Not alone

FOOLS modified

This past Saturday morning dozens of people milled around and pawed through the debris. The Victorian cottage was a mess. Worse than a mess. A thinly-organized landfill site might have better described what was left of 3 James Lane. Despite that, eighteen people had registered to buy it, and when the bidding started, five of them still had their nerve.

They stood in front of this, along with agent Georgia Glover, and went at it.

SHACK 1

The 1850s-junker last sold forty years ago, when it changed hands for $33,500, bought by an academic who was apparently living there months ago before his death. Here’s his kitchen:

SHACK KITCHEN

No doubt, the two-bedroom hovel is a tear-down, despite its heritage designation. The lot is a reasonable size, not immense, but features views across the harbour, in a hood where the average property now changes hands for about $2 million. Given the fact this house is uninhabitable rubble, agent Glover figured $1.8 million might be reasonable.

SHACK BACK

But as it turned out the winners of the auction (most sales in Australia are done this way) were members of a local family, who shelled out $2.68 million ($2.63 Canadian) – or almost $900,000 more than estimated value.

But, hey. The spring housing market’s just starting to erupt in Sydney and across the country. Mortgage rates are at historic lows. The natives are horny. Banks are throwing in new incentives to sign a monster mortgage. And the federal finance minister says he’s not worried about a housing bubble – even though average prices have risen 11% in the past year alone.

Joe Hockey (like our Joe Owe)says it’s not really the government’s business to be dabbling in the housing market, despite the fact prices are exploding higher in a speculative frenzy, pricing out average families. Besides, he adds, this is just a three-city problem.

JOE modified  “I am naturally hesitant to have government in any way interfere in the market. But, of course, we are in some challenging times when it comes to monetary policy. The Reserve Bank needs to be mindful of some of the domestic challenges, and the quite limited massive growth in real estate prices in parts of Australia. I say that because it’s primarily in pockets of Sydney, pockets of Melbourne and, to a lesser degree, in Brisbane.”

Any of this sound familiar?

Well, it should. The parallels are spooky. What is evident to everyone – in bidding wars for piles of crap like 3 James Lane, for example – is being officially denied by the very agencies that could mitigate the looming disaster. The feds say it’s not their problem. The central bank says rates must stay low or the economy will croak. And the regulator won’t curb mortgage lending for fear of hurting the banks.

Meanwhile those banks are offering customers cash to take new loans, or switch their mortgages of $1 million or more from another lender. At the same time, as this pathetic blog has pointed out earlier, there’s a push on by an influential senator to have Australia adopt the same program Canada has, allowing first-time homebuyers to gut their retirement savings in order to come up with a down payment on a house they can’t actually afford.

And while Australians (like Canadians) balloon their household debt levels and slather over real estate, the economy (like ours) sputters. Growth of 2.9% this year is about to be whacked, according to Nouriel Roubini, who forecasts a 20% plunge in the Australian dollar to about 75 cents thanks to slower times in China and lower commodity values. You see, Australia (like Canada) has a resource-based economy with GDP heavily dependent on exports. So a lot of people worry it’s been building a condo economy that’ll probably blow up.

I thought you might be interested, in case you thought we’re unique. Turns out Canada doesn’t have the corner on myopic, buck-passing politicians or foolish, house-lusty, debt-snorfling citizens. But sometimes when you see others also acting like complete frigging idiots, it’s helpful.

You’re welcome.

194 comments ↓

#1 saskatoon on 09.22.14 at 5:47 pm

Carolyn Wilkins, Bank of Canada senior deputy governor, said “persistent headwinds” could mean that “some degree of stimulus” will be needed to keep inflation on target, EVEN AFTER THE ECONOMY RETURNS TO FULL CAPACITY.

#2 bill on 09.22.14 at 5:50 pm

must be some view of the harbour….because paying that kind of money for that dump is pretty foolish eh?
mind you if people are mistaking air freshener for breath mints then every thing is just fine!

#3 amos on 09.22.14 at 5:51 pm

Sure, Why not. let them spend, spend all.

#4 Ray Skunk on 09.22.14 at 5:55 pm

Can you imagine the mess if the proposals to allow superannuation raids to fund downpayments?

“Crikey!”

#5 Mark on 09.22.14 at 5:56 pm

” according to Nouriel Roubini, who forecasts a 20% plunge in the Australian dollar to about 75 cents thanks to slower times in China and lower commodity values.”

Only problem with this is that falling housing prices and de-leveraging is profoundly deflationary, and supportive of the currency.

A higher AUD$ (just like a higher CAD$) obviously makes the domestic economy even more uncompetitive, gutting the incomes of the people who are trying to pay off those loans.

It does help the bankers though. Especially in Canada where they’re guaranteed the full stated value of a mortgage, in repayment, as the CMHC has insured nearly the entirety of the at-risk subprime mortgages.

Those who think currency will ‘magically’ devalue along with RE are in for an awfully rude awakening. Don’t confuse a very strong USD$ with CAD$ weakening. As housing continues to fall in Canada, and as the USD$ loses strength, the CAD$ should be well over parity.

