That’s it

COPS modified modified

How to tell when housing boom’s running on fumes?

  • When the Globe and Mail appoints a full-time real estate reporter, who gets more stories published than the Ottawa guy. And is cute.
  • When 108,000 new condos are under construction in the GTA.
  • When more than 50% of all markets saw sales declines last month.
  • When politicians start talking about limiting foreigners from buying houses in Vancouver, after they buy less.
  • When a Toronto realtor I trust stands in my foyer and says, unprompted, ‘Things are going to really slow down.”
  • When new houses on ravine lots go on sale in suburban Ottawa and there’s a line-up – of seven people.When the Ottawa Citizens writes about it. And sends a photog.
  • When fixed-term mortgage rates slide under 3% and nobody cares anymore.
  • When it’s been five months since house prices peaked in 416, with the average a hundred grand cheaper.
  • When a Van developer thinks he can get $1 million for 700-foot vertical boxes on a clogged street beside a truck laneway in a former food store plaza with a rusty iron grate stuck on the front.
  • Then when he has to drop the price a hundred thousand. And change the name.
  • When big mortgage lenders like Northwood will give a cheaper rate to a kid with no money than a guy with 80% cash and a credit score of 800 because CMHC insurance wipes away all risk. “It strikes me as rather counter-intuitive to all that I have been taught from childhood about being diligent with money and staying on the straight and narrow,” writes James (not paying more). “The system is supposed to reward you, not penalize you!”
  • When a Canadian chain with 917 stores selling stuff for less than $3 sees its stock soar, sales jump 12% and opens 70 new outlets. Oh yeah, and Dollarama’s stock just split.
  • When nobody talks about the 1.99% mortgage offer. Because it’s gone.
  • When someone named Dominic emails me: “Could you please share your opinions in regards to buying cemetery plots in Vancouver (upright vs flat) as an alternative to buying a condominium. Side note is that the plot would be 0% financing for 5 years in which it would be paid off.”
  • When 39,400 people in Toronto are selling real estate.
  • When Moody’s, the OECD, Fitch, Morningstar, The Economist and Robert Shiller say we’re delusionally house-horny, and the finance minister shrugs.
  • When people in Vancouver need over 100% of after-tax income to carry a house they put 25% down on, and RBC cites, “widespread improvement in housing affordability across the country.”
  • When a house that has 72 offers in April and sold for $650,000 more than list hits the rental market, leasing for a loss.
  • When new condos in 416 and 604 routinely cost $700 a foot, while whole houses in the US average less than $100 for the same foot.
  • When 70% of us own houses, 51% would be in crisis if a paycheque was one week late and the savings rate’s just 3%.
  • When, by the 14th day of the 9th month, my too-gross-to-publish list of deleted Garth’s-a-douche blog comments swells to a record 209 pages, single-spaced. The end is truly nigh.

197 comments ↓

#1 Mark on 09.14.14 at 6:10 pm

The data’s been pretty clear concerning price declines in the major cities (Vancouver, Calgary, Toronto) for the past year and a half since that landmark 2013 Budget where “F” put a nail in the coffin of expanding CMHC subprime mortgage insurance.

Not sure why the Realtors, who are “supposedly” just as much representatives of buyers, as they are of sellers, are trying to fight tooth and nail to distort the truth. After all, they make money both on the upside as well on the downside.

#2 Suede on 09.14.14 at 6:13 pm

I remember the days when the douchey comments were barely 100 pages.

I wonder how many deleted SM posts take up of that.

#3 mike in kelowna on 09.14.14 at 6:14 pm

Been checking in at this blog from time to time. You’ve been right on gold going down and your balanced portfolio going up Garth. Time though I think to sell 10% of those high flyers in your stock portfolio and buy some gold Maples…Just 10%. Have you ever recommended a small % be in gold Garth? Or are you an anti-gold kinda guy?

#4 Simplyput7 on 09.14.14 at 6:19 pm

This post was fun, I think we should continue it:

How to tell when housing boom’s running on fumes?

When a close friend thinks they can buy a condo, wait for it to appreciate, use the equity to buy a house and rent out the condo without worrying about the maintenance fees increasing to over a $1000 or the value of the condo decreasing in the long run. And when I try to explain that they should worry more about their pension being a defined contribution instead of a defined benefit, they give me a blank stare.

#5 Paully Mtl on 09.14.14 at 6:20 pm

Thank you Garth.
You have informed and saved this 27 year old male.
I owe you much.
Thanks!

#6 johnny d on 09.14.14 at 6:23 pm

You didn’t even mention the jobs numbers for the past few months.
Or, as is the case in Regina, that housing starts fell off a cliff. (70% here from a year ago).

#7 NFN_NLN on 09.14.14 at 6:24 pm

If you wanted to protect yourself by buying a house under a newly formed company with 20% down… will the banks play ball? Or do they only want to lend to people with CMHC protecting them?

#8 Finally on 09.14.14 at 6:25 pm

Garth, you make compete sense, but Vancouver market has no sense. Born and raised in Vancouver, 43 years old now. Happily married with 2 kids. I did manage to buy 3 condos in the past and have sold them all b/w 2-4 years ago. Been waiting for the correction. Have some $ saved for a downpayment, but not enough for the average 1.2 million dollar detached house on the cheap side of Vancouver. I feel I missed the boat, most friends have houses w the help of parents. We are on our own, no help here. I do feel poor and make over 100k per years. I sometimes feel like a loser when they sit around the table and talk about house prices, Reno this and that, building a new house, etc. I always regret, why didn’t I just buy some land 10 years ago. I feel like an idiot now, like I ruined my financial future and will always trying to play catch up. Just venting now, maybe I move and go east or south. I would leave all my friends and family just to buy a house, but that just doesn’t seem right.

#9 sleepy Moncton on 09.14.14 at 6:26 pm

My father is one of those typical Boomers, most of his assets are in his house, which has been on the market almost 6 months (PEI), a price reduction happening next week… but there is hope for a friend of mine which is actively looking for a place and is consulting me on buy vs rent ( i’m really just regurgitating mostly what i read hear) i can’t believe someone may have been listening to me…. we’ll see how convincing i am …..thanks for more ammo

#10 Strathcona on 09.14.14 at 6:26 pm

Yes, the end is here. I know its here, and like Garth, I have the evidence, from Edmonton.

Yesterday, I was walking in a neighbourhood I wanted to buy in, saw a semi that barely met my needs. It had a for sale sign, from ComFree. I do note plenty of ComFree and FSBO here now.

I checked the property, OK, I thought, and walked away. Immediately, a severely rusted mid-1980’s Chev pickup in two-tone brown white paint pulled into their driveway, I thought “oh, the owner”.

They proceeded to slap a “SOLD” sticker on the sign. I do note that ComFree will go to the trouble and expense to print “SOLD” in their current catalogues, wasting paper, and letting potential buyers know they had a sale.

Where were the brokers with BMW’s, Range Rovers, and Mercedes? It seems they’re priced out of this segement of the market as well.

#11 Smoking Man on 09.14.14 at 6:26 pm

When, by the 14th day of the 9th month, my too-gross-to-to publish list of deleted Garth’s-a-douche blog comments swells to a record 209 pages, single-spaced. The end is truly nigh.
……

Ha, I’m sure I’m the leader of the pack in the delete dept.

Don’t lose em, once my wee shit book is out there, it becomes a huge seller, those deletes will be worth a fortune…..

#12 Millenial on 09.14.14 at 6:28 pm

Hey Garth,

I know you’re sick of comments about gold, but have you heard about the Swiss Gold Initiative? The Swiss are holding a referendum on November 30th. If the Swiss people vote ‘Yes’ then the Swiss central bank will be forced to halt all sales of current gold reserves, repatriate all gold back home, and resume backing the Swiss Franc with gold (at a minimum level of 20%). The results of the vote are binding: it’ll be an interesting one to watch. I’m not a gold bug/fanatic (and I know this is more of a real estate/investing blog), but I think there’s something to be said about bureaucratic money meddling and the unprecedented government debt Ponzi scheme we are currently living through (the mother of all Ponzi schemes). I’m thinking about picking up an ounce or two this week.

#13 T.O. Bubble Boy on 09.14.14 at 6:31 pm

Not directly related to Real Estate, but still a sign of the times: stopped at the IKEA at Leslie/Sheppard in Toronto to dispose of lightbulbs & batteries, and saw a custom-painted Lamborghini parked by the exit.

Why exactly is someone with a multi-hundred-thousand-dollar car shopping for $0.75 hotdogs and $99 build-it-yourself dressers?

#14 T.O. Bubble Boy on 09.14.14 at 6:34 pm

I also witnessed an INSANELY busy open house on a $1.3M listing near York Mills / Don Mills in Toronto (got stuck in a traffic jam on a residential street, and found out it was all for the open house).

I even saw an older couple rushing to sign an offer on the hood of their car outside!

#15 FormerSaskie on 09.14.14 at 6:34 pm

So…we should buy a house now? :) (using a valley girl sort of voice)

#16 AK on 09.14.14 at 6:35 pm

World waits

#17 VandammeCouver on 09.14.14 at 6:35 pm

It’s GO TIME….

I agree it’s coming. Will this impact publicly listed companies on the TSX & Venture, and how should we protect ourselves in our portfolios?

Great work Garth!

#18 CPG on 09.14.14 at 6:36 pm

Garth. In this upcoming “correction” in Canadian housing prices, how much of a percentage drop in the average price of a house in this country are you predicting?

#19 SWL1976 on 09.14.14 at 6:36 pm

Good post,

Ahh I have been missing this blog and just getting caught up after reading all of the interesting comments from all the blog dawgs out there.

Yes the melt down is on and sad but true, it would be nice if it were our biggest problem…

Tip of the ice berg dead ahead

#20 John Mounfield on 09.14.14 at 6:37 pm

Its time to go back on BNN

#21 michael on 09.14.14 at 6:41 pm

Garth Rocks!

…. is “First” still a thing? No? Excellent.

#22 CanadianOne on 09.14.14 at 6:47 pm

Situation down under is pretty well the same if not worse….. saw this piece today thought would be of interest to others on this blog.

http://www.bloomberg.com/news/2014-09-14/australians-face-repayment-shock-on-high-risk-mortgages.html

#23 Cato the Elder on 09.14.14 at 6:47 pm

…and when it all comes crashing down, don’t expect that the reckless will be forced to pay for their mistakes. It will be the responsible savers that are hurt by the policies the government chooses to implement, because there are so few of them. We truly live in a democracy.

#24 Alberta Ed on 09.14.14 at 6:49 pm

Tara Perkins is not a real reporter. And the Globe & Mail is not a real newspaper. Together, the two comprise the last place anyone should trust for financial advice.

#25 Basil Fawlty on 09.14.14 at 6:57 pm

What does it say about the economy when Dollar Store sales are increasing, while Walmart’s sales (in the US) are decreasing?
Real estate is just part of the story, as the biggest credit bubble in world history approaches it’s zenith.
There are hundreds of trillions in interest rate derivatives that are on built on a platform of low interest rates. Yet, the “consensus opinion” makers ignore this financial 800 pound gorilla.
Real estate is just part of the biggest misallocation of capital in world history, which has created bubbbles in most asset classes. Best though to just keep your heads buried in the sand, as reality just bites and puts blemishes on thoughts of recovery.

#26 Shanks on 09.14.14 at 6:59 pm

Hey Garth
You left this one off your list:
“When our PM sells out our country to foreign interests (AKA TREASON)” … nosty I’m sure you will apprecilove this one
http://boingboing.net/2014/09/13/stephen-harper-sells-canada-c.html
We should all be aware of this one, and more to the point take action.

#27 T.O. Bubble Boy on 09.14.14 at 7:01 pm

Kinda funny that Tara Perkins is called “Financial Services Reporter” for the Globe & Mail (despite only covering Real Estate)…

What happened to the days when the Globe & Mail and the National Post (Financial Post) were actually focused on business and investing?

