The condo economy

ECONOMY modified

The guy across the street was home for, I guess, three months. As Bandit irrigated his bush the other night, he mentioned he was working again. Doing what, I asked? “Commercial wiring,” he said, “big new condo. Like fifty floors.”

I said I was happy for him. I was. Been out of work a few times, too.

So, last month 32,000 more construction jobs like his popped up. Even as the economy as a whole shed almost ten thousand positions, a new army of roofers, drywallers, formers, carpenters and electricians suited up. The unemployment rate swelled, Ontario’s manufacturing base shrank, but the cranes and condos kept rising.

CREA’s numbers this week prove we have a real estate economy. Getting more intense, actually. Resale home transactions are up 11% from last year, and prices are ahead 6.9%. Every week households take on greater debt to buy housing, at mortgage rates which cannot go lower. Prices are high because rates are low, which is worth remembering when the formula reverses.

Today a little more than 26% of the economy is directly related to building, selling or financing real estate. That compares with 11% for actually manufacturing things to sell to the rest of the world, and 8.5% for all the stuff we dig up, including minerals and oil. This is a greater dependency on housing than was ever the case in pre-crash America, or house-horny jurisdictions like California.

So, is it any wonder the average Canadian house is 60% more expensive than the average American one? Or mortgage debt is now $1.1 trillion? Or that our personal savings rate is in the ditch?

There are good reasons to worry about this, from a macroeconomic and investment point of view. Because while in-laws trade their financial assets for inflated houses, a lot of people are gobsmacked we’d accept this level of risk. One of them is California-based analyst, financier and author Wolf Richter. He just wrote this about us:

“Housing bubbles – that is, construction bubbles – give economies a terrific boost as they reach a crescendo because hiring and purchasing are so local and cannot be outsourced. They’re job-intensive, non-automated activities requiring manual labor by skilled, well-paid people. And they impact numerous facets of the economy. Materials and supplies need to be purchased. Dealers sell more pickups. Restaurants sell more lunches. Lumberyards are busy. Tools need to be replaced. Equipment dealers and rental companies hit homeruns…. But when construction slows, that terrific boost turns into an even more terrific bust. Jobs evaporate overnight. Purchasing slows or stops. And very quickly, the overall economy gets hit.”

Now, here’s some proof (from OtterWood Capital Management) that a condo economy can create lots of short-term construction jobs, but seems to suck at building anything of duration – since home buyers eventually run out of cash or credit. The graph below plots hours worked in Canada (blue) and economic growth (brown). This is not a happy chart, with our employment situation falling sharply.

HOURS WORKED modified

Now, is Wolf just another lame, know-it-all American blowhard amused by the little people who live where cold fronts come from? Probably. But he’s sure not alone. Last week I told you about the credible Morningstar dude who thinks we’re setting ourselves up for a 30% house price implosion. And now along comes US rating agency, Fitch, which has just given us a special designation: Screwed ++.

Expect real estate values to plop by as much as 20%, Fitch says, because the efforts Ottawa has taken to curb house lust simply have not worked.

“We believe high household debt relative to disposable income has made the market more susceptible to market stresses like unemployment or interest rate increases. Fitch believes the Canadian government has taken several proactive steps in recent years to mitigate some of the risks to the housing market. However, the long-term impacts remain unclear, and policy-makers may be required to take additional steps over the short term to engineer a soft landing.”

And tell your mom this: Fitch says interest rates will rise, not fall. Adds Capital Economics’ David Madani: “We still expect the housing market is headed for a major correction.” And recall that the OECD says real estate here costs 30% too much based on incomes and 60% based on rents. Which means owners have paid too much, and renters are subsidized. Duh.

If you have any doubt, look below. Might be a real good time to up the foreign content in your portfolio.

HOME PRICES modified

155 comments ↓

#1 Derek R on 07.15.14 at 7:06 pm

The drop in hours worked is very worrying.

#2 Role on 07.15.14 at 7:10 pm

If only could fine one for right job. Building & loaning, carpeting, bidding… It will all same be the same. Money for can come in…then out. Maybe house or condo can find a more better than way to fix broken job finding. Thanks P.Harper for that one!!!

#3 Andrewski on 07.15.14 at 7:10 pm

I believe that Canadians have been spoiled by CHMC. The vast majority of mortgage holders truly have no idea how small CMHC’s reserves are compared to their book total, and if TSHTF, the question is only how many people will be SOL?

#4 stop lying on 07.15.14 at 7:16 pm

Also contributing to the crazy cost of homes in ontario is the development charges and HST. A perfect storm is on the way. But imo still a ways off.

Interest rates aren’t going up this year or probably next. US is doing much better than us and the fed has no plans to raise rates, and there’s no chance we do it before them.

Don’t worry about the Fed or the BoC. Its the bond market that sets fixed mortgage rates. — Garth

#5 Dean Mason on 07.15.14 at 7:19 pm

Just 3 words says it all. Monthly Condo fees.

The average monthly condo fees in Toronto is currently $462.

Most monthly condo fees will increase by a minimum 5.00% annually. This is being conservative.

In 25 years when most condo owners payoff their concrete box, it will cost them $1,564 per month.

This means add all your insurance, property taxes, utilities etc. and you will need $42,000 a year after tax income.

So just to keep your concrete box, you will need to earn $60,000 to $65,000 a year.

Good luck with that!

You realize you are banned, right? — Garth

#6 omg on 07.15.14 at 7:23 pm

Canadians are conditioned to believe that real estate only goes up.

Can you blame us?? We made it through the biggest economic meltdown of the last 30 years without hardly a whimper of price correction. sure we had a bit of a burp but that just conditioned people to read any minor price decline as a “buying op.”

Minor changes in employment levels will not stop this juggernaut, only a sharp increase in interest rates or a rip-roaring recession will act as a catalyst for correction.

And we ain’t going to see either of those scenarios for a while yet.

So hang tight, keep renting, and understand that the further up the housing elastic stretches the bigger the rebound when it corrects.

#7 Ford Prefect on 07.15.14 at 7:26 pm

“Now, is Wolf just another lame, know-it-all American blowhard amused by the little people who live where cold fronts come from? ”

I recall Paul Hellyer saying the same things as Wolf, almost word for word, about 50 years ago. Some things never change. And that is why politicians love building booms.

#8 bdy sktrn on 07.15.14 at 7:27 pm

#2 Role on 07.15.14 at 7:10 pm
————————–
you are doing that on purpose, right?

#9 Mark on 07.15.14 at 7:27 pm

“I believe that Canadians have been spoiled by CHMC. The vast majority of mortgage holders truly have no idea how small CMHC’s reserves are compared to their book total, and if TSHTF, the question is only how many people will be SOL?”

CMHC’s subprime mortgage guarantees are 100% guaranteed and with recourse to the Government of Canada’s credit. In other words, the mortgages, in the hands of investors, are just as good as GoC bonds.

But you’re right, in that, as $900B of the market (of $1.1T) is being propped up through the CMHC subprime mortgage insurance program, the entire mortgage market is dependant on a single lynchpin. And as credit quality continues to deteriorate, the government will have some extremely difficult choices to make. Slow down the losses at the CMHC, and crash the housing market in the process. Or step on the pedal even harder and accelerate the losses as more physical supply is formed. I think the Tories may very well end up ‘throwing’ the next election and letting Trudeau win, so they can pin the aftermath of CMHC’s out of control subprime activity on his government.

#10 LazyJason on 07.15.14 at 7:29 pm

Garth,

What are some economic indicators that will lead to rising bond yields and thus rising mortgage rates?

#11 Catalyst on 07.15.14 at 7:37 pm

I am having a hard time interpreting your graph. According to StatsCan – hours worked for Canada are down 0.2% year over year. I understand yours is Q/Q but does that have something to do with additional snow plows/tree snippers or something from Jan/Feb?

Any clarification on how I can interpret these would be great. Thanks.

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/labr68a-eng.htm

#12 kabloona on 07.15.14 at 7:38 pm

And yet….according to Harper, we have the “best economy in the G7″…..

HA-HA-HA-HA!!!

He meant to say: “best *condo* economy in the G7….”

;-)

#13 Ralph Cramdown on 07.15.14 at 7:39 pm

Lawyers are exempt from FINTRAC. FINTRAC for lawyers was struck down by BC Supremes, SCC declined to hear the appeal. Background:
http://www.antimoneylaunderinglaw.com/aml-law-in-canada/aml-rules-for-bc-lawyers

Lawyers do have to keep records on clients and make reasonable (in their judgement) efforts to identify clients, but again, the paper just sits in the lawyer’s filing cabinet unless requested. Weaker requirements than FINTRAC.

BC Notaries are covered, though. Can BC lawyers do real estate transactions, or does title registration have to go through a notary? I don’t know.

Better call Saul!