#6 Ray Skunk on 09.22.14 at 5:56 pm

Feel free to a few words to my previous post since I clearly forgot to.

#7 Italians love real estate on 09.22.14 at 5:56 pm

“And while Australians (like Canadians) balloon their household debt levels and slather over real estate, the economy (like ours) sputters. Growth of 2.9% this year is about to be whacked ”

Holy cow . Another reason to get the hell out of financial assets !

I’m Still ” making love” to my bricks and mortar north of hwy7 and south of major Mackenzie.

‘ thems my stomping and romping grounds ” !!

#8 FormerSaskie on 09.22.14 at 5:56 pm

That hovel is disturbingly horrible or horribly disturbing.

Garth, does Australia have an equivalent of CMHC?

#9 Shawn on 09.22.14 at 6:00 pm

Ding… Ding … going down?

No not, houses or the stock market this time. Though maybe they are too.

Smoking Man, thank you for the info (the other day) that elevators ding once for up and twice for down.

Have ridden elevators daily for 25 years and never noticed. Verified it today in my building.

#10 Its a fixer-upper on 09.22.14 at 6:01 pm

Just fix the bathroom and kitchen by adding some ikea pressed-wood-chips shelving, some modern furniture & a new paint scheme …

Presto – Flippo!

Make a Million in profit!

#11 ILoveCharts on 09.22.14 at 6:02 pm

One other relevant similarity:
With a few exceptions, Australia and Canada are at the bottom of the list for population density. Ironic that the cost of a plot of land is the highest in the two countries that have more land than they could possibly know what to do with.

#12 Steve French on 09.22.14 at 6:04 pm

I’m out in Aussie-land and I tell you that this entire economy is completely uncompetitive, the price of iron ore is crashing, China doesn’t like our dirty coal anymore, and this housing bubble is going d-o-w-n, maaaaaaate.

#13 Londoner on 09.22.14 at 6:05 pm

I was speaking to an Aussie colleague of mine about the proposal to allow them to raid their superannuation plans for a deposit on a house purchase. He said this was “a step in the right direction to allow people to realize the Australian dream of owning their own home”. I didn’t know it was the Australian dream. Learn something new every day.

Btw – to the poster from last week who said he was still in up on his Ag holdings. I sure hope you closed your position.

#14 CPG on 09.22.14 at 6:06 pm

Canadian wireless costs among highest in world, PC Mag finds

http://www.cbc.ca/news/business/canadian-wireless-costs-among-highest-in-world-pc-mag-finds-1.2774553

#15 Frustrated Kiwi on 09.22.14 at 6:07 pm

“The parallels are spooky” – sums it up nicely and there are so many countries where this is true. I can’t see how it can end well.

#16 OG on 09.22.14 at 6:10 pm

Thanks Garth!

I love my house.

Now to get the rest of the finances in order. Haha. It’s not easy but hard work and a little help ( thanks again) and the future is; hopefull.

Great rant today I don’t know much about Australia besides don’t swim with stingrays ( rip Steve).

Now I must go luck up Myopic and sniffling ( auto fill, dang you ios8)
Continuous learning in my opinion is one easy way to invest. Snorfling just sounds fun I hope it lives up to the hype.

#17 Smoking Man on 09.22.14 at 6:11 pm

#1 saskatoon on 09.22.14 at 5:47 pmCarolyn Wilkins, Bank of Canada senior deputy governor, said “persistent headwinds” could mean that “some degree of stimulus” will be needed to keep inflation on target, EVEN AFTER THE ECONOMY RETURNS TO FULL CAPACITY.
…….

No accolades for the great, the masterfully, the all seeing great smoking man. Who’s calling this for a while

I never drifted from my calls, although my mind has spand universal boundarys, usually induced by consuming large quantities of mind altering substances.. Through in dyslexia…

How us this even posable… Going against every major number caller in the world.

Answer is simple, I’m an Alien and you bastards will love this book that’s just about done.

My real name is Jay Smokeweedon.. My planet 1 billion light years away.

#18 Londoner on 09.22.14 at 6:13 pm

#1 saskatoon

Same thing Carney and Yellen have been saying for months, yet people will act surprised a year from now when overnight rates will still be at “emergency” levels.

#19 Mark on 09.22.14 at 6:25 pm

“Canadian wireless costs among highest in world, PC Mag finds”

Perfectly normal. Canada has some of the lowest population density in the world, and some of the highest labour costs. Additionally, Canada has almost universal replication of infrastructure, which increases costs further.

#20 Happy Renting on 09.22.14 at 6:36 pm

OMFG. And the academic could have sold the place before his death and lived in the lap of luxury until his end. I’m guessing his mind was gone, given the state of the place.

#21 The Mad Scientist on 09.22.14 at 6:38 pm

The true moral of this story is…. don’t become an academic.

#22 Ben on 09.22.14 at 6:41 pm

So now Garth, this was just a pile of rubble. Worthless. Just a pain that needed clearing away. Why then $2MM+ ? The land. We are in an auction scenario for land.

