will fight you to eternity on this issue.

RESISTANCE IS FUTILE
YOU MUST ASSIMILATE !!!!!

#49 jan on 03.27.14 at 9:56 pm

Oh, an uh, lets not forget you’re also up against CMHC most of all.

RESISTANCE IS FUTILE
YOU MUST ASSIMILATE !!!!!

#50 X on 03.27.14 at 10:00 pm

Regarding point #14 – prices reverting to the mean – there is a new reality, which will create a new mean, we now can buy with money from our RRSP’s, with %5 down, not 10% as was previously required.

I get that the gov’t doesn’t want to eliminate the RRSP home buyer plan, most people don’t repay the money to their RRSP and thus the gov’t picks up a few extra tax dollars.

Rates will rise. But the general consensus, even with those in the industry that think everything is business as usual, is that the RE market may correct 10%, so if that is the case, why don’t home buyers at least have to put that much skin in the game?

#51 Happy Renting on 03.27.14 at 10:03 pm

The Big Owe… I like it!

Yes especially to #5 & 7. People make the mistake of recency bias (“RE keeps going up so it always will!”) and can’t critically assess that big, YoY gains cannot possibly be risk free.

I feel like the shoe shine boy has been giving out stock tips for a while. Someone yesterday remarked that $1M from cashing out of your house is still a sum many would consider to be real wealth. I agree. When I think about $1M then I think about the ho-hum house it would buy, it’s no contest.

#52 Shawn on 03.27.14 at 10:06 pm

Articles Never Read

#32 Shawn

If you haven’t read the book how do you judge it? By it’s cover?

***************************************
My point was that basically no one reads academic journals. Just a few academics. Most academic journals are so specialized (often full of complex math and jargon) that they are unreadable except to the dozen or so experts in the particular field of study.

Most academic journal articles are completely useless. That is my opinion. I have read a few.

How many finance and economic professors are seriously rich from investing? Correct, not many. In fact they teach that no one can beat the market consistently and it’s not worth trying. If someone does beat it they sniff that it was not actually a beat on a risk adjusted basis (though the dollars in my account are unaware that they should be risk-adjusted)

But some PHDs at Long Term Capital Management tried to get rich in the 90’s and almost took down the banking system at that time.

Big banks bailed out the system at that time. Lehman Brothers refused to help and that was partly why it was left to die in 2008.

#53 Shawn on 03.27.14 at 10:08 pm

I want to be a bank. Don’t hate me. says Dig Deep

So buy bank shares already! Like many of us did (belch)

#54 Should I buy? on 03.27.14 at 10:16 pm

In the 6 adjacent blocks in my Canal area neighbourhood in Ottawa, out of 9 houses that are for sale:
– 4 are empty,
– 2 are also for rent and
– the average sale price is 78 times my annual rent (heat/hydro/parking/backyard included).

Think I should buy? (sarcasm)

I fear what will happen to what used to be a nice neighbourhood after TSHTF.

#55 Aggregator on 03.27.14 at 10:20 pm

Why is BMO offering 2.99% mortgages when the 5yr yield is higher then last year? Chart Or why offer mortgages at such a narrow spread to earn peanuts? The answer is, banks don't care about the spread anymore because more mortgages aren't being funded by traditional funding (deposits), rather by MBS collateral backed by the CMHC/Government of Canada guarantees for the purpose of self-securitization. Chart

Alas, this is why Canadian banks have been stacking CMHC insured MBS on their books.

So what is self-securitization? The answer to that question can be found in the FSB's Global Shadow Banking Monitoring Report 2013, who noted Canada as an active participant in this profligate government-backed scheme.

Self-securitisation: The numbers for OFIs presented in sections 2 to 4 of this report include all financial assets of Structured Finance Vehicles (SFVs), regardless of who holds the securitised products. However, in a number of jurisdictions, some of these products are returned back onto the balance sheet of the bank that originally provided the asset to be securitised. This so called self-securitisation, or retained securitisation, is defined as those securitisation transactions done solely for the purpose of using the securities created as collateral with the central bank in order to obtain funding, with no intent to sell them to third-party investors.

An important refinement of the interconnectedness analysis undertaken in this year’s exercise was the identification and subsequent exclusion of self-securitised assets. Jurisdictions in which self-securitisation takes place were asked to provide data on the amount of banks’ retained securitisation. Six jurisdictions (Australia, Canada, Italy, Netherlands, Spain, and the UK) submitted the relevant data, showing that the amount of self-securitisation summed up to $1.2 trillion in at the end of 2012 (Exhibit 5-1).

For those who can't put two and two together, what this means is that the Government of Canada through CMHC's balance sheet is guaranteeing banks' MBS collateral so banks they can repo it with the BoC, simply because no central bank would provide short-term funding unless the collateral was highly rated or sovereign guarantees.

This is why Poloz and Oliver will always have a stupid look on their face from here on when asked about banks mortgage lending, because they are ones providing the very same scheme that allows banks to offer lower mortgages rates!

Get it through your heads. CMHC, Poloz and Oliver are completely running the show absent of the private sector (bond market), and chances are they'll keep it going with new schemes diverted from the public's attention, until they lose control.

#56 Ben on 03.27.14 at 10:22 pm

“I will continue to monitor the market closely.” – your stooge

“We are watching the market like a hawk” – BoE stooge

I love they way that whatever language you speak, wherever you are from, your establishment will be full of lip-service scumbags. It’s what binds the rest of us.

#57 cornstars on 03.27.14 at 10:31 pm

Hey smoking man, just leave!

#58 wallflower on 03.27.14 at 10:38 pm

#23 Matt Hughes on 03.27.14 at 8:28 pm
value of houses 20 years past…
most of us can probably offer you relative value of what we paid and what we now list at.
I can offer a 30 year horizon which of a mid Toronto house, given the adolescent-adult-ancient lifecyles we now live, seems a more reasonable timeline to represent a ‘generation’:
1983 Cricket Club neighbourhood – bought $132K – today list for $1.7M per REALTOR© (renovation 1984; not recent)

As for those Lawrence Park homes (as someone from yesterday’s blog comment mentioned…) if you cannot see a $1.5M going to $900K in a downturn, how is it you see that same $1.5M going for significantly more (for any indefinite period of time) when the adult children of those homeowners are still living at home, having graduated from university, with no or little revenue-generating employment in the foreseeable future. Who exactly is buying these homes? In 1983 when those houses were selling in the $125K to $250K ranges, the young adult children were NOT living at home. They were working, renting and moving on. As for that $1.7M home I mentioned above, if my mother were to GIVE it to me, I would dump it because I have no interest in paying $10,000+ in annual property taxes for:
-breaking water mains
-flooding streets and basements
-routine power outages
-potholed roadways
-public education system that is no better than mostly anywhere
And, I feel that the infrastructure deficit of the City of Toronto is so vast…….. BECAUSE property taxes have not been high enough now for decades, that I have no interest in contributing monster tax money and living with the mess at this point in time.
So, if people like me are ready to dump the $1.7M freebie, and the next generation who is actually living in the ‘hood (in the basement) cannot afford to even start saving a down payment toward these houses………… whaddya think? The Mainlanders start moving south from Markham “on the way up” or, the next generations all just take over momma’s house and start delivering pizza to cover the property tax bill? The $1.7M doubles to $3.4M over the next 30 years, instead of going up THIRTEEN TIMES like the LAST 30 years? How exactly is it going to play out?
The way I see it, there is only one way for a significant upside in those numbers: currency devaluation: The dollar gets hammered and everybody offshore moves into Lawrence Park. OR, an offshore currency goes wily (like in Japan or China) and everyone with wealth gets out and into Lawrence Park. Either way: offshore money is the only upside to those numbers going up.
Lawrence Parkers who think it’s all unicorns and strawberries should do some early 1900s Ontario history reading. Property values got slammed…………….. and it took decades to “come back.” Decades. The property values that really took it on the chin were those upper class, brick house neighourhoods – all over the province.