#28 rower on 09.14.14 at 7:04 pm

A dear friend cannot sell her house in Saskatoon and move back to Ontario. The market is dying.

She moved out there for a one year job placement for a family member. That was three years ago. I tried to tell her how Garth said the market was going to slow in the next few years and renting would be the best option. I wanted to beg her to change her mind about buying, but she wouldn’t hear it.

Now the family is living in two different provinces and they are very unhappy about it, to say the least.

Real estate is a trap. Paying the bankers does not make you richer and does not give you “freedom” to do what you want to the house.

I tell people that home ownership is a myth. Try not paying your mortgage or property taxes and see how much of your house you “own”.

Sigh, I miss my friend.

Nothing wrong with renting, folks.

#29 Mark on 09.14.14 at 7:05 pm

I agree it’s coming. Will this impact publicly listed companies on the TSX & Venture, and how should we protect ourselves in our portfolios?

1) Should be positive for the TSX as risk premiums on mortgage credit will rise and help bank profitability. Additionally, as housing loses its lustre as an asset class, investment money should flow back to publicly listed companies.

2) Business credit will probably get cheaper, lowering financing costs for large-cap businesses. Again, positive for the TSX.

3) Falling housing prices in Canada probably will push the Canadian dollar well over parity, and beyond. This would be negative for the export segment of the TSX.

4) Wages, particularly in certain labour intensive sectors such as the oilpatch, should fall or stagnate as masses of unemployed construction workers race to compete for positions in Fort McMurray and elsewhere.

Overall I believe that the falling housing market is generally quite positive for the TSX. If you look at 1990-2000, the TSX tripled while housing actually was down over the 10 year period. I also believe there’s a fairly decent possibility of external macro events causing a particular sector of the TSX to explode in value, much like the global telecom boom (due to the Internet) caused Nortel and related technology companies to be star performers in the late 1990s. If you can correctly identify this sector, and put some money into it — you could end up a decade from now being able to purchase a significant amount of housing with the proceeds.

#30 Roman on 09.14.14 at 7:08 pm

There are literally 0% of people involved into real estate (own, sell or develop) who think that rates will go up. These situation of disbelief pretty much assures that rates not just increase, they will explode.

Pay attention to US notes and bonds: huge move last couple of weeks.
http://finance.yahoo.com/echarts?s=%5ETNX+Interactive#symbol=%5Etnx;range=6m;compare=%5Etyx+%5Efvx;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

10Y Note going to be 3% soon and from there it’s an avalanche.

#31 NostyVlad the Snugglebombed on 09.14.14 at 7:13 pm

“When a Toronto realtor I trust stands in my foyer and says, unprompted, ‘Things are going to really slow down.”

Telling. At last a realtor who can be trusted!
*
#185 SRV on 09.14.14 at 2:06 pm — “Retail sales are some of the least reliable and most “rose coloured glasses” figures in a host of questionable government reporting.”

Well, RS were up 0.6%, so that is a start, but there are always two sides to every story — Retail sales, Weak jobs report and Sales flat. If people don’t have stable, good-paying jobs then the basics are all that will be bought.

A reader asked Garth what his thoughts on Exploding Haggises were (they are good, BTW). One thing to keep in mind is that when something unexpected happens, other similar events follow shortly after.

If Scotland leaves, Wales and Ireland could follow suit, leaving Queen Lizzie’s empire in ruins which could then lead to the EU calling it quits. Dad (Nostradamus Jr.) frequently said the US would bankrupt TROTW, either by wars, economically or both.

Europe, combined with South America are great places to start. NIreland would probably stay loyal to the Crown, and would lead to “a nation within a nation” (such as Quebec, the Catalans and Crimea). Witness the propaganda machine run by Auntie Beeb spewing forth its comments. Interesting times, indeed.

#32 So What's a Girl to Do? on 09.14.14 at 7:15 pm

Hi Garth,

So what do you recommend to us who are selling in this market, wanting to get out and rent, but there is not a lot of interest? I want to sell but feel trapped.

I live on the east coast and am stressed. I can only imagine how it feels to be selling in markets where there is much more to lose.

#33 TEMPORARY® Foreign Prime Minister on 09.14.14 at 7:18 pm

“…….When new condos in 416 and 604 routinely cost $700 a foot, while whole houses in the US average less than $100 for the same foot…….
========================

Unaffordable housing requires unaffordable incomes.

Canadian jobs will continue to be exported to countries whose citizens don’t require above market wages to pay for million dollar bungalows.

I wouldn’t expect a drop in the Canadian unemployment rate anytime soon.

#34 TEMPORARY® Foreign Prime Minister on 09.14.14 at 7:26 pm

#24 Alberta Ed on 09.14.14 at 6:49 pm

So true.

#35 not 1st on 09.14.14 at 7:28 pm

How about when someone builds a 5 million dollar house in Regina? Isn’t that apocalyptic?

#36 Nemesis on 09.14.14 at 7:29 pm

#Ahem… #ToldYaSo… #TeeHee!

http://youtu.be/Z6qNs4GIs94

[NoteToSaltierMotoDogz: They’re riding Kawasaki Z1PD’s. “Let the GoodTimes roll.”]

#37 JSS on 09.14.14 at 7:32 pm

#13 T.O. Bubble Boy on 09.14.14 at 6:31 pm
Not directly related to Real Estate, but still a sign of the times: stopped at the IKEA at Leslie/Sheppard in Toronto to dispose of lightbulbs & batteries, and saw a custom-painted Lamborghini parked by the exit.

Why exactly is someone with a multi-hundred-thousand-dollar car shopping for $0.75 hotdogs and $99 build-it-yourself dressers?

———

Maybe the guy with the Lambo had to go pee, and went to Ikea as it was the closest place.

#38 Skeptical on 09.14.14 at 7:33 pm

“That’s it”,

I’m going to clown college.

#39 Retired Boomer - WI on 09.14.14 at 7:34 pm

Garth-

The evidence of a very overdone market is evident here.
The next vets will be looking for someone, or something to “blame” for the misery.

As interest slowly rises, choking potential buyers, as well as those who recently purchased. The other side of this will be those sellers who failed to act, or mis-priced their best market days.

Nobody thinks jobs will grow fast enough, or wages rise fast enough to off set the misery.

How many will regret giving up the rental for their “dream”?

I wish all of Canada my best, we have been there in the U.S. (still not fully recovered, but better, thanks)

DEBT still SUCKS! (limit it, please!) What more can I say?

#40 Retired Boomer - WI on 09.14.14 at 7:36 pm

DAM auto correct “vets” should read “stage.”

#41 Vanecdotal on 09.14.14 at 7:37 pm

Great “Coles Notes for Peak Bubble Snapshot” Garth. I’ve watched that “food store plaza” 6th & Willow project since they demo’d the old mall, (used to work in a business in that complex many years ago). Something else to consider in that location is your new neighbours, the non-stop stream of (mostly) harmless homeless people plying the streets & alleys with the accompanied constant rattle of wobbly shopping cart wheels full of bottles & cans 24/7. This is an area or primarily slimy green algae’d stucco’d pink palace 80’s condo’s & townhomes, that receives very little sunlight year round as it’s at the bottom of the steep north slope below Broadway. Lately, a few newer developments like this one have sprung up, but it’s mostly 80’s – early 90’s housing stock. Over the years it seems that nearly every single building in that area has had rainscreen remediation, or badly needs it to be done. I call it the “Mouldy Side of the City”. This building itself is, well, really odd looking, and actually, wellll, fugly. Definitely amongst some of the nastiest looking architecture in Vancouver, and there’s lots of bad design here to choose from. I figured that maybe the units might be a bit cheaper than other new construction to offset the weird design and awful location, (mere feet from a glorified truck route highway), but the prices the developer are asking are nuts! They also have 1000’s of new unsold units, with 1000’s more completing shortly, in False Creek north to compete with. There will be further price discounting to move these I’ll wager.

#42 Mister Obvious on 09.14.14 at 7:38 pm

I took a Sunday drive around Vancouver and Burnaby today. Land assembly and condo construction was still on fire in every direction I cared to travel.

I’m sorry to report even more entire blocks of lovely old heritage homes on the west side are now surrounded by temporary metal fencing, waiting for the next available bulldozer.

They are making way for the condo dwellers who will frequent the now half completed multi high rise development surround the Oakridge Mall.

I went by the abomination called ‘Sixth & Steel’ (mentioned in tonight’s post and formerly known as ‘Sixth and Willow’). I consulted my thesaurus in search of some fresh descriptive adjectives: perverse, repugnant, odious, loathsome, abhorrent, villainous, aversive, reprehensible. All are inadequate.

I finished up at Brentwood Town Center. Construction has begun on Phase I one of a ten tower high-rise development that promises to rival the height of downtown Vancouver buildings and usher in the beginnings of yet another city center in Burnaby. Meanwhile, dozens of recently completed nearby towers are actively seeking greater fools.

It seems Burnaby’s monstrous Metrotown (which is still undergoing major expansion) and the up & coming Edmonds District are simply inadequate for the needs of the hoards due to arrive at our doorstep in the next two decades.

Meanwhile, I saw dozens of vacant, paper-windowed stores along established commercial thoroughfares like Broadway, Granville, Kingsway, Hastings and 4th Ave.

It may well be “over” (I believe it is) but thousands do not seem to be getting the message here on the wet coast.

#43 Prices keep rising in Toronto on 09.14.14 at 7:39 pm

The evidence strongly points to a continuing reduction in RE sales activity and a leveling or falling of prices even in the hot Toronto market.

However, recently two similar SFHs (next door to each other) were sold in my Toronto street. A small 4-bed, 2-bath SFH sold for $890,000 in mid August. A similar sized, though less attractive, SFH sold for $930,000 just 3 weeks later in early September.

It seems the RE trend in my Toronto street is continued price escalation, for now at least.

Alwyn

#44 Kenchie on 09.14.14 at 7:41 pm

#22 CanadianOne on 09.14.14 at 6:47 pm
“Situation down under is pretty well the same if not worse….. saw this piece today thought would be of interest to others on this blog.”

http://www.bloomberg.com/news/2014-09-14/australians-face-repayment-shock-on-high-risk-mortgages.html

Thanks for sharing this. I found this part interesting:

“Borrowers are flocking to Australia’s A$1.4 trillion mortgage market, lured by some of the cheapest loans ever. Outstanding mortgages climbed 6.5 percent in the 12 months through July, the fastest pace since February 2011…”

CAD:AUD = A$1.00/C$, as of today. So exactly par.

Canadian population: 35.4m estimated in April 14.
Australian population: 23.6m estimated in Dec 13.

Canadian mortgage debt is C$1.2trn.

So there are 50% more Canadians than Aussies, and they have about 15-17% more mortgage debt than Canadians.

Hmm… and China’s slowing their iron ore imports…

Looks like much worse problems down under.

#45 Happy Renting on 09.14.14 at 7:42 pm

Oh no! Wasn’t there a point this summer where the single-spaced doc was substantially shorter than at the same point last year (“20% less vitriol”)?

It’s a bit comforting to see things normalize a bit. The world needs to run on some kind of logic and it hasn’t been with RE, for a while.

#46 AK on 09.14.14 at 7:44 pm

#29 Mark on 09.14.14 at 7:05 pm
“3) Falling housing prices in Canada probably will push the Canadian dollar well over parity, and beyond. This would be negative for the export segment of the TSX. ”
===================================
I doubt that.

The bush league loonie is heading down to 80 cents…

#47 Vanecdotal on 09.14.14 at 7:45 pm

#40 Mister Obvious

Naiiiled it!

+1 on all counts, couldn’t agree more.

