The formula

OVERPAYD modified

“Ok,” says Joe, “so I was a bit curious about how this whole bidding war process works, so I decided to dip my toe in any see how far in the process I could go with a low-ball offer on a slanted semi.”

And he did. The prey was 105 Millicent Street, an unrenovated, somewhat scary semi on a 20-foot lot in the dodgy Davenport-Dupont area of Toronto, with laneway parking and ‘as is’ appliances. Asking: $599,000.

Of course, this is the sole hot zone. Despite what you read in the MSM, the Toronto market is not on fire. Sales are muted overall, with scant action in the high end and a growing inventory. But when it comes to semis costing under $1 million, it’s hipster heaven. For some reason, they love these half-houses where the person on the other side of the wall might be raising genetically-modified rats, collecting body parts or is simply an Abba fan.

Anyway, there were eight offers.

“I expected the usual agent tactics such as, “put your best offer forward, you might not get a second chance” or aggressive recommendations to remove any conditions on the offer,” says Joe, “but I never expected that my agent would pull out “the formula”. “The formula” is a highly scientific algorithm mastered by agents, which determines the final sale price based on the number of bids. In my case, this wizardry was used to recommend to me to adjust my offer to 16% over asking.”

The formula? I was hungry to know more. So Joe forwarded his agent’s instruction:

“The listing agent has strongly suggested that everyone come in with their best offer and they are not guaranteeing a second chance. If you have anymore money that you are willing to offer, don’t keep it in your back pocket,” she said. “Every agent knows they are competing against 7 other parties. There is a formula that we typically use for calculating what dollar amount to offer based on how many offers there are, this is typically 1% – 2.5% of the purchase price per offer. 2% per offer for 8 offers is $695,840.”

Silly, silly, naïve little Joe. He also wanted his offer conditional upon financing and a home inspection. So when the agent recovered from uncontrollable spasms of laughter, she replied:

“I know you really want to do an inspection as well but please be aware that this condition could also be a deal breaker. Entirely your choice, I just want to be honest and realistic with you. Another suggestion would be to up your deposit amount since you have two conditions. A stronger deposit shows more seriousness.”

So, there ya go. This is how virginal first-time buyers are talked up. It’s how a $599,000 house turns into one worth $695,840 before you’ve even put pen to paper. It’s a lesson in how the vulnerable are pushed into buying geriatric pieces of residential flotsam like this without a shred of protection against defects, or shielded from the real possibility of a low appraisal and a financing crisis following a nutso bidding war.

By the way, here’s the house:

MILLICENT modified

Joe’s story, unfortunately, is typical. Thousands of properties have been purchased recently by people who paid too much, absorbed excessive debt and have been left exposed to years of repairs on junker houses. It’s hard to believe the kids can be talked into spending $600,000 or $800,000 without even a working knowledge of the structure they’re taking on, or devoid of a financial parachute – and do it all in a competitive, pressure-cooker environment, egged on by greedy agents and a voracious vendor they’ll never see again. But it’s common. And it’ll end in tears.

Dan Werner is a well-known equity analyst for the Chicago-based investment firm Morningstar. A smart dude, actually. He thinks people like the eventual buyer of 105 Millicent are toast.

“Many investors believe that financial crises are things that happen to other people in other countries at other times; crises do not happen to us, here and now,” he says in a report predicting our housing market will crash by 30% over five years. “History has shown, time and again, that ‘this time’ is not different. We believe the same is true for the future of Canadian residential real estate.”

He carefully explains why.  It’s worth reading about. Especially if you believe what your mom told you about buying a house.

For example, the argument is made on this pathetic blog by house-humpers that real estate’s safe because Canadians have tons of equity in their homes. Well, turns out we have exactly the same equity Americans had in 2005, before their market collapsed. In fact, at the height of the bubble there 22% of mortgages were for 80% or more of the value of the homes financed. In Canada the number is now 23%. Oops.

And Werner points out that of the 2.5 million hipsters who have cashed in RRSPs to buy houses, a quarter can’t pay the money back – even with the ridiculously lenient 15-year period given them. The conclusion: they’re drowning in debt. So just imagine what any kind of mortgage rate hike will do. As loan costs return to historic norms over five years, says the analyst, housing costs could consume 75% of the average person’s take-home pay.

Finally, what about the way CMHC backstops the banks, and therefore the entire housing market? Well, a 20% plop in house prices, the report claims, would trigger $12 billion in default insurance claims and wipe out three-quarters of the federal agency’s cash reserves.

Isn’t it weird how every external expert – Morningstar, The Economist, Robert Shiller, the OECD – says Canada’s at risk, while we all know we’re special?

What’s wrong with them?

162 comments ↓

#1 Randy on 07.11.14 at 6:34 pm

yeh…Special like the Special Olympics

#2 zee on 07.11.14 at 6:36 pm

Garth, we are special. High in debt with no jobs!!!! I cant think of another country like ours.

#3 ShawnG in TO on 07.11.14 at 6:39 pm

what annoys me the most is that, as a taxpayer, I’m on hook for part of the $12 billion. is there any plan to increase the CMHC premium? it increasingly looks like a losing deal for the government.

#4 I love real estate on 07.11.14 at 6:43 pm

Garth, I am disappointed that when the facts don’t fit your theories you seem willing to just change the facts. A bit too Rob Ford-ish for my tastes, and those of many other readers, I think.

You wrote today:

“…scant action in the high end…”

Sotheby’s proved this week this is simply not true. Sales in the high end are up over 30%

http://www.cbc.ca/news/business/high-end-home-sales-booming-across-canada-1.2698908

You give realtors a hard time over alleged reporting issues, but when the facts don’t support your own theories, you really have to do better than this kind of unsupported, knee-jerk denial in order to be credible.

Sotheby’s is a real estate marketing company whose report was junk (as reported). The high end (over $1.5) is not booming. — Garth

#5 Calgary Owner (2nd. Round) on 07.11.14 at 6:47 pm

Hello, any comments on the effect the jobs data will have on Poloz’ address next week (on the key rate, specifically)?

“Statistics Canada said the job losses sent the unemployment rate up one-tenth of a point to 7.1 per cent — the highest level since last December. Full-time employment rose by 33,500, partly making up for the loss of 43,000 part-time jobs. Economists had forecasted June would see 24,000 jobs created after a gain of 25,800 in May.”

http://money.ca.msn.com/investing/news/business-news/tsx-unchanged-on-sluggish-jobs-data-2

#6 jshum on 07.11.14 at 6:47 pm

What kind of BS is this? Do you really need a house that much? So I guess it doesn’t matter that everyone has the “forumla” and will be paying number of bidders x 2 percent the asking price. Use your heads people

#7 R Agnew on 07.11.14 at 6:52 pm

Stephen Harper is genius what could possibly go wrong?
The great Helmsman will steer the ship of state into greater heights! The free market is a free lunch.

#8 Happy Renting on 07.11.14 at 6:59 pm

So, Joe, what did that semi go for? Maybe there’s a premium for the time machine feature. The picture makes me think I stepped back into the 70s.

#9 Sasquatch on 07.11.14 at 6:59 pm

This right here is why Canada needs financial literacy in high schools.

#10 Confused on 07.11.14 at 7:00 pm

My…How time flies
2014 already
All rights reserved…
U R welcome

#11 ILoveCharts on 07.11.14 at 7:03 pm

I respect Morningstar. Any link to the original or is that for paid members only (the type who aren’t drowning in debt)?

#12 Mark Two on 07.11.14 at 7:17 pm

For the past month Global TV in Vancouver has been running a commercial pitching condos at the future “Vancouver House” tower. Completion date 2018. Yesterday I noticed that Chinese subtitles have been added to the commercial.

Gently threatening the peasants? “Buy now or………….?.

#13 Joe on 07.11.14 at 7:18 pm

Happy Renting, it went for $733,800, so “the formula” needs to be updated to reflect the new (and obviously permanent) realities of the Toronto market

#14 Pre-Retiree on 07.11.14 at 7:19 pm

#3 ShawnG in TO
what annoys me the most is that, as a taxpayer, I’m on hook for part of the $12 billion. is there any plan to increase the CMHC premium? it increasingly looks like a losing deal for the government.
_____________________________
I agree with this. Already Wynne is looking to increase taxes on some of us to attempt to recover from her spendthrift ways.
Ultimately, this futile pursuit of the perfect “lifestyle” evidenced by “high-end” cars, appliances, furniture, and everything other useless thing under the sun will cost us all something, whether we were prudent or not.
I think this problem is most acute in GTA, but probably has spread throughout the country, judging by the numbers.
Wish us all luck.

#15 Porsche on 07.11.14 at 7:26 pm

Fort Mac is declining.

The big oil companies are saying screw that and building there own 2500 work camps with all the entities and airfields.

Will fly you in and out directly to our camps.

Screw the Fort Mac 400K single wide trailers and the $2000 monthly rental

#16 Babblemaster on 07.11.14 at 7:30 pm

Dan Werner is a well-known equity analyst for the Chicago-based investment firm Morningstar.

—————————————————-

WOW! Another expert predicting doom and gloom for TO RE. We’ve had legions of these guys over the last few years and RE just continues to go up. The biggest reason they’ve been wrong is because of the massive immigration into TO. That’s not going to change. Also, with CMHC, there is intense govt. motivation to not let house prices go down.

Do you have stats on immigrant-buyers, or just making that up? Werner has methodology. You have a real estate license. Outgunned. — Garth

#17 stop lying on 07.11.14 at 7:40 pm

The housing crash is just like Bruno Caboclo… 2 years away from being 2 years away.