In 1983, when interest rates were higher (a lot higher), when the unemployment rate was WAY higher, that next generation WAS moving along, working, renting, and moving on up. In 1983, with a BA I was earning around $13 per hour; I don’t know any recent graduates in non-professional-specific classes, earning more than $13 per hour. THAT IS 31 YEARS APART: SAME WAGE. That 1983 high-income neighbourhood house was $132k. Today, it’s $1.7M, interest rates are stupid low, a proper wage job with benefits is elusive (I know not a single recent graduate with a decent employment situation) and people actually think, whatever, better buy now because in the next 30 years, yep, that house is going to $1.7M X 13 (the number is too big for my mental math).
Seriously. Not, what are people thinking? We know what people are thinking. Nope, the questions we might ask are, “What are people not thinking? And, why?”

#59 Cory on 03.27.14 at 10:41 pm

#16 Steve “My little personal goal is to own almost nothing. Literally. So I’m selling a lot of stuff. I’m done with this way of life man. I want nothing… That’s where the freedom is”

——————–

Absolutely!! Freedom being the key word. My wife and I did this a few years ago. We have nothing at all other than our clothes and one vehicle each and we are happy renters. Money is working for us and we are free! People don’t kmow what theyre missing.

#60 KommyKim on 03.27.14 at 10:44 pm

The Big O cannot raise interest rates for fear of choking the already gasping economy. Bond rates are not rising fast enough to raise fixed mortgage rates quickly enough.
One thing that should be done immediately is to raise the minimum down payment back up to 10%.

#61 Lost_one on 03.27.14 at 10:49 pm

Garth, the financial planners you deal with, are they from beemo?

#62 AisA on 03.27.14 at 10:52 pm

14. Real estate market cycles tend to be long and they always overshoot to the upside just as they will eventually overshoot to the downside.

This is what most today are not aware of. It is why jaws will drag on the floor and eyes will look like they have been struck by lightning. A decade of growth can be wiped out in a YEAR. That’s what a crash does, it’s called the market value of your home dropping faster than you can re-list. There is nothing that will stop this market from crashing. Cut rates to zero, push 50 year mortgages. Nothing will stop the CRASH.

We passed Peak stupidity hundreds of thousands of $’s ago, there is nothing but air to the bottom, no branches to bounce off of or get snagged on, Wile-E-Coyote style WOOSH to the bottom is all that awaits.

#63 Al on 03.27.14 at 10:53 pm

#16 Steve

I agree

#64 George on 03.27.14 at 10:53 pm

@ Shawn #32

I just thought the UBC study I linked to is interesting because it helps to quantify the impact of Chinese investment in Vancouver real estate.

The subject of HAM is a very hot topic and most of the evidence for it is anecdotal. Here we have a little piece of statistical evidence that may provide insight. The lower prices for addresses with 4s and the higher price for addresses with 8s helps quantify the impact of Chinese culture on Vancouver real estate prices. Some of that may be due to HAM, some due to Chinese-Canadians, some due to whites and other non-Chinese speculators who buy properties with 8s hoping to flip to HAM.

I think this is important sociological and economic research that helps us understand the new Canada that is emerging in the 21st century.

#65 HD on 03.27.14 at 11:04 pm

@ #35 Nemesis on 03.27.14 at 9:17 pm

If by Karma you mean ‘what goes around comes around’, then sure.

But if you mean that Karma is this mysterious force that will assure that everything will get ‘even’ no matter what in this generation, next generation, the after life or whatever….I respectfully call baloney on that.

Best,

HD

#66 Same story since 2007 on 03.27.14 at 11:08 pm

Most of the 22 points related to real estate or jobs or economy are not true in Alberta.

#67 sheane wallace on 03.27.14 at 11:09 pm

We found worse financial minister than F (YES IN CANADA IT IS POSSIBLE):

http://ca.finance.yahoo.com/news/bmo-slashes-5-mortgage-rate-2-99-023023560–finance.html

But later in the day, Oliver said he i​sn’t about to intervene, calling BMO’s move a “private” decision.
…………………………..
It will be a private decision if the government is not insuring their mortgages at the expense of taxpayers though CMHC.

Any change in this country is for worse.

#68 meslippery on 03.27.14 at 11:22 pm

“What I am seeing more and more of though, in the last few years, is a marked increase in the sheer desperation and panic that seems to have gripped many drivers. I see lots of people getting tail-gated, being cut off, and blocked from either entering or leaving the roadways. What is the cause?”

Exactly…..like rats on a caged treadmill being force fed on cocaine. The mood is one of pure desperation as the personal debt numbers pile up. I wonder if the road rager’s are thinking ” You can’t be ahead of me….don’t you know what I’m paying monthly for this piece of crap? I hate you for being ahead of me … I’ll use my car to show you how much more important my problems than yours.”

Vancouver is statistically the road rage capital of North America. I guess people are watching TV and reading how the civil service salaries and pensions are six and seven figures……they see the elite living large while they hide and shiver between collection calls and calls from the school that their child is complaining of hunger.

God, but you are tedious. — Garth

Yes but instead of bringing down people who make
a good living (Gov./ Union jobs) Let the money flow to
the people..Your blog shows they will surely spend it.

#69 4 AM Sunrise on 03.27.14 at 11:24 pm

We got 99 problems and real estate is 22 of them.

#70 Luc on 03.27.14 at 11:26 pm

Can not wait to see when the music stop. Following the crescendo : the crash and doh!!!

#71 Herf on 03.27.14 at 11:29 pm

#1:

They’re giving “a throne speech”. Perhaps reacting to F’s latest (and final) budget?

#72 Tiger on 03.27.14 at 11:39 pm

26,smoking man !
Just leave , you are a goof
Just my opinion !

#73 Chris on 03.27.14 at 11:43 pm

Many things are wrong with Canada. The housing price, utility rates in Ontario, one in four hydro one employee making over 100k and pay a few thousand a year for guaranteed 70% salary pension, not to mention a lot of other public employees having the same lucrative deals, more lucrative deals than their private sector counterparts, for the trade off of what? Better job security, more vacation time, less stress and better pension? If you both work for hydro oneor belong to a public sector union, there may not seem to be a housing bubble because you are the new upper class citizens of this country.

#74 Bottoms_Up on 03.27.14 at 11:54 pm

#23 Matt Hughes on 03.27.14 at 8:28 pm
——————————————
The answer to your question is yes.

And therein lies the problem. If rates go up either quickly or significantly, there’s going to be some reckoning in the housing market.

#75 s'up on 03.28.14 at 12:08 am

whatever buddy, keep renting if you believe this scare-tactic. This is exactly why the rich get richer and the poor get poorer.

#76 Cici on 03.28.14 at 12:25 am

#30 Shawn

BMO is a household name, and many virgins will flock to them in frantic anticipation of securing this low rate, thus they will gain even more marketshare through what is basically an ad promo.

And, not every financial institution can match their rate…as Garth says, the general trend in the bond market in general since early last year has been been higher rates, meaning the price of borrowing for the banks has been rising. Only very recently have rates dipped slightly, but it’s probably only a temporary thing.

Anyways, I doubt this will last…if it does, it will cut into the banks’ margins big time.

#77 El Cid on 03.28.14 at 12:31 am

4. Interest rates are at multi-generational low levels will not continue indefinitely.  The presently low interest rates are masking the negative consequences of household debt and the ability to carry debt will deteriorate quickly when interest rates normalize.  Low interest rates always send a message of “low risk” which results in misallocation of capital and ends with an asset bubble.

As a good loyal Keynesian you will have to delete item #4 because that is not what you think, is it?

#78 Cici on 03.28.14 at 12:32 am

#42 Bobs ur uncle

Personally, I think I can remain rational longer than the markets can remain unsolvent.

#79 omg on 03.28.14 at 12:42 am

ANOTHER INCREDIBLE SCREW-UP BROUGH TO YOU BY VICTORIA

I have whined extensively about the incredible run-up of property taxes in Victoria over the past decade.

Here is a another GEM brought to us by the dumb @sses in local government.

COMPOST collection was rolled out in January 2014 to great fanfare. Composting Victoria’s food scraps would pretty much save the world.

Only problem was, none of us NIMBYs want a mountain of RAT paradise nearby so there is no place willing to COMPOST the hundreds of tons of food waste.

So until they can find a place to compost it the municipalities will collect the compost and, you guessed it, DUMP it in the LANDFILL with the diapers and styrofoam.

Maybe we should ocean-barge it over the sewer outflow and dump it onto our POOP – might create a sweet mix.

For this level of incompetence we pay $5K – $8K in property taxes and municipal fees each year on a modest bungalow.