#48 Uh Oh Canada on 09.14.14 at 7:48 pm

Thanks to reading Garth’s blog almost everyday, I’ve been preparing myself for this end for about three years now. We always manage to put aside at least 20% of our income and my stock of toilet paper has reached an all new record. I’ve been looking into freeze dried food at Costco and new ways to cook squirrel.

All kidding aside, I do feel prepared for the housing bust. No fears at all, although I do sometimes worry about my peers.

#49 Nacho Cheese on 09.14.14 at 7:48 pm

Well done, sir, well done. I enjoyed your onslaught of points tonight.

Do unemployment numbers increase when real estate agents quit the business, or are agents considered self employed?

Nacho Cheese

#50 Realties.ca » That’s it on 09.14.14 at 7:50 pm

[…] Source: http://www.greaterfool.ca/2014/09/14/thats-it/ […]

#51 Daisy Mae on 09.14.14 at 7:51 pm

“When a Canadian chain with 917 stores selling stuff for less than $3 sees its stock soar, sales jump 12% and opens 70 new outlets. Oh yeah, and Dollarama’s stock just split.”

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

Yes! When we can buy miscellaneous stuff for a fraction of the price charged elsewhere, why wouldn’t we?

#52 };-) aka Devil's Advocate on 09.14.14 at 7:53 pm

Maybe.

#53 Freedom First on 09.14.14 at 7:54 pm

Nothing but the truth as per usual Garth. How appropriate that you put everything in Bullets today.

Reminded me of the recent housing busts worldwide and throughout history. I have even seen it in Canada before too, as I was a buyer myself when tshtf. When tshtf is when you always read about the Professional Vulchers stepping forward and buying 1-5-10-100+ units of all types of housing for vast discounts from the peaks of the RE Bubbles. The sheep do get slaughtered and the rich do get richer. Don’t get me wrong, Fear, and Greed, which are both equally powerful, can and does destroy the sheep and also some of the rich, who then also become poor. Balance, liquidity and diversification are necessary principles for everyone. Human emotions and Big Egos are to be avoided when investing. Anything else is gambling, and extremely high risk. No exception.

#54 Daisy Mae on 09.14.14 at 7:56 pm

“…and the finance minister shrugs.”

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

He ‘shrugged’? What a worthless bunch we have supposedly leading the country….

#55 Vanreal on 09.14.14 at 8:02 pm

I’m not surprised real estate prices are falling in the rest of Canada save Toronto and Vancouver. The rest of Canada has no attraction to foreign or immigrant buyers. God knows most Canadians don’t want to live in those places. In Vancouver the market is being driven by offshore buyers who purchase on the west side and the west siders purchase on the east side. No sign of prices going down and with 40,000 people a year moving here I don’t think they ever will.

#56 Nemesis on 09.14.14 at 8:08 pm

#JustForFun… #VintageKawa’Nostalgia..,

http://youtu.be/tgizvHA8ZRI

#57 Daisy Mae on 09.14.14 at 8:09 pm

“When big mortgage lenders like Northwood will give a cheaper rate to a kid with no money than a guy with 80% cash and a credit score of 800 because CMHC insurance wipes away all risk.”

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

…and the bank reaps so much more mortgage interest.

#58 TexasTea on 09.14.14 at 8:10 pm

DELETED

#59 Catalyst on 09.14.14 at 8:10 pm

Great post, very Letterman like. Just for fun I tried to compile a devil’s advocate list. How to tell that real estate will continue to appreciate…

– A RE blog predicting the downfall started 6.5 years ago, and still going strong
– Interest rates continue to be sub 3% despite over a years worth of forecasting else-wise
– They don’t make more land
– Toronto is surrounded by a greenbelt prohibiting more house construction
– Detached are not built anymore, only kwandos
– Equity levels average 66% in canada so there will be few panicked sellers
-CMHC still exists, and no plans to alter or end it in the near future
– widespread improvement in housing affordability according to RBC (yeah, i just used one of your points minus the sarcasm.)
– banks will lend you money against the equity in your house if you have an emergency
– Why pay someone else’s mortgage? (oh man I can barely type that one, I hear it so much)

#60 TexasTea on 09.14.14 at 8:12 pm

DELETED

#61 kg on 09.14.14 at 8:15 pm

I have my seat belt on. Honest, no texting.

#62 Tony on 09.14.14 at 8:17 pm

Re: #8 Finally on 09.14.14 at 6:25 pm

You did the wrong thing buying those 3 condos but got very lucky. In the future don’t do stupid things and you won’t end up poor. If you buy a house in Vancouver now you’ll either lose it or work until you die and still have negative equity.

#63 Randy on 09.14.14 at 8:23 pm

A friend of mine got a deal on a house in Caledonia Ontario from a guy named Mohawk Warrior.

#64 Cow Man on 09.14.14 at 8:25 pm

Sir Garth:

Something is not right in the stats. Toronto has 2.8 million people.
http://urbantoronto.ca/news/2013/03/toronto-now-fourth-largest-city-north-america

And yet you stat that: •When 39,400 people in Toronto are selling real estate.

That would mean one out of every 71 Toronto residents sell real estate? Add to that the real estate office staff and what ratio would that be.

Come on now!

Actual number of registrants, according to TREB. — Garth

#65 shawn on 09.14.14 at 8:27 pm

AVolume discount on interest rates?

“When big mortgage lenders like Northwood will give a cheaper rate to a kid with no money than a guy with 80% cash and a credit score of 800 because CMHC insurance wipes away all risk.”

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

…and the bank reaps so much more mortgage interest.

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

Well there you go, a volume discount, fair enough.

And what was that big mortgage lenders like “Northwood”? Never heard of them.

Perhaps their business model is simply build on CMHC lending. That is fair enough. The simple fact is that the risk of lending to the kid is set by the strength of the government guarantee. And let us not conveniently forget that the kid pays a fat insurance premium to get CMHC insurance.

#66 not 1st on 09.14.14 at 8:29 pm

Garth, you are discounting the big upcoming Harper stimulus program thats going to be unleashed in 2015 and send Canada on the ascension again.

Seriously, if he wants to occupy that office again, he will have to pull out the vote buying scheme of the century.

#67 crowdedelevatorfartz on 09.14.14 at 8:36 pm

@#52 Beelzebubs’ Lawyer

“Maybe”
++++++++++++++++++++++++++++++++++++
Stop the presses! Stop the presses!
The Devils Advocate has agreed with Garth on the beginning of the End.

Hell hath frozen over……….

#68 TexasTea on 09.14.14 at 8:37 pm

I thought that was good, I even erased that continue sentence at the bottom on the second try. Oh well!

#69 Randy on 09.14.14 at 8:37 pm

Buffett, Paulson and Soros dumping U.S. stocks ?

http://www.moneynews.com/MKTNews/billionaires-dump-economist-stocks/2012/08/29/id/450265/

#70 Victor V on 09.14.14 at 8:39 pm

PRICE DROP #4 – 51 Roxborough Drive – ROSEDALE

http://themashcanada.blogspot.ca/2014/09/price-drop-4-51-roxborough-drive.html

This house has been listed for 2 years.

It’s a 3 bedroom, 3 bathroom house on a 37.5 x 166 foot lot at 51 Roxborough Drive.

The initial asking price was $6,500,000!!!

Sure, the house was designed 38 years ago (now 40!) in 1974 by award winning architect, Barton Myers…

But $6.5 million!?!

I thought it was a little high. Like a million or so too high.

It didn’t sell and in May 2013, the price was dropped to $5,995,000. And I still thought it wouldn’t find a buyer.

In November, the price was dropped again to $5,595,000.

And again in March of this year to $5,195,000. Did I still think it was too high? Yup.

The price has been dropped again…

To $4,995,000.

Annnnd is it still too high?

Yup.

#71 Timmy on 09.14.14 at 8:55 pm

Harper ratifies the foreign investment treaty with China. Selling us out to the Chinese. We all know how corrupt the Chinese State-Backed Enterprises are. What is even more shocking is the lack of media coverage on this. I’m not surprised that there was no debate or consultation because we know Harper is the most un-democratic PM in history. There is unlimited coverage about a boozing buffoon running Toronto and barely a word about how Chinese investors will have more rights to Canadian resources than Canadian citizens.

Don’t be so naive. — Garth

#72 Metrotown Mike on 09.14.14 at 8:55 pm

It’s been a sizzling hot summer sales-wise in the Burnaby/Metrotown area for detached properties. My observation is a lot of sold signs around. Definitely much more action than last year. Lots of new builds happening too.

#73 Jackofall on 09.14.14 at 8:59 pm

Best post ever. And LOL at the family camping outside Minto for 3 nights when nobody else showed up.

#74 ronh on 09.14.14 at 9:10 pm

Garth, now stop, you are scaring me.
This blog post and some critical thinking screams its over for real estate.

#75 TurnerNation on 09.14.14 at 9:17 pm

Yay Dollarama finally got an official mention on this blog. I love that place. I’ve shopped there since before being nouveau poor was cool.

#Investmentgrade

#76 NostyVlad the Snugglebombed on 09.14.14 at 9:29 pm

#26 Shanks on 09.14.14 at 6:59 pm — Good link! Remember when he said you won’t even recognize Canada when I’m through with it? We’re beyond that point now!

#77 Ray Skunk on 09.14.14 at 9:36 pm

#64

That would mean one out of every 71 Toronto residents sell real estate? Add to that the real estate office staff and what ratio would that be.
——————————————-

Garth’s stats are for licensed RE agents. You can be a licensed RE agent and be totally “inactive”. I know of two people who specifically went out and got their RE license and hooked up with a brokerage just so they could sell and buy their own places and pay themselves to do so. Throw in the odd deal for family or close friends and they’re just doing it as a hobby.

With barriers of entry to the profession so low, and with the information you can get your hands on so valuable, I’m pretty tempted to go down this route myself.

#78 Concessionman on 09.14.14 at 9:39 pm

“When, by the 14th day of the 9th month, my too-gross-to-publish list of deleted Garth’s-a-douche blog comments swells to a record 209 pages, single-spaced”

I’d buy that book lol

#79 AK on 09.14.14 at 9:40 pm

#69 Randy on 09.14.14 at 8:37 pm
“Buffett, Paulson and Soros dumping U.S. stocks ?”
===================================
For some reason they forgot to mention Buffet’s latest portfolio additions.

Buffett’s Berkshire adds Charter Comm. stake

#80 whatslowdown on 09.14.14 at 9:44 pm

Calgary continues to experience a shortage of inventory with 17% fewer listings than normal for this time of year. There is only a 60-day supply of single family homes on the market. In the lower price ranges, it’s even more severe. For homes priced under $500,000, there is only a 42-day supply.

Despite the shortage of listings, it was the third-best August ever for SFH sales(second-best for overall sales due to strong condo sales).

If you had any doubts about the lack of inventory, bidding wars are still going strong with 18% of sales for list price or higher.
If you bought an average home in Calgary in Aug 2013, the price has increased $29,100 in the past year.

So I ask. What slow down??? Still waiting…

#81 Apocalypse2014 on 09.14.14 at 9:44 pm

#25 Basil Fawlty

I remember taking a flyer on some DOL. stock at under $30. Still have it, but wish I had bought a lot more. People are able to do almost all their food shopping there now (sticking to processed crap, of course) which is a scary sign for the rest of the economy. And our health and obesity.

Some other signs:

I noticed my local Pizza Pizza has dropped the price of its walk-in special from $5.99 to $4.99 – a friend who owns one tells me people are too tight for cash, and the higher price was costing them too much in sales traffic losses.

Walked into a corner store and noticed the newspaper stand (remember those!?) inside.

Weird! I never realized the Toronto Star now has four (4!) different prices, depending on the day of the week you buy it. And today, each price had been crossed out with a black marker and reduced by 50 cents. The grocer tells me hardly anyone is buying anymore.

Consumer spending in this economy is in trouble and I can hear the tires starting to screech.

Heaven help the house horny who have bought too high.