Dan Werner says rates will go up 2% in 5 years and bases his view of the market decline on that. Possible… but just as possible as not to borrow his coin flip example. Given the state of unemployment and the desire to lower the loonie vs USD I don’t think there will be a hike in 2014, and maybe not in 2015…

#18 mitzerboy on 07.11.14 at 7:45 pm

we r the special of the special in saskatchewan

#19 sideline sitter on 07.11.14 at 7:45 pm

People have no concept of value these days. With rates so low, why worry, right?

Meanwhile, debt continues to pile up…

#20 Setting the Record Straight on 07.11.14 at 7:51 pm

@victoria update

I think your thesis that prices in Victoria will fall us reasonable.

But Omaha? Have you ever been to Omaha?

Don’t overplay your hand.

#21 totalinvestor.com on 07.11.14 at 7:54 pm

The formula is “this is typically 1% – 2.5% of the purchase price per offer”.
So if there are 50 bidders you should bid 2X the asking price? Duh!

#22 Soylent Green is People on 07.11.14 at 7:55 pm

Knowing me, Knowing you

Ahhhhhhhhhhhhhhhhh

There is nothing we can do ♪♫

#23 Mister Obvious on 07.11.14 at 7:57 pm

Time then, it would seem, is running out for the PM. He certainly doesn’t want the beginnings of a housing correction occurring in the waning months of his first majority.

The latest the next federal election can occur is Oct 19, 2015. But of course, it could be called sooner.

Even though I’m generally lousy at predictions, I’d guess that Harper will call an election in the spring of 2015 after mounting a huge winter smear campaign against the son of fuddle duddle.

Tom Mulcair will have little to worry about in that regard since the PM fears him not and will ignore him. No point in starting a war on two fronts anyway. History has shown that to be a poor idea.

#24 Dries on 07.11.14 at 8:01 pm

@Joe The same thing is happening here in Australia , while whole mining towns are closing down after the fall in Iron ore prices and manufacturing sectors like Holden, Toyota and Ford are moving elsewhere according to thre MSM the economy is all OK..

Have a look at the links below and join in with the rest of the world that must be laughing their a**es off at us while China is stealing Australia with their printed corrupt hot money…

http://rt.com/op-edge/169908-australia-economic-boom-ending/
http://www.australiaboomtobust.com/about.html
http://www.whocrashedtheeconomy.com/

#25 Panhead on 07.11.14 at 8:03 pm

For the first time saw 2 “for sale” signs in my burb (Tsawwassen) …yeah try saying that sober … in all Chinese lettering. This ain’t gonna be good for anybody who doesn’t own here yet … hang on …

#26 devore on 07.11.14 at 8:07 pm

#3 ShawnG

Premiums paid for CMHC insurance are retained (after expenses) in a fund to pay out losses. This amount is now at over $16B. You can see it for yourself on the CMHC quarterly report. Before CMHC turns to the government and taxpayer, it will use this money. Of course, after such an event it will be underfunded and have to recapitalize.

CMHC premiums already increased recently, and there would probably not be a whole lot of opposition to future increases.

#27 Mark on 07.11.14 at 8:13 pm

Sounds pretty rosy, the CMHC only being hit for $12B of claims against its subprime mortgage insurance, for a 20% drop.

The problem with such an assumption is that the CMHC portfolio probably will take it even harder because they are concentrated into the worst loans in the worst areas of the market.

I personally believe the long-term cost to the CMHC is going to be on the order of $180B. Why? They have $900B of subprime loan guarantees. Prudently, they should only be 5X leveraged into subprime loans. $900B / 5 = $180B. CMHC has around $20B of capital today to back their $900B subprime mortgage guarantee portfolio, so they are $160B short.

#28 the Jaguar on 07.11.14 at 8:23 pm

An interesting article from Morningstar. Everyday the media (especially print media) says the exact opposite. I can’t help but feel the whole house of cards will come tumbling down as a result of what happens in Alberta. ( I know you hate to read that Garth, because you think Albertans are completely self absorbed. I agree). But right next to every rant about the booming real estate market is a rant about the booming economy in Alberta. An article in one of the national papers today about how the statistics in Alberta skew overall housing statistics across the country.
I see storm clouds on the horizon in Alberta. Quiet layoffs behind all the headlines, too many employed in volatile construction jobs, low paying service sector jobs, big problems with the transport of oil and building of pipelines. What happens when the music stops? People go to places like Calgary for jobs, not for the balmy climate. Many who arrive in Alberta have little attachment to the place except for the job opportunities, so when they go south those people go home. BC roofers are notorious for high tailing it back to the BC interior when construction starts fall in Alberta. There was a saying years ago, “as General Motors goes, so goes America”. Something like. I think it’s somewhat the same for the economy north of the border. If the shit hits the fan in Alberta the whole country will feel the effects. I might have to change the Jaguar’s name to Chicken Little, but there might be some that have the same feeling about it all..
Where is BillyBob these days?

#29 JSS on 07.11.14 at 8:23 pm

The real question is: Should one get an RBC mortgage or get RBC shares?

#30 juno on 07.11.14 at 8:26 pm

Re-estate will keep it upward trend, slowly.

Once the average house is 1million, it won’t go up anymore, because the banks simply would not lend you the money without CMHC.

When the day of reckoning occurrs (probably within a few years). Its going appear as if all the cards are stack up against the average canadian.

What is interesting with the US decline, was, as it dropped the US and the worlds interest rates stayed the same or declined.

Within a few years as the world recovers same with interest rates. We are also heading into a time where more people are retiring the peak I believe is 2020.

So Canadians might get hit with a double whammy. Interest rates trending up, Retirees peaking. All adds up to a major decline.

Don’t forget like the article said a 20% can wipe CMHC. And probably the canadian dollar triggering inflation too

#31 Victoria - the original on 07.11.14 at 8:32 pm

We are in Victoria. My 12 year old daughter was going to a camp at a sports centre.

They are collecting old running shoes for kids. My husband dropped a couple of pairs off.

The girl told him more and more people can’t afford to buy running shoes for their kids.

I wonder how many of these people own houses. Probably a considerable number and just can’t afford to make ends meet.

As I said before my RE agent (I like him he is honest) was working at the local Mustard Seed (Victoria food bank) and also one in Vancouver. He does a lot of volunteer work. He told me he was sure many of the people coming in were middle class home owners.

#32 Ralph Cramdown on 07.11.14 at 8:34 pm

#12 Joe — “it went for $733,800, so “the formula” needs to be updated to reflect the new (and obviously permanent) realities of the Toronto market”

Well the agent wouldn’t reveal part 2 of the formula in the first bidding war. Part 2 is where some house-horny couple, frustrated at losing their first five bidding wars after being more convinced each time that that house was “the one,” says “ahh, screw it” and bids an extra $40,000 on top of the formula number, because the parents will chip in $20k and the rest is only an extra $100 a month.

Part 1 of the formula does make it easy on the buyer’s agent, though, relieving her of all responsibility to actually pull comparables and maybe calculate about what the house ought to sell for in today’s market.

I think we should put together a Greater Fool posse of ten or fifteen like-minded individuals, pick one slanty semi every week, and each bid on it at 10% under list with a $50 personal cheque for a deposit.

#33 Linda Mulligan on 07.11.14 at 8:40 pm

Question I have regarding the Canadian RE market correcting by ‘X’ percent is this: our market has traditionally been tied to the US economy. They do good, we do good; they do great, we do better than good. As per this blog & other news sources, the US economy is doing just fine; in fact, the Fed is talking the cessation of any QE whatsoever possibly as soon as the 3rd quarter 2014. So if the US is doing well & the market is a raging bull, how much security does that give the Canadian RE market from any correction any time soon? A little? A lot? Does not matter?

Myself, I think it has to provide some measure of protection, though the end of any QE will presumably finally bring the increase in interest rates that have been touted for some time now. As for our economy, yes, we have too much exposure to RE but – the Canadian economy does not insofar as I am aware rock any big boats in the world markets even now. The US goes down, so do we all but if Canada goes down it might make for a short news article in the world press but nothing more.

So my take is through no virtuous action on our parts whatsoever Canada will not have a severe meltdown in RE, simply because the US is doing well. Should we reduce debt, not buy RE at crazy prices etc? Absolutely that is the correct thing to do, but knowing what you should do is one thing – actually doing it is something else again. How likely is it that the “i want my goodie now” mentality going to be trumped by the path of virtuous debt reduction & sensible choices? Yes, that is what I thought the answer would be…..

#34 Don Derc on 07.11.14 at 8:42 pm

I don’t think Cdns really understood the collapse in 2008/2009 and the damage it did to the yanks. It was the final nail in the coffin for Detroit, as well as so many other yank cities, and the problem (gov’t debt) still hasn’t been solved. I also think Cdns do not understand the house debt, personal debt, and provincial/federal/municipal debt we have in this country today.

What shook me up is the results pointed out in this pathetic blog, when we see a 20% drop in housing prices over the next 3-5 years. The squeeze on the consumer has been on since 2010. A drop in house prices, along with the interest rate rise, affects unemployment, consumer spending and revenues for the gov’t. It will be a slow moving sludge of mud that cannot be stopped.

I sell in the power and transmission industry – and the manufacturer, distributor and the end user (mines/mills/plants) are all down – slowly – the layoffs are small and under the radar. The sales graph is slowly trending downward. We are the canary in the coal mine and we are running out of air.