#80 John on 03.28.14 at 12:58 am

Steven on 03.27.14 at 9:52 pm
If real estate is as illiquid as suspected and incomes as limited as I believe then we may see a situation where there are no sales at almost any price. You can’t sell the average home to a minimum wage slave that has the ability to think and manage money especially if such people make up the bulk of those that need a place to live. Sales will dry up and then prices will implode as too many homes chase too many financially incapacitated potential home buyers. With out immigration we probably would have had that moment already
—————————————————————–

The market is getting close to crashing as buyers are all buy gone and sales are down over 20% like Garth pointed out. People are maxed out and retail is taking a huge hit with many either going bankrupt/closing down since many are spending everything they make for shelter . Imagine if there was no CHMC what interest rates would the banks being giving to people?

#81 Babblemaster on 03.28.14 at 1:40 am

22 Reasons why we are near the top? Yeah, there have been plenty such reason the last few years. None of them have stopped this market from rising to insane levels. Who knows, they may be lots more room to rise.

#82 Ilona on 03.28.14 at 1:45 am

#35 Nemesis on 03.27.14 at 9:17 pm

Omg, finally… I often wonder how many “smart people” ever stop and think that there’s a reason for their “awards” and “punishments”? It’s amazing how they’d blame the government, the banks, the realtors etc., but very seldom themselves. You screwed someone over in the past – now it’s your turn, as simple as that. And telling “fools” not to buy real estate – it’s like telling convicts not to go to jail! But whatever, I’m not here to try to enlighten spiritually-challenged (was a left-brain idiot myself not so long ago)

Nemesis, do you have a blog? :)

#83 goldie on 03.28.14 at 2:31 am

Hong Kong buyers send London real estate soaring

http://money.cnn.com/2014/03/27/news/economy/london-hong-kong-property/index.html?hpt=hp_t2

HAM~!!!

#84 H on 03.28.14 at 4:23 am

11. The combined policies of the Bank of Canada and CMHC have encouraged investment in real estate at the expense of the manufacturing sector. Capital and credit is a limited resource and has been increasingly directed towards real estate and away from productive manufacturing.


Joe can’t help you. I can’t help you. You’ll just have to help yourself, like I helped myself- it’s everyman for himself.
We don’t want any manufacturing or factories in Canada. If we did we wold just tax imports, but that is forbidden. You many ask ‘forbidden by who, YOU are the Government”? That’s the question I get the most. You don’t have a government, didn’t you notice?

#85 Buy? Curious? on 03.28.14 at 5:31 am

*Yawn*

Garth, when is this correction of 15% followed by a long slow melt going to happen? Today is the 6 year anniversary that I’ve been reading this blog and so far, none of your predictions have happened. I mean, look at the comments from back then. People were rubbing their hands at the idea of scooping up a depressed property back then. Now, people are going on, moaning how prices are too high, people buying homes are crazy. If they bought in 2008 and sold now, how much better would they be financially? A buddy of mine in Toronto has bought 3 houses in the past six years and everytime, the appreciation of the former house has been used to reduce the size of his mortgage. He’s gone from borrowing $450k down to $80k and when he sells his place in April, he’ll probably won’t even need a mortgage to buy his next place.

I know no one can predict the future, but everyone can see the past. That story about the dude from North Carolina, how is that applicable to Toronto? What parallels were there that act as a warning as to what’s going to happen in Toronto?

The only people that rent are those that can’t afford a house or carnies. I know of no one that rents in Toronto because they’re investing what they save, and don’t say it’s because my network are morons. All the successful ones have a house and all the loser ones, rent. It’s not scientific but it’s fact.

https://www.youtube.com/watch?v=GwnwaBN4-Lk

#86 Martha on 03.28.14 at 5:42 am

#13 Pat on 03.27.14 at 8:01 pm

“Real estate investment was the pair’s bread and butter, but they don’t own any property, Malaise said. They rent a house, which their bankruptcy petition shows is in The Dominion.”

Ah, “The Dominion” /end echo effect

Talk about your “Life Styles of the Rich and Spoiled”

http://www.tollbrothers.com/TX/The_Dominion_-_Andalucia_%26_The_Reserve?cmpid=SgoaddGr192

#87 The real Kip on 03.28.14 at 6:18 am

Of course the BoC will do nothing to raise interest rates for Canadians. With a federal election drawing ever closer expect the economy to humming right along.

#88 Woke To The Sounds Of Horking on 03.28.14 at 7:06 am

#16 Steve —

The genius of your plan!

#89 Steven on 03.28.14 at 7:21 am

I am not sure it is possible to reason with those who believe in the system and the FIRE economy.
It is like they are possessed by a supreme arrogance and greed that knows no limits. They shamelessly look down on those who are aware of the situation and are attempting to move up in the world. They mess with peoples heads and try to decieve those trying to succeed in order to make them fail. You can not reason with such demons you can only resist them. It is always those closest to you that hate you the most.

#90 DocInWaitingRoom on 03.28.14 at 7:22 am

The sign of things to come…
-200k inheritance!
Like I said before I dont want any positive or negative my goodness

http://mobile.nytimes.com/blogs/dealbook/2014/03/26/pitfalls-of-reverse-mortgages-may-pass-to-borrowers-heirs/?client=ms-android-hms-tmobile-us&channel=wow2&source=lnms&tbm=nws&sa=X&ei=ZFo1U4XcE-Oc2AXZuoDABQ&ved=0CAcQ_AUoAQ&biw=360&bih=615

#91 Those22Points on 03.28.14 at 7:27 am

Those 22 points? There’s no point. They would make sense in a free market that is credit sensible. But we don’t live in such a time. Cheap money trumps all, and QE is here to stay. Yes the US fed is tapering, but the slightest whiff of a downturn and watch them back pedal and go right back to where they were. Low interest rates as far as the eye can see. This doesn’t mean real estate won’t go down, it will, but we won’t get a crash until the bond market loses its proverbial cookies… and who knows how much longer people will believe in “the faith and credit of the United States”. Currency is nothing but a confidence game. It all works quite well until faith disapears, then its a collapse; however, the average IQ is less than 100, so expect idiocracy to hold on to hope and change and faith for far longer than expected.

#92 DigDeep on 03.28.14 at 7:58 am

#54 Should I buy?

Ottawa – it is not different here. Same affliction with undertones of a false sense of security.

What will happen when the Public Servant wrinklies start dumping their 40 year old homes to move into condos?
Betting on that are all the major builders as the cranes on the horizon indicate. We are still bidding on projects for even more condos as they align themselves with the new light rail transit. What will happen if the mayor doesn’t get his funding for the next phase? And if he does, at what cost? Increased taxes, oh, and the train is electric… nice client for Ottawa/Ontario Hydro… not so nice to pay the ticket. (Twice)

This town is no longer insulated. If you think it is, take a look at the hole at Bay & Gloucester. We pulled out of there in December 2012. There is a boat in it to service the fountains the keep the water circulating and the mosquitoes in check, spring thru fall.

It is no different here other than our reliance on the public service for an economy. It is our “oil”.

Cheers.

#93 maxx on 03.28.14 at 8:08 am

#6 Sideline Sitter on 03.27.14 at 7:40 pm

“still sitting on the sideline… I wonder though, how many people are also sitting on the sidelines waiting for a crash, and will their jump into the markets mean a softer landing?”

A softer landing is likely a complete myth. Typically, sideline sitters watch the market go down, down, down…..I’ve had two RE agents tell me in the last two days that sales are glacial. Few, if any calls, no sales, “make an offer, low-ball with confidence….maybe Spring will be better…..”

#94 Mike in Germany on 03.28.14 at 8:09 am

#85 Buy? Curious?
“The only people that rent are those that can’t afford a house or carnies. I know of no one that rents in Toronto because they’re investing what they save, and don’t say it’s because my network are morons. All the successful ones have a house and all the loser ones, rent. It’s not scientific but it’s fact.”

I bought, sold and I’m renting in the city (and subletting my rental while in Germany). Condos are stupid in the city right now. They were before, and as they rise, they only grow in stupidity.

Friends of mine who are “smart” bought houses and condos, they’re married to their jobs and their homes are in less convenient locations. One friend of mine gave up her cozy $800/mo apt in the Annex for a house out by Warden Woods. WTF? I’m happy for her, she just wanted a bigger kitchen and a garden, but it’s so sad that she had to give up so much to get it.