#82 Smoking Man on 09.14.14 at 9:47 pm

Gartho, do vanishing post make it to the delete file, or just  posts that have the words DELTED

#83 sideline sitter on 09.14.14 at 9:52 pm

#38 That’s it, I’m going to Clown College

Pretty safe to say no one was expecting that.

(Simpsons, FTW!)

#84 souvereigninternational on 09.14.14 at 9:55 pm

Great post again, Garth. Like the bullet points. Another point – because suburbian million $ real estate’s land should be measured in acres ( as opposed to oversized 50′ lots).
@ #29 Mark on 09.14.14 at 7:05 pm

“If you can correctly identify this sector, and put some money into it — you could end up a decade from now being able to purchase a significant amount of housing with the proceeds”

Are you talking about junior PM mining?

#3 mike in kelowna on 09.14.14 at 6:14 pm

Gold and precious metals seem to be a good hedge agaist falling loonie as price in C$ did not change despite metals down since last fall.

#85 Obvious Truth on 09.14.14 at 9:56 pm

Jeff foxworthy has nothing on garth!

I still maintain the photo with the jumper called the turn.

#86 waiting on the west coast on 09.14.14 at 10:03 pm

#29 Mark

3) Falling housing prices in Canada probably will push the Canadian dollar well over parity, and beyond. This would be negative for the export segment of the TSX.

~~~~~~~~~~~~~

Why do think that falling house prices will drive up the CDN $? I think CDN interest rates will have to rise in response to US interest rates but I do not foresee the CDN $ rising relative to the US$. Maybe other global currencies (especially the Euro).

#87 A Yank in BC on 09.14.14 at 10:15 pm

Seven. I almost fell off my chair laughing.

The question is.. why in the world does that woman have a big grin on her face? Did she.. “win”?

#88 OttawaMike on 09.14.14 at 10:18 pm

Not much really news worthy happens in Canada’s fourth most populous city(or is that Calgary now?)

So when 7 people camp out for ravine lots being built next to an active landfill site, that’s big news. Especially when future slum builder Minto is slamming them together, cutting corners and using the cheapest materials possible.

We did have a decent Folk music fest and foodie event this past week though, in spite of the cold and rain.

#89 Kenchie on 09.14.14 at 10:25 pm

#64 Cow Man on 09.14.14 at 8:25 pm
Sir Garth:

“Something is not right in the stats. Toronto has 2.8 million people.”

TREB seems to do GTHA…

http://www.torontorealestateboard.com/buying/district_map/

GTHA population is circa 6.6m in 2011.

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

TREB population: “over 39,000”

http://www.torontorealestateboard.com/about_TREB/who_we_are/index.htm

Li’l math (rounded): 6,600k/39k = ~169 ppl per realtor..

#90 Exiled on 09.14.14 at 10:29 pm

Sir Garth: Is that a Tim Horton”s coffee by the left officer”s foot?

#91 Kenchie on 09.14.14 at 10:41 pm

#81 Apocalypse2014 on 09.14.14 at 9:44 pm

“I noticed my local Pizza Pizza has dropped the price of its walk-in special from $5.99 to $4.99 – a friend who owns one tells me people are too tight for cash, and the higher price was costing them too much in sales traffic losses.”

Very interesting. I noticed the same sign at a Pizza Pizza I walk by. It’s pretty a sad state of affairs that the price elasticity on pizza is so low. That said, a “Gelato Pizza” down the street closed down last week, after being open for about 1 year.

And

“Weird! I never realized the Toronto Star now has four (4!) different prices, depending on the day of the week you buy it. And today, each price had been crossed out with a black marker and reduced by 50 cents. The grocer tells me hardly anyone is buying anymore.”

This may be a structural decline due to the ability to access The Star online, and those who read the paper version probably get it sent to their house.

#92 Mark on 09.14.14 at 10:43 pm

“Why do think that falling house prices will drive up the CDN $? I think CDN interest rates will have to rise in response to US interest rates but I do not foresee the CDN $ rising relative to the US$. Maybe other global currencies (especially the Euro).”

Falling house prices = rising savings rate = demand for CAD$ to repay housing debt = domestic debt deflation = higher currency.

Every time someone takes out a mortgage in CAD$ to buy a house, they are selling CAD$, and buying housing. Hence, the CAD$ weakens.

As such unwinds, the opposite occurs. Someone sells housing, and buys CAD$. Demand for CAD$ causes the CAD$ to strengthen.

In the short term, speculative forces and even foreign selling of Canadian RE can overcome such effect on the currency, but as the downturn accelerates, the forces pushing the CAD$ up are likely to become increasingly strong.

The USA over the past 6 years is a great template of this including a rising savings rate.

#93 Mark on 09.14.14 at 10:48 pm

“If you had any doubts about the lack of inventory, bidding wars are still going strong with 18% of sales for list price or higher.”

Not seeing anything resembling a vibrant market like you claim in Calgary, but that 18% figure is much lower than it was in the past.

Just like Vancouver/Toronto, the bifurcation in Calgary appears to be along the lines of low-end versus high end. High end still doing well. Low end, not so much. Just because the sales mix has changed doesn’t mean that house prices are actually rising.

#94 Mark on 09.14.14 at 10:57 pm

“Harper ratifies the foreign investment treaty with China. Selling us out to the Chinese. We all know how corrupt the Chinese State-Backed Enterprises are. What is even more shocking is the lack of media coverage on this. I’m not surprised that there was no debate or consultation because we know Harper is the most un-democratic PM in history. There is unlimited coverage about a boozing buffoon running Toronto and barely a word about how Chinese investors will have more rights to Canadian resources than Canadian citizens.”

If “Chinese investors” come to Canada and invest in our resource industries, at least they’ll be seeing the value in them. While Canadians don’t seem to, instead preferring to use their relatively scarce investment dollars to drive a RE bubble to heights so extreme that Canada’s economic competitiveness has been damaged in many key industries.

After all, a bubble in RE (or any asset class for that matter) means that the rest of the investment universe must be trading below its ordinary ‘fair’ value. A recent example of this was in the late 1990s when you practically couldn’t even give oil/gold/mining shares away (and, in hindsight, lots of RE in Canada’s major cities!) because everyone was obsessed with bidding Nortel up to $110/share. Those who had a taste for value and didn’t get caught up in the tech bubble did extraordinarily well in the aftermath.

#95 Mark on 09.14.14 at 11:08 pm

” And let us not conveniently forget that the kid pays a fat insurance premium to get CMHC insurance.”

Its really not a ‘fat insurance premium’. In reality, its a mere pittance compared to the market-based private sector cost of obtaining a subprime mortgage. When the CMHC writes the insurance policy for far less than it costs over the long term to provide it, this is a giant subsidy of the government to the banks and their subprime borrowing clients.

#96 Mark on 09.14.14 at 11:18 pm

“There are literally 0% of people involved into real estate (own, sell or develop) who think that rates will go up. These situation of disbelief pretty much assures that rates not just increase, they will explode.”

Most involved with RE don’t have an in-depth understanding of the difference between risk-free rates, policy rates, and how risk premiums can fluctuate even within the universe of different types of lending.

There appears to be an infallible belief that mortgage rates are tied to “bond rates”, or to “Prime”, or to the “Bank of Canada rate”. This is only partially true.

When credit is inflating, various lenders usually trip over each other to extend credit on increasingly favourable terms. But when the opposite occurs, when credit deflates, those same lenders’ retreat from the lending market and the rise of risk premia can be quite violent. It is this significant and potentially violent pullback of lenders, even within a low BoC rate environment, even with bond rates at relatively low levels, that will continue to drive Canadian RE lower.

We’ve already seen the first instalment of this, the significant disappearance of the subprime buyer, over the past year and a half with the CMHC subprime limit having been effectively hit. The reaction in house prices has been downwards with the low end of the market hit far worse than the high end (this dramatic shift in the sales mix has allowed, at least temporarily, for the delusion of rising average prices against an increasingly limited quantum of sales).

#97 Retired Boomer - WI on 09.14.14 at 11:23 pm

Cato the Elder…

Response to your reply on yesterday’s post. thanks

#98 45north on 09.14.14 at 11:24 pm

CPG : Garth. In this upcoming “correction” in Canadian housing prices, how much of a percentage drop in the average price of a house in this country are you predicting?

here’s a quote from the NY Times talking about the US housing market. It reads like science fiction: Virtually all the economic turmoil of the last seven years started with the housing market, which powered the economy during the bubble and then nearly melted down, taking the financial system with it. Almost five million homes were lost in foreclosure in the last five years, according to CoreLogic, and houses in some cities lost two-thirds of their value before starting to recover a couple of years ago.

http://www.nytimes.com/2014/01/26/business/the-tale-of-a-house-and-an-entire-market.html?action=click&contentCollection=Opinion&module=MostEmailed&version=Full&region=Marginalia&src=me&pgtype=article&_r=0

my personal take is we have no idea what is about to hit us

#99 Palpatine on 09.14.14 at 11:25 pm

Some other signs:

A cabbie in Squamish telling me how great an investment housing is and explaining how [email protected] gave him a $200k HELOC (his salary $25k/yr) that he has spent speculating on a second property in Whistler.

#100 Blacksheep on 09.14.14 at 11:32 pm

Mark # 92,

“Every time someone takes out a mortgage in CAD$ to buy a house, they are selling CAD$”
——————————————————–
Please explain.

#101 RFM on 09.14.14 at 11:34 pm

Garth: Thanks for mentioning my piece on Sixth + Willow. If you liked that, you may be interested in my view of how many people are calculating the asking price for real estate these days: The Ping Pong Pricing Protocol, available here: http://vancouverpeak.com/showthread.php?tid=5238

#102 Mike T. on 09.14.14 at 11:57 pm

‘That would mean one out of every 71 Toronto residents sell real estate?’

they are not all full time

I worked for years in restaurants in TO and there were usually a few servers/bartenders trying to get into real estate or doing it part time

#103 bdy sktrn on 09.15.14 at 12:21 am

…..the hoards due to arrive at our doorstep in the next two decades.

Meanwhile, I saw dozens of vacant, paper-windowed stores along established commercial thoroughfares like Broadway, Granville, Kingsway, Hastings and 4th Ave.


————————-
ham wants new
ham buys only new

brentwood , which is now easy to get into,park etc is not new. hence it will be crushed and rebuilt NEW NEW NEW

ham will buy THOUSANDS of new units in brentwood (first tower sold out – and all i see is parking lot work being done. there is no start of a tower, no excavation , not yet) . Making it a premium pain in the assets for the ‘locals’ to get into and out of when it is done

meanwhile east van is hotter than hell, as usual, 36 hrs to sell anything decent in sfh. no slowdown, not even a bit, prices still uppa uppa.

we are still swimming in the ocean today, it’s sunny and hot, caught some dungeness crabs, rock cod and several small sharks (dogfish) this afternoon.

it is different here, very different (from an ex east-coaster)

#104 prairie person on 09.15.14 at 12:26 am