Realtors also report to FINTRAC. — Garth

#14 Frustrated on 07.15.14 at 7:40 pm

You can get a 5 year mortgage for 2.89 percent. Does anyone remember the lowest the 5 year has been ? Except for any introduction like the 1.99 we saw a couple months ago. Thank you

Investor’s Group mortgage is variable, only three years and very restrictive. — Garth

#15 Happy Renting on 07.15.14 at 7:41 pm

When the bust comes, I wonder if Canadian construction workers will be willing to get work visas to work in another country where there’s still building activity. Or do they just chase what little work is left and hope for a quick recovery?

#16 Tim on 07.15.14 at 7:46 pm

Harpo created the home reno tax credit–a short-sighted way to provide a temporary boost and put wrench bangers to work. This has done nothing to boost our competitiveness or our manufacturing base. Instead of investing in technology, manufacturing, innovation, education, infrastructure, the Neo-cons have invested in counter tops and island kitchens. What a way to run an economy…

#17 Freedom First on 07.15.14 at 7:49 pm

Canadians have been in the eye of Hurricane GFC for a few years now and do not see what is coming. ALL of the countries which have had their housing market and their economy thrashing already by Hurricane GFC were the same. Nobody saw it coming, except for the people like Garth who were ignored by the majority. The people trying to help the masses knew the same financial principles which Garth teaches, and that going all in on one asset is simply not wise. No exception. Ever.

#18 Forzudo on 07.15.14 at 7:54 pm

I guess there will be no more “proactive steps” until after October 19, 2015.

#19 kILlaBoY50 on 07.15.14 at 7:56 pm

Ok, but when exactly?

#20 Smoking Man on 07.15.14 at 7:57 pm

http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/

Don’t worry about the Fed or the BoC. Its the bond market that sets fixed mortgage
rates. — Garth

True…. Now look at 5 year and 10 year….

Not a good trend for savers, not bad for dudes renewing mortgages….

No jobs, losing jobs… Low rates for ever….

#21 Mark on 07.15.14 at 8:00 pm

“his has done nothing to boost our competitiveness or our manufacturing base.”

Actually the housing bubble has severely damaged our competitiveness and the manufacturing base. As firms have found it extremely difficult, if not impossible to raise funding on reasonable terms to recapitalize their infrastructure. And speculative R&D, particularly in the ICT sector, is only minimally-existent.

No wonder why we have so many scientists and engineers unemployed in Canada, while the high school dropouts with their oversized diesel pickup trucks are enjoying their halcion days of employment.

#22 Nemesis on 07.15.14 at 8:05 pm

#CondoEconomies&OtherDreamboatAnnies #RidingOnADiamondWave #LittleShipOfDreams #SadFacesPaintedOverWithThoseMagazineSmiles

http://youtu.be/gQDJ45qJHBQ

[NoteToGT: Yes. I was there. When Ann&Nancy, et al were presented with a KeyToTheCity [literally]. In those days, all you needed was a good tune vs. a wire transfer and a rubber stamped “Letter of GoodStanding”. Perhaps it’s just a case of Budvar induced nostalgia… or the FlowTide of youth’s ontological illusions. That said, I think I can safely say that CYVR was actually a much happier place then. There were certainly more live music venues. And, of course, there was Ann&Nancy.]

#23 Mr. Reality on 07.15.14 at 8:07 pm

Too bad Wolf changed the name of the site to Wolf Street.

The Testosterone Pit was way way cooler.

That chart should raise some eyebrows and if you do not understand what it says, you are a sheeple and not meant to.

Mr. R.

#24 Blair on 07.15.14 at 8:10 pm

Hello Garth,
Any plans for a future blog to comment on the announcement for a Pension Plan in Ontario?

#25 sleepy Moncton - NM on 07.15.14 at 8:12 pm

no surprise of course

http://globalnews.ca/news/1446592/glut-of-cottages-for-sale-in-southeastern-new-brunswick/

It’s unfolding… ever so slowly but it’s happening..

#26 Mark on 07.15.14 at 8:15 pm

“Not a good trend for savers, not bad for dudes renewing mortgages…. “

But what if credit against a specific asset class that is deteriorating in quality as collateral (housing) sees significant increases?

Policy rates, ie: what the BoC sets, are likely way too high for the contemporary economy, but obviously way too low for the housing market which has seen its prices elevated into the stratosphere.

#27 Smartalox on 07.15.14 at 8:17 pm

@ Happy Renting #15:

I work (in a manufacturing industry) near a large condo construction project, and I often see – and overhear – many of the labourers near the sites. A lot of these guys are TFWs, speaking Spanish, Portuguese, Cantonese, or English, with accents from eastern Canada (not TFWs, but not locals, either), the USA and Ireland.

A lot commute to the site from downtown on transit, their hat, boots, orange vests, and cell phones – probably renting a specuvestor’s condo, or live in rooming houses outside the city. There are so many buying lunches every day at the local fast food restaurants, I’ve taken to avoiding the area most days, because the lineups are too long.

Lots of nice shiny trucks parked from 7 to 3 all through the neighbourhood, too. These guys are the ‘contractors’ who bring the tools to the labourers, and bark orders at them.

When the boom goes bust, most of the workers will go back to where they came from, or move onto the next opportunity. The ones that will suffer are those in the trucks, with all the sunk costs, and pending payments.

#28 Brian Ripley on 07.15.14 at 8:20 pm

“The condo economy”

Apart from rising condo costs and depreciation, another big issue is the creation of employment earnings to fund the rising tide of expenses.

Countless traditional white-collar jobs have disappeared. W. Brian Arthur calls it the “autonomous economy” that allows us to do many things with fewer people as other human jobs become obsolete.

Here is a chart of productivity vs employment (the spread is widening) http://www.chpc.biz/history-readings/culture-change

#29 turning 19 soon on 07.15.14 at 8:21 pm

It’s all these Eastern Provinces giving bad employment results…Simple answer is move West where the work is.
Sitting East of Alberta and crying will do you no good.
Even the Island is screaming for Tradesmen!

#30 stop lying on 07.15.14 at 8:24 pm

Don’t worry about the Fed or the BoC. Its the bond market that sets fixed mortgage rates. — Garth

Ok, but if the bond market is betting on low growth they will behave the same and yields will remain low. In this country I just don’t see the jobs that will drive inflation unless we all move to alberta. and even if rates go up .5 or 1, is that really going to be enough to set things off?

Everyone keeps saying low growth is here to stay, and the corollary to that is low interest rates, fixed or variable. that is, unless we become a credit risk and hello greece.

#31 Ford Prefect on 07.15.14 at 8:26 pm

#13 Ralph Cramdown: yes BC lawyers do real estate transactions. In fact a little known part of the BC legislation covering lawyer’s activities automatically allows a practicing lawyer to act as a real estate agent – that means that they are gasp! Realtors®

#32 Dean Mason on 07.15.14 at 8:28 pm

BANNED

#33 East Van on 07.15.14 at 8:31 pm

Suppose the 20% scenario came to be. What would that look like in the major markets across Canada? Would some cities fare better than others?

#34 Smoking Man on 07.15.14 at 8:38 pm

#26 Mark on 07.15.14 at 8:15 pm“Not a good trend for savers, not bad for dudes renewing mortgages…. “

But what if credit against a specific asset class that is deteriorating in quality as collateral (housing) sees significant increases?

Policy rates, ie: what the BoC sets, are likely way too high for the contemporary economy, but obviously way too low for the housing market which has seen its prices elevated into the stratosphere
………

It’s a bit of a conundrum… Policy rate.. See what Prozac does tomorrow..

Mark like what you have to say, but man, reading your robotic posts is like eating an egg white, with no bacon or salt…

Put some sole I to em…. Or at leased a cup of coffee…

#35 Nemesis on 07.15.14 at 8:42 pm

#@Turning19Soon/29. #ThisIsJustForYou.

http://youtu.be/yMfwxWA14zo

[Caveat: I am reliably informed that that ‘dory’, has already left the harbour… as it were. That said, “Never surrender!” is still an instructive aphorism.]

#36 Linda Mulligan on 07.15.14 at 8:49 pm

OK – the chart shows the average home price across Canada is $400,000. So if our RE market crashed by 30%, that lops $120,000 off the top leaving average property values at $280,000. So the properties are not worthless. As for the loss, if you are living there for more than a few years, maybe the overall loss isn’t that bad. Depends on how far you leveraged yourself I guess…..

#37 turning 19 soon on 07.15.14 at 8:57 pm

What exactly drives the economy East of Alberta?
Just asking.

#38 Ralph Cramdown on 07.15.14 at 8:58 pm

Realtors also report to FINTRAC. — Garth

But as I pointed out earlier, only suspicious transactions (they decide) get reported, and the rest is paper in the broker’s filing cabinet. A cynic would say it was DESIGNED to catch a few stupid people while leaving smart money launderers and wilfully blind brokers relatively safe, and making ex post facto investigation of large numbers of otherwise not suspicious transactions prohibitively expensive.

It only takes fifteen minutes or so to skim through FINTRAC requirements for RE brokers and banks, and to see what a joke they are in the context of HAM. I’m done explaining.