The most mindblowing thing was seeing a basement condo facing a busy street go for $350k next to my cheap apartment. Our garbage is thrown out 10′ from their back yard.

I’m not sure I even want to buy a house in Canada. It’s clear that the whole market is manipulated. If I want to live somewhere, for a long time, I think I’m going to be renting.

Sure, it would have been great if I bought a condo 6 years ago (unless it was at Yonge and Bloor). But sometimes the smart money is wrong. Doesn’t mean that the other guys knew anything, had more guts, or whatever.

I’m holding plenty of money in a portfolio. Do your friends live downtown? or did they compromise to live in the burbs?

#95 maxx on 03.28.14 at 8:18 am

#9 Jason on 03.27.14 at 7:46 pm

” The Market Can Remain Irrational Longer Than You Can Remain Solvent Keynes”

Sure….if you buy into the wrong investment. Like Canadian RE. If you put your money to better, more efficient use, the RE market may do what it likes.

There is no substitute for investments that pay you to own them.

Solvency is then no longer a problem.

#96 shane on 03.28.14 at 8:22 am

Garth, no one is talking about the 40% increase in rates from enbridge will this not affect the housing market?

#97 Catalyst on 03.28.14 at 8:41 am

Reading through the 22 points there are no measurable and quantifiable negative impacts of letting things continue.

Resources pulled away from manufacturing and into housing?? Get real, manufacturing is not coming back unless some combination of high import tariffs or slave wages is the norm in Canada.

You claim rising unemployment in the last 6 months and you suggest he correct this by sparking a bursting of the RE bubble which will only create much more unemployment.

Believe me, this harper puppet will do NOTHING to jeopardize this huge portion of the economy as we are approaching another election cycle. Under NO circumstances will harper allow it.

#98 Dr. Wu on 03.28.14 at 8:42 am

The person who wrote this list is hopelessly naive :

11. The combined policies of the Bank of Canada and CMHC have encouraged investment in real estate at the expense of the manufacturing sector. Capital and credit is a limited resource and has been increasingly directed towards real estate and away from productive manufacturing.
—-
While Harper haarps and drones on about our global competitiveness it should be obvious that we can’t compete with slave labor camps in Red China. Of course, politicians who rock the globalist boat, or complain about ‘not enough money in the system’ have a habit of walking into their offices and hanging themselves. Then they write some fiction to ‘explain’ it-

http://pl.wikipedia.org/wiki/Andrzej_Lepper

#99 Shawn on 03.28.14 at 8:49 am

Why the Low Interest Rates at 2.99%?

Aggregator at 55 says:

the Government of Canada through CMHC’s balance sheet is guaranteeing banks’ MBS collateral so banks they can repo it with the BoC, simply because no central bank would provide short-term funding unless the collateral was highly rated or sovereign guarantees.

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

This sounds like it would be true, but only if the banks are in fact borrowing from the central Bank such as on overnight agreements.

My understanding is they are not. They can borrow from the central bank when needed (say in dire circumstances) but mostly they don’t.

In fact the banks have huge deposits at the central bank, not loans from the central bank.

Apparently other investors like pension plans are willing to invest in mortgage backed securities at tiny interest rates. This funds low cost mortgages as you say.

CMHC is not mandated to set interest rates. It is mandated to make sure CMHC insured mortgages go to qualified low risk borrowers.

So far, the evidence indicates this is the case. Mortgage delinquency rates are near record lows.

Now maybe that will change but so far the 90 day delinquencies are running at less than one third of one percent and have been stuck there for some years.

http://www.cba.ca/contents/files/statistics/stat_mortgage_db050_en.pdf

From the borrowers perspective it would seem odd indeed to complain about low interest rates.

And for the entity guaranteeing repayment (CMHC) the interest rate is not really their business, the credit worthiness of the borrower and the down payment and the market value of the house are their concerns.

So what is your complaint again?

#100 Shawn on 03.28.14 at 8:59 am

Interest Rate Math

As interest rates approach zero the value of a perpetual bond paying a fixed rate of interest (issued by a risk-free entity) approaches infinity.

A house is not a perpetual bond. But it does last a very long time and provides an annual income equal to the cost to rent a similar place.

So, as interest rates approached zero it was a mathematical imperative and forgone conclusion that house prices would rocket upwards.

DO NOT hold your breath for a decrease until and unless house prices drop.

U.S house prices dropped when interest rates temporarily soared and lending dried up due to issues in the mortgage backed security market ultimately caused by lending to deadbeats and by AAA ratings on mortgage backed securities that turned out to be incorrect ratings.

Mortgage funding problems in the U.S. were resolved, lending resumed and house prices in the U.S. began a long march upwards which is probably far from other.

Interest rates will determine all.

Demographics and slow growth suggest interest rates may stay low.

#101 Smoking Man on 03.28.14 at 8:59 am

#72 Tiger on 03.27.14 at 11:39 pm
Just leave , you are a good Just my opinion !……..

Learn the English language tree hugger.

You could have saved a few characters.

(You are) would have worked better as

You’re.

Fool

#102 Derek on 03.28.14 at 9:13 am

#58 wallflower

I am the one who talked about it. The reason is simple. People in the neighborhood are generally wealthy and don’t need to sell unless required. Only the wannabe rich and borderline folks do. The price might take a slight hit but that is just a buying opportunity for someone else.

#103 TurnerNation on 03.28.14 at 9:19 am

Don’t forget the number one predictor of wealth: rich people hang out with rich people; and poor people with the poor.

– This is turning into a Dollarama blog.
I think we need an alternative CPI index, a basket of goods from Dollarama Canadians hold essential. Track its movements in price.
Items like Soap, Toilet Paper, red plastic Solo beer cups, these sorts of things.

#104 AfterTheHouseSold on 03.28.14 at 9:23 am

#16 Steve
“I want nothing…That’s where the freedom is”.

#25 gut check
I want fewer and fewer things, too”.

Congratulations on the sale of your houses and opting to rent. Ridding yourself of stuff is freedom. Less is more!

#105 Paul on 03.28.14 at 9:32 am

96 shane on 03.28.14 at 8:22 am

Garth, no one is talking about the 40% increase in rates from enbridge will this not affect the housing market?
———————————————————— Not just real-estate friends of mine have a restaurant gas expense for last year $65,000 now $91,000 plus a minimum wage increase coming so he needs to cut staff to keep the doors open.

#106 Daisy Mae on 03.28.14 at 9:37 am

“There is no doubt that the present state of the housing market in Canada is the responsibility of the policies of CMHC and the Bank of Canada,” he tells me.

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

Didn’t Harper just increase the CMHC ceiling by $450 million?

And Joe Oliver says: “Our government has taken action in the past to reduce consumer indebtedness and the government’s exposure to the housing market…”

So….the feds are talking out both sides of their mouths at the same time?

#107 Daisy Mae on 03.28.14 at 9:45 am

“….unintended consequences that have been the result.”

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

‘Unintended’? What did the three stooges THINK was going to happen with long amortizations and low interest rates? Duh…

#108 Q2 CLASS DUPLEX-DRIVE on 03.28.14 at 9:46 am

Garth –

A very interesting article, especially the 22 points provided by your Alberta correspondent. I honestly can’t think of any possible objections to that list, except for, as they say in business school: SO WHAT? As your hero John Maynard Keynes pointed out – and you can look it up – ‘Markets can stay irrational for longer than you or I can stay solvent’.

#109 Penny Henny on 03.28.14 at 9:46 am

Smoking Man
Wynne is going Down… Down Down…. No pun intended..
——————————————————-
Don’t we wish. But Liberal media is already burying the story.

#110 Tony on 03.28.14 at 9:50 am

Will likely own my overpriced Toronto home bought in 2005 (for 450k, now ‘worth’ 650) in 7 years. Great space, children close to school, wife walks to work, walkability score of 100, pot dealer near by – lifes good

Hey I should sell now and rent. #LOL. K bud

The answer is entirely dependent upon the makeup of your net worth, your age, retirement prospects, financial hurdles to come (kids’ education, aged parents etc.), liquidity and employment security. Having 400K sitting in non-producing equity for many years may be something you can afford, or maybe not. Being cocky is not a strategy. — Garth

#111 Blase on 03.28.14 at 9:55 am

#110 Tony

40 year mortgage -5 -5= 30

You’ll still have a 30 year mortgage to pay off with god knows what interest rate.