Funny how you can get some great insight off this blog, but the mainstream media generally ignores it.

It’s true – like journalists, we have been trained not to ask questions, dig deep on an issue, and take whatever cut and paste news casting as the truth with out question.

….running out of air.

#35 Sheane Wallace on 07.11.14 at 8:51 pm

Question:If they know the real risk with CMHC and lie about it or misrepresent it are they not committing a crime that has to me prosecuted?

Just asking.

#36 Sheane Wallace on 07.11.14 at 8:53 pm

#26 Mark

I think more to the tune of 350 B, inflated.

#37 Tripp on 07.11.14 at 9:01 pm

“…while we all know we’re special”

This is a result of decades of propaganda: best country, best healthcare, high moral ground over Americans, big player on the world peace stage, energy superpower, so much better than the rest of the world, best housing, etc.

Meanwhile we wait a year for an MRI and pay dearly for the “free” service. We live in stick and gypsum houses that need major renos every two-three decades while draining all our financial resources. We sign for a half a million purchase in five minutes but drive ten minutes to save two cents for a litre of gas or a bundle of green onions.

#38 Nomad on 07.11.14 at 9:05 pm

According to the survey, plenty of you have plenty of money to invest and plenty of you are renting. Consider this plan. Participate to the real-estate craze by buying shares of Genworth Canada (MIC) and Home Capital (HCG). As oppose to houses, their valuations are cheap.

If defaults don’t increase, Genworth could catch up to the market average valuation, which is 50% higher. And if lending keeps going, Home Capital should also catch up, which is also one of the few cheap stocks.

If to the contrary, the real-estate market starts doing poorly, then those stocks will get hit, but then so will the price of the condo you’ll be buying (or the two condos you’ll buy and merge).

I think it’s wiser to than betting all your chips against the real-estate market.

#39 Sheane Wallace on 07.11.14 at 9:07 pm

I read the Morningstar article, I have a subscription, a long term customer, it is from July 10 and is not pretty.

it debunks bunch of myths about:
1. Canadians not being able to walk out of mortgages while Americans can (apparently 80 % of Americans can’t)
2. deduction of interest from mortgage payments
3. Canadians having bigger down payments
4. Immigration driving prices up
5. tightening the mortgage rules by government
6. Yep, the elephant in the room – CMHC
7. Interest rate will stay low for a long time.

It is all a big lie folks,
The question is : whom do you trust: Morningstar or our great leaders.

And Morningstar is missing the parts on:
1. Substandard condos with falling glass walls
2. Lack of information on sales and prices, the franken-numbers.
3. Open propaganda and lies in the paid MSM media
4. Real estate representation scams (remember these real estate agents posing as customers)? Remember line ups with paid students in front of newly announced condo projects?
5. you name it…

When this baby hits the fan it is going to stink big time.

#40 Sheane Wallace on 07.11.14 at 9:19 pm

The original article is from :
By Dan Werner and Erin Davis | 05-13-13 | 06:00 AM |

#41 Sheane Wallace on 07.11.14 at 9:22 pm

80 % of canadian mortgages have over 50 % loan to value ratio! 40 % have over 70 % in loan to value ratio, so 30 % decline predicted by morningstar will wipe these 40 % out.

#42 omg on 07.11.14 at 9:22 pm

“Finally, what about the way CMHC backstops the banks, and therefore the entire housing market? Well, a 20% plop in house prices, the report claims, would trigger $12 billion in default insurance claims….”
——————————

Actually “only $12 billion”, that’s pretty good news – puts into perspective the $980 billion in CMHC mortgage guarantees – only a fraction of it is really at risk.

So, yes when the meltdown comes Canada will be screwed. and we will have a decade or more of stagnant economy because all the best and brightest and most energetic have mortgaged themselves to the hilt. But at least we who will still be paying taxes will only be on the hook for $12 billion.

#43 Freedom First on 07.11.14 at 9:25 pm

Have a great weekend Garth, and I hope your bionic appendage is operating to your satisfaction.

The formula for RE overbidding with no conditions allowed. Wow! Sacrificing virgins in modern times.

So many people with money to burn. Burn baby burn. It’s gonna hurt.

#44 Sheane Wallace on 07.11.14 at 9:34 pm

#8 Sasquatch on 07.11.14 at 6:59 pm
This right here is why Canada needs financial literacy in high schools.
———————–
I thought the role of schools was to raise obedient servants (quoting Smoking Man here), the goal of school is not to educate you but to miss-educate you.

#45 Ret on 07.11.14 at 9:35 pm

Re: #38
You can add asbestos cement pipe to the list for those new condos too. Ditto for new health care centers. What next, smoking lounges in hospitals?

So much for the building codes in this country. We might as well be living in some third world country.

http://www.theglobeandmail.com/report-on-business/pipes-with-asbestos-still-used-in-new-buildings/article19357158/?page=all

#46 Smoking Man on 07.11.14 at 9:35 pm

Wow… Fentanyl

It was administents today, moments later a camera forcing it’s way up a one way street.

An hour later, the good news.. No ass cancer.

My instruction, do not drive…. Now they
tell me.

After a tee bone stake at Zets on airport road, , driving home. Realize not a good idea to go to tax farm..

Opening the side door to go for a smoke.. I awake at the bottom of the stairs in my basement….

That shit is dangerous.. I’m sticking to booze..

#47 LL on 07.11.14 at 9:43 pm

#23 – Dries

See where unsold cars (and there is a lot…) ends their life. Unbelievable…….worth to have a look..

http://www.zerohedge.com/news/2014-05-16/where-worlds-unsold-cars-go-die

…”and manufacturing sectors like Holden, Toyota and Ford are moving elsewhere according to thre MSM the economy is all OK”..

That was proven to be bogus. — Garth

#48 LL on 07.11.14 at 9:47 pm

It’s not true?

How could it be true? — Garth

#49 Sheane Wallace on 07.11.14 at 9:55 pm

#44 Ret on 07.11.14 at 9:35 pm
Re: #38
You can add asbestos cement pipe to the list for those new condos too. Ditto for new health care centers. What next, smoking lounges in hospitals?

So much for the building codes in this country. We might as well be living in some third world country.

——————————–
Nope, in no other country on world do people live in basements.

#50 LL on 07.11.14 at 9:58 pm

Well…I though it was a credible site and story.

Why writing story/report like that if it’s not true?
What’s the goal? Show us how bad the economy is?

So sorry #23….it’s not a credible report.

Thank’s Garth!

#51 Setting the Record Straight on 07.11.14 at 10:03 pm

for a libertarian perspective on immigration

It requires some concentration

http://www.lewrockwell.com/2014/07/hans-hermann-hoppe/free-immigration-is-forced-integration/

#52 factsrfacts on 07.11.14 at 10:06 pm

Must be a fire fighters car? I can’t see the IAFF union sticker in the window however given the overpaid license plate, it absolutely must be a fire fighter. They nearly all make over $100k annually, they have no problem buying houses outside of the cities they work in.

#53 angela on 07.11.14 at 10:08 pm

How are electrical fixtures “EXTRAS!”? It’s a bonus to have lights on? And the carpets are extras? Wtf Still, it’s a bargain to anyone from Vancouver. A house that close to downtown and the waterfront would cost you double that here. I actually kind of liked the house till I got to the pic with the mountain mural. Creepy.

#54 Ralph Cramdown on 07.11.14 at 10:09 pm

#37 Nomad — “Participate to the real-estate craze by buying shares of Genworth Canada (MIC) and Home Capital (HCG). As oppose to houses, their valuations are cheap.”

Not cheap enough for me. I own enough stocks that sink because of things I didn’t see coming. If I’m getting paid to take a known, foreseeable and substantial risk, I want to be paid a lot. Which investors are setting the price of HCG and MIC right now? I’d argue that there’s two groups of them:
1) Housing bulls
2) Idiots
So the price is going to be an average of what those two groups consider fair. You might also consider
3) Short sellers
There’s plenty of other stocks that are bets on housing. Coast Wholesale Appliances, Brookfield Real Estate Services, and various lumberyard and wood product stocks that aren’t major exporters.

I don’t consider not being in these stocks to be a bet ‘against’ Canadian housing, though that IS one major reason I’m avoiding them. I just see better opportunities elsewhere.

#55 Aggregator on 07.11.14 at 10:11 pm

Wow. It's amazing how quickly the language found in Candian bank reports changes as CMHC and Big Gov withdraw support. And just like that, no authority is willing to approve the data as credit scores and home values are posted with sources believed to be reliable at the time of origination.

RBC

CIBC

In other words, CMHC and banks are not marking current asset values and credit scores, à la AIG and Lehman Brothers.

#56 Ralph Cramdown on 07.11.14 at 10:18 pm

#49 LL — “Well…I though it was a credible site and story.”

Just to clarify. You think a site whose tagline is basically “in the long run, we’re all dead” and whose founder posts using the name of a fictional, off-his-meds schizophrenic with multiple personality disorder and a plan to — literally — blow up the credit rating agencies is a GOOD source for unbiased news about the economy?

#57 Frank Blood on 07.11.14 at 10:22 pm

Re: #21 Soylent Green. Thanks for that, it will be playing over and over in my head for the next 3 days…

#58 -=just want kindness=- on 07.11.14 at 10:24 pm

Dan Werner is a well-known equity analyst for the Chicago-based investment firm Morningstar.