If I may say so, you get shelled on this issue every time you bring it up, Garth. From some xenophobes, yes, but also from many reasonable sounding people with first-hand anecdotes or solid reporting from both Canada and China, and some other affected cities. The plural of anecdote is not data, but at some point the amount of evidence becomes a preponderance, Occam’s Razor comes into play, and it becomes incumbent upon the denier to produce plausible alternative explanations for the observed phenomena. [get me rewrite!]

I really felt for that poster the other day who said “You Easterners just don’t understand!” I’m a bit west of Yonge Street (Canada’s east/west dividing line :-) but I spend a few weeks a year around Vancouver, sampling the various chinese cuisines, enduring all those mid-six-figure ‘N’ decal penis cars, and noticing all the gradual changes that a native might not quite cotton to, as the proverbial boiled frog. And talking real estate, of course, with the locals. I get it. It is qualitatively different from, say, Calgary with its oil millionaires, truck nuts and Americans. Spend time touring all over there, Garth, or talk to those who do. If this is just one of Joe Clark’s communities in the community that is Canada, I don’t know what to say.

#39 Jay Guang on 07.15.14 at 9:00 pm

People become rich on so many morons, idiots and fools.

If you need to follow someone then you are one of them.

#40 R on 07.15.14 at 9:01 pm

The old manufacturing economy is done and gone, but that doesn’t mean manufacturing in Ontario is dead. We need to make the proper investments for a value added economy.

#41 Italians love real estate on 07.15.14 at 9:11 pm

Year after year , more yaking about ” overvalued ” Canadian real estate by people horribly misinformed about the differences between the U.S and Canada.

Canada is chock full of first and second generation Italians and Asians who simply go giddy for RE. Backward thinking, poorly schooled individuals who have had there perceptions of bricks and mortar as an investment reinforced by price increases .

Go with the flow . Canada really is different

#42 mortgagebrokeron on 07.15.14 at 9:13 pm

#40 R

What we need in Ontario is a 62 cent dollar, cheap labor rates, cheap hydro rates, and a miracle……

#43 Temporary Foreign Prime Minister on 07.15.14 at 9:14 pm

“…..Resale home transactions are up 11% from last year, and prices are ahead 6.9%…..Ontario’s manufacturing base shrank…….”
=========================

Anyone connecting the dots here?

If you were a manufacturer, where would you set up your future production expansion?

In a Canadian province where employees require high wages to pay for million-dollar-bungalows leaving zero disposable income?, or

An American state where housing has returned to affordability, leaving employees with enough disposable income to keep the REAL economy chugging along?

#44 mortgagebrokeron on 07.15.14 at 9:15 pm

also I used to work in the building industry in my early twenties, back in 1996 – 1998…. and it was bad then…. I tell alot of younger carpenters that there was more tradesmen undercutting each other just to find work…. not a lot of us made much profit then….. When the crud hits the fan here, won’t be much different….

#45 Italians love real estate on 07.15.14 at 9:18 pm

Financial assets investing is for triple S’s (slow saving suckers)

So many horny , foaming at the mouth GTA Italians chasing bricks with the much slower less athletic Asians in hot pursuit… Think I’m gonna buy me some more rental properties !!

#46 Italians love real estate on 07.15.14 at 9:24 pm

My hot Italian wife just got all hot and bothered over some waffled ceilings she saw in some new homes .

And here I thought you just ate them with some maple syrup.

I don’t know what the house mmakers will think of next but here I go with my step ladder again taking down 10 inch crown moldings I installed last time she came back hot just to put up some waffles in my living room.

I mean I need to get my ” pasta” at night , if u know what I mean .

#47 Chickenlittle on 07.15.14 at 9:24 pm

“Unlike the people who hang out here, then drive their Kias to Costco? — Garth”

Scary….I was just at Costco today. I drive a Honda, though. How did you know?
……………………..

#48 Bobs ur uncle on 07.15.14 at 9:26 pm

So many people appear to believe “this time is different”.

As Buffett says, be fearful when others are greedy.

#49 Mark on 07.15.14 at 9:26 pm

“OK – the chart shows the average home price across Canada is $400,000. So if our RE market crashed by 30%, that lops $120,000 off the top leaving average property values at $280,000. So the properties are not worthless.”

Suppose the 20% scenario came to be. What would that look like in the major markets across Canada? Would some cities fare better than others?

Just like in the USA, there’s some areas that probably won’t see all that significant of decreases. And then there’s some areas, particularly those supported with extreme heavy amounts of subprime credit and adjustable rate mortgages, that will suffer disproportionately.

So you might see GVR, GTA and Calgary/Edmonton prices fall by 50%, while other areas, might just be 10-20% (for example). All averaging out to, for instance, 30% (although I believe the drop will be much larger, on the order of 50-60% once all is said and done!).

#50 AlbertaGuy on 07.15.14 at 9:31 pm

where is oldman? im worried

#51 That Giant Sucking Sound on 07.15.14 at 9:32 pm

Why is this so complex? Follow the KISS rule (like at Queen’s Park) “Keep It Simple Sister”:
Whoever holds the purse strings IS the Government.
Does any elected government hold the purse strings? Of course not, they borrow money like a drunken crack whore- that IS their sole purpose (other than War). (exhibit A- The Ontario Budget) Now, Rob Ford may be a drunken crack whore, but he refuses to borrow money like one, so he get’s the chop. In conclusion, the purpose of politicians is to incur debt on behalf of the taxpayers, being a crack whore alone is not enough.

#52 Smoking Man on 07.15.14 at 9:40 pm

I might as well smash my head against the wall, editing my book is going to put me over the edge. What a ridiculous pursuit for someone that struggles with basic reading.

Yesterday I thought this was a great sentence in the book, Today I think it sucks.

###########
“When we arrived on earth 10 years ago, I infiltrated Harvard as a Physics Professor. I quickly observed that these Americas no matter what garbage was spewed from someone’s mouth, if delivered with a refined British accent, the speaker would be gifted instantaneous credibility and respect. I own my students now, you should see the shit I fill their brains with.”
###########

Today I’m thinking this is better. But tomorrow Ill delete.

############
Put Jeremiah on the towel. We check his vitals, his heart is beating slowly, he needs nicotine fast. I order Ashman to light up a Marlboro and administer mouth to mouth.
Ashman folds his arms, squints his eyes, he was about to speak, but in a firm Teachers voice I say. “It’s a direct order. Do it now.”
#############

This si how it’s been for the last few months..

I hate you blog dog muts….Encouraging me knowing full well I have no chance at this…

You’re all Bastards….

#53 John in Mtl on 07.15.14 at 9:50 pm

“Last week I told you about the credible Morningstar dude who thinks we’re setting ourselves up for a 30% house price implosion. And now along comes US rating agency, Fitch, which has just given us a special designation: Screwed ++.

Expect real estate values to plop by as much as 20%, Fitch says, because the efforts Ottawa has taken to curb house lust simply have not worked.”

Yes, but a 30% devaluation in Van or TO still makes the house unaffordable; in my view 700,000.00 or 1,000,000.00 not that much difference… is still a LOT of money for a house on an avg 60-100K salary! On the other hand, -30% in Montreal or the South Shore suburb, now that’s more interesting… 250K – 75K = 175K :) However, things being “local”, Montreal might only drop a few % points?

ps: how do you get text to print in italics or bold around here, enclose it in XML or HTML code?

#54 devore on 07.15.14 at 9:52 pm

#11 Catalyst

According to StatsCan – hours worked for Canada are down 0.2% year over year. I understand yours is Q/Q but does that have something to do with additional snow plows/tree snippers or something from Jan/Feb?

It doesn’t appear to be seasonal/cyclical.

#55 devore on 07.15.14 at 9:58 pm

#23 Mr. Reality

Too bad Wolf changed the name of the site to Wolf Street.

The Testosterone Pit was way way cooler

Not inclusive enough.

#56 Ole Doberman on 07.15.14 at 10:03 pm

Calgary update:

Still see 4 places in the NW not selling now sitting a month and a half on the mkt. Usually these sold in a couple weeks in this hood.

Plus in addition to yesterdays HAM convo – the house next door is harboring atleast 13 of them and they seem to rotate, not sure whats going on there.

And yes I agree with another poster from yesterday – thanks Garth for the quality public service you do keeping us informed on RE. I really think we are getting very close.

#57 Seeing it from both sides on 07.15.14 at 10:04 pm

Uh oh…..The correction will have to wait a little longer.

https://ca.finance.yahoo.com/news/b-c-sets-sights-becoming-asias-financial-hub-003005132.html

#58 Mark on 07.15.14 at 10:04 pm

“Financial assets investing is for triple S’s (slow saving suckers)”

Who’s the sucker? Someone who buys Canadian RE at an average P/E of 35 (or more in the GTA/GVR). Or someone who buys the stock market, like XIU, at a P/E of 15 and long-term earnings growth in-line with nominal GDP?

#59 Smoking Man on 07.15.14 at 10:20 pm

I should just abandon the project, but I’m psychotic, I can’t let go. Reading two page of Fear and Loathing paints a vivid 3d live pictorial. Mine puke on canvas…

Maybe I should stick to reality and write what I’m good at, a book on making money.