I don’t know where the money is coming from but someone(s) are buying up houses in my neighbourhood. Empty lots are being built on. Victoria has not been a place for HAM, although my former neighbours were from Taiwan, built a house too big for the neighbourhood, bought the next door neighbour’s house and built another house too big for the neighbourhood. No problem since they brought lots of money with them. I don’t think they’re typical. We keep being told that Victoria is turning into a wasteland and no one wants to live here anymore but, if so, who is doing the buying? I don’t know the numbers, just what I see when I go walking. The two day market may be over but lots of sold signs. Can they all be ga ga thirty year olds? Mind you assessments have been slipping and prices are usually pegged to assessments. And for the poster who has all our welfare at heart who keeps posting how much houses cost in the US. Nobody cares. Yes, comparatively, our prices are crazy but Canadians are not going to collectively immigrate to the US, even if the US would have them. Houses cost next tonothing in Detroit. Nobody I know, cares. They’re not moving to Detroit. A lot of houses in California may soon be worthless because of the drought. So what? Nobody is going to move there. Yes, we are seeing prices stall. Makes sense. DOM is increasing. Where will it end? Who knows?

#105 4 AM Sunrise on 09.15.14 at 12:31 am

Another sign: when an apartment in “Canada’s Wealthiest Community” (so says http://www.westvancouver.com ) is eerily… affordable: http://www.realtor.ca/propertyDetails.aspx?PropertyId=14634849

Though if the building is 50 years old, I expect a special assessment down the line.

#106 Gregor Samsa on 09.15.14 at 1:03 am

Why would Harper ratify a FIPA deal that treats Canada as a “junior partner” to China, allowing them to come in and “invest” (aka buy up) our oilsands assets? Why now?

Because Harper is desperate for economic growth. So desperate that locking in for 31 years and giving away our sovereignty to Chinese state-owned multinational corporations, which can now sue us if we make them unhappy, was deemed acceptable.

Anything to keep the party going just a few more months. Harper is into his home stretch. He just has to keep the housing party going for about 12 more months, maybe less, in order for him to secure another election win.

At this point, I think it’s doable. I don’t expect a housing correction until at least 2016.

#107 Terrier on 09.15.14 at 1:16 am

When dust settles down, the Canadian middle class will be blown away … taken out of the wealth game for the foreseeable future.

#108 Future Expatiate on 09.15.14 at 1:30 am

“Too gross to publish”?!??!!?!

Garth, sounds like you’ve got your next bestselling book there!

#109 Mark on 09.15.14 at 1:33 am

““Every time someone takes out a mortgage in CAD$ to buy a house, they are selling CAD$”
——————————————————–
Please explain.”

Okay, when I go to buy a house, I take CAD$ out of my pocket, and give it to the vendor of the house.

Therefore, I am buying the house, and selling the CAD$ in exchange for the house in the transaction.

If someone takes a mortgage, to buy a house, they are borrowing CAD$, and then selling the CAD$ in exchange for the house.

Since house prices have been going up, and since new housing stock has been brought to market, a net amount of borrowing and selling of CAD$ has occurred. In other words, mortgage debt has been expanding, and the CAD$ has experienced net selling pressure due to this activity.

Now, when the cycle goes into reverse, with house prices going down, and mortgages being paid down, the reverse happens. Net domestic buying of the CAD$ occurs.

Domestic buying of the CAD$ is what drives a higher currency.

Intuitively, this should also be obvious from a net trade balance point of view. If household formation slows/drops, not only is there a significant reduction in the need for currency-suppressing imports (see: previous comments by a poster concerning sales projections at Home Depot, which is primarily a retailer of imported goods), but the domestic surplus of goods is increasingly available for export. This additionally drives the currency higher.

#110 Mark on 09.15.14 at 1:40 am

“my personal take is we have no idea what is about to hit us”

It always amazes me, we have such a great example to the south of what happens when debt and ratios are excessive relative to the norms. Yet we stick our heads in the sands and say, “it can’t happen here”.

It doesn’t help either that the CMHC outright lies about the business it is in, and that is, insuring subprime mortgages. They even went to far as to put a page on their website claiming they don’t insure subprime. And bought Google advertising that pops up whenever someone does a search. The phrase “The lady doth protest too much” comes to mind. CMHC’s accounting and actuarial analysis also is highly problematic from the point of view that they are obviously not considering the impact of a systemic and correlated housing price downturn in their tests of capital adequacy. I mean, 50X leverage into subprime mortgage guarantees, when the chartered banks would be shut down by the OSFI if they even came anywhere near that! What kind of genius actually thinks this is going to work out over the full economic cycle? Its lunacy at its best!

#111 a prairie dog on 09.15.14 at 1:47 am

The end IS truly nigh.

Next month is my last house payment. :)

#112 Don Sanderson on 09.15.14 at 1:57 am

When our family is saving and investing annually $19,000 in RRSP’s, $11,000 in TFSA’s, $5,000 in RESP’s, $10,000 in non-registered dividend paying ETF’s and we have no debts then we are considered a rarity in Canada.

#113 condo Rentals Vancouver on 09.15.14 at 2:29 am

Garth Thanks for sharing all this after a long way of collection. Your all points are worthy.

#114 PeterL on 09.15.14 at 2:39 am

http://www.nakedcapitalism.com/2014/09/wolf-richter-california-home-sales-dive-prices-hit-wall-millennials-blamed.html

#115 Parents attacking Teachers on 09.15.14 at 2:54 am

In BC, Parents from Richmond crashed a Teacher party.

Teachers were crying and yelling “We are trying to help your kids”…

WTF?

The majority of teachers have got to be the least street smart members of society. I commonly ask, ‘If you are worked so much and work so many hours out of a day, where to you get time to volunteer for school sports, clubs, afterschool activities?”…

and they will answer blah, blah, blah… unbleievable.

The Teachers themselves have ruined public education.

#116 Spectacle on 09.15.14 at 3:06 am

Re: #26 Shanks on 09.14.14 at 6:59 pm
Hey Garth
You left this one off your list:
“When our PM sells out our country to foreign interests (AKA TREASON)” … nosty I’m sure you will apprecilove this one
http://boingboing.net/2014/09/13/stephen-harper-sells-canada-c.html
We should all be aware of this one….
********************

WOW, Agenda-21 has taken over !

Thank You #26Shanks ! And sir “Garth for the blog”

#117 Steve French on 09.15.14 at 5:31 am

Smoking Man:

So do you think Rofo’s faking his tumour, as part of an insane hail mary election ploy?

How did Nick Kouvalis seem to know about the upcoming RoFo/DoFo switcheroo earlier back in the summer?

#118 Ottawan on 09.15.14 at 6:49 am

Just a note about those “ravine lots” in Ottawa for which a few people lined up. If those people had taken a ten minute walk around the neighbourhood, they would have realized that their “dream” properties are within 1km of the Navan Dump.

https://www.google.ca/maps/dir/3354+Navan+Rd,+Navan,+ON+K4B+1H9/Navan+Rd+%26+Renaud+Rd,+Ontario/@45.4289805,-75.518027,15z/data=!3m1!4b1!4m13!4m12!1m5!1m1!1s0x4cce0d8fb78249fd:0xc6923a490a434ee!2m2!1d-75.5032114!2d45.4277222!1m5!1m1!1s0x4cce0df24d62118d:0x2dd8d5c2a072ff5c!2m2!1d-75.5156764!2d45.4303379

http://www.progressivewaste.com/en/locations/navan-waste-recycling-and-disposal-facility

#119 Annek on 09.15.14 at 7:28 am

#37 JSS on 09.14.14 at 7:32 pm
#13 T.O. Bubble Boy on 09.14.14 at 6:31 pm
Not directly related to Real Estate, but still a sign of the times: stopped at the IKEA at Leslie/Sheppard in Toronto to dispose of lightbulbs & batteries, and saw a custom-painted Lamborghini parked by the exit.

Why exactly is someone with a multi-hundred-thousand-dollar car shopping for $0.75 hotdogs and $99 build-it-yourself dressers?

———

Maybe the guy with the Lambo had to go pee, and went to Ikea as it was the closest place.
——
I guess it was less embarrassing then going to the MacDonalds up the road!

#120 maxx on 09.15.14 at 7:40 am

#32 So What’s a Girl to Do? on 09.14.14 at 7:15 pm

“Hi Garth,

So what do you recommend to us who are selling in this market, wanting to get out and rent, but there is not a lot of interest? I want to sell but feel trapped. ”

Drop the price……and keep dropping…….significantly.

#121 Jude on 09.15.14 at 8:30 am

No worries Garth, just like in 2008 when the Tsx lost over 50% and RE declined by 10%, the Feds will swoop in with a massive stimulus spending program and things will bounce right back.

When the US spent trillions to rescue housing, and failed, what makes you think the feds would succeed here? — Garth

#122 Kenchie on 09.15.14 at 9:04 am

Most Americans are Single, and They’re changing the Economy:

http://www.businessweek.com/articles/2014-09-12/most-americans-are-single-dot-what-does-it-mean-for-the-economy#r=rss

#123 rosie "moving forward" in the knowledge that, "this won't end well" on 09.15.14 at 9:07 am

Are you an “Endie”? It’s hard to be hip but it’s worth it.

http://www.independent.co.uk/news/uk/home-news/meet-the-endies–city-dwellers-who-are-too-poor-to-have-fun-9732381.html

#124 Holy Crap Wheres The Tylenol on 09.15.14 at 10:01 am

When, by the 14th day of the 9th month, my too-gross-to-publish list of deleted Garth’s-a-douche blog comments swells to a record 209 pages, single-spaced. The end is truly nigh..
_____________________________________________

Could be worse with the likes of douche masters like Ray Rice out there, kudos to the NFL for cutting him.

#125 not 1st on 09.15.14 at 10:13 am

If Garth is shocked by the shenanigans here in the RE market, just wait until the black swan out of the US and China swoops in.

He’ll have those bunker walls lined with gold bullion.

Is there an edible version of gold now? Does it burn? — Garth

#126 Holy Crap Wheres The Tylenol on 09.15.14 at 10:14 am

How to tell when housing boom’s running on fumes?
_____________________________________________
Its not going to stop Garth! Ever!
There is so much bullshit out there, haven’t you heard of methane? Its amazing how you can run on fumes!
2015 another banner year for the bullshit farmers!

#127 not 1st on 09.15.14 at 10:23 am

The US housing market will NEVER be as good as it was simply based on nothing other demographics. There are also millions of people just waiting to dump as soon as they are above water again. The US also faces some migration issues from illegals and the SW quickly becoming inhabitable.

The US job market will NEVER be as good as it was and has been on the decline for decades. Manufacturing jobs replaced by baristas is NOT an economic resurgence no matter what those stats say. Next up, white collar jobs replaced by algos.

China better enjoy while the getting is good cause they are going down. All those manufacturing jobs will be repatriated and done with technology and robotics.

The board is set, the pieces are in motion.

#128 Kenchie on 09.15.14 at 10:49 am

Holy hyperbole, batman. 2.1% is a “surge”, I guess…

http://ca.reuters.com/article/businessNews/idCAKBN0HA1BW20140915

#129 pbrasseur on 09.15.14 at 11:13 am

Mark

I think you are getting it backward concerning this “demand for money” thing.

Demand for money means people are interested in keeping cash or near cash assets and are reluctant to spend. Demand for money corresponds to intense demand for “safe” assets. This may apply to individuals, companies or even banks.

This economist explains it better than I do:

http://scottgrannis.blogspot.ca/2013/03/the-fed-is-not-printing-money.html

In recent years demand for money in the US and the world has been unusually high, that is why the presumed money printing by the FED did not generate much inflation, most of that money went to bank reserves and the supply of money has not grown abnormally. That’s what happens when people are scared about the future, they keep money stacked away and don’t spend it. Strong demand for money means, higher savings rates, lower interest rates and lower inflation which is exactly what we got. Not much upward pressure on currencies either.

In Canada however is bit of a different story, here more money is being spent (mostly on consumption and RE) and the saving rate is lower, hence demand for money is lower. This creates inflation (in housing) and upward pressure on the CAD, still close to parity when we know very well it shouldn’t be there.

This is where it gets interesting, demand for money is now slowly decreasing in the US as more people are returning to investing and spending. Eventually this will generate inflation and higher interest rates. And this is happening at the very moment where we see demand for money about to increase in Canada, given the relative size of these economies it is easy to figure out who’s going to follow who, and if rates go up in Canada at the precise moment we need them down, watch out! What it also means is that those who are wishing for a weak CAD should be careful what they wish for…