—————————————————-

WOW! Another expert predicting doom and gloom for TO RE. We’ve had legions of these guys over the last few years and RE just continues to go up. The biggest reason they’ve been wrong is because of the massive immigration into TO. That’s not going to change. Also, with CMHC, there is intense govt. motivation to not let house prices go down.

Do you have stats on immigrant-buyers, or just making that up? Werner has methodology. You have a real estate license. Outgunned. — Garth
—————–

hey babbler, take the quiz and let us know how you did:

http://www.macleans.ca/economy/realestateeconomy/who-said-it-the-canada-u-s-housing-bubble-quiz/

#59 Smoking Man on 07.11.14 at 10:25 pm

I hate not being in control.

Prior to my rape this morning, the two doctors and two nurses, it was pure business. Standard questions, how much do you drink.. “Oh Mabel one beer a week” I said.

They where professional, and cold.

After I came back to consciousness, they where my best friends, fist pumps all around.. The blond nurse giggling, and stroking her hair..

WTF did I say to these people between consciousness and lala land…

#60 -=just want kindness=- on 07.11.14 at 10:28 pm

I lived through the housing bubble in the US and still only managed 56% on the quiz! sheesh

#61 Monica on 07.11.14 at 10:30 pm

Get rid of your loans, guys and gals, because we are going into a high interest rate period. Very high. It will be the equivalent of going into the double digit interest rates we had in the 80s where many people threw their house keys at the bank and we had record numbers of bankruptcies.

In Britain, at least, the central bankers are telling us interest rates will be increased by five fold in JUST the next 3 years. In many other Western nations this is also the case as they will be likely following suit as the US tapers off the “economic stimulus” that has been feeding the drunk US economy for many years.

We recommend not enabling the bankers by taking out mortgages (interestingly, French word for “death pledge”) or taking out any personal loans. If you have a mortgage, sell your house right away and begin renting a house, apartment, room, or whatever will help you live economically for the tough times ahead. When interest rates rise, it will impact every sector of the economy including housing construction down to your basic telephone support representative as employers will be facing higher interest rates on their loans. This is all the cause and effect of economies wrought with artificially low interest rates that stimulate false investment and risk taking. Another possibility is to move to another country with lower public debt, higher interest rates, and more solid economic footing such as Latin American countries. This has been your countless warning.

You read that trashy site? — Garth

#62 Smoking Man on 07.11.14 at 10:49 pm

 Monica on 07.11.14 at 10:30 pm

Humans, you Crack me up… London going to push rates through the roof….

London an insane housing market, Carney spewing fear.

Obviously they’re trying to talk it down.

Toots there’s a currency war going on.. Only a kick ass forex trader knows.. Oh up 2 million since I started few years ago.

The slaves can’t pay there bills.. Spike rates more slaves can’t pay the bills… The banks will get crushed with a spike.

Only hope for business as usual, huge wage inflation
across all countries…. One hold out. Could create problems.

Not going to happen, Germans are smart, they will see the big picture..

#63 will on 07.11.14 at 10:49 pm

Yeah the interesting thing will be how the coming RE event is reported. The language. Language lovers can expect stuff like RE markets are “soft” (read: horrible), realsters are “disappointed” with BOC pronouncement (read: scared shitless), market is “encouraged” (by some arcane and meaningless stupidnumber – sister of frankenumber), or equally realsters will be “excited” by some phony number (read: praying to GOD people will fall for it again). Put it all into The REalster’s Lexicon:
-soft
-disappointed
-encouraged
-excited

Anyone like to add to this lexicon? Could be useful. Whenever you read these kind of qualifiers in RE literature, then take your money and run. Caveat emptor. Lets make a book.

#64 Nemesis on 07.11.14 at 11:06 pm

#Smokin’Man’sFentanylInduced. #MadMadMadAttempt. #ToEscapeTheColonoscopy. #&RalphThoughtPeugeots… #WereForPussies?

http://youtu.be/QqajLDaeCRk

#65 devore on 07.11.14 at 11:07 pm

#41 omg

Actually “only $12 billion”, that’s pretty good news – puts into perspective the $980 billion in CMHC mortgage guarantees – only a fraction of it is really at risk.

This is incorrect. If you default on a $500k mortgage, CMHC will never have to pay out the full amount. First of all, each mortgage payment decreases principal owing. Second, the lender is expected to recover all or as much as possible of the amount owing through a sale of the collateral property. CMHC insurance would eventually cover the deficit only. Finally, a mortgage at risk does not mean a default. Majority of mortgagees will keep servicing their mortgage through even severe financial difficulties, or restructure it with the lender.

So no, this does not mean only $12B of mortgages are at risk.

#66 LL on 07.11.14 at 11:13 pm

#55 – …”whose founder posts using the name of a fictional, off-his-meds schizophrenic with multiple personality disorder”….

as bipolar + borderline personality maybe? LOL

Described like that, of course it doesn’t look credible!

I will do some search on the guy and the web.

#67 devore on 07.11.14 at 11:23 pm

#49 LL

Well…I though it was a credible site and story.

If it was a credible story, you could open a Toyota, Ford, etc, quarterly reports, and see billions in inventory losses. Somewhere, someone has to take a hit for all those unsold cars rusting away.

Why would someone float a bogus story? Really? You have to ask? It is a common misconception that if there is no financial gain from a lie, one would not fabricate a false story. And yet people lie and mislead for dozens of reasons, many having nothing to do with money. Sometimes, it does not even have to be malicious. A simple logical fallacy, such as correlation =/= causation, could lead someone to come up with a fantastic theory they believe to be true.

#68 Mr. Frugal on 07.11.14 at 11:31 pm

We bought in 1993 and the prices in our area (Halton) are probably up 250% to 300% since then. Most people that bought their house before 2000 probably could not afford to buy the same house if they had to pay the current prices. That’s stupid and unsupportable. This will end badly. And yet people are worried about stocks. They equate price volatility with risk. This is just plain wrong. Historically elevated prices equate to high risk.

#69 Terrier on 07.11.14 at 11:46 pm

I live in Thornhill and I can tell you that at least 6 houses in my neighborhood priced between 2.5M and 4 million have been sitting on the market for more than 10 months … one in fact was on sale since April 2013 … no bites whatsoever.

#70 Mr Zipper on 07.12.14 at 12:02 am

Love the photo G…….could be the recruitment poster for Canada’s civil service eh? Look at the high school drop outs in government jobs….police , firemen, lawn wonks…all making over two hundred thousand dollars a year…..plus plus plus plus massive pensions. The whole thing reminds me of Kubrick’s Dr Strangelove’s character who rides the bomb down screaming ‘yahoooo’….as if he’s won the game.

Civil servants won’t / don’t realize they are the cause of the deterioration of Canada’s standard of living by creating the lop sided crazy standard of the elitist class war they have imposed on the taxpayer. Look at all the US cities where civil service overhead has bankrupted entire civilizations….do they care….no….they enter ‘negotiations’ wanting a raise !!!!!! 100% taxation here we come…..Yahooooooooooo….I’m overpayd….and screw everyone else.

#71 KommyKim on 07.12.14 at 12:03 am

RE:””#40 Sheane Wallace on 07.11.14 at 9:22 pm
80 % of canadian mortgages have over 50 % loan to value ratio! 40 % have over 70 % in loan to value ratio, so 30 % decline predicted by morningstar will wipe these 40 % out.””

80% + 40% = 120%
Something doesn’t add up.

#72 No Debt on 07.12.14 at 12:17 am

“What’s wrong with them?”

On average, they aren’t “Joe” the average Toronto Sun reading Canuck who believes a home ownership is a right and financing debt is just a cost of daily life?

#73 Babblemaster on 07.12.14 at 12:18 am

#57 -=just want kindness=-

————————————————————

I scored a 56%! Not great, but I get the point that there are indisputable parallels between the US circa 2006 and current Canada. However, I have been waiting for the “bubble” to burst and, despite what some prognosticators have said, it hasn’t happened.

Actually, I would love to see the bubble burst, not because I want people to get hurt, but because it simply doesn’t make sense. The fundamentals aren’t there to support the prices. And yet there they are. When it finally bursts no one can know. To wit, prices have climbed to the stratosphere since Garth started calling for a pullback. I say there is probably still room for big price gains.

#74 aaron on 07.12.14 at 1:33 am

Seriously? Macleans? Aa reliable as the Toronto Sun.

#75 Cici on 07.12.14 at 1:43 am

So semis in Toronto keep ticking up, right along with the jobless rate:

Canada lost 9400 jobs in June, jobless rate ticks up to 7.1%

http://www.cbc.ca/news/business/canada-lost-9-400-jobs-in-june-jobless-rate-ticks-up-to-7-1-1.2703844

Tears will indeed be shed.

#76 Cici on 07.12.14 at 1:47 am

#7 Happy Renting

Either a time warp or the twilight zone…

#77 Cici on 07.12.14 at 1:58 am

#3 ShawnG in TO

Not a losing deal for the government (yet – it’ll be Justin who will inherit this mess)…just a losing deal for tax payers. The Cons want to dump this time bomb on the next government, which will be doomed with a short-lived reign in response to all of the anger and retaliation on the part of the poor, naive and jobless tax payers who will be in a state of all-out-panic and disillusion.

Of course, Justin and his cohorts will do their damnest to stop the ship from sinking. He’ll bring in the coast guard, but get kicked out office before they arrive to save the day. By that time the world economy will be fairing much better in general, and the Cons will take all the financial and political credit.