But then I realize, wont be much of a market, will have open hostility, too the linear thinkers out there trading time for wages. Not making bets.

Disturbed by the truth, sun of bitches rule the world, and you got be one, shattering years of programming.

Easier to convince a Jones Town cool aid drinker to stop, than to convince the schooled that being a slave is not cool.

I’ll get hate mail from people that say..”Live within your means” nails on a black board when I here that..

Screw this rant, back to torture. Back to 70 thousand words of pain.

Hemingway got it wrong.. He said, “Write drunk, edit sober.”

Should be Write sober, edit hammered.

Hum, perhaps it’s worth a try..

#60 Cici on 07.15.14 at 10:23 pm

#37 turning 19 soon

What exactly drives the economy East of Alberta?
Just asking.
______________________________________________

Brains, ideas, technological advances and manufacturing…well, historically at least. This government’s been chipping away at that though.

These economies used to be very diverse, and are home to various businesses and business leaders. Think aviation, optics, R&D, biotech, pharma, financials, industrials and even some resources (mining, mills etc.).

Of course, the real estate economy is now replacing that. We just keep building more and more condos, although there are already way too many on the market. It’s a shame, because these these visual atrophies are polluting the landscape and sucking the life out of the real economy.

#61 jess on 07.15.14 at 10:26 pm

secrecy jurisdiction
Where is “elsewhere?”

Luxembourg’s rentier capitalism
http://www.taxresearch.org.uk/Blog/2014/07/15/the-quick-take-the-dangers-of-luxembourgs-rentier-capitalism/
===============

” false dawns” and laffer curves

http://www.theglobeandmail.com/report-on-business/economy/feds-yellen-says-us-recovery-incomplete-defends-loose-policy/article19610797/
================================

http://www.youtube.com/watch?v=pSOgxZ8lRUw
Produced by the Center for American Progress and Pulitzer Prize-winning political cartoonist Mark Fiore (http://www.markfiore.com).

#62 Jsan on 07.15.14 at 10:28 pm

One thing that is also generally overlooked is the impact of “The Wealth Effect” on the economy. This is a HUGE factor in my opinion during housing bubbles. Every year people see the value of their house go up and they start to believe that as the Scotiabank commercial flogs, “You’re Richer Than You Think”. What than happens? People are much more comfortable taking out large car loans, Home equity loans etc. because after all, they are rolling in real estate dough. I heard and saw one HELOC horror story after another during the US housing bubble. The house became the new ATM machine and people went nuts. I can flat out tell you the same thing is happening here.

So what happens when housing flops? Not only do jobs disappear but so does the massive amount of “Wealth Effect” generated spending. I truly believe that Canada’s economy will be rocked when this gaseous bubble inevitably blows.

#63 Cici on 07.15.14 at 10:29 pm

Garth could you please ban Italians love real estate too…thank you!

#64 Cici on 07.15.14 at 10:34 pm

#50 AlbertaGuy

Me too, but hate to inform you…it’s been months since we last heard from him.

Either he bought a condo or put a downpayment on that palace in the sky ;-(

Miss his posts terribly.

#65 HogtownIndebted on 07.15.14 at 10:45 pm

They say when your shoe shine boy says ‘buy’, it’s time to sell.

What about barbers? I’ve always enjoyed talking to barbers, to get a unique sense of collected local street knowledge. (Much more grounded in reality and local specifics than cab drivers, no offence intended)

Today my Italian barber, whose shop is along the house horny St. Clair west strip (MLS C2 area – Wychwood, Hillcrest and Corso Italia) talked with me about real estate.

In short, he is filled with apprehension as he surveys the scene. He sees a recession and major real estate problem right around the corner. And he has seen this all before.

He tells me he once jumped into Toronto real estate, buying a slice of a commercial building, typical of the St. Clair strip. Main floor shop, apartments upstairs.

In 1988.

For $585,000

In 1996, the bank would not renew the mortgage. The property had to be sold at market value.

For $270,000.

His total (+transaction) losses were nearly $400,000. It crushed his family, and the effects still linger.

Today he owns one smaller, similar building, calls it his future “pension”. Mortgaged, though. But he still has to work for now, he said sadly.

He is 75.

Bad timing sometimes cannot be overcome in one lifetime.

He also told me of major condo screw-ups happening in the area.

For example, developers spent $5 million to buy the old Hungarian centre at St. Clair and Winona two years ago, and tore down that old character building. Today it sits empty, with a lonely townhouse project sales office on the site, selling townhouses two miles away. No traffic there at all most days. They can’t even get approved for a designated driveway on the sales/future condo site, not enough room the city says. They have to share a driveway with a bank. Awkward.

What’s worse, the developers have been told the property sits above the historic water course, Garrison Creek. Therefore, no excavation permit will be issued under current rules. (Ouch! Where was the due diligence?) Local residents are lobbying city hall loudly to stop any future work.

Can’t wait to grow some more hair and have another chat.

#66 drydock on 07.15.14 at 10:48 pm

Nicoll Foss predicted a 90% price reduction 2 or so years ago on Max Keiser.
Are the chickens finally coming home to roost.

She flew the coop. — Garth

#67 Inglorious Investor on 07.15.14 at 10:55 pm

To complement Garth’s price chart, here are a couple of charts comparing CanAm home prices going back to the early 70’s at this site: http://www.torontocondobubble.com/2013/05/canadian-housing-bubble-exceeds-us.html

One chart from OECD, one from the Dallas Fed. As one might have expected, there is a fairly tight correlation between Can and US national average prices over the long run. (With Canada having a smaller sampling size it makes sense that on a national basis Canadian home prices are more volatile.)

What all of these charts clearly show is that, over the past four decades, we’ve never had such a large divergence as we have now. In fact, in the past, even when divergences were relatively large, the trend in both countries was roughly in the same direction. The only other time the trends seemed to diverge much was circa 1981. At that time the correlation was resolved with a Can price correction.

Over the past several years the divergence has been historic. If one assumes that at some point the correlation will once again tighten up, the question is: will the convergence result from US prices going up or Can prices going down, or both? Perhaps another way to phrase it is: inflation or deflation?

#68 Sheane Wallace on 07.15.14 at 10:56 pm

#30 stop lying

This is what it is about:

There is a GLOBAL bond market and frankly speaking nobody will loan you money at low interest rate because your growth is low, ask Greece.

If you think you can lie to the markets about inflation and have people sponsor you with low rates because you are exceptional, you are mistaken.

Yes, you will wipe out local savers and pension funds who invested in your bonds but you can’t fool global investors.

You can print money and pretend that there is no inflation but this is only temporary so once inflation shows up you need to either increase rates or keep printing or stop spending which is equivalent to a depression in the current maximum credit environment.

so expect higher inflation first and then rates going up significantly.

To maintain interest rates low we have to pay with significant contraction (depression style) which will destroy the house market anyway.

So you can’t have that thing all in and your soul in the paradise.

#69 Sheane Wallace on 07.15.14 at 10:59 pm

Contraction of 60-70 % is entirely possible with all the horrible consequences for the economy and the jobs.

The mainstream media is starting to talk about a decline of at least 20-30 %.

Ireland got 50 %.

#70 Randy Randerson on 07.15.14 at 11:01 pm

@63

I don’t comment much, but I’ll have to chime in this time. I don’t agree with you asking GT to band Italians love RE (ILRE) purely because you don’t like his message.

Free speech is a cornerstone of democracy, unless it’s a hateful message to incite violence, opinions should be allowed freely. No unpopular opinion should be censored because of the tyranny of majority. If you’re seriously asking GT to censor ILRE, who’s the say someone won’t ask GT to censor you just because he/she/they don’t like your message. End of rant.

#71 Ben on 07.15.14 at 11:04 pm

John in MTL – yeah 10 to 20% off in MTL would look tempting. Wages are lower here though.

Let me try some html.

italics tag // single i in angle brackets
bold tag // single b in angle brackets

#72 turning 19 soon on 07.15.14 at 11:04 pm

# 60 Cici…So everything that has been outsourced.
Rather live out West where there is something real to sell, something people actually want to buy.
Energy, logs, minerals, brains, tourism, fishing, mining…you know real stuff, like the old days.

#73 KommyKim on 07.15.14 at 11:05 pm

RE: #52 Smoking Man on 07.15.14 at 9:40 pm
I hate you blog dog muts….Encouraging me knowing full well I have no chance at this…
You’re all Bastards….

Naw, it’s just the teachers on here who have been encouraging you.

#74 Shawn on 07.15.14 at 11:06 pm

Should we manufacture more?

Today a little more than 26% of the economy is directly related to building, selling or financing real estate. That compares with 11% for actually manufacturing things to sell to the rest of the world, and 8.5% for all the stuff we dig up, including minerals and oil.

***************************************
So, this says that 26% of our economy involves the production of or rental of physical houses and real estate. Is that so bad? Houses are tangible real wealth. Shelter is one of the main necessities to live.

Why should we cheer if more people get employed making things to sell to the rest of the world else? Why not sell to Canadians?