#130 Son of Ponzi on 09.15.14 at 11:21 am

#26 Shanks on 09.14.14 at 6:59 pm — Good link! Remember when he said you won’t even recognize Canada when I’m through with it? We’re beyond that point now!
————–
#76
This is what XI Jinping said?

#131 pbrasseur on 09.15.14 at 11:28 am

Mark

You might ask, if demand for money has been lower in Canada that in the US (ie: people more willing to spend and borrow than save) then why are interest rates as low here?

I believe there are two reasons.

First the obvious fact that Canada, for the time being, is perceived has a safe haven in a world in trouble.

Second, rates are kept low by the intervention of CMHC which transfers the risks associated to lending on the back of tax payer. Money printed by the BoC can then flow into the market at low cost.

Problem is both those reasons are partly a mirage.

#132 T.O. Bubble Boy on 09.15.14 at 11:29 am

HAM HAM HAM.

We’ve all heard this before, but 47% of Wealthy Chinese want to leave:
http://blogs.wsj.com/chinarealtime/2014/09/15/almost-half-of-wealthy-chinese-want-to-leave/

#133 Rational Optimist on 09.15.14 at 11:46 am

West Hamilton is supposedly booming because of all the Torontonian hipsters who can’t afford to buy there (but need to own a home) and think that the Lakeshore West is going to be converted to a Maglev any day now. Not so. I just spoke with a realtor who had a listing run out in a neighbourhood (south of Main near Locke) that is purported to be one of the epicentres of this phenomenon.

While she claims that the price was too high (which was of course the seller’s fault), she also says that this past spring was the last chance for getting out quickly. Her belief is that, in this particular neighbourhood at least, prices have gone as far as they can, and houses will only continue to move if people forget about for some reason listing at 5% above the last comparable. That’s apparently been the idea. Anyway, “it’s over.”

I know others in southwestern Ontario who either are trying to sell for an unrealistic amount, or in one case have been told by real estate agents that they will not get what they “need” and should not risk listing at that level. In that case, there is a HELOC of undisclosed size involved, and I think the possibility that they would be close to underwater (I’m serious) when closing and moving costs are incurred.

#134 Luc on 09.15.14 at 11:47 am

Are you ready for the new CREA numbers? Hold on to your mortgages ;-) Read here… http://www.ctvnews.ca/business/average-price-for-home-sold-in-canada-398-618-1.2007147

House prices up 5.3% from last year. TSX up 27%. S&P up 20%. Balanced portfolio up 11%. — Garth

#135 Allen Tisdell on 09.15.14 at 11:58 am

Canadians are stupid.

#136 Rational Optimist on 09.15.14 at 12:00 pm

128 pbrasseur on 09.15.14 at 11:13 am
“What it also means is that those who are wishing for a weak CAD should be careful what they wish for…”

M. Brasseur, I agree with everything else in your post, but do not understand this. We know that the Canadian dollar does not belong at parity. Anyone who knows this has been acting accordingly. What’s the problem if the loonie does lose another quarter or thirty cents? It’s great for our export industries (which are critical, and suffering), and good for anyone who has purchased anything denominated in USD.

#137 Rexx Rock on 09.15.14 at 12:14 pm

Nice 5% return for Canadian homeowners and 10% for lucky Calgarians.Good times for Canadians who invested in real estate in the last 5 years.Time to take your nice profits.

#138 T.O. Bubble Boy on 09.15.14 at 12:14 pm

Interesting PIMCO report on Canada:
https://canada.pimco.com/EN/Insights/Pages/Canada-Should-Beware-Bad-Growth-in-The-New-Neutral.aspx

They are forecasting rising bond rates for the rest of this year and into 2015.

With growth stronger than expected, inflation near the 2% target and financial instability increasing due to asset price inflation (specifically, in the housing market), we think it would be prudent for the BoC to indicate that it will begin removing the punch bowl in the not-too-distant future. If real GDP growth reaches 3% or higher starting in the third quarter, we can expect the BoC to move to a hawkish stance. That said, we would not expect actual rate hikes until sometime in 2015.

Then, they also note that the “new normal” for the BOC rate is approx 3%, meaning Bank Prime (typically BOC + 1%) for variable mortgages etc. might be 4%.

#139 coastal on 09.15.14 at 12:36 pm

When I heard of a couple who the guy works half the year in the film bizz as a lackie, I knew the top is in. Lending rules have clearly not been tightened, it’s all bullshit. The end will be far worse than 20% when interest rates start their move up soon, check out the TNX.

#140 Casual Observer on 09.15.14 at 12:46 pm

Now, when the cycle goes into reverse, with house prices going down, and mortgages being paid down, the reverse happens. Net domestic buying of the CAD$ occurs.

Domestic buying of the CAD$ is what drives a higher currency.

I’m not saying CAD won’t rise vs. USD, but that’s not what happened during the last housing downturn in Canada.

During the 1990’s, CAD fell from about 0.90 USD to near 0.60 USD while house prices drifted lower.

http://www.bankofcanada.ca/rates/exchange/cad-usd-rate-lookup/

Should be positive for the TSX as risk premiums on mortgage credit will rise and help bank profitability. Additionally, as housing loses its lustre as an asset class, investment money should flow back to publicly listed companies.

Name one country in recent history that experienced a housing bust and at the same time a stock market boom.

If we get a slow drift lower with no liquidity crunch, then maybe, but even with CMHC guarantees it could still get ugly for our banks.

The US had Gov’t guaranteed mortgages (Fannie Mae, etc.) and their banks still got hammered.

Remember that our banks had to be bailed out by CMHC when the market for MBS went into the deep freeze during ’08-09, and that was during a time when Canadian housing was still relatively strong.

#141 Andy on 09.15.14 at 12:49 pm

Hey Garth…
So you expect some news from Fed this Wednesday?
http://www.reuters.com/article/2014/09/15/us-markets-global-idUSKBN0HA00N20140915

#142 TnT on 09.15.14 at 12:50 pm

#131 T.O. Bubble Boy

HAM HAM HAM.

We’ve all heard this before, but 47% of Wealthy Chinese want to leave:
http://blogs.wsj.com/chinarealtime/2014/09/15/almost-half-of-wealthy-chinese-want-to-leave/

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

Can anyone here with proper credentials and experience comment on how this may or may not have an impact on Toronto or Vancouver’s Real estate?

#143 Andy on 09.15.14 at 12:53 pm

Indeed check this one….

http://www.reuters.com/article/2014/09/14/us-global-economy-idUSKBN0H907I20140914

#144 Smoking Man on 09.15.14 at 12:59 pm

#116 Steve French on 09.15.14 at 5:31 am
How did Nick Kouvalis seem to know about the upcoming RoFo/DoFo switcheroo earlier back in the summer?
………

Stevey, that was the first thing that went through my mind at hearing the news. But when he transfered hospitals.

I knew it was real, free health care here, so no scam.

But it’s good, my wife is now back in Ford Nation. She could never forgive Rob for the eat at home comment.

We have a real race now..

#145 Bottoms_Up on 09.15.14 at 1:06 pm

#25 Basil Fawlty on 09.14.14 at 6:57 pm
——————————————
walk around your house and ask yourself “is that 2 square feet behind my toilet really worth $500”, and if the answer is no, then yes we do live in a bubble of misallocation and irresponsibility on many, many levels.

#146 rosie "moving forward" in the knowledge that, "this won't end well" on 09.15.14 at 1:07 pm

American millennials are smart, for now. Canadian millennials, not so much.

http://www.marketwatch.com/story/what-millennials-want-in-a-home-2014-09-15?page=1

#147 Holy Crap Wheres The Tylenol on 09.15.14 at 1:07 pm

#131 T.O. Bubble Boy on 09.15.14 at 11:29 am
HAM HAM HAM.
We’ve all heard this before, but 47% of Wealthy Chinese want to leave:
http://blogs.wsj.com/chinarealtime/2014/09/15/almost-half-of-wealthy-chinese-want-to-leave/
_____________________________________________
Holy Crap wheres the justice in this system. So let me get this straight, if you have enough cash you could basically buy a quick path to citizenship. So an honest poor soul in Shanghai who scrapes just enough doh up to get his family out of China is jumper over by some richer guy whom could be rich but albeit shady?
Well its the rich who get richer, not like the old days at all. I’m glad they cancelled the program. Try immigrating to Japan!

http://blogs.wsj.com/chinarealtime/2014/06/27/wealthy-chinese-looking-to-immigrate-must-look-beyond-canada/

#148 Bottoms_Up on 09.15.14 at 1:10 pm

#118 Annek on 09.15.14 at 7:28 am
—————————————
Or perhaps it was the francise owner of that Ikea….

#149 Bottoms_Up on 09.15.14 at 1:12 pm

#114 Parents attacking Teachers on 09.15.14 at 2:54 am
——————————————————
I don’t know about you, but I don’t want my kids’ teachers being paid poverty wages and in classrooms with 40:1 ratios…if I wanted that I’d move to Haiti.

#150 pbrasseur on 09.15.14 at 1:20 pm

Rational Optimist

“It’s great for our export industries (which are critical, and suffering), and good for anyone who has purchased anything denominated in USD.”

You are correct, it would be good for them. But too much o a good thing can be bad as well.

What I’m talking a bout is the risk of a bigger than anticipated drop for the CAD that would create severe inflation on all imports, supplies, commodities and energy. This is still a consumer based economy, a sudden and severe change in currency value could be quite painful. In such case the BoC might even have to raise its rates to support the currency.

Overshooting works both ways and if the CAD does that on the way down this could be a lot of trouble.

#151 Holy Crap Wheres The Tylenol on 09.15.14 at 1:22 pm

#143 Smoking Man on 09.15.14 at 12:59 pm
#116 Steve French on 09.15.14 at 5:31 am
How did Nick Kouvalis seem to know about the upcoming RoFo/DoFo switcheroo earlier back in the summer?
………
Stevey, that was the first thing that went through my mind at hearing the news. But when he transfered hospitals.
I knew it was real, free health care here, so no scam.
But it’s good, my wife is now back in Ford Nation. She could never forgive Rob for the eat at home comment.
We have a real race now..
_____________________________________________

Smoking Man you may be right, however Rob Ford was a big old pussy cat, Doug Ford on the other hand is a barracuda!
It will be interesting to see him get dumped into the same tank as the rest of fish.
Burp, cough, [email protected]!#@%$ oh I think he just ate one of the candidates! Oh crap not again, quick empty the tank!

#152 Holy Crap Wheres The Tylenol on 09.15.14 at 1:28 pm

#145 pbrasseur on 09.15.14 at 1:20 pm

Rational Optimist

“It’s great for our export industries (which are critical, and suffering), and good for anyone who has purchased anything denominated in USD.”

You are correct, it would be good for them. But too much o a good thing can be bad as well.

What I’m talking a bout is the risk of a bigger than anticipated drop for the CAD that would create severe inflation on all imports, supplies, commodities and energy. This is still a consumer based economy, a sudden and severe change in currency value could be quite painful. In such case the BoC might even have to raise its rates to support the currency.

Overshooting works both ways and if the CAD does that on the way down this could be a lot of trouble.
__________________________________________

Canadian companies that love the lower dollar are doomed. They are living off of a false differential in currencies that they have absolutely no control over. They need to become competitive and innovative. I recall the days when other companies were reveling in the fact that they were getting fat off the cheaper CDN dollar and selling like crazy, boom then reality hit with parity and they died. I kept saying innovate and become competitive so when that day comes you can absorb the differences and still sell at profit margins that give good returns.
No one listened………………………….

#153 pbrasseur on 09.15.14 at 1:32 pm

Casual Observer

“Name one country in recent history that experienced a housing bust and at the same time a stock market boom.”

Good point, makes absolutely no sense to me either. In Canada RE is the locomotive, if it shifts in reverse almost everything else will.

#154 Nemesis on 09.15.14 at 1:52 pm