Better hope for a miracle, you’ll need one.

#112 jess on 03.28.14 at 10:01 am

extend /pretend or lie /deny

reclassifying unpredictable loans as performing
– extending the maturities mitigates possible defaults
which preserves bank capital, minimizing the amount of cash banks must set aside in reserves for future losses.

#113 killaboy on 03.28.14 at 10:01 am

Oh no! The sky is falling!

Only if all your money’s in a house. — Garth

#114 Westcdn on 03.28.14 at 10:04 am

I have an itch that needs to be scratched. The Ukraine situation and Fed tapering has made the NA markets nervous, it will pass soon. The front running profiteering of the masses continues. Do not get suckered into more useless consumption debt because of low current interest rates – it will not inflate away.

A cynical view of the world elite today – an old joke but expresses my concern about cheap money.

Value of human capital less common sense

Engineers and scientists may never make as much money as business executives. Now a rigorous mathematical proof that explains why this is true:
Postulate 1: Knowledge is Power.
Postulate 2: Time is Money.
As every engineer knows,
Work
———- = Power
Time
Since Knowledge = Power, and Time =Money, we have
Work
——— = Knowledge
Money
Solving for Money, we get:
Work
———– = Money
Knowledge
Thus, as Knowledge approaches zero, Money approaches infinity regardless of the Work done.

Conclusion: The Less you Know, the more money you Make. (woe to the plebs in a zero sum game – IMO)

#115 Smoking Man on 03.28.14 at 10:14 am

#109 Penny Henny on 03.28.14 at 9:46 am

Tim Who-Dat reminds me of Maverick in Top Gun..

In the middle of the battle, he loses focus, won’t engage….

Right now should be firing on all guns and missiles…

Tim, come on TIM.

Ground control to Tim….

#116 Daisy Mae on 03.28.14 at 10:18 am

37 SameOld: “#32 Shawn

If you haven’t read the book how do you judge it? By it’s cover?”

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

Yes. Living out of a shoebox may not be all it’s cracked up to be. I wonder if our continual accumulation of possessions give us a sense of security? I know people who get rid of ‘stuff’ only to go out and buy more.

We ARE in for a more frugal way of life, however. Back to: ‘Use it up, wear it out, make it do, or do without’.

#117 :):( Ying Yang on 03.28.14 at 10:32 am

DELETED

#118 :):( Ying Yang on 03.28.14 at 10:36 am

Smoking Man girlfriend and I at Casino Fallsview Niagara tonight she wants dinner at Golden Lotus, the Sichuan and in general the food there is pretty good Asian. No doubt after dinner she will blow MY CASH. Ha what a sucker I am. Perhaps I will sneak over to Seneca!

#119 Stickler on 03.28.14 at 10:39 am

Race to the bottom indeed! At least there is no inflation…

oh, wait a sec. According to statscan here are the % increases on some basic stuff over the past 4 years:

Item % Change
Sirloin Steak 1KG +30.5%
Pork Chops 1KG +21.1%
Chicken 1KG +10.9%
Milk 1L +11.7%
Eggs 1Doz +21.4%
Bread 675g +13.8%
Potatoes 4.54KG +30.1%
Toilet Paper 4 rolls +6.7%
Toothpaste 100ml +31.6%

And Ontario about to get a 40% increase on nat gas. Stamps are going up around 50% too.
On and on…

#120 Renter's Revenge! on 03.28.14 at 10:39 am

@115 Westcdn:

/sarc
Thank you repeating that tired, old, cynical joke from Dilbert. It really added to the discussion.
/sarc off

Another way of looking at that equation is that the more knowledge you have, the less money (i.e. time, effort) it takes to get a certain amount of work done.

Cheer up and enjoy the day!

#121 Daisy Mae on 03.28.14 at 10:40 am

#67 Sheane: “But later in the day, Oliver said he i​sn’t about to intervene, calling BMO’s move a “private” decision.”

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

These guys do as they’re told, by Harper. And that was Garths’ downfall — ’cause he’s an honest maverick! ;-)

#122 Penny Henny on 03.28.14 at 10:45 am

#116 Smoking Man on 03.28.14 at 10:14 am
#109 Penny Henny on 03.28.14 at 9:46 am

Tim Who-Dat reminds me of Maverick in Top Gun..

In the middle of the battle, he loses focus, won’t engage….

Right now should be firing on all guns and missiles…

Tim, come on TIM.
—————————————————
Conservatives too slow to react.
Too much polling.
C’mon Tim take a stand and stand by it.
You just might earn some respect out there.

Has anyone asked if Wynn’s computer was one of the ones that was cleansed?

#123 Daisy Mae on 03.28.14 at 10:49 am

#70 OMG: “Only problem was, none of us NIMBYs want a mountain of RAT paradise nearby so there is no place willing to COMPOST the hundreds of tons of food waste.”

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

Animals won’t be interested AS LONG AS the compost doesn’t contain animal/dairy matter…egg shells are okay. I know ’cause I have a kitchen com poster.

#124 Renter's Revenge! on 03.28.14 at 10:57 am

@100 Shawn:

You’re assuming that the rental value of a house is fixed. It’s not. It’s partly a function of financing costs and rental supply. Therefore as interest rates fall, rental supply increases and rental costs fall, reducing the rent value of the house. Rental costs also fall as technology makes building new houses cheaper; and new homes make old homes go out of style, and therefore less desirable.

The only things that should make existing houses go up in value over the long term are scarcity of land with increasing demand for that land, and proximity of sources of income (i.e. jobs) along with increasing income from those jobs.

#125 maxx on 03.28.14 at 11:11 am

Low interest rates also seduce people into not taking their dollars seriously: “I’m not getting anything on my money, so I may as well spend it.”

Temporary enjoyment then tragically overshadows future security and the joy of comfort and rewards in retirement. Youth is naturally blind to the challenges of growing older. As healthy as one might be in retirement, there are always extra costs, if only on supplements, major quality upgrades to your diet and gym memberships.

The future arrives so much faster than most young people ever realize.

#126 joblo on 03.28.14 at 11:16 am

“Or if you’ve been a real estate developer for more than 25 years, you also know trouble when you see it. Like PS (he asks that I do not use his real name), who admits building houses in Alberta has been good for him, but he seriously worries the music will stop.”

The trouble is no more sprawl wanted, Cities can’t afford infrastructure costs and developers burbs land will not get serviced.
So…up with lot and home prices in serviced areas!
Bubble up

#127 stress-free renter on 03.28.14 at 11:20 am

Steve #16,
That is REAL freedom, absolutely! That would be harder to accomplish than buying a house and filling it with crap. It’s a mind-set. We’ve been led to believe that it’s somehow important to have all this stuff, it’s a contest, whoever dies with the most toys wins. Mostly to impress family and friends. Sad; really.

#128 T.O. Bubble Boy on 03.28.14 at 11:48 am

Here’s some great RE journalism from Ottawa:

How about a Mercedes with your condo?
SoHo entices buyers with luxury car lease

http://www.ottawacitizen.com/life/about+Mercedes+with+your+condo/9640987/story.html

#129 Smoking Man on 03.28.14 at 11:50 am

#119 :):( Ying Yang on 03.28.14 at 10:36 amSmoking Man girlfriend and I at Casino Fallsview Niagara tonight she wants dinner at Golden Lotus, the Sichuan and in general the food there is pretty good Asian. No doubt after dinner she will blow MY CASH. Ha what a sucker I am. Perhaps I will sneak over to Seneca!
…….

I’m going tomorrow…. Dead tired this week. Plus I’m meeting with some Ontario wheels of the pc party tonight.. Sort out these morons

Can’t let the tree huggers win, to much at stake

#130 derek on 03.28.14 at 11:51 am

Speaking of Chinese investor program. It is red hot in the States. Chinese are going there in droves for the EB5-Visa program.

Requirements? ~500K to invest in the local economy and create of 10 jobs creation. That’s how much a green card cost. Look for Canada to follow suit when the immigration program is re-vamped.

#131 happity on 03.28.14 at 12:03 pm

More than likely a significant global monetary event or increasing devaluation of purchasing power will affect the psychological perception of the economy by folks in Canada.