It is a fact that this earth exports precisely nothing. Yet it’s economy does okay. Think about that.

#75 Victor V on 07.15.14 at 11:06 pm

Will an apple a day keep the condo investor in play?

http://business.financialpost.com/2014/07/15/condo-choices-not-always-an-apples-to-apples-comparison

A Toronto developer trying to bring the concept of urban growing to Calgary thinks an apple orchard in the middle of two towers might be the next amenity condo buyers appreciate.

“I don’t think people will buy a condo to be next to an apple orchard but I think what happens on the ground is as important as what happens in the air. There is just not enough leisure space in any city,” says Brad Lamb, chief executive of Lamb Development Corp…

He’s open for other types of fruits and vegetables, but apple trees were chosen because it was felt they would grow well in the Calgary climate.

For now there will be a few limitations on what he’s willing to grow on a condo site. “Marijuana could be next but you’d have to legalize it first,” he said, with a laugh.

#76 Shawn on 07.15.14 at 11:07 pm

Condo Economy

It is odd that house prices are high despite big supply of houses (26% of economy in real estat)

#77 Shawn on 07.15.14 at 11:08 pm

That last chart

Possibly the U.S. line is the broken one and will rise again.

‘loving my Toll Brothers shares…

#78 Andrew Woburn on 07.15.14 at 11:19 pm

#40 R on 07.15.14 at 9:01 pm
The old manufacturing economy is done and gone, but that doesn’t mean manufacturing in Ontario is dead. We need to make the proper investments for a value added economy.
===============================

There is nothing magical about manufacturing. People see manufacturing jobs as important because making things in big factories used to create large numbers of well paid jobs. Yet a job providing financial services, for example, is still a job. Britain, the cradle of manufacturing, now earns much of its living from financial services such as banking and insurance.

Geography has never favoured Canadian manufacturing as the natural trade flow is North-South. If you are a US national manufacturer in Arkansas, you have to deliver to the northern border states. Most of the Canadian market is just a hundred miles further up the road. Sir John A. Macdonald knew this and supported tariffs and a trans-Canadian railroad to wall us off from US business interests. We traded the tariff wall for NAFTA and protection for Ontario’s auto manufacturers but that game is now winding down.

In Europe, auto manufacturing is migrating to Poland and other lower wage countries. In the Americas, the jobs are moving to Latin America. Ford has sophisticated operations in Brazil that may eventually supplant even the low wage southern US states. As far as manufacturing is concerned, Ontario is just another rust-belt state.

Ontario cannot survive by competing with Tennessee, Brazil or China for work they can do as well or better and cheaper. In any case, most simpler manufacturing functions will soon be automated. As the cost of solar energy falls, the southern jurisdictions will have a growing advantage, especially as Ontario has now butchered the milk cow of cheap hydro rates.

The UK still has a smaller but vibrant manufacturing sector but it seems to be based on high value-add, high-knowledge products sold into global markets. Ontario needs to follow that lead but it will not bring in enough jobs. We need to learn to sell more of our considerable know-how in law, accounting, engineering etc. into global markets.

#79 TurnerNation on 07.15.14 at 11:21 pm

Looking at US index kaputs.

#80 Nemesis on 07.15.14 at 11:22 pm

#OK,HommeDuTabagisme #You’veGotDefinitelyGotMyAttentionTonight* #AndSoonerThanYouThink… #ItWillBeYetAnotherCaseOf… #BeCarefulWhatYouWishFor…

http://youtu.be/iq2WJ2r0NkM

[ProBono. &WhenItArrives. *Budvars&CigarsAreNotOptional. OrProBono. You were warned. JustSignMe “Mephistopheles”, this evening. ThisMorning? ]

#81 White Rock Mom on 07.15.14 at 11:24 pm

http://bc.ctvnews.ca/mobile/
The question of the day is:
When do you think the price of real estate will drop?
Right now 82% believe that it will not go down!
Please go to the above mentioned website and cast your ballot.

#82 Andrew Woburn on 07.15.14 at 11:27 pm

Another reason not to bet on a manufacturing renaissance in Ontario

“Introducing the iPhone 6, made in China by a robot”

http://theweek.com/article/index/264652/introducing-the-iphone-6-made-in-china-by-a-robot

#83 MEANWHILE IN FRANCE on 07.16.14 at 12:02 am

How many readers are watching this sh*t storm from outside Canada waiting for a decent re entry point? Would be interesting.

http://theceliachusband.blogspot.fr/2012/03/la-maison.html

#84 Joe2.0 on 07.16.14 at 12:06 am

Re previous post
What a stupid comment.

What I am saying is that RE purchased through shadow banking or by skirting our immigration policies or another illegal method is a factor in rising prices thus making it less accessible to legitimate buyers.
Demand=rising prices.

#85 Setting the Record Straight on 07.16.14 at 12:17 am

“There is no such thing as free market capitalism when governments reward failure. What you speak of is crony capitalism, which is more or less communism in disguise, or at the very least, a transition towards it.”

No it’s an element of fascism.

#86 Setting the Record Straight on 07.16.14 at 12:21 am

“I don’t really care where the money comes from – I am all for the free movement of capital (leaving aside certain double standards in the case of China). What I deplore is the destruction of neighbourhoods; the tearing down of lovely, well kept and serviceable homes to be replaced by glowing, environmentally unfriendly behemoth boxes.

…….

I watch the dump trucks rumble by everyday and it saddens me that we (our civic leaders) refuse to take even the most rudimentary steps to preserve some of what makes our neighbourhoods special.”

An unbelievable conjunction of ideas.

#87 YVR on 07.16.14 at 12:21 am

Garth, congratulations on the smack down you provided for the racists yesterday. Sadly I don’t think any of then get it.

#88 Sydcixel on 07.16.14 at 12:26 am

My prediction: The bubble will burst just in time for the federal election on October 19, 2015. Anxiety over home prices will be a major factor in the outcome of the election.

#89 cocoabean on 07.16.14 at 12:34 am

Canadians are, at root, just too, too deleriously optimistic about the prospects for keeping their jobs…

#90 Babblemaster on 07.16.14 at 1:14 am

Moron rating agencies know next to nothing as evidenced by the fact that none of them saw the 2008 GFC coming. Back then, none of them downgraded the US banks or the questionable products they offered. Not until it was too late. So, now were supposed to believe them regarding current Canadian RE? Why?

#91 Happy Renting on 07.16.14 at 1:14 am

#64 Cici on 07.15.14 at 10:34 pm
and
#50 AlbertaGuy

A quick Google shows he commented at least as recently as June 20. Maybe he got World Cup fever and is recovering from the party?

http://www.greaterfool.ca/2014/06/20/come-on-in/#comment-310677

#92 Freedom First on 07.16.14 at 1:21 am

#36 Linda Mulligan

Poof, $120,000 gone. No big deal eh, Linda. You missed out on all the additional details following a RE plunge in $$$$$ that Garth has been warning about. There is many, but I will name a couple. Job loss, rising rates, divorce. There is so many dangers in being vulnerable to a drop in the price of one asset. You should try reading Garth’s Blog Linda. Your thinking and assumption making is so fiscally Canadian(Insane).

#93 Ilona on 07.16.14 at 1:21 am

truecondos.com:

Trying to predict the real estate market beyond about 6 months is a fool’s game. Look at any of the predictions made 2 years ago for where the market would be today and you’ll see what I mean.

(c) Will the Condo Market Crash? July 14, 2011

fool.ca:

For investors who are looking to buy Canadian bank stocks, the question is simple — do you think the value of Canadian homes is about to fall? If you believe Morningstar and think a 30% correction is imminent, you’ll want to stay away from the banks, and definitely stay away from Home Capital.

(c) Is Canadian Real Estate a Ticking Time Bomb? July 15, 2014

greaterfool.ca:

 Might be a real good time to up the foreign content in your portfolio.

(c) The condo economy July 15, 2014
_______________________________

Hmm let’s see… VXUS Last Price 54.13… 52 Week Range 46.86-55.22… This sounds like a smarter advice:

What to do? For those technically inclined, I point out that the EEM routinely moves in a “channel” between $35 and $50, but mostly it moves every six months or so between $35 and $45. Investors could treat the EEM as an old-fashioned channel stock: Buy it when it hits $35 or near there, and sell when it hits around $45. As of Jan. 27 midday, it was $37.79.)

Emerging markets ETFs: Which to buy, which to avoid

#94 Nemesis on 07.16.14 at 1:56 am

#MarketGarden. #TheCavalryISComing. #BreakfastZen. #JustForRalph. #”We’vePaidForThatBridge,AndWe’reGoingToCollect. #”ThunderClapSurprise.”

http://youtu.be/AWL184ZcSxA

#95 Jersey on 07.16.14 at 2:12 am

https://ca.finance.yahoo.com/news/b-c-sets-sights-becoming-asias-financial-hub-003005132.html

Vancouver will become another Chinese financial centre like Hong Kong to launder renminbi. Housing correction would not come. Stop dreaming fools.