#JustForFun… #@rosie “moving forward” in the knowledge that, “this won’t end well” #WillSelfExpounds…

[NewStatesman] – Will Self: The awful cult of the talentless hipster has taken over

…”When I re-assume my seat, looking frazzled and out of sorts, one of my sons bellows sympathy over the shingly sonic backwash, and I say: “Really, it’s OK. After all, it’s my generation that’s to blame for this bullshit culture.”…

http://www.newstatesman.com/culture/2014/09/will-self-awful-cult-talentless-hipster-has-taken-over

#155 Blacksheep on 09.15.14 at 1:53 pm

Mark # 92,109,

“Every time someone takes out a mortgage in CAD$ to buy a house, they are selling CAD$”
——————————————————–
“Please explain.”(Blacksheep)
—————————————
“Okay, when I go to buy a house, I take CAD$ out of my pocket, and give it to the vendor of the house.” “Therefore, I am buying the house, and selling the CAD$ in exchange for the house in the transaction.”
—————————————–
The relevant information is CAD$ being added to, or removed, from the economy?

More new homes sales sold via mortgages, creates and adds additional new CAD$ to the economy. Inflationary

New home sales slow, less new CAD$ added to the economy = people pay down debts, removing existing CAD$ from the economy. Deflationary

An increase in sales = more inflation = risk of rates rising to control inflation = better return for investors = higher CAD$ valuation.

Decrease in sales = less inflation = can keep rates lower to stimulate growth = less return for investors = lower CAD$ valuation

Please correct my misinterpretation.

#156 devore on 09.15.14 at 2:07 pm

#71 Timmy

There is unlimited coverage about a boozing buffoon running Toronto

Supply and demand in action.

and barely a word about how Chinese investors will have more rights to Canadian resources than Canadian citizens.

Chinese investors have exactly the same rights to “Canadian resources” as you do. It’s just that Canadians would rather buy houses than invest in their own economy (then cry about foreign investors doing it instead).

#157 pbrasseur on 09.15.14 at 2:16 pm

“housing loses its lustre as an asset class, investment money should flow back to publicly listed companies.”

True, but only in the long run. Lots of “creative destruction” to take place on the way there, in that order…

#158 devore on 09.15.14 at 2:26 pm

#135 Rational Optimist

M. Brasseur, I agree with everything else in your post, but do not understand this. We know that the Canadian dollar does not belong at parity. Anyone who knows this has been acting accordingly.

That would have been wise. It was a matter of when, not if.

What’s the problem if the loonie does lose another quarter or thirty cents? It’s great for our export industries (which are critical, and suffering), and good for anyone who has purchased anything denominated in USD.

Those who purchased US denominated assets before the loonie fell received a one-time bonus. Good for them. Meanwhile, all commodities trade on the world markets, and everyone pays the world price. These are consumables, a recurring expense, not a one-time purchase.

Those who make a living in an export industry, get to stay employed. Good for them. But yours and everyone else’s expenses are going to go up, and that money is going to come out of somewhere.

#159 Suede on 09.15.14 at 2:54 pm

#133 Luc

that is such a useless stat when applied to individuals. Avg prices up in Canada?

Windsor prices have more to do with Detroit than Kelowna prices.

Location x 3

#160 Holy Crap Wheres The Tylenol on 09.15.14 at 3:16 pm

Sure isn’t moving the price at all. Nice sales! aapl

http://www.macrumors.com/2014/09/15/preorders-iphone-6/

#161 Holy Crap Wheres The Tylenol on 09.15.14 at 3:20 pm

Moving merchandise………….
http://news.msn.com/science-technology/apple-receives-record-pre-orders-for-new-iphones

#162 Setting the Record Straight on 09.15.14 at 3:35 pm

@”#135 Rational Optimist on 09.15.14 at 12:00 pm
128 pbrasseur on 09.15.14 at 11:13 am
“What it also means is that those who are wishing for a weak CAD should be careful what they wish for…”

M. Brasseur, I agree with everything else in your post, but do not understand this. We know that the Canadian dollar does not belong at parity. Anyone who knows this has been acting accordingly. What’s the problem if the loonie does lose another quarter or thirty cents? It’s great for our export industries (which are critical, and suffering), and good for anyone who has purchased anything denominated in USD.”

If the government uses policy to lower the exchange rate, thus produces a decline in our standard of living and is a subsidy to some export industries and those who work in them at the expense of the rest of the population.

#163 Mark on 09.15.14 at 3:42 pm

“I’m not saying CAD won’t rise vs. USD, but that’s not what happened during the last housing downturn in Canada.

During the 1990’s, CAD fell from about 0.90 USD to near 0.60 USD while house prices drifted lower

Due largely to the collapse in commodity prices. Nothing to do with housing prices, which actually provided a support to the currency as foreign consumption was restrained.

Name one country in recent history that experienced a housing bust and at the same time a stock market boom.

Canada, 1990-2000. The USA more recently, 2009-present.

#164 Mark on 09.15.14 at 3:47 pm

“We know that the Canadian dollar does not belong at parity. “

I disagree here. Not only does the Canadian dollar belong at Parity with the US dollar, it belongs much higher. As Canada’s economy is growing significantly faster. As we are generally a net exporter. As we have lower per capita debt. If you look at most economic statistics, its not hard to come to the conclusion that the Canadian dollar is significantly undervalued.

Why is this occurring? Well over the past decade, there has been relentless short-selling of the Canadian dollar through credit expansion in the consumer sector. And more recently, there has been heavy speculation by “speculative” forex traders against the CAD$ — significantly by funds and traders that don’t understand that debt deflation and house price declines are profoundly supportive of the currency.

IMHO, the US dollar must weaken relative to the rest of the world to turn the US back into a net exporter. As they’ve been a net importer for so many years. So a Canadian dollar reverting to fair value (which is probably over parity) plus the US dollar going down — throw in some speculative fervour towards the CAD$, and we could be into the $1.3-$1.5 range for the CAD$. IOW, sell CAD$ and think that $0.8 is coming at your own peril!

#165 xmann on 09.15.14 at 3:55 pm

GARTH, I invite all your readers who should have bought a house in markham Ontario in 2000 to cry on forever. I love the cmhc and I love Asian/south Asian buyers. My neighbors say anglo/french Canadians do not understand cultures others than their own. im using my new found equity not for trips and cottages but to buy Canada as the aforementioned are doing right now. ps if you live in a basement in the gta when last have you done a mould count probably never.

#166 Mark on 09.15.14 at 4:01 pm

“Good point, makes absolutely no sense to me either. In Canada RE is the locomotive, if it shifts in reverse almost everything else will.”

Actually RE is not the ‘locomotive’ when it comes to the stock market in Canada. If you look at the TSX60, there are no companies that really are in the business of RE supply. Canadian Tire, perhaps. But even Masonite (window manufacturer) was LBO’ed out of the index 7-9 years ago. And very little “consumer consumption” overall is in the index. People aren’t going to stop buying groceries at the various Loblaws’-owned grocery stores. And there are no restaurants in the TSX60 other than Tim Hortons which is less than 1% and is being taken over by Burger King shortly.

The TSX is roughly 35% banks (as discussed previously, actually positioned to benefit from higher risk in the housing sector). 25% oil and gas, which will benefit from lower labour costs as the housing bubble winds down. 10% telecoms — benefit from lower cost of long-term financing (Telus recently knocked 1% off of their long-term financing costs in a refinance deal!).

I agree that the “real” Canadian economy, so-called “main street”, might not do very well, but don’t confuse this with the Canadian stock market.

#167 Mark on 09.15.14 at 4:12 pm

An increase in sales = more inflation = risk of rates rising to control inflation = better return for investors = higher CAD$ valuation.

Have to disagree here. Rising rates imply a weakening currency, not a strengthening currency. “Investors” don’t really invest, over any meaningful length of time, in currencies.

If you go look at the charts of interest rates around the world, it should be noted that its typically the inflation-prone currencies that have high interest rates. And if you calculate the real returns on such currencies, even after the high rates, they tend to be quite poor.


Decrease in sales = less inflation = can keep rates lower to stimulate growth = less return for investors = lower CAD$ valuation

But low inflation implies that the CAD$ is actually keeping its value, which is the number one thing that any currency investor looks at before they look at “interest rates”. High interest rates usually are accompanied with poor real after-tax returns. If a country feels it needs to goose its currency through an officially high policy rate, this is often fairly good evidence that capital flight is occurring, or at least evidence of currency devaluation.

#168 MissisaugatoVancouver on 09.15.14 at 4:12 pm

Vancouver… Condo towers are now built without a fourth floor, as that number is unlucky in Asian cultures, and wok kitchens are standard in most new homes… http://business.financialpost.com/2014/09/11/china-buyers-vancouver-housing/

#169 Sheane Wallace on 09.15.14 at 4:23 pm

Is there an edible version of gold now? Does it burn? — Garth

I would not advise in any circumstances an engagement ring, in fact any ring that is nog golden or platinum. If gold is cheap and you can get it for under 1 k that’s great.
When was ever (other than now) a golden or platinum ring worth 1/1000th of a crappy bungalow?

#170 Kris on 09.15.14 at 4:40 pm

#120 Jude on 09.15.14 at 8:30 am
No worries Garth, just like in 2008 when the Tsx lost over 50% and RE declined by 10%, the Feds will swoop in with a massive stimulus spending program and things will bounce right back.

When the US spent trillions to rescue housing, and failed, what makes you think the feds would succeed here? — Garth

GARGANTUAS IMMIGRATION WILL SAVE THIS COUNTRY, THATS WHAT !!!

I had no idea so many gargantuas were making their way here. — Garth

#171 Shanks on 09.15.14 at 4:41 pm

#129 Son of Ponzi
It’s what PM. SH said re his plans for canada as PM… I stopped recognizing this country as the one I grew up some time ago, shortly after the 407 was finished and then promptly sold to a private company for less than it cost to build it.

#172 Kris on 09.15.14 at 4:53 pm

#120 Jude on 09.15.14 at 8:30 am
No worries Garth, just like in 2008 when the Tsx lost over 50% and RE declined by 10%, the Feds will swoop in with a massive stimulus spending program and things will bounce right back.

When the US spent trillions to rescue housing, and failed, what makes you think the feds would succeed here? — Garth

GARGANTUAS IMMIGRATION WILL SAVE THIS COUNTRY, THATS WHAT !!!

I had no idea so many gargantuas were making their way here. — Garth

THERE ARE A LOT OF THINGS YOU HAVE NO IDEA ABOUT SIR.

#173 LP on 09.15.14 at 5:03 pm

#166 Kris on 09.15.14 at 4:53 pm

GARGANTUAS IMMIGRATION WILL SAVE THIS COUNTRY, THATS WHAT !!!

I had no idea so many gargantuas were making their way here. — Garth

*******************************
If they’re related to tarantulas, that’s it…I’m outta here!!!!!!!!!

#174 Nemesis on 09.15.14 at 5:06 pm

“I had no idea so many gargantuas were making their way here.” — Hon.Garth

#ForObviousReasons… #ThePoliticalEstablishment… #HasSweptThatOne… #UnderTheCarpet… #SoToSpeak:

http://youtu.be/RvEZ32oFtTw

#175 GS on 09.15.14 at 5:36 pm

In a sea of positive real estate spin, this is the only story that seems to be realistic of the situation:

http://globalnews.ca/news/1564369/listings-up-sales-down-in-winnipeg-home-real-estate-market/

#176 TEMPLE on 09.15.14 at 5:51 pm

#152 devore on 09.15.14 at 2:26 pm

Those who purchased US denominated assets before the loonie fell received a one-time bonus.

Not if they were smart and bought stocks, ETFs, REITs, etc., paying USD-denominated dividends.

Meanwhile, all commodities trade on the world markets, and everyone pays the world price.

You keep saying this, but you are wrong (or at least greatly oversimplifying).