#132 Holy Crap Wheres The Tylenol on 03.28.14 at 12:08 pm

Having been in the Aerospace industry for many years and having lived through the impact of 911 it is hard to understand how a flight can just “disappear.”
We can track a flight from England to Toronto “real time” on a mobile phone and yet Malaysia Airlines Flight 370 can disappear without any trace.
Not since the Bermuda triangle have we seen such an event and unless you read Tom Clancy or watch the show “LOST” it is difficult to relate to this loss of one of the most advanced aircraft in the world.
I have to confess, I am struggling to understand how in this day and age of such advanced technology for tracking and communications that this can still happen, but I have my theory.
Could it be that the aircraft was suddenly filled with a debilitating substance and the captain tried to turn the aircraft around to head back “home” while the co-pilot pulled breakers as fast as he could to try and stop the issue. (including the breakers for the tracking device)
Meanwhile the engines that have their own form of tracking device that can NOT be switched off by the pilot continue to show the aircraft is airborne until it just runs out of gas!

#133 Son of Ponzi on 03.28.14 at 12:10 pm

Behind which stall is SM?

#134 Son of Ponzi on 03.28.14 at 12:16 pm

I wish we had Der Spiegel in Kanada.
Though read, but well worth it if you want the goods.

#135 Nemesis on 03.28.14 at 12:20 pm

@HD/#65

“If by Karma you mean ‘what goes around comes around’, then sure.” – HD

Yep. That’s all I meant… Sometimes it’s best approached as a QuantumThang… and sometimes, OldSchool NewtonianMechanics… either way – just physics, really.

Although – just between the two of us, I could have sworn that I saw the EasterBunny once. Just sayin’…

http://youtu.be/-Sq-g-UXuMk

@Ilona/#82

Blog? Moi? TeeHee! Those things are a lot of work, ya know… ;)

#136 Sheane Wallace on 03.28.14 at 12:23 pm

15 % dip? Real estate has to crash at least 250 % to be in line with incomes and normal rates.

Or CA $ has to crash to 40 % of it’s current value.
With all unfunded liabilities, new pension ‘reform’ in Ontario, baby boomers with no savings…
WHO IS GOING TO PAY THE BILLS?

We are facing currency catastrophe in mid to long term.

As I predicted some time ago this is what is coming soon to a place near you:
1. higher taxes + additional pension scams.
2. lower benefits. Get ready for privatized health care (H’s wet dream)
3. nonretirement
4. less taxes for corporations
5. bond market crash and mandatory investment in government bonds (MY IRA in the states..)
6. currency collapse 780 g rye bread is $ 4 in friggin food basics which is supposed to be a cheap store.
7. higher education with no work for graduates – only 16 k out of 300 k graduate last year found yob.

But there are 300-500 k illegal workers encouraged by the government to price out our kids out of jobs.
And the CMHC scam apparently is legal and moral.

In the insurance business mispricing the risk is deadly.

#137 fixie guy on 03.28.14 at 12:36 pm

#120 Stickler: You’re confusing demonstrable price increases with patriotic, government-approved metrics based on chain cpi and substitution. The latter two make the national financial situation look much better and have a wonderful impact on ‘entitlements’ if you like ketchup and cat food.

#138 Jeff in Moose Jaw on 03.28.14 at 12:41 pm

From the banks point of view – risk cannot be lost – all you can do is shuffle it around and give it to somebody else – CDO’s/CMHC.

#139 Bottoms_Up on 03.28.14 at 12:43 pm

#127 stress-free renter on 03.28.14 at 11:20 am
—————————————————
Not necessarily. Going Ghandi is commendable, but there are certain things that make living life a luxury, and it IS nice to have those things (not necessarily just to ‘impress’).

Large house to raise kids in.
Reliable and safe ride to transport said kids in.
A little cottage getaway for getting in touch with nature (and all the ‘toys’ that go along with enjoying oneself and one’s family at a cottage).

Ghandi shoulda got out more.

#140 World According To Garth on 03.28.14 at 12:47 pm

For everyone that still drinks the Kool-Aid of the “thousands of scientists” (all with degrees in ammonia in squid or the effects of beetle dung) who believe in Global Warming/Fake Climate Change…..

PhD Dr Tim Ball – an actual Climate Scientist – will be on Coast to Coast Monday. He of course is avoided like the plague in Canaduhhhhh and especially in the province of Bring Cash where they charge a phony carbon tax in order to keep Govt Workers all pensioned up. Enjoy the truth of the show !!

http://www.coasttocoastam.com/show/2014/03/31

#141 High Plains Drifter on 03.28.14 at 12:51 pm

Renter’s Revenge say’s new homes make old homes go out of style. That is funny but not near as funny as a fellow who compared our peerless host, Garth Turner to Buda. That one had Buda laughing.

#142 Bottoms_Up on 03.28.14 at 12:53 pm

#100 Shawn on 03.28.14 at 8:59 am
—————————————-
I am in complete agreement with you. Black Swan event needed.

Contrary to what some believe on this pathetic blog, the big 5 Canadian lenders cover their arses when they lend, and that includes making sure the borrowers can service their debts.

So very risky lending was a factor in the USA, but I don’t think it is an issue here. However, rising unemployment may break our backs.

#143 Steven on 03.28.14 at 12:58 pm

I dropped into a Remax office today to see what was available in apartments for rent and they didn’t have much but the were interested in knowing if I wanted to buy a house. As soon as I told them that I was unemployed and about to be homeless they soon lost interest. I was trying to be polite but as I left the office I had the idea that all they care about is money and the more of it the better. Also they really don’t give a damn about the consequences of jacking up the real estate prices for society and those less well off.
In short they are ruthless. Then again I suspected as much before I went in but it is a bit of an eye opener to have ones suspicions confirmed. When you are dealing with ruthless people showing mercy or giving in is a mistake. They only respect push back at least or at the other end of the spectrum their own quick execution. Life is like a war and to believe other wise is folly.

#144 Bottoms_Up on 03.28.14 at 1:14 pm

#92 DigDeep on 03.28.14 at 7:58 am
————————————–
You’re forgetting the PS wrinklies are being replaced by the next generations…there will be high demand always for lots in the city proper. Even the burbs are burgeoning. I can’t see much impact on Ottawa housing due to demographics as it is fairly evenly distributed. And the PS wrinklies that I know have ALL chosen to stay in their homes (ie., no downsizing until absolutely required).

http://www.tbs-sct.gc.ca/chro-dprh/rp-eng.asp#ee

#145 Smoking Man on 03.28.14 at 1:19 pm

Ying Yang

Meeting got canceled, can’t even give away my loot to these losers.

Be at Club 360 10pm….look for a breaking bad look alike… That goes to the smoking pad every 10 minutes.

#146 airhead princess on 03.28.14 at 1:31 pm

These 21 reasons for a fail are the same that we’ve been witnessing for the past 14 years since Greenspan created the ZIRP in 2000.

Our government ( as with every G8 country) found that they could gorge in ultra low debt and expand their fiefdoms. Now however…..we are collectively so far in debt that no government can afford to pay back what it has borrowed at anything above zero rates.

Screw this idea that there is a nebulous ‘bond market’ creating and controlling wealth somewhere over the dark horizon…..thats naive to an extreme. All the money that is sloshing around is courtesy and owned by…..your government. Think of it…..who or what private enterprise could have ‘loaned’ Obama 17 trillion dollar? Canada is no different. There will be no increase in rates over this generation. The talk of rate rises is the product of political suasion tactics to try and control the freaking nightmare that governments have created.

#147 WhatIsInA_Name on 03.28.14 at 1:32 pm

22 Reasons! and that since 2009? Ha Ha Ha.
By the interests rate never went up and is never going to go up (unless the Bank of Canada consumes Viagra in bulk)

#148 AndrewAB on 03.28.14 at 1:34 pm

“The housing market is entirely depending on the continuation of low interest rates,” said Mr. Klump…

Oh?

I thought it was fundamentals like:

-A BOOMING Economy
-Thousands of new jobs
-In-migration
-Foreign Investment
-Plain old supply and demand
-etc.

#149 Dave D on 03.28.14 at 1:42 pm

If I try making any of those 21 arguments to the people at work they say all these immigrants that come to toronto will prevent any kind of housing crisis. And they say they have friends who have already made millions on housing and are still buying up properties.