#96 Pooh on 07.16.14 at 2:12 am

MARK, keep the posts coming. Great stuff.

#97 cynically on 07.16.14 at 2:19 am

I don’t think Mr. Wolf Richter is just another blowhard. He is proof of what I’ve known for a long time and that is the American economist, financier, industrialist, or retailer is far above his counterpart in Canada. Very little in industrial advances or innovation comes out of this country. Look at Canada’s GNP and GDP in the world and how relatively little we put into research and development. When we’ve had winners like Corel and RIM, we can’t seem to keep them up there in the forefront – we run out of steam because we can’t keep up with the R and D necessary to compete on the world’s stage. The Americans though seem to be able to reinvent themselves when this happens.
So what do we do – make real estate our engine. It doesn’t require all the aforementioned attributes necessary to run a varied and successful economy and take our place on that stage. We are deceiving ourselves and it won’t end well!

#98 Aaron - Melbourne on 07.16.14 at 2:23 am

The penny has dropped for some in the mainstream media. Good to see these issues getting some coverage locally.

http://www.theage.com.au/business/property/secret-path-for-chinese-on-property-buying-spree-20140716-ztidl.html

#99 raisemyrent on 07.16.14 at 2:24 am

yesterday got dirty on HAM paranoia. Or when was it? I’m still quite literally brain damaged (Smokey!)
Speaking of which, Smokey, are you at the stage where you can just hire a 3rd party to edit? Just a thought.

My friends continue their journey into real estate. The ones that have gone that way, at least.

Québec girl continues burning money into her Sainte-Adèle house (google it). Once renos are done, it’s listing it time. I truly hope she can sell it. I just saw her a month ago or so, and she complained about her stable engineering job as ‘meh, it pays for my renos’. Yikes.

Calgary girl continues to rock not one but 2 “properties” in Bowness. A relatively new low-rise wood condo and an old 1-storey with a finished basement (no way to ‘add value’ a la HGTV lol). But hey, cash flow on the condo (for now). She now says that she will wait a bit and then ‘cash out’. I explained that you don’t know when the time is right, until it’s already passed.

Edmonton lot continue to expand. Bigger houses because, hey, kids someday. Re-financing, new mortgages, who knows. The one couple is building a new house in a development that is not on the map yet. Unfinished basement and already a couple of typical contractor horror stories. People in their 20s have been led to believe that they can afford to build a house. Sigh. This comes after they sell the condo on which she already lost money on (bought at a high).

Of the ones in Vancouver, by the way, only one is ethnically Asian and all his money is 100% Canadian.
There seems to be a fairly obvious cognitive bias with anecdotal HAM; it’s well studied, but its precise name now escapes me (when you only remember rare things as happening more often). Fact is, most of the suckers on CHMC are very Canadian (rich foreigners parking money don’t need mortgages, do they?).

#100 raisemyrent on 07.16.14 at 2:27 am

forgot to say, none of these people can really afford to travel or do much else (it’s funny how they don’t entirely realise this); but the downtown Vancouver renter can go and visit them anytime no problem ;)

#101 devore on 07.16.14 at 3:08 am

What’s worse, the developers have been told the property sits above the historic water course, Garrison Creek. Therefore, no excavation permit will be issued under current rules. (Ouch! Where was the due diligence?) Local residents are lobbying city hall loudly to stop any future work.

This is a cool tangent, but I did not know this myself until recently. Should have been obvious if you think about it. Older cities, like To, Montreal, Vancouver, the central core areas, and of course cities all over Europe, used to have tons of creeks, streams and even rivers, and they still do. They’ve just been tunneled over and are underground.

So for a developer to buy a piece of land, intending to put a huge condo on it, and not know this information, is very negligent. Total lack of due diligence. Doubt the city will ever allow development, even if they reroute it.

#102 Nemesis on 07.16.14 at 4:51 am

#ExorbitantlyTired… #OfTheCondoEconomy… #BetteFinallySoundsOff… #BreakFastZenForSaltierDogz:

http://youtu.be/G_Oj52gaiBM

#103 Londoner on 07.16.14 at 4:57 am

Fitch, the same ratings agency that gave subprime based MBSs and CDOs triple A ratings, is now saying that Canadian housing is 20% overvalued, that rates will go up not down and to expect a soft landing? Ha! If that’s what these guys are saying I would bet the other way.

See cable jump on yesterday’s headline UK CPI numbers? Watch Carney talks it down in the inflation report next month.

#104 Italians love real estate on 07.16.14 at 7:13 am

Please do NOT ban Cici or anyone else for that matter Garth . Thank you

#105 Italians love real estate on 07.16.14 at 7:18 am

#65 hogtown indebted

I loved your post and know many such ” barbers” with similar stories.

Meanwhile Italian and Asian wives everywhere pining over waffles in their ceilings … LOL

#106 bigrider on 07.16.14 at 7:26 am

Perhaps those like Cici and others calling for bans and censorships on other blog posters, would be more comfortable living in countries where black smocks and hooded faces are the norm.

Actually she has a point, since people like you come to this blog and hide behind anonymity. If you are going to be abusive, rude, racist or defamatory then at least have the courage of your convictions, and take the hood off. — Garth

#107 Sean on 07.16.14 at 8:08 am

To all the folks commenting that Canadian rates will stay low, b/c the Canadian economy will be weak, etc… please understand that the Canadian bond market is somewhat irrelevant. Canadian bonds cannot survive much of a differential with US and global bond markets. Our economy, as the chart shows, is way out of sync with US and global economies… if and when those bond markets crack (for Doomer or Pollyannish reasons, take your pick) yields globally will rise, and take ours with them.

#108 Inglorious Investor on 07.16.14 at 9:08 am

#104 Italians love real estate on 07.16.14 at 7:18 am

“Meanwhile Italian and Asian wives everywhere pining over waffles in their ceilings … LOL”

My wife doesn’t pine for waffles. She makes ’em––from scratch. And they’re YUMMY!

#109 Patricia on 07.16.14 at 9:14 am

Garth, I would love it if you began to expose the additional credit risk that most people indulge in. “AUTOMOBILES” In the old days, not too long ago, if someone in the entire neighbourhood got a NEW car it was a big deal. No everyone has to have a brand new car. Zero money down and no payments for years. what the hell is gong on with this. This area is also quite frightening.. Wish you would expose it. I just don’t know how with a huge mortgage and a big auto loan, how people can afford insurance or food for that matter.

#110 Londoner on 07.16.14 at 9:21 am

In terms of foreign investment, wealthy people have been buying real estate in stable nations for ages. There’s nothing new there. If I was a newly minted Chinese multimillionaire and I had a chance to move some of my wealth to a country that had a stable government, low crime, good public services and a high standard of living for my family, I would do it in a heartbeat. If that money had to go into real estate so be it. If the value of that real estate dropped by 30% no big deal because that’s not what I’m buying.

So there’s a greater presence of Asians in Toronto and Vancouver. Here in London we have wealthy people from other nationalities and ethnicities. You think everyone here made their money legitimately? Money seeks stability no matter how it’s earned. The fact is that places like Vancouver are attractive to newly wealthy foreigners from Asia. Only a fool would deny that it’s had any impact on local real estate.

#111 Wages going nowhere....home prices going up? on 07.16.14 at 9:29 am

This is gonna end really badly…

http://www.ctvnews.ca/business/minimum-wage-in-2013-equivalent-to-1975-statscan-1.1916056

#112 miketheengineer on 07.16.14 at 9:31 am

Garth et al:

The price of housing can go wherever it wants to go…I could care less now.

I see every one of my bills increase, not by a standard 2%, but by double digits. Ground beef now about ~$5 per pound (was 1.99 to 2.99), gasoline up $1.40 per liter or so, etc…you can go down the list of your daily bills, and everyone wants more. Has your pay increased to match these “natural” increases….likely not. I can hardly wait to see my next hydro and gas bill. The rate this is going, the “real” cost of living is going to go beyond the means of Mr. and Mrs. Joe Average, regardless of whatever the government says it is. Everything is up and pay increases are little to none.

This is not going to end well. I don’t know how the “poor” people live in GTA….I don’t know how they “do” it.

#113 Italians love real estate on 07.16.14 at 9:36 am

Garth at #106 Bigrider

Since I also think that censorship is a bad thing I’m not sure anything Bigrider said was abusive in any way. I also think your response could be interpreted as defending Bigrider so not sure what to make of your response Garth.

I would agree that the hoods should come off though

#114 Capt. Obvious on 07.16.14 at 9:36 am

There are so many people who will not believe a correction can happen until it’s well underway. Then those people will claim they saw it coming — human nature.

The hours worked data point for Q2 is very worrying.

#115 Garth Turner's Peruvian Daughter on 07.16.14 at 9:47 am

Ay! Dios mio!!

Querido Padre – te echos de menos.

I miss you daddy!

Will I have to file a lawsuit against you, like my cousin did for that Michelin Man from PEI, just to get you to take a DNA test?

Please, papa!