Wash, rinse and repeat. Thank Ronald Reagan for the inspiration.

#78 Robyn the soon to be ex Canadian on 07.12.14 at 3:16 am

Garth, I have followed you decided to start this blog. I was also called a chicken little in the beginning. But, Flaherty did whatever he could to sustain housing and saw it as our economic support mechanism. Now, with China leaving the oil patch and America not needing it, we are running on fumes.

I’m heading for greener pastures across the border. I recall you once saying, ‘never bet against America’. Yup, you were right

#79 drydock on 07.12.14 at 4:25 am

Nicoll Foss said Canadian real-estate would crash by 90% on Max Keiser 2 years ago and people laughed.
Now she lives in N.Z. and people are claiming she’s lost it.
Time will tell.

#80 DJG on 07.12.14 at 5:14 am

I just don’t know what the basis is for your “scant action” in the high end properties in Toronto claim. Example: a three-bed semi just around the corner from me, with no parking. Listed for $1.295, sold in two days for $1.4. Basically nothing has been done to this house since it last sold for $1.07 in 2011.

#81 Lawboy on 07.12.14 at 7:38 am

Funny, I had a colonoscopy recently too.

The doc said I had something in there that looked just like Smoking Man.

Go figure, eh.

#82 Thomas on 07.12.14 at 8:33 am

I have a nice lemon for sale. Asking price is $2. Bidding wars expected so act accordingly.

#83 Life's a supermartingale on 07.12.14 at 8:33 am

Garth,

I know that you call for less government intrusion, but your main thesis on this blog – as exemplified by this post – is that people are irrational, make suboptimal decisions, and ignore useful advice. If your thesis is correct, then markets don’t work, they are not efficient, and moreover a group of smart people can reliably spot the errors. If this happens for housing, if happens for all assets, stocks, bonds, etc. This is the siren call for the more government intrusion, not less. People simply can’t be trusted to find an optimal consumption/investment path through their lives and they need the helping hand of government to guide the invisible hand. Your position is inconsistent Garth, either markets work or they don’t, and if they don’t that leaves the benevolent social planner that brought us CMHC in the first place.

Yes, CMHC is a monster. Yes, houses will have terrible returns over the next decade or more. Government has suboptimally split the risk in society, but given the government’s risk reallocation, people are responding rationally. They are holding low return assets, namely housing, for a reason. Why? (It’s entirely rational.)

#84 maxx on 07.12.14 at 8:53 am

#119 Realtor # 1 GTA on 07.11.14 at 9:32 am

“Construction hiring increased
And more full time positions

I know “wait till next spring ”

“Unemployment just went up. — Garth”

…and unemployment increases lead to another data-mining opportunity: thrift and charity shops.

If you dare, whilst crossing the parking lot, check out the cars (not generally in the beater category at all with a sprinkling of luxury models). Then have a look around the store: most are people you’d expect to see in an upscale mall or on the high street. At the cash, take a good look at the dress and demeanor of these patrons and what they’re buying. This is where the middle class is migrating to out of necessity.

At a flea market recently, a vendor, in between repeated price drops on an item, barked that there were a lot of people, but that no one was buying. He kept on dropping the price even as we walked away.

Good jobs are being replaced by anemic service industry jobs that people mostly find intolerable and jettison from like fleas on a dog.

How is that good for the country’s economy and re in particular?

A seasoned, high-end realtor told us Wednesday that the market truly sucks at the moment. This state of affairs is quite different face-to-face as opposed to through msm.

Canada’s economy IS in trouble and no amount of rate drops will correct it.

Risk on.

#85 OttawaMike on 07.12.14 at 9:16 am

#61 Smoking Man on 07.11.14 at 10:49 pm
The slaves can’t pay there bills.. Spike rates more slaves can’t pay the bills… The banks will get crushed with a spike.
Only hope for business as usual, huge wage inflation
across all countries…
———————————————————-
Although I am intrigued by your suggestions about wage inflation.
Here’s a good op ed article by Krugman that explains why you’re probably a little off on that theory, my drunken little Yugoslavian buddy.

The .01% ultimately rely on interest income and interest income has not been as lucrative as it once was:

http://nyti.ms/1zsGj5N

#86 Toronto_CA on 07.12.14 at 9:17 am

“#73 aaron on 07.12.14 at 1:33 am
Seriously? Macleans? Aa reliable as the Toronto Sun.”

Macleans was reporting on a Morningstar analysis. Are you saying they made that up? Lord, some people are really idiots.

http://en.wikipedia.org/wiki/Morningstar,_Inc.

Since you don’t seem to understand what Morningstar is, please educate yourself.

#87 LL on 07.12.14 at 9:22 am

http://jalopnik.com/that-zero-hedge-article-on-unsold-cars-is-bullshit-1578124255

BUSTED…You were right Garth!

It did not pass the smell test. Read the Zero guy at your own peril. — Garth

#88 Sheane Wallace on 07.12.14 at 9:27 am

#70 KommyKim on 07.12.14 at 12:03 am
RE:””#40 Sheane Wallace on 07.11.14 at 9:22 pm
80 % of canadian mortgages have over 50 % loan to value ratio! 40 % have over 70 % in loan to value ratio, so 30 % decline predicted by morningstar will wipe these 40 % out.””

80% + 40% = 120%
Something doesn’t add up.
………………………..
20 % less than 50 % in loan to value ratio
40 % between 50 and 70 % in loan to value ratio,
40 % over 70 % in loan to value ratio,

so 80 % over 50 % in loan to value ratio

proves that math teaching at schools sucks.

#89 4 AM Sunrise on 07.12.14 at 9:36 am

#70 KommyKim on 07.12.14 at 12:03 am
RE:””#40 Sheane Wallace on 07.11.14 at 9:22 pm
80 % of canadian mortgages have over 50 % loan to value ratio! 40 % have over 70 % in loan to value ratio, so 30 % decline predicted by morningstar will wipe these 40 % out.””

80% + 40% = 120%
Something doesn’t add up.

———————————–

40% of Canadians have over 70% LTV ratio.
40% of Canadians have between 50% and 69.99999% LTV.
The other 20% are under 50%.

40%+40%+20%=100%.

#90 4 AM Sunrise on 07.12.14 at 9:37 am

Serves me right for not hitting “reload” before hitting “Submit”.

#91 Tony on 07.12.14 at 9:50 am

Re: #67 Mr. Frugal on 07.11.14 at 11:31 pm

The average bungalow in Richmond Hill cost about 30 thousand dollars in 1984. In 30 years since then property values have gone about 20 fold to around $600,000.00. This is a better example of the stupidity of people buying homes today.

In 1984 Richmond Hill was in the country with no major roads connecting it to the metro area. Not a great example. — Garth

#92 Captain Sensible on 07.12.14 at 10:20 am

WOW! Another expert predicting doom and gloom for TO RE. We’ve had legions of these guys over the last few years and RE just continues to go up. The biggest reason they’ve been wrong is because of the massive immigration into TO. That’s not going to change. Also, with CMHC, there is intense govt. motivation to not let house prices go down.

Do you have stats on immigrant-buyers, or just making that up? Werner has methodology. You have a real estate license. Outgunned. — Garth

———————————————————
Wow. 1 guy has stats and the other doesn’t.
Who is right? Hmmmmmmm….

Toronto, home of the triple uppa.

Uppa, uppa, uppa

#93 Captain Sensible on 07.12.14 at 10:26 am

#31 Ralph Cramdown on 07.11.14 at 8:34 pm
I think we should put together a Greater Fool posse of ten or fifteen like-minded individuals, pick one slanty semi every week, and each bid on it at 10% under list with a $50 personal cheque for a deposit.

__________________________________________

Ralph, if that’s even your real name. I always respected what you had to bring to the table and I see you as a smart person.
But that, that was just dumb.

#94 Geek on 07.12.14 at 10:32 am

What is the difference between Genworth and CMHC?

#95 Teulon on 07.12.14 at 10:49 am

LL and others who believe incredible ” news” links:

Try the snopes.com website. It’s dedicated to busting urban myths

#96 Jay on 07.12.14 at 10:53 am

Something occurred to me yesterday: there was 1 recession in the 70s. Two in the 80s. One in the 90s. Two in the 2000s.

We all agree this powder keg only needs a spark. Doesn’t that suggest that spark will come within the next 6 years?

Even if we assume we’ve gone back to the pre-fed times, its still going to be 16 years until we definitely have another recession.

If at that point an asset worth 30% of the money you’ll make in your lifetime becomes illiquid and loses a huge chunk of its value, how is that going to affect your personal finances?

#97 Retired Boomer - WI on 07.12.14 at 10:58 am

Wow with prices like that, where can one put a rational value of TO Real Estate?

I’ve been there, not that impressed. The streets are not paved in gold and just as many uneducated, unemployed as most big towns I’ve seen.

The only that makes your cities “special” is your desire to own dodgy real estate at inflated prices.

Glad it isn’t my 30 year earnings stream having to pay it off.

It is a competitive world today, not a competitive local market. If my Canadian investments can’t perform going forward there are hundreds of other countries to invest in today.

I would tend to sell Canada short.

#98 T.O. Bubble Boy on 07.12.14 at 11:47 am

@ #94 Geek on 07.12.14 at 10:32 am
What is the difference between Genworth and CMHC?
———————-

Genworth = private, with 90% government backing of insurance

CMHC = government, with 100% government backing

#99 T.O. Bubble Boy on 07.12.14 at 11:56 am

@ #91 Tony on 07.12.14 at 9:50 am
Re: #67 Mr. Frugal on 07.11.14 at 11:31 pm

The average bungalow in Richmond Hill cost about 30 thousand dollars in 1984. In 30 years since then property values have gone about 20 fold to around $600,000.00. This is a better example of the stupidity of people buying homes today.