#150 jess on 03.28.14 at 1:48 pm

press secretary

MR. JAY CARNEY: I think it’s down for the year and I think the ruble has lost value. And I think that the long-term effect of actions taken by the Russian government, in clear violation of the United Nations charter, in clear violation of its treaty commitments that are destabilizing and illegal, will have an impact on their economy all by themselves. They will also incur costs because of the sanctions that we and the EU have imposed, and there will be more actions taken under the authorities that exist with the two executive orders that the President has signed. So I wouldn’t, if I were you, invest in Russian equities right now — unless you’re going short.”
http://www.whitehouse.gov/the-press-office/2014/03/18/press-briefing-press-secretary-jay-carney-3182014

By Pam Martens: March 26, 2014

She mentiones these symbols : RUSL, RSX, MBT, VIP, EPAM ,Yandex, QIWI
http://wallstreetonparade.com/2014/03/russian-stocks-white-house-press-secretary-says-sell-morgan-stanley-says-buy/

#151 :):(Ying Yang on 03.28.14 at 1:50 pm

#129 Smoking Man on 03.28.14 at 11:50 am

#119 :):( Ying Yang on 03.28.14 at 10:36 amSmoking Man girlfriend and I at Casino Fallsview Niagara tonight she wants dinner at Golden Lotus, the Sichuan and in general the food there is pretty good Asian. No doubt after dinner she will blow MY CASH. Ha what a sucker I am. Perhaps I will sneak over to Seneca!
…….

I’m going tomorrow…. Dead tired this week. Plus I’m meeting with some Ontario wheels of the pc party tonight.. Sort out these morons

Can’t let the tree huggers win, to much at stake

………………………………………………………………………

OMG Smoking Man I was deleted for my fervent disdained, dislike and general chicanery of the Liberal Wynne / McGinty government. OK I get it but, I apologize Garth, but there is still no way you can feel comfortable with that 1Billion dollar boo, boo to help facilitate the filling of legislative positions. Or perhaps it was all a dream and the current government did not just waste 1Billion dollars of our hard earned taxpayer dollars. Oh hell whom am I fooling?

#152 :):(Ying Yang on 03.28.14 at 1:57 pm

#129 Smoking Man on 03.28.14 at 11:50 am
I’m going tomorrow…. Dead tired this week. Plus I’m meeting with some Ontario wheels of the pc party tonight.. Sort out these morons
Can’t let the tree huggers win, to much at stake
……………………………………………………………………….

May I introduce the next Progressive Conservative MPP for Etobicoke Lakeshore (Smoking Man) I thought that was Doug Holydays territory? Take them to your local pub, get them loaded and take lots of photos. It been done latley quite a lot, wink, wink, nudge, nudge (Go Ford Nation)!

#153 nomad on 03.28.14 at 2:05 pm

I just looked at a TD Waterhouse report for $MIC (Genworth Canada). Management has been selling their own stock in the last 6 months. No buys.

I’ve never shorted a stock, but if we really are at a lending top, maybe it’d be a good first.

#154 Aggregator on 03.28.14 at 2:28 pm

#99 Shawn

"My understanding is they are not. They can borrow from the central bank when needed (say in dire circumstances) but mostly they don’t."

Obviously you don't understand the mechanics of repo operations and primary dealers (PM). They borrow cash now on a weekly basis as available cash dries up with the smallest turbulence within the markets. These are mini bailouts, they call them repos. The problem is once PMs become reliant on central bank funding, the inter-bank goes dead, and once that happens, good luck trying to get to private market funding. Same thing happened with CMHC.

"Apparently other investors like pension plans are willing to invest in mortgage backed securities at tiny interest rates. This funds low cost mortgages as you say."

The only reason why they would invest in MBSs is because those securities are either insured or backed (or both) by the government, otherwise they're not even allowed to buy it as a low grade investment. If all was well with borrowing from the capital markets, then why aren't Canadian banks using their covered bond capacity? Answer: because they can't insure mortgages anymore, therefore it costs more then securitizing government-backed mortgages with CMHC.

"So far, the evidence indicates this is the case. Mortgage delinquency rates are near record lows."

Delinquencies are down because CMHC must pay any arrears on bad mortgages contained within a MBS, therefore the lender is not required to claim it in arrears. Canada's MBS market sahre is about 31% of total mortgage debt FYI.

And for the entity guaranteeing repayment (CMHC) the interest rate is not really their business, the credit worthiness of the borrower and the down payment and the market value of the house are their concerns.

The credit worthiness of borrowers, collectively, is irrelevant when the majority of household credit (assets) is dependent the value of their home, and if home values are dependent on expansionary insurance and guarantees, then borrowers credit worthiness is really dependent of government policies. This is why every time sales start declining, you will see lenders mass marketing mortgages followed by an increase in MBS some months later as major banks purchase (keyword) deadbeat mortgages from b-lenders at a discount — get them stamped with CMHC guarantees and then sell them as higher grade securities to global investors. That's were the spread is.

Canadian banks aren't smart enough to develop a safe scheme to elevate household debt to these levels. There is nothing different or unique about Canada's banks other then their secrecy that disallow public information on internal operations. Global institutional investors don't really understand Canada's banks, bonds and mortgage market, all they've relied on is a sticker slapped on investments that says 'government guaranteed' on it.

During the global economic crisis in 2008 and 2009, Flaherty and Harper put aside their wariness of deficits to implement one of the most far-reaching episodes of Canadian government stimulus since World War II, relying on spending and state guarantees to the banking system to support the economy. As the recovery took hold, Flaherty and Harper turned their attention to returning the country’s budget to balance. BBG

Good luck to Oliver trying to get CMHC and the big five back to private market funding without a disorderly unwind.

#155 Happy Renting on 03.28.14 at 2:45 pm

#90 DocInWaitingRoom on 03.28.14 at 7:22 am

To the financially illiterate, that article is sad. To anyone else, it reeks of irrational entitlement.

If your mother’s last two years of life cost $308k and her main asset is worth less than that, of course there’s no inheritance and daughter doesn’t get to keep the house! The house was effectively sold via reverse-mortgage. The quivering lip over her father’s lifetime of hard work as a Cuban immigrant is also misplaced. The value of his life choice in coming to America isn’t measured by the inheritance left behind but by whether he, his wife, and their children enjoyed a better quality of life in the U.S. vs. in Cuba.

For the guy in Chicago who is discharging $124k in debt for $14k, obviously that party can’t go on forever, regardless of whether the debtors pay into an insurance pool. WTF is happening that lenders are giving out $124k in loans against a house that plummets to less than $15k in value?

In any case, the Boomer heirs aren’t getting a negative inheritance. Sounds like they can walk away from the deceased parents’ house and owe nothing. Emotional attachment to the house and feeling that they’re entitled to an inheritance are their real obstacles. Doc, like you, I hope for nothing when my parents pass on. It’s their money, they should enjoy every last dollar of it.

#156 jess on 03.28.14 at 3:16 pm

a beautiful ugly system
“Stability is destabilising”.

BBC Radio 4′s Analysis program has an episode on Minsky and looks at topics such as:
Why Minsky Matters

http://www.bbc.co.uk/programmes/b03yn83s

Duration: 30 minutes
http://www.bbc.co.uk/programmes/b03yn83s
Producer: James Fletcher

#157 Nemesis on 03.28.14 at 3:35 pm

#FridayFun #”Oooops” #Illustrated1:13MinskyMoment

[UK – Independent] – Extreme Jenga: Whole building collapses after ‘engineer took out the wrong brick’

http://www.independent.co.uk/news/uk/home-news/extreme-jenga-whole-building-collapses-after-engineer-took-out-the-wrong-brick-9221143.html

#158 Blacksheep on 03.28.14 at 3:49 pm

Done renting.

Bought a very nice 1800 sq ft older split. Sold wood throughout. Got great deal after the home was on the market 8 months. Has a new 900 sq ft 3 bay shop taking up half the backyard so most wives wouldn’t allow it. Even has nice view.

Poor dudes, with their balls in wifey’s purse……

#159 tkid on 03.28.14 at 4:06 pm

Holy Crap Wheres The Tylenol, I have a little (very little and it was a long time ago) training in flying via the Air Cadets. The very first thing you do in an emergency in the air is call a panpan. If it is a critical emergency you call a mayday. Specifically you must say ‘panpan panpan panpan’ or ‘mayday mayday mayday’.

You alert others to the fact that you have an emergency THEN you start acting. MH370 never invoked an emergency, and their first instinct would not have been to pull fuses, it would have been to call the emergency.