This is full of good stuff:

http://www.theglobeandmail.com/report-on-business/economy/why-a-lower-loonie-is-mostly-good-for-canada/article16287580/?page=1

TEMPLE

#177 Dr. Talc on 09.15.14 at 5:51 pm

Re Lamborghinis and 75 cent weenies.

What can you buy today that cost the same as 23 years ago?
I bought the product below almost a quarter of century ago and to the best of my knowledge the price was the same.

http://www.ikea.com/ca/en/catalog/products/60241389/

#178 Kris on 09.15.14 at 5:53 pm

#168 Nemesis on 09.15.14 at 5:06 pm
“I had no idea so many gargantuas were making their way here.” — Hon.Garth

#ForObviousReasons… #ThePoliticalEstablishment… #HasSweptThatOne… #UnderTheCarpet… #SoToSpeak:

http://youtu.be/RvEZ32oFtTw

YOU’RE QUITE A TROLL NEMESIS…LOL

#179 Kris on 09.15.14 at 6:03 pm

As far as real estate here, I think its worth mentioning that Canada is among the worlds’ highest for the number of drug-traffickers per capita.
All That money has to be washed somewhere, right.
Well, guess where …LOL

#180 Blacksheep on 09.15.14 at 6:28 pm

“Have to disagree here. Rising rates imply a weakening currency, not a strengthening currency.
————————————————————-
Your skipping a few steps. You still haven’t explained how reduced new home sales, will cause rates to raise.
Reduced, new home sales is deflationary for reasons already mentioned.

#181 Herf on 09.15.14 at 6:50 pm

#121 “Most Americans are Single, and They’re changing the Economy:”

A guy from Costco came into one of my former places of employment, selling Costco memberships. My manager already had one, as (I believe) did another co-worker (both family guys). I told him I couldn’t justify the annual membership cost. He asked me if I have a vehicle. Yes. He said I can get a deal on new tires. I told him I don’t need new tires for maybe the next 5+ years or more, given I just purchased a new set (and got the make/model of tire I specifically wanted based on reviews I’d read) for what I thought was a good price. He asked if I needed tools for the vehicle. He said Costco sells gas at a discount. I told him the nearest Costco store is located about 15km away from my home and it’s hard to justify the cost of burning up, say, $2.00 – $3.00 of gas running around to try to save $05./litre and maybe $5.00 off per fill-up. I also told him, I don’t drive the vehicle enough (at the time, since I was walking to work) that I need to “fill ‘er up” more than once or twice a month. “Oh”. He might have asked if I need tools for the vehicle, to which I probably responded that I’ve got tools, enough for the amount and kind of puttering around I can do on today’s vehicles (which isn’t much).

Then he asks if I’ve got kids. No. “What about a wife?” No. His face sort of dropped. He said Costco has deals on home electronics. I told him I don’t want or need much in the way of home electronics. I don’t own (or watch) a telesewer (i.e. t.v. – the electronic sewer people allow into their homes). “Oh”. “Well, what about a computer?” I told l him I’ve already got one, a bit old, but serves my needs fine, for now. “Oh”. “What about groceries? Everyone eats and needs food”. I told him I shop at the Real Canadian Superstore ’cause I can get reasonably sized bulk quantities (of the things I actually use!) at a discount without having to pay a membership or have one of those confounded store membership cards – no excess plastic in my wallet and I’m not in somebody’s database being targeted with advertising/snooping. I also don’t have to drive 15km to/from the nearest Costco, fight to find a place to park in their zoo of a parking lot, joust with the crowd to move about the warehouse/store, then line up for a long wait to get through the check-out (although I still have to line up at StuperStore, but at least I didn’t have to pay StuperStore an annual membership fee for the “privilege”).

I must be the retail sector’s worst nightmare of a consumer. I’m glad.

#182 Casual Observer on 09.15.14 at 6:52 pm

Canada, 1990-2000. The USA more recently, 2009-present.

The USA is not an example of a country going through a housing bust along with a stock market boom since the stock market went down by more than 50% first, before coming back and only recently surpassing it’s old high.

The Canadian example proves my point that if the decline is a slow drift and there’s no liquidity crunch, then the market could do OK.

#183 Herf on 09.15.14 at 6:53 pm

With respect to my previous comment, I meant to refer to #122 (not #121), but then you probably saw that.

#184 Casual Observer on 09.15.14 at 7:10 pm

Due largely to the collapse in commodity prices. Nothing to do with housing prices, which actually provided a support to the currency as foreign consumption was restrained.

According to your theory, CAD should be weakening with strong housing reports, but in fact, the opposite is what’s actually happening.

When strong housing data is released, the CAD has been strengthening because investors speculate that the BoC will raise interest rates sooner rather than later.

Housing and related industries have become a large part (nearly 20% of GDP) of our economy during the last 15 years. If we get a downturn in housing (likely), our economy will remain weak, which will delay any BoC rate increases, which will tend to weaken the CAD.

If the US dollar remains strong then commodity prices will remain under pressure, which will also be a headwind against a higher CAD.

With this in mind, I don’t see how CAD is going to strengthen through these conditions.

#185 Casual Observer on 09.15.14 at 7:20 pm

Rising rates imply a weakening currency, not a strengthening currency.

That may be true in a general sense, but you are forgetting about “carry trades”.

Currencies that can be borrowed at low interest rates are “sold” and exchanged for higher yielding currencies.

This puts downward pressure (weakening) on the currencies that are being borrowed and upward pressure on the higher yielding currencies being “bought”.

#186 Kenchie on 09.15.14 at 7:20 pm

#103 bdy sktrn on 09.15.14 at 12:21 am

“ham will buy THOUSANDS of new units in brentwood (first tower sold out – and all i see is parking lot work being done. there is no start of a tower, no excavation , not yet).”

HAM will eventually need an exit strategy… Recycling into new stuff every decade will not be profitable.

#187 Kenchie on 09.15.14 at 8:00 pm

#109 Mark on 09.15.14 at 1:33 am
““Every time someone takes out a mortgage in CAD$ to buy a house, they are selling CAD$”
——————————————————–
Please explain.”

“Okay, when I go to buy a house, I take CAD$ out of my pocket, and give it to the vendor of the house.

Therefore, I am buying the house, and selling the CAD$ in exchange for the house in the transaction….”

Mark, you are correct with your explanation, in my opinion. But this entire process is not a significant factor in determining movement in exchange rates. It’s easier and faster to increase the amount of mortgage debt outstanding than is the reverse. So it will be a slow process.

I’m sure you know of RPPP and it’s importance in determining value of exchange rates over the medium-term. But short-term fluctuations in the capital and financial accounts (BOP equation) determine day-to-day fluctuations, which are just random-walks that can’t forecasted in the short-term.

#188 brokerbyday on 09.15.14 at 8:23 pm

How do you know an asset class is topping (RE in the case)?
– when guys from A&E and HGTV are on the radio pumping there seminars on how to get rich in flipping houses (very limited seating and only a few will be accepted by the way).

Also, in case the rest of the country isn’t paying attention the next hot spot for RE is Brantford, ON… China just bought an old building and opening a private high school for Chinese students – 250 to start. Please rush in and buy property, raise the values – I have a beautiful 4,000 sq ft home on 1.5 acres just outside the city (town)… yours for only 1.5m.

#189 Kenchie on 09.15.14 at 8:24 pm

#137 Rexx Rock on 09.15.14 at 12:14 pm
“Nice 5% return for Canadian homeowners and 10% for lucky Calgarians.Good times for Canadians who invested in real estate in the last 5 years.Time to take your nice profits.”

Closing costs can be up to 3.5%, if not higher! womp womppp..

#190 Kenchie on 09.15.14 at 9:00 pm

#164 Mark on 09.15.14 at 3:47 pm

“IMHO, the US dollar must weaken relative to the rest of the world to turn the US back into a net exporter.”

Why would the US need to be a net exporter? Not all countries don’t need to be net exporters, and in fact, it’s impossible. There would need to be an utter collapse in manufacturing in the majority of other countries to require them to import US made goods and/or services.

And

“So a Canadian dollar reverting to fair value (which is probably over parity) plus the US dollar going down — throw in some speculative fervour towards the CAD$, and we could be into the $1.3-$1.5 range for the CAD$.”

Never, ever, will happen. Approximately 40% of Canada’s GDP is dependent on exporting to the outside world and 75% goes to the US of A. Little math means 30% of Canada’s GDP is dependent on exporting to the US of A. Conversely, only about 10% of the US GDP is dependent on exports, and about 40% comes to Canada. Little math suggests about 4% of US GDP is dependent on exporting to Canada. Therefore, the USD:CAD trade is much more sensitive to fluctuations in Canadian exports and imports than anything else. Traders and hedge funds have been on the wrong side of the trade for a year and a half. Only recently has their been a reprieve.

#191 Kenchie on 09.15.14 at 9:01 pm

#190 Kenchie on 09.15.14 at 9:00 pm
#164 Mark on 09.15.14 at 3:47 pm

Correction: Not all countries need to be net exporters, and in fact, it’s impossible.

#192 Kenchie on 09.15.14 at 9:14 pm

#177 Dr. Talc on 09.15.14 at 5:51 pm
Re Lamborghinis and 75 cent weenies.

“What can you buy today that cost the same as 23 years ago?
I bought the product below almost a quarter of century ago and to the best of my knowledge the price was the same.”

FYI: http://en.wikipedia.org/wiki/Loss_leader

#193 Kenchie on 09.15.14 at 9:18 pm

#179 Kris on 09.15.14 at 6:03 pm
“As far as real estate here, I think its worth mentioning that Canada is among the worlds’ highest for the number of drug-traffickers per capita.
All That money has to be washed somewhere, right.
Well, guess where …LOL”

Great point. Particularly Vancouver! #cashcrop

Another reason to legalize it.

#194 Kenchie on 09.15.14 at 9:38 pm

#181 Herf on 09.15.14 at 6:50 pm

“I must be the retail sector’s worst nightmare of a consumer. I’m glad.”

Herf, loved your story. I was thinking about my most recent trip to Costco (yesterday) while reading the article as well. (Posted it because I thought blog dawgs would like it).

It was my first time in a Costco since early 2010, and it was ridiculously busy in the parking lot/gas station. I went with my buddy (30 yo) who is student in post-grad level stuff. He’s the “mother” of a household of 3 other male students (undergrads), and he went to do a “big shop”. He bought processed food, the 2x largest Gatorade flats (36 each maybe?), massive bags of popcorn, detergent, massive toilet paper and other Costco staples. Total bill: $230 (food is mostly his, HH goods are split).

My buddy also put $1k into his car this weekend to keep it running, went to Chi-town for a bachelor party, had tons of USD left in his wallet.

Worst part is: Banque du Maman et Pere.

I didn’t want to lecture him for his bad spending ways because he’s a “grown ass man”, as my gf would say. Lol

PS: My purchase was $7 because he recommended I try some “Chicago Mix” popcorn. IMO: not worth the $7.

PPS: he’s got an “executive” membership (black card), but I am sure it’s joint with his parents.

#195 screwed on 09.16.14 at 3:39 pm

“Party Time” is right.

There won’t be a rate increase.

Noise, nothing but noise. In the meantime, get back to making a bigger paycheque. The Queen in Victoria will soon want to have more flesh.

#196 Bank Of Canada Induced ‘Havoc’, Plus Bits & Pieces | Vancouver Real Estate Anecdote Archive on 09.17.14 at 12:10 am

[…] to the rhetorical question ‘How to tell when housing boom’s running on fumes?’, Greaterfool.ca, 14 Sept 2014 […]

#197 Vivian on 09.17.14 at 12:19 am

RE: “When new condos in 416 and 604 routinely cost $700 a foot, while whole houses in the US average less than $100 for the same foot.”
Agree the costs per square footage in Vancouver are very high; however, the data obtained from the US Census report is not comparable. The construction costs listed in the US Census report EXCLUDE the cost of land while the cost quoted for Vancouver INCLUDES the cost of land.