Help me get my papers for Canada. I want to sell real estate there. :)

Your three grandchildren can help build condos, too, in just a few more years. :)

We want the good life with you, padre!

#116 Ragin on 07.16.14 at 10:04 am

http://www.cbc.ca/news/business/how-the-housing-market-has-cooled-in-most-of-canada-1.2707753

Looks like we are getting a bit more reliable and realistic reporting now

#117 FP article makes sense on 07.16.14 at 10:11 am

http://business.financialpost.com/2014/07/11/why-a-real-estate-correction-should-be-welcomed/

#118 saskatoon on 07.16.14 at 10:15 am

#111 miketheengineer

you know the answer: people aren’t doing it: it’s easy debt/credit.

i think your real question is as follows:

how are these people mad enough to take on such massive debtloads…effectively stealing from their own future economic existence/prosperity?

personally, i blame the NaF…at least in part :)

#119 Derrick on 07.16.14 at 10:18 am

I’ve been waiting over 10 years for this RE bubble is burst or even contract a tiny bit which we saw happen for a couple of months in 2008-2009 but then it went back to being bubbly. The manufacturing downturn in Ontario doesn’t seem to be having any effect on people’s ability to load up on mortgage debt, and mortgage defaults are at record lows. It will take A LOT to get prices to significantly decrease over a long period of time but somehow I’ve got my doubts that will happen given the history of RE prices in Canada, it’s generally the same as the stock market: consistent gains over time.

#120 Aggregator on 07.16.14 at 10:37 am

What does a central banker do if they can't move rates? They use open mouth operations by talking down the currency to generate more inflation that will boost GDP figures.

Bank of Canada cuts economic outlook

If the Exporter-in-chief, Stephen Poloz, is already talking down the CAD at 92 cents, then obviously he's targeting sub-90 cents.

#121 saskatoon on 07.16.14 at 10:39 am

#110 Wages going nowhere….home prices going up?

MINIMUM wage has apparently gone nowhere.

Where are is the min. wage SUPPOSED to go?

according to whom? to what end?

#122 The real Kip on 07.16.14 at 10:53 am

Short term construction jobs? Really? I quit school on my 16th birthday 40 years ago and I can tell you finding a job has been easier than taking a vacation. Haven’t had a vacation in 7 years and this industry is screaming for crane operators, again.

Yep, the condo economy. — Garth

#123 KommyKim on 07.16.14 at 11:02 am

RE: #117 saskatoon on 07.16.14 at 10:15 am
how are these people mad enough to take on such massive debtloads…effectively stealing from their own future economic existence/prosperity?

Because the average sheeple only looks at the monthly payment and not the principle amount borrowed and says, “I can afford that”.

#124 Mister Obvious on 07.16.14 at 11:08 am

#108 Patricia

“…not too long ago, if someone in the entire neighbourhood got a NEW car it was a big deal. No everyone has to have a brand new car.”
————————

Myself, I could easily afford a new car but I drive a ’98 Buick. Why? Simple. There’s only 135,000 Km on it. It has good tires, an excellent engine and tons of life left. I have it serviced regularly and it’s super reliable.

There are so many better uses for the money than pointless prestige.

You just drive at night, then? — Garth

#125 Piano_Man87 on 07.16.14 at 11:13 am

The “Malinvestment, Boom and Bust” section of Austrian Business Cycle Theory at Wikipedia reads like a carbon copy of what’s happening in our economy:

http://en.wikipedia.org/wiki/Austrian_business_cycle_theory#Malinvestment_and_.E2.80.9Cboom.E2.80.9D

#126 Son of Ponzi on 07.16.14 at 11:19 am

Condo Economy. Yep.
And soon these new Condos will start to leak.
Right after the warranties expire.
And then the same shoddy builders will do the repairs.
And so on, and so on.

#127 Dewflicker on 07.16.14 at 11:34 am

#86 “An unbelievable conjunction of ideas.”

Free capital flows and regulation of housing stock are not mutually exclusive phenomena. Consider Seattle and San Francisco where unbridled destruction has resulted in efforts to preserve heritage stock. Look too at London UK where neighbourhoods such as Hampstead and Chelsea preserve their charm despite the ambitions and influx of vast amounts of foreign money on a scale that would make the xenophobes on this site hurl (Russian, Arab, continental European, Indian and now Chinese). In Vancouver developers and their client’s money are what matters at City Hall (Vision), not the integrity of the community.

As Ralph Cramdown mentioned, the frog is being boiled…

#128 high Plains Drifter on 07.16.14 at 12:00 pm

Seeing Canada as a high class refugee economy has been my estimation for the last 15 years. Immigration facts have always been difficult to obtain and by that I do not mean the particular quota numbers and so us masters of our representative government make our best guesses on personal experience. I cashed in enough on my surmise that I then had enough $’s to travel to 10 large European cities plus many in the States before our allies to the south had their attitude readjustment where they sit in the corner with muzzles outward. Still they come and the well to do are a higher number than the strictly talked about bootstrap crowd. Where I am, the party will roll on but there is no doubt for some of you, it may be later than you think. Due to the above, I had not been to the mountain parks for 5 yrs and 5 traffic lights made the open road, now closer to 20. The view of Mt. Robson was a 1 in 100 day clear and the parks were in a God given form. Made me want to go to the emerald meadow and lunch with the moose. All our many, foreign friends agree.

#129 pinstripe on 07.16.14 at 12:14 pm

There is a strong swell at the grassroots level in Western Canada to dump harpo because of the monetary policy implemented by his government.

To date harpo is accepted but not in a popular way.

#130 Cici on 07.16.14 at 12:19 pm

Ooops, I started a fight.

Relax people, I had an adverse reaction to thinking about his “pasta” and his wife’s “waffles”…EWWW!

But that said, I really don’t appreciate the way that he stereotypes Italians either.

In other more interesting news, CBC journalists are finally starting to clue in:

“How the housing market has cooled in most of Canada”

https://ca.finance.yahoo.com/news/housing-market-cooled-most-canada-090000167.html

This article pretty much reiterates what Garth has been warning about all along:

“It really is just Vancouver and Toronto holding things up which actually makes me more worried about the overall housing market because I know Toronto and Vancouver are the trouble spots,” he said. “So the fact that they’re propping things up isn’t encouraging at all.”

#131 Alladin PinkPants on 07.16.14 at 12:33 pm

#111 miketheengineer

30 % of our GDP is due to housing, rest to commodities and services, almost no manufacturing.
Stop government guarantees and housing dives easily 40-50 maybe 60 % even with low rates. Banks will simply stop lending.
Continue government guarantees (CMHC) which is already a significant system risk and get huge liabilities to cover once the housing market finally crashes.

BOC is talking about the ‘slack on the labour market’, everything is getting outsourced even menial and low paying jobs. There would be ‘slack’ forever, manufacturing is completely gone, lower Lonnie is doing nothing to stimulate as there is no manufacturing left here.

No, the purpose of the lower Lonnie and expanding loose monetary policies aka NIRP (negative interest rate) is to actually cause inflation and to make government debt manageable.
The problem is that banks and corporations want additional piece of that pie (the looting of the savers) without taking risk. The current model is perfect for them.

So what we are seeing is the plan in action – higher prices by the day, lies about inflation, stock market and commodities up, never to come down, no jobs for us, no jobs for our kids, structural unemployment.
With expected reduction in all benefits. I would like to see where the money for pensions and health care will come from once CMHCs liabilities appear and would need to be covered.
Higher cost of living, higher taxes to support fallouts, need to support Baby boomers who have not savings while living in ‘million dollar homes’, mortgaged to the hilt with outsourced job (competing with low paid foreigners) paying that huge educational cost for kids who would have no jobs. And eating GMO and other crap that makes cost of living through substitutes with cheaper cancerogenic crap ‘affordable’. You know what is the purpose of CMHC? To make housing ‘affordable’, what an irony..

Where to I sign?

You are richer than you think, Own a home not a mortgage. Making money make(s) sense,… just utter crap and bull.
If the economy is improving:
1. Stop CMHC
2. Increase the rates.

Few long term points:
1. Stock market is going way up.
2. Commodities are going way up.
3. Think seriously about investment and retirement (mission impossible these days)
4. Think about the health and job prospects for your kids.
5. Do not sell that gold.
6. Avoid any credit exposure as the masters of the universe might increase the rates after all.

#132 neo on 07.16.14 at 12:56 pm

I’ve seen a lot of charts on here the past few years that would suggest the housing market is about to roll over. Still no sign of it though. According to this chart we should see about a negative 3-4% print on GDP. I doubt it.

A wise man acts on warning signs. A foolish man waits. — Garth

#133 Who me? on 07.16.14 at 1:02 pm

I wonder how many people would be buying houses now if they consider that in the 3 year span between 1978 and 1981 posted mortgage rates for 5 year fixed mortgage rates jumped from roughly 9.5 % to over 21 %? Historical interest rates might be an interesting blog topic?