Instead they waited until they were in airspace where they would be incommunicado for a period of time and then took evasive maneuvers. They never called a panpan or a mayday. These actions are suspicious and in my opinion highly suspicious.

#160 jan on 03.28.14 at 4:10 pm

One thing everyone seems to be forgetting.
Garth,me and so many others on this blog are OLD,yes old and as such,our brains are stiff and inflexible.
For the young, this insanity is the new normal and it will only get worse as more time passes harbouring the status quo.
20 + years of the so called boom is more than a single generation’s life span, hence the new normal.
It doesn’t really matter what I or Garth thinks anymore.
The future is not ours but the young one’s who are graduating and entering the workforce.
We the old will soon pass and so will our ideas and viewpoints…….cheers all

#161 betamax on 03.28.14 at 4:16 pm

Meanwhile, back in China…the boom is over.

My wife’s uncle back in mainland China was offered free rent in a condo in one of their ghost cities. The owner has been trying to dump the property for almost a year, but no one is buying anymore.

The owner offered him free rent just to have a tenant living in the condo so it doesn’t fall into a state of disrepair (3 yrs old, vacant since finished). The uncle looked at the place but said he wouldn’t feel safe living there; currently, only one unit of the entire condo tower is occupied. Also, there are no stores of any kind nearby. It truly is a ghost town.

Anyway, the market is dead. Thin edge of the wedge…

#162 Old Man on 03.28.14 at 4:34 pm

#158 tkid – highly suspicious indeed as was a complex operation, but am not at liberty to disclose the facts. I am waiting for some new info to see what the MSM has to say as something needs to be covered up.

#163 Smoking Man on 03.28.14 at 4:39 pm

Ying Yang, see you at falls view club 360 @ 10 tonight. I know what you look like.

#164 Ralph Cramdown on 03.28.14 at 4:59 pm

The thing that disheartens me about many modern air disasters is how we and our computer systems let pilots crash perfectly functional airplanes.

I don’t really want to be flying cargo on an airplane which, approaching stall, invokes the stick shaker, then allows the pilot to pull up. Or that bleats “terrain” ten seconds before the disoriented pilot piles it into the side of a mountain. Or that allows crew to vector a flyable plane out to beyond any reachable airstrips.

We got to where we are today because in days of yore, a ship’s captain had no communication with shore, and so was put in absolute command of his vessel. Early airplanes, same deal. But we’ve been beyond that for thirty years or more. Now, the issues are:
– aircraft manufacturers (and their lawyers) worry about liability
– and they worry about securing an automated system from attacks
– pilots want final authority and control

…so as large aircraft and their maintenance systems become more and more reliable and redundant, we get more and more failures recoverable but for pilot error, misjudgement or plain malfeasance.

#165 Almost A Boomer on 03.28.14 at 5:02 pm

This week in the Star a personal advice columnist was asked by a twenty something adult child for help with boomer parents (late fifties) who have no savings, poorly paid jobs and are having trouble making ends meet; and, we received a flyer from a builder in Stouffville offering 0% mortgages on $500,000 homes with a 90 day closing. I feel sorry for all of the people who are going to be clobbered shortly.

#166 shawn on 03.28.14 at 5:36 pm

Banks don’t borrow from the central bank

Aggregator at 153. Thank you for the resposne you obviously know something about this. But hopefully it not just enough to be dangerous to yourself and your wealth.

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

You say primary delaers borrow based on CMHC backed mortages securities. But you have no proof they borrow from the central bank, or do you?

You say pension funds invest at puny interest rates in mortgage backed securities only because they are government backed. Yes, that is true. But the point is they accept truly puny interest rates. That is the point, market interest rates for government guaranteed bonds are very low.

There is a surplus of money available to invest in morage backed bonds and this keeps interest rates low which is keeping house prices high.

The notion of pulling the government guarantee out of mortage funding to cause higher interest rates and lower house prices will never happen. No one except a fringe group that wants lower house prices is even thinking about pulling the government support out of mortages. Remember 70% own and have no interest in lower prices. 20% are too poor to ever buy and generally don’t vote either. 10% want lower house prices but won’t get them, not by withdrawing government support at least.

#167 maxx on 03.28.14 at 6:31 pm

#119 Stickler on 03.28.14 at 10:39 am

“Item % Change
Sirloin Steak 1KG +30.5%
Pork Chops 1KG +21.1%
Chicken 1KG +10.9%
Milk 1L +11.7%
Eggs 1Doz +21.4%
Bread 675g +13.8%
Potatoes 4.54KG +30.1%
Toilet Paper 4 rolls +6.7%
Toothpaste 100ml +31.6%

And Ontario about to get a 40% increase on nat gas. Stamps are going up around 50% too.”

Good point. Not everyone’s cuppa, however becoming vegetarian will drop those costs like a stone and likely contribute mightily to good health. As for bog rolls and toothpaste, we stock up on loss leaders. Postage stamps? Pared snail mail right down to the bone.
As I said, perhaps not for everyone, but it’s worked supremely well for us over the last 3 decades.

#168 Ronaldo on 03.28.14 at 6:32 pm

#159 Jan – your post reminded me of this song. From one old person to another here it is:

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

#169 Old Man on 03.28.14 at 6:56 pm

#163 Ralph Cramdown: – What makes you believe the pilots were flying that plane? CNN let the cat out of the bag about secret technology that flies a plane remotely that has been fitted on the Boeing and this was shown on CNN. I have known about this for many years, but bet this segment has been cut, as only two countries in the world can access it by satellite or other means.

#170 Son of Ponzi on 03.29.14 at 8:01 pm

The RiverGreen project in Richmond is not selling well.
They are giving away luxury cars to a value of 112k.
http://www.buzzbuzzhome.com/river-green

This project has been heavily advertised in Beijing and Shanghai.
Sign of the coming bust.

#171 Vangrrl on 03.29.14 at 10:01 pm

#139:
Said like the typical, self entitled, mediocre, boring-with-a-capital- B Canadian!!

#172 Bottoms_Up on 03.29.14 at 11:36 pm

“The scientific opinion on climate change is that the Earth’s climate system is unequivocally warming, and it is extremely likely (at least 95% probability) that humans are causing most of it through activities that increase concentrations of greenhouse gases in the atmosphere, such as deforestation and burning fossil fuels. In addition, it is likely that some potential further greenhouse gas warming has been offset by increased aerosols.[1][2][3][4] This scientific consensus is expressed in synthesis reports, by scientific bodies of national or international standing, and by surveys of opinion among climate scientists. Individual scientists, universities, and laboratories contribute to the overall scientific opinion via their peer-reviewed publications, and the areas of collective agreement and relative certainty are summarised in these high level reports and surveys.
National and international science academies and scientific societies have assessed current scientific opinion on climate change. These assessments are generally consistent with the conclusions of the Intergovernmental Panel on Climate Change (IPCC), summarized below:
Warming of the climate system is unequivocal, as evidenced by increases in global average air and ocean temperatures, the widespread melting of snow and ice, and rising global average sea level.[5]
Most of the global warming since the mid-20th century is very likely due to human activities.[6]
“Benefits and costs of climate change for [human] society will vary widely by location and scale.[7] Some of the effects in temperate and polar regions will be positive and others elsewhere will be negative.[7] Overall, net effects are more likely to be strongly negative with larger or more rapid warming.”[7]
“[…] the range of published evidence indicates that the net damage costs of climate change are likely to be significant and to increase over time”[8]
“The resilience of many ecosystems is likely to be exceeded this century by an unprecedented combination of climate change, associated disturbances (e.g. flooding, drought, wildfire, insects, ocean acidification) and other global change drivers (e.g. land-use change, pollution, fragmentation of natural systems, over-exploitation of resources)”[9]
No scientific body of national or international standing maintains a formal opinion dissenting from any of these main points; the last was the American Association of Petroleum Geologists,[10] which in 2007[11] updated its 1999 statement rejecting the likelihood of human influence on recent climate with its current non-committal position.[12] Some other organizations, primarily those focusing on geology, also hold non-committal positions.”

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

#173 down and out on 03.30.14 at 4:02 pm

One smart lady in BC ,bough a condo in southern Ontario from pictures only ,closing in 30 days . When I meet her I will ask why she cashed out. #163 and 169 remember how Payne Stewart died .