In 1984 Richmond Hill was in the country with no major roads connecting it to the metro area. Not a great example. — Garth
———————————

Also – none of those 1984 bungalows even exist… most have been torn down and replaced with McMansions.

So, the $600k “average home” of 2014 is probably 2x the size of the $30k “average home” of 1984.

Also – mortgage rates were 12%-13% in 1984… so, the $30k bungalow monthly payment @ 12% was equal to about a $65k bungalow at today’s 3% rates.

#100 R on 07.12.14 at 12:11 pm

Hipsters love “authenticity”. They love dives and rat holes, which match their disheveled, ironic beards and ratty clothing. Places like this are made of hipster dreams.

#101 T.O. Bubble Boy on 07.12.14 at 12:12 pm

@ #17 stop lying on 07.11.14 at 7:40 pm
The housing crash is just like Bruno Caboclo… 2 years away from being 2 years away.
——————-
Hey – watch it… Bruno looked ok in his first summer league game!

#102 young & foolish on 07.12.14 at 12:13 pm

Many are waiting for the “coming RE event”, like fundamentalists waiting for the Second Coming. There is something wrong with that, and if you have to ask what, then you are not understanding our current economic realities.

We are living through an over-valued/low yield period where everything is expensive (including your “liquid” portfolio). Just waiting for the next big thing ….

#103 T.O. Bubble Boy on 07.12.14 at 12:19 pm

This is by far the scariest part of Garth’s post today:

And Werner points out that of the 2.5 million hipsters who have cashed in RRSPs to buy houses, a quarter can’t pay the money back – even with the ridiculously lenient 15-year period given them.

Think about that for a second…

Canadian first-time buyers are PAYING TAX on their RRSP/Home Buyer Plan money because they can’t afford to put 1/15th of the amount back into their RRSP each year.

And remember – the maximum amount you can take out for this is $25k per person… so, we’re talking a MAXIMUM re-contribution requirement of $1,667 per year.

So, these people can buy a $500k+ house, but can’t afford to put $1700 per year away for retirement???

#104 LL on 07.12.14 at 12:21 pm

Thank’s #95 – Teulon
Will have a look..

#105 DON on 07.12.14 at 12:39 pm

@#33 Linda Mulligan on 07.11.14 at 8:40 pm

You are right we follow the US. But I guess we only follow the US when things are going right for them. In my view we are 5-7 years (foot steps) behind the US and are about to get slapped in the face with a tree branch. If we follow the US then we will also crash as they did.

Recency and bliss = Tree branch across the head.

AN Argument with one sided logic.

and house prices are falling in Victoria BC. But you wouldn’t know any better if you listen to the real estate board.

#106 Mr Buyer on 07.12.14 at 12:58 pm

I kinda like hearing an ABBA tune every couple of years or so. Does that mean there is something more seriously wrong with me then I already imagine?

#107 kILlaBoY50 on 07.12.14 at 1:04 pm

What is taking this darn real estate correction so long to get here?? I’ve been hearing the warnings about the risky Canadian real estate market for years now. I’ll probably have my mortgage paid of before it happens.

#108 ponerology on 07.12.14 at 1:43 pm

I think to better illustrate the point one should make a fictitious example of selling a stock using those tactics in an effort to bid it up including posting multiple stories about how XXX stock is such a great buy in the newspaper and claiming it can go nowhere but up…
now why don’t we see that on any large scale I wonder..:)

Or to put this another way, if the level of disclosure for real estate was the same as for stocks, then a publicly available building inspection report would need to exist prior to listing it. Although that’s probably too onerous a requirement it does illustrate the difference in regulatory protection one has between buying the two assets.

#109 Chicken little on 07.12.14 at 1:52 pm

#28 the Jaguar:

You’ll owe me money if you change your name! :} I’ve copywrited it!
…………

I have a friend who in 8 months has paid down 3k in principle….and 7k in interest. Talk about throwing money away.

#110 HogtownIndebted on 07.12.14 at 2:15 pm

It’s worse than it might seem when it comes to RRSP HBP repayment failures.

This report from 2013 shows about 47% of such borrowers are not paying the full required amounts annually.

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/02/disappointing-new-stats-on-the-rrsp-home-buyers-plan.html

#111 Dan on 07.12.14 at 2:25 pm

#102

“We are living through an over-valued/low yield period where everything is expensive (including your “liquid” portfolio). Just waiting for the next big thing ….”

Agreed – after making some decent returns in financial ETFs last year and energy/precious metals ETFs over the last few months, I’m tempted to just rent and wait it out in “savings” accounts indefinitely.

Now why would you keep money in a 1.5% bank account, fully taxable, when you can get 5.2% in tax-efficient payments with a bank preferred share that has remarkable price stability and a fixed dividends? — Garth

#112 Dan on 07.12.14 at 2:36 pm

I actually did hold the XPF and CPD ETFs for a while last year – and luckily got out before the summer “taper tantrum”.

I know this is a trading mentality that you frown upon, but preferreds are still quite vulnerable to a broad market correction. I’m waiting for one of those before building a balanced portfolio.

I disagree. Preferreds are only affected by interest rate changes. However, long-term investors who bought perpetuals at the right price (below the potential call), and keep on collecting an eternal dividend, just don’t care. — Garth

#113 Nomad on 07.12.14 at 3:54 pm

House price increases have been frustrating to those of us who refuse to buy what we see as poor value, but counting on a price dive and waiting could drive you nuts.

Unlike the stock market, the house market wouldn’t react quickly in the even of a rise in defaults or rising rates (unlike REITs that fell 12% in a month last year). Many will get cash from their parents. Others will reduce their expenses. Some will renegotiate. Sure some will sell, but say rates go up 0.5% next year, are there really going to be that many people in trouble? Maybe, but what if rates go up only 0.25%? You’ll loose your sanity hoping for the house you want to return to its 2006 value.

With the stock market, there are a lot of people out there who went to cash at the beginning of 2013, their guts telling them that the asset prices had gone up too much. 1 year later the US market was 30% higher. Timing a top is a game of luck.

No one can call the future. Better to enjoy the summer. In the meantime, if you rent, buy some real-estate indirectly through REITs and MICs. That way if your mom tells you should have bought real-estate, you can tell her you did. And tell her that:

Home Capital went up 70% in 1 year.
Genworth went up 50% in 1 year.

#114 young & foolish on 07.12.14 at 4:23 pm

“1 year later the US market was 30% higher. Timing a top is a game of luck”

maybe it’s better to become a Boglehead ….

#115 the Jaguar on 07.12.14 at 4:35 pm

#109 – Chicken Little:

Whatever happened to imitation being the most sincere form of flattery? Calm down. A Jaguar is and always will remain a Jaguar.

#116 Smudgekin on 07.12.14 at 5:32 pm

Grease me a moist, young virgin!

Our in house mechanic has just departed to pursue RE. If the licences don’t work out its back to fixing vans.

#117 Dr. Talc on 07.12.14 at 5:40 pm

#79 drydock on 07.12.14 at 4:25 am

Nicoll Foss said Canadian real-estate would crash by 90% on Max Keiser 2 years ago and people laughed.
Now she lives in N.Z. and people are claiming she’s lost it.
Time will tell.

I’d say she lost it years ago. There are many undiagnosed psychiatric disorders out there. The question in my mind is ‘what was her motivation?’
because she said all that stuff with a straight face.

#118 Ralph Cramdown on 07.12.14 at 5:47 pm

#102 young & foolish — “We are living through an over-valued/low yield period where everything is expensive (including your “liquid” portfolio).”

Although I realize that this is a popular view, I think it’s a cop-out.

If somebody wants to say that one asset class is overvalued (GTA houses, US junk bonds, e.g.) and bargains are tough to find in that space, that’s a reasonable point of view. But all asset classes everywhere overvalued? I think not. From where I sit, I’ve been watching six years of panicked herds of investors running screaming from one market after another, only to see some of those markets rebound by 20-50% in a year, sometimes even a matter of months.

Closer to home, there’s still deals in the US equities markets, and even some in the S&P 500. Canada’s markets are cheaper still, with some sectors having been beaten down to “really cheap.” And even today’s US index levels are going to look pretty cheap in five years if the US doesn’t have a recession and Europe doesn’t fall apart. Could happen.

#119 experienced.optimist on 07.12.14 at 5:56 pm

Talk about being “OVERPAYD”. And a stock that just wants to scream crash. From a low of around 72 cents in 2009 to a high this past June of just over $90.00. No wonder this company is now selling $200 million in equity along with the CEO ,the majority shareholder, selling between $115 and $150 million in stock.

The following links are from a U.S. Value Investing website called “Seeking Alpha”. The article is written for the U.S. market about this Canadian company by a Canadian Value Investing author whom I occasionally read. To read the full articles, you get the first page,unless you follow this website, you will have to supply them with an e-mail address. Or you can look them up yourself and check out the history. U.S. (OTC:AOCIF), Canada (TSE: ACQ). AutoCanada

-http://seekingalpha.com/article/2267263-autocanada-an-easy-short
_http://seekingalpha.com/article/2292655-autocanada-ceo-sells-millions

As the author states at the end of one of the articles:
“I sold the company, the CEO is selling the company, and senior management is selling the company.That leaves the question, who would buy the company at the current price?
What do the bulls have to say now?”