#134 liquidincalgary on 07.16.14 at 1:10 pm

Inglorious Investor

My wife doesn’t pine for waffles. She makes ‘em––from
scratch. And they’re YUMMY!

i hope, for your sake, they are not the dreaded ‘blue waffles’

#135 Eric on 07.16.14 at 1:12 pm

So 1% till at least 2016. So much for the 5% target Garth has by 2018.

Price can only go up.

How can I write this so many times and it doesn’t sink in?: the central bank does not dictate fixed mortgage rates. The bond market does that. Only VRMs are linked to bank prime, which is dictated by the BoC overnight rate. — Garth

#136 yann on 07.16.14 at 1:44 pm

Great Blog post, wonderful commentary. Thank you all!

y.

#137 Debtfree on 07.16.14 at 1:54 pm

Poloz keeps interest at 1% says economy a long ways from normal . Well , he should know . On the other hand ,joe the big owe Oliver has every thing under control . If tshtf on his watch . He can always blame it on foreign financed radicles shorting the condo sector . What a tired ,old ,pathetic , out of touch with reality and ideas government we have . Now they think they can eliminate prostitution . Kind of ironic . Politicians going to eliminate prostitution .

#138 dontcallmeshirley on 07.16.14 at 1:55 pm

Please elaborate on why, and how, the “bond market” will demand SIGNIFICANTLY higher rates in the next several years.

There’s lots of capital sloshing around, no default risk, how can bond rates rise in this environment?

Your statement is correct, but your implication is not.

—————

“Don’t worry about the Fed or the BoC. Its the bond market that sets fixed mortgage rates.” — Garth

Economic growth means inflation. Bondholders demand a premium for inflation. Up she goes. How ‘significant’ it is depends on your debt level. — Garth

#139 Inglorious Investor on 07.16.14 at 2:07 pm

“Did the Other Shoe Just Drop? Big Banks Hit with Monster $250 Billion Lawsuit in Housing Crisis”

http://www.maxkeiser.com/2014/07/did-the-other-shoe-just-drop-big-banks-hit-with-monster-250-billion-lawsuit-in-housing-crisis/

#140 Habs76-79 on 07.16.14 at 2:43 pm

#118 Derrick,

The manufacturing downturn in Ontario doesn’t seem to be having any effect on people’s ability to load up on mortgage debt,

————————–

As long as one has a pulse and can fog a mirror loading up on debt, mortgage or otherwise is easy to do. The bigger possible problem is maintaining the repayment of said debt and the time frame repayment may take and cost from your future especially of one takes on more debt than they are truly able to manage.

#141 Debtfree on 07.16.14 at 2:50 pm

131 who me ? I remember Paul Volcker fondly . We got to feed on 3/4 dead re market . No one was buying at twenty 22 % . We were told we were insane but thought interest rates could only go in one direction , down . Two and a half years later we sold and walked away with more money than we had ever seen before . I also long for march 2009 . Was that sweet or what ?

#142 young & foolish on 07.16.14 at 2:56 pm

This is what you get in a “managed economy” …. unreliable price signals (driven by political expediency more than sound economic principles).

Had the Condo Economy not been allowed to proceed, we would have fallen into the dreaded deflationary spiral. Our “free trade” policies were coming home to roost. Few well paying jobs being created, increasing debt , no real “growth” for the middle classes. Not much better in other G7 countries either.

In a coordinated effort, our betters have decided that it’s easier to bring the 3rd world to the 1st rather than the other way around. Enjoy the newly revamped, rising inequality, as you watch our governments, left and right, dismantle the welfare state.

Still waiting for the next big thing.

#143 Ralph Cramdown on 07.16.14 at 3:15 pm

#140 young & foolish — “This is what you get in a “managed economy” …. unreliable price signals (driven by political expediency more than sound economic principles).”

I love when the oldtimers come out and pretend it was easy back in the day. “When IBM was at $50, everybody knew to buy, and when it was at $70, everybody knew to sell. We all got rich! Greenspan would come out a few times a year and say something like ‘klaatu barada nikto’ and we all knew what to do. Rich, I tell you, rich!”

#144 Eric on 07.16.14 at 3:36 pm

How can I write this so many times and it doesn’t sink in?: the central bank does not dictate fixed mortgage rates. The bond market does that. Only VRMs are linked to bank prime, which is dictated by the BoC overnight rate. — Garth

Exactly. Why on earth would anyone go fix? Variable all the way.

Because the differential is minimal, and variable-rate mortgages will be more costly in four years than a fixed-rate mortgage taken today. — Garth

#145 dontcallmeshirley on 07.16.14 at 3:49 pm

Economic growth means inflation. Bondholders demand a premium for inflation. Up she goes. How ‘significant’ it is depends on your debt level. — Garth

The sheer global supply of capital, all that money sloshing around, will keep rates low.

There’s a seemingly endless supply of dollars that are happy to yield 1%.

Again, your statement is correct, but fails to recognize the effect of central banks co-operating with each other.

In other words, economic growth can happen without inflation.

Good luck with that. — Garth

#146 april on 07.16.14 at 4:19 pm

#130 – Neo. There is every sign of a correction happening across Canada but maybe some don’t want to see it. The big cities, for example, Van and Toronto are always the last to see a correction.

#147 Mark on 07.16.14 at 4:19 pm

“The sheer global supply of capital, all that money sloshing around, will keep rates low.
There’s a seemingly endless supply of dollars that are happy to yield 1%.

But what happens when the investors “at 1%”, start to see defaults? They run, at the very least, to other asset classes, if not away from investment altogether.

At least at 10%/annum interest (for example), there’s some wiggle room for defaults, and the central banks can at least nominally be counted on to provide some relief through policy if defaults start to be a problem. Not so at 1%. Central banks are without policy tools in such a situation. Which is why deflation in Canada is picking up steam and will continue to accelerate, led by the RE sector.

#148 Shawn on 07.16.14 at 4:21 pm

End of Financial World delayed again…

U.S. home builder confidence up…

The National Association of HomeBuilders/Wells Fargo’s index of builder confidence jumped 4 points to reach 53 this month, compared to 49 in June. After a few rough months earlier this year, builder confidence is now above 50 for the first time since January.

http://wallstcheatsheet.com/business/homebuilders-the-housing-recovery-is-here-to-stay.html/?ref=YF

My Toll Brothers shares were up 2.3% today.

Back when Garth was wisely saying Sell Canada Buy America I was buying Toll Brothers as one way to play the U.S. housing recovery that was obviously coming.

#149 Habs76-79 on 07.16.14 at 4:22 pm

Cash equals freedom
Credit equals obligation
Neither the two shall ever meet.

When one has cash at hand they are truly empowered with freedom, freedom to spend it for things they may need and/or want. Or they have the freedom of holding on to it at minimum or using it to improve finances via proper and prudent investments.

When one uses credit they exchange freedom for obligation. Using credit may not be an unwise thing if said credit is used for most notably improving financial returns of investing or operating a business venture and in bettering a lifestyle. If credit is used to fund only a lifestyle it is an exchange as I said of freedom for obligation. But if done with prudent care may be a suitable exchange.

If using credit to fund a “fairytale” lifestyle and purchases you have no credible right in living and owning nor ability to repay said debts properly, then credit used is truly a prison for your future life and lack of freedom.

#150 Doug in London on 07.16.14 at 4:29 pm

I have no idea when this condo economy will implode, but it’s bound to happen sooner or later. The longer it goes on, the worse the correction will be when it comes. Inevitably, in the aftermath of the correction there will be investments (other than real estate itself) which will be hit hard and ripe for being scooped up at fire sale prices. Other than builders, any ideas of what those investments will be?

#151 dontcallmeshirley on 07.16.14 at 4:55 pm

No need for luck sir.

We’ve been observing this phenomenon for years now.

Gov’ts are crowding out the financing world with 1% money.

You should wish luck for those folks demanding a yield greater than 1% (including risk).

————–

Good luck with that. — Garth

#152 Ilona on 07.16.14 at 5:43 pm

Morning: limit order for 150 shares of Cameco @$20.50 went through

Afternoon: “Why uranium stocks are jumping today – and what it means for the long term”

Market close: +$175.50

Investing (or trading if you wish :) could be so much fun! :)

(And no, I’m not crying because Potash is down from when I bought it, so I’m minus $185 on it lol)

Do you remember such a word exists, Garth? “Fun” I mean? :)

#153 German on 07.16.14 at 6:14 pm

//How can I write this so many times and it doesn’t sink in?: the central bank does not dictate fixed mortgage rates. The bond market does that. Only VRMs are linked to bank prime, which is dictated by the BoC overnight rate. — Garth//

So does it mean that VRM is probably way to go for next 2-3 years?

#154 Inglorious Investor on 07.16.14 at 6:16 pm

Did someone say ‘klaatu barada nikto’?

Suddenly I no longer feel compelled to destroy Earth. But I do feel a strange urge to resurrect a corpse.

#155 Bob Rice on 07.16.14 at 10:05 pm

#94 “Vancouver will become another Chinese financial centre like Hong Kong to launder renminbi. Housing correction would not come. Stop dreaming fools.”

China is the new Rome and Vancouver will (is) become a Decapolis