Are there any more companies out their whose market cap is way out of line. I remember before the last great crash, Potash Corporation of Saskatchewan (PCS) had a market cap larger than the Royal Bank. But that did not last long.

Investing is not gambling, and vice versa. — Garth

#120 BillyBob on 07.12.14 at 6:03 pm

@ the Jaguar

“Where is BillyBob these days?”

He is still in Dubai, flying big planes for tax-free money and patiently biding his time and observing the slow-motion train wreck that is Canadian real estate, nay, the entire Canadian economy.

And I agree with your musings on the economy in Alberta, but with a slightly different take – my concern is the sheer lack of diversity. It’s like the Cons have gone “all-in” on resources and if that collapses, well…I think Mr. Turner has made a better case than I can of the dangers of trying base your entire economy on selling housing to each other!

I want to see a happy ending to this but I can’t. My own goal has shifted from trying to get back to now planning to never return for more than six months less a day. Ever.

#121 Bill Gable on 07.12.14 at 6:09 pm

To quote a post by VICTORIA:

“As I said before my RE agent (I like him he is honest) was working at the local Mustard Seed (Victoria food bank) and also one in Vancouver. He does a lot of volunteer work. He told me he was sure many of the people coming in were middle class home owners.”

Here in Dampcouver, we have a Foodbank depot, in a local Church. I walked by yesterday and two peopleI know well, from the building next to me, were in the lineup. I hope they didn’t see me. I didn’t want them to feel badly. It shook me up.
One of the two folks just lost their media job, and she is going to have a tough time finding a gig, in the collapsing Radio Business – and already they are food ‘needy’.

I have been thinking about this all night and day and it worries me. I guess that’s what I get for taking Economics and History.

Some of the things going on today, are eerily similar to other unpleasant ‘eras’.

#122 Joe2.0 on 07.12.14 at 6:24 pm

Anyone who doesn’t think immigration isn’t driving the prices up is high.

The new high rises at the north end of the 2nd narrows are funded by new canadians from Iran.

The new Singapore style 30+ floor in metro town area is Chinese money all presold mostly to Chinese.
The 2nd tower to come is also 100% spoken for by mostly Chinese.
We had a garage sale today in north van, a realtor pulled up and asked if we wanted to sell our house.
(It’s not ours we rent from an Asian landlord who lives in China)
The agent has Asians- pre canadians who want to live in the area.

#123 HogtownIndebted on 07.12.14 at 6:46 pm

My daily realtor ‘sold’ report has come in.

105 Millicent St. apparently sold for $733,800

On a lighter note, for those who think it really is different here, Maclean’s (remember them, a magazine your grandparents might have purchased?) has a fun feature, sort of a “guess who’s bubble” quiz:

(see the quiz at the bottom of the page)

http://www.macleans.ca/economy/realestateeconomy/who-said-it-the-canada-u-s-housing-bubble-quiz/

Maclean’s also has a piece on Werner’s report.

http://www.macleans.ca/economy/realestateeconomy/why-canada-isnt-immune-to-a-u-s-style-housing-crash/

Could it be the fact that Maclean’s owes so little to localized housing advertisers that it is less intimidated about running more honest pieces concerning the housing market?

#124 Sheane Wallace on 07.12.14 at 6:56 pm

looking for bargains? GDXJ

Nicoll Foss? She could end up very close to being right.

#125 Smoking Man on 07.12.14 at 7:11 pm

Altho I’m loaded in both terms of the word, if I see a penny on the ground, I pick it up..

So I go to Fallsview on my way to Seneca, they got me 15 bucks free play. I needed a new card…

Oh it’s your birthday today, 55 your a silver ace the chic said.

I probably dropped a few 100 k in that place over the last ten years..

My reward… A sticker on my player card…

I’m a bonifide Silver Ace….

It’s an achievement, God Damn it’s a miracle, with my life style im still alive…

5 years more than I needed, I’m a winner…

#126 takla on 07.12.14 at 8:00 pm

world events will take care of our over inflated Canadian housing market.Europe is mired in slow growth bordering deflation in many countries and portugals biggest bank is in crisis due to signs of deepening economic slowdown/Bulgarian bank runs and neg profit shocks from Austrian banks.
On top of all this great news Spain has just introduced a bank deposit tax!thats right you put you hard earned after taxed money into a saving account and they tax it further!
closer to home we have an uptick in Canada’s unemployment numbers,and info from the states indicates a large % of any new jobs there are low income and their economy is stalling.All this as they pull stimulas off the table which as we know is in large portion responsible for the over heated stock market.
There are no real legs under the u.s economy in my view after the stimulas is withdrawn,they also have Obama care comeing online which will further depress the struggleing consumer with added cost…And they are Canada’s largest tradeing partner!And I haven’t even touched on real inflation that’s creeping in,cost of fuel,food heading north and home heating costs with winter just a few months away.
Start padding your bank accounts folks the SHTF is approaching

#127 LTL_FTC on 07.12.14 at 8:45 pm

Joe, here is an interesting formula using the property address to determine what you should be willing to bid:

“105 Millicent” = 105 Milli-cents
= 105/1,000 x $0.01
= $0.00105
Round to nearest dollar = $0

Who bid on these dumps?

#128 Smoking Man on 07.12.14 at 9:00 pm

My delima….

At a tender age of 55, I’ve done it all, to many times. I’m board, ladies, if you’re thinking that’s a green light for a bit of me. Probably about 3000 or so of short term rentals before you.

Did drugs, found God, told him where to go. Found the devil, over rated…

Why am I here…..

My usefulness is about over…

Got one book in me you bastards, then I can go..

#129 Blobby on 07.12.14 at 9:18 pm

If all the realtors are using the same formula – isnt that, in effect price fixing?

#130 Topsy-Turvy on 07.12.14 at 9:49 pm

#32 Ralph Cramdown -I think we should put together a Greater Fool posse of ten or fifteen like-minded individuals, pick one slanty semi every week, and each bid on it at 10% under list with a $50 personal cheque for a deposit.
—————————————
Unfortunately it rather won’t work, you can figure out why using definition of price in EMT (efficient market theory). According to EMT, the price is what the last margin buyer is willing to pay for the good, so even if 200 people ready to pay 10% less it doesn’t affect the price as far as the last greater fool is willing to pay in full (or extra, using this “formula” from Joe’s example)

#131 Smoking Man on 07.12.14 at 10:02 pm

Got the mody blues on the ear buds, the crowd, dancing foot to the left, foot to the right… Band on stage is playing.

I hate humans.. I really do… Pathetic fit ins…. Obsessions..

I live freaks, I god damn miss the toothless guy and his epileptic wife…

#132 Smoking Man on 07.12.14 at 10:15 pm

The irony of the friends at Seneca. The dudes are high fiveing me, as long as their, 3rd or 4rt wives are not watching…

And what is wrong with thosr chips… Why have they not told my wife what a deviant, deranged bastard I am..

Mind you it won’t be a sunrise to wifey poo. She loves my crazy.

#133 Smoking Man on 07.12.14 at 10:23 pm

DELETED

#134 randman on 07.12.14 at 10:26 pm

A new Gallup poll shows freedom is on the wane in the Land of the Free.

Free people? Not with the largest prison population on the planet. Free minds? Not with public schools, TV and TIME magazine. Free markets? Don’t make us laugh.

Money for Nothing

The only thing that is still free in America is money.

Yes, the Fed has made it so the cost of borrowing money is less than the real rate of inflation. This free money corrupts every price, every market, and every transaction.

It is part of the reason freedom is disappearing. Free money feeds the zombies. Without super-cheap credit, made possible by the Fed’s central planning, much of the government wouldn’t exist. We couldn’t afford it.

As it is, one out of every six or seven federal employees is paid with borrowed money.

#135 randman on 07.12.14 at 10:27 pm

whoops…

here’s the link

http://www.bonnerandpartners.com/land-of-the-free-dont-make-us-laugh/#.U8Hs0BY0_wI

#136 NostyVlad Juggly Jiggled Snugglebombed on 07.12.14 at 10:31 pm

With one of the roads at Yellowstone melting, a supermoon Sat. night, the sun appearing perfectly between one of Stonehenge’s blocks and San Diego’s harbor being invaded by a torrent of anchovies, what’s next? Well . . .

#125 and #128 Smoking Man — “. . . God Damn it’s a miracle, with my life style im still alive … 5 years more than I needed, I’m a winner … My usefulness is about over…”

Shades of this song?!

#95 Teulon on 07.12.14 at 10:49 am — “Try the snopes.com website. It’s dedicated to busting urban myths”

Possibly. Note the following para: “Snopes receives funding from an undisclosed source. The source is undisclosed because Snopes refuses to disclose that source. The Democratic Alliance, a funding channel for uber-Leftist (Marxist) Billionaires (George Soros etc.), direct funds to an “Internet Propaganda Arm” pushing these views. The Democratic Alliance has been reported to instruct Fundees to not disclose their funding source.” Recognize Soros’ name (from an NGO’s perspective)?

Also — Here — “Snopes is officially known as the “Urban Legends Reference.” Tap the letter S and scroll down to Snopes, then learn from a different viewpoint.

Revolutionizing Naval warfare, Offense(ive) vs. defense, ADHD doesn’t exist.

#137 KommyKim on 07.12.14 at 10:45 pm

RE: #88 Sheane Wallace on 07.12.14 at 9:27 am
proves that math teaching at schools sucks.

Actually proves that English teaching at schools sucks.
Thanks for the clarification.

#138 Nemesis on 07.13.14 at 12:06 am

#SmokingManReallyNeedsANewHobby. #HeySaltierDogz,It’sSunday! #WhyNotGetOutYourGizmo?* #*CertainRestrictionsMayApply… #InSelectJurisdictions.

http://youtu.be/mHL0IvkxVA0

#BonusZenForSnugglyPapalNostyButtocks. #TrueThis. #NotARuralMyth. #GizmosThatRefuseToDie…

http://youtu.be/noriLGVL7Qo

[NoteToGT: Just between the two of us, I was flagrantly ‘abusing’ my Gizmo today. Bombing corn fields in the HomeOfTheBrave, as it were.]

#139 TurnerNation on 07.13.14 at 12:17 am

Re. Uppa,

Renting here along the King St W party strip (we have the most expensive vomit in the city) where it practically rains Grey Goose sometimes, with a 10 min. daytime weekend period I saw several new Porsches, two Maseratis and a freakin Bentley coupé, pass by. All driven by barely 30-something guys. New money? HELOCs? Oh my gauche.

While there’s no replacement for displacement, of course I’m of the opinion if it Flies, Floats or Flaunts, rent it.

#140 Flawed on 07.13.14 at 12:25 am

Canada next?

http://armstrongeconomics.com/2014/07/12/rising-civil-unrest-from-government-workers/

#141 Nemesis on 07.13.14 at 2:21 am

#Meanwhile,BackOnTheNotSoWetThisWeekendCoast… #HD… #NotBeingTerriblyFondOfGizmos… #IsHostingAMostUnorthodox… #WhiteTieSundayChampagneBrunch. #ZazZuhZazStyle.

http://youtu.be/MEqYDo1im4I

#142 Nemesis on 07.13.14 at 3:57 am

#LateNightTributeToBillyBobs. #WhereverTheyMayFly. #ButDon’tWatchThisInTheDepartureLounge,Dogz.

http://youtu.be/pTONnXTwtuY

[NoteToSaltierPeripateticDogz: The ‘equipment’ is, like, way more likely to ScrewUp than your crew. Commercial aviation is a harsh business.]

#143 Nemesis on 07.13.14 at 5:23 am

#SmokingManAwokeInAColdSweatToday… #InTheLingeringAftermath… #OfAMostPeculiarNightmare.

http://youtu.be/q41PCwZZPJQ

#144 the Jaguar on 07.13.14 at 8:36 am

@Billybob
I agree with your assessment, although agriculture still plays a large role in the Alberta economy. But oil & gas employs a lot more people and benefits a lot of related industries. And the world runs on petro dollars. (although there appears to be the beginning of a shift away from a US dollar petro dollar).
I get tax free part about your gig in Dubai, but I can’t get the movie “Syriana” out of my mind when I think about having to live there. Wouldn’t you prefer flying big planes out of some tax free carribbean haven? Maybe the demand isn’t there.

#145 Waterloo Resident on 07.13.14 at 10:07 am

Over here in the Waterloo area houses are selling like HOT CAKES. I don’t know why, but 12 ‘for sale’ signs now have ‘SOLD’ plastered all over them, and they sold well over list price, each one of them.

I don’t understand; RIM is laying off people massively, yet houses here are JUMPING like the economy is booming.

That townhouse development, with 5 ‘for sale’ signs: 4 now have ‘SOLD’ plastered over them.

I guess it’s ‘GOOD TIMES’ here in Waterloo, something must be going on for people to be buying so much even when there are no jobs?

DOES ANYONE HAVE ANY IDEA WHY WATERLOO HOUSING IS BOOMING and SALES ARE OFF THE CHARTS?

Are they pumping drugs into the drinking water or something like that?

The K-W real estate board reports sales are down 3.2% for the year to date. — Garth

#146 Retired Boomer - WI on 07.13.14 at 10:17 am

Did the Mc Cleans quiz. Scored 83%.

Hmmm seems the same housing rhetoric spewed back in 2006-2007 are now being replayed north of the 49th.

Good Luck with that.

Garth’s RE predictions might come to pass…after years….after lots of money has been made…..as the Final Greater Fool’s buy… next year….maybe….finally!

Really

#147 maxx on 07.13.14 at 10:33 am

#9 Sasquatch on 07.11.14 at 6:59 pm

“This right here is why Canada needs financial literacy in high schools.”

If only.

My first lesson in financial literacy came from mom. A verrrrrry long time ago, I owed my best friend 10 cents. When I got my allowance on Saturday, she asked if I was going to pay my debt. I replied, “maybe next Saturday” as I had my eye on some sweets. Without missing a beat, she told me “no, good accounts make good friends”. It stuck- best lesson, bar none, that I ever learned in the vast, turbulent world of money management.

#148 4 AM Sunrise on 07.13.14 at 10:34 am

If not for this blog, I would have never looked seriously at REIT’s. Thanks, Garth.

Over 10 years ago, I called the TSX to ask them to send me information about these new things called “ETF’s” with cryptic names like DIA, SPY, QQQ…and I guess the agent thought I was so gosh-darned cute that he said, “hey, Garth Turner just put out a new book, and we’ve got some copies kicking around, so why don’t I send you one of those, too?” Score! Thanks again, Garth.

#149 4 AM Sunrise on 07.13.14 at 10:47 am

I read a lot of personal finance books in my youth, and sometimes I’d accidentally stumble upon advice for Americans. They advised those with so-so credit or better to call up their credit card companies every other month to reduce their interest rate by 1% each time. I never understood how this is possible. If I tried that in this country, the card companies would be ROTFLMFAO. Is this another facet of the cheap money that caused the financial crisis?

#150 Shawn on 07.13.14 at 11:22 am

My Maserati does 185

TurnerNation at 139 mentioned Porches, Maseratis and Bentleys on King Street West.

I recently strolled through a Maserati / Ferrari dealer.

The Ferrari’s were well over $100k. But a Maserati Ghibli had a sticker price of $87k. That seems like a lot of bragging rights for the price. 401 horses too.

http://www.maserati.ca/maserati/ca/en/index/build-price/carconfiguratorv2.html?modelName=GHIBLI_350

It’s a four door with a trunk so you can even rationalize it as a sensible (or at least useful) car. And compared to $700k for a half a house that is ready to be torn down, this looks more and more sensible.

The Ferraris were all two doors and did not appear to built for practicality. The dealer had a LOT of Ferraris in the showroom.

Grab a Maserati now before the price rises.

#151 Ralph Cramdown on 07.13.14 at 11:58 am

#150 Shawn — “The Ferraris were all two doors and did not appear to built for practicality.”

Two pedals and a cupholder. Ferrari should just introduce an optional in-dash espresso machine and call it a day.

#152 Shawn on 07.13.14 at 12:08 pm

Correction

The Ferrari’s were well over $300k. (not $100k) in fact pushing $400k

#153 Drill Baby Drill on 07.13.14 at 12:13 pm

#59 Smoking Man
Very Funny I laughed my ass off !! I think you were in a demerol haze and semi dream state.

#154 OttawaguyRenting on 07.13.14 at 12:25 pm

Smoking Man!!!

Can u post here or ur blog what platform u use for forex trading ?

#155 Debtfree on 07.13.14 at 1:07 pm

Interesting article in castanet this morning in regards to HSBC pulling the plug on small businesses in the kelowna area . One line of credit (300k ) demanding full payment and closing the accounts in one month . Big head ache for a few . Is this a sign of things to come?

#156 young & foolish on 07.13.14 at 1:17 pm

Ralph – “From where I sit, I’ve been watching six years of panicked herds of investors running screaming from one market after another, only to see some of those markets rebound by 20-50% in a year, sometimes even a matter of months.”

Most retail investors are better off with low cost index investing, avoiding trading fees and re-investing dividends over long periods of time.

#157 Debtfree on 07.13.14 at 1:19 pm

That’s castanet.net top article ” bank abandons businesses “

#158 Sheane Wallace on 07.13.14 at 1:32 pm

#137 KommyKim

You are welcome.
Look at the content, not at the form.
I know many people who can write bullsh.t with style.

#159 young & foolish on 07.13.14 at 2:06 pm

About GTA housing ….. we hear a lot about “slanty semis”,”cornflake palaces”, “moldy basements”, and “concrete boxes in the sky”, but I wonder what stands up as good quality housing in this town?

Rosedale mansions and Forrest Hill custom builds are unlikely to ever be “affordable”.

#160 TurnerNation on 07.13.14 at 2:26 pm

Goodbye Dean Mason and enjoy your low yielding Treasury Blondes.

#161 b on 07.13.14 at 10:28 pm

Here’s how we’re different: when the reckoning comes, we’ll all say we “sorry”.

#162 torontorocks on 07.14.14 at 11:26 am

actually, #4, sales in the over 1MM range are not booming at all. I’ve already seem some price reductions in Leaside and know of residents there who have said prices are softening.

I think the only reason we don’t see it is because we’re in the soup. I make about a mid 6 figures per year. I know of several people in that range that rent and refuse to buy. I can’t justify buying right now.

Its like when you’re in the subway and you notice the areas around the door are crammed and people can’t get in. A few steps into the subway car and you can move around – but you look towards the door and see the density. If someone took a photo of that group they’d think the subway was rammed from end to end but its only the people in the crowded, jammed section that suffer. And think its crammed.