Every man should have as his birthright access to land. It is the common wealth. Nature delivers to us through the land. Private ownership beyond death is a disgusting concept that makes serfs of the young. Let’s have a land value tax now and drive a stake through the heart of the rentier whilst making work count. Let’s life the doers and sink the rentiers.

Pretty much the opposite of what the state/banks currently do.

#23 AngryMan127 on 09.22.14 at 6:42 pm

Sigh…Australia and Canada…need I point out the facts that scream at 300dB…and facts that Garth refuses to acknowledge.

1) Canada & Australia’s RE markets are tiny,
2) it’s easier than ever to move large amounts of money to the West (even if you live in a terrorist sponsoring nation like Iran — Standard Chartered, or ‘suffer’ from the $50K of currency export restrictions in China, HSBC)
AND
3) the global flow of capital back into Western real estate markets is the result of an enormous level of trade with countries that have no guarantee of due process and respect for private property.

Obviously something will happen to the tiny residential property markets in Australia and Canada if this changes but it’s not racist to point this out. Nor is it racist to protect citizens from the effects that this global capital movement have resulted in.

Housing always has been and is political. It will never be free from government interference.

#24 Ben on 09.22.14 at 6:45 pm

Just read the posts. Wow lots of people on here really don’t get it.

THEY ARE PAYING FOR THE LAND

The UK has recently allowed people to raid pension pots to “invest” in our collapsing housing market. Desperate times…

#25 mark on 09.22.14 at 6:48 pm

My lawnmower has better housing than that!

#26 luigi lickadabricka on 09.22.14 at 6:51 pm

#7 Italians love real estate.

And I thought I was horny for houses, wanky for wainscotting and coocoo for cornice moldings.

You take the cake !! LMAO

#27 Andrew on 09.22.14 at 6:54 pm

That heritage designation could be a grenade in the hands of a spiteful neighbour. Imagine spending two-and-half million and then being stuck with that shack…

#28 Dirty debtor on 09.22.14 at 6:56 pm

Surprised you have no mention of the Australian take on HAM, Garth?

Sydney had more HAM pouring into it than vancouver ever will, so they put heavy restrictions on that sweet, meaty HAM. Look at how much those back asswards policies have levelled out the housing market.

#29 Freedom First on 09.22.14 at 6:59 pm

Not alone is right. Great title. Canada and Australia, why have any debt in either country, as you can live a comfortable lifestyle while you grow a very nice Portfolio in both countries without carrying any debt. No exception.

#30 Stomper on 09.22.14 at 7:00 pm

Smokin’ Joe – our conflicted treasurer – owner of his own property portfolio – including the one he rents from his wife at taxpayer expense says….

““I am naturally hesitant to have government in any way interfere in the market”

What…..Like Negative Gearing?
Like First Home Buyers Grants?
Like 50% Capital Gains tax concessions?
Like excluding $million family homes from the pension asset test?
Like considering accessing superannuation for housing payments?
Like allowing superannuation funds to borrow to invest in housing?
Like a toothless FIRB allowing a flood of HAM into residential property markets?
Like lack of support for macroprudential tools?

“Besides, he adds, this is just a three-city problem – I say that because it’s primarily in pockets of Sydney, pockets of Melbourne and, to a lesser degree, in Brisbane.”

ONLY 3 Cities – Where 75% of the Australian population lives!!!!!!

This is also the man that denies the hollowing out of our industries in the same way Canada has hollowed out yours.

“I think Australia is on the threshold of its greatest ever era ” he was quoted last week.

While Iron Ore – our main export commodity which accounts for more than $1 in every $5 of Australia’s export income – falls from a price of US$130 per tonne to US$83 – impacting our terms of trade and both Federal and State budgets (A$10billion hit and counting)

This man, like the treasurers before him, is a captive to the past and oblivious to the impending correction set to release a tsunami of hardship upon a generation of speculators.

They will be remembered for what they have done to wreck the futures of a generation.

#31 Financial Freedom at 40 on 09.22.14 at 7:02 pm

In the Billionaire Census from Wealth-X and UBS, the world’s billionaires are holding an average of $600 million in cash each, or 19 percent of their net worth. Real-estate holdings average $160 million per billionaire, or about one-fifth of their cash holdings.

——-

Sittin’ on the sidelines in cash… (add catchy Otis Redding tune)

#32 Son of Ponzi on 09.22.14 at 7:07 pm

#9 Shawn.
Pretty witty.

#33 Stomper on 09.22.14 at 7:07 pm

#8 FormerSaskie

“Garth, does Australia have an equivalent of CMHC?”

Lenders Mortgage Insurance is provided through two publically listed companies QBE and GMA…

http://www.genworth.com.au/

http://www.qbelmi.com/

Moral hazard anyone?????

#34 Anson on 09.22.14 at 7:10 pm

The last thing Australia needs to do is to allow people to raid their retirement funds in order to keep their overvalued housing market going.
Government’s around the world are doing everything in their power to keep inflation going.
People do not realize that if house prices around the world rose by 1 % a year that as a whole life would be getting easy not harder.
Ever wonder why you need to continually make more money, and FEAR running out of money in retirement?
………….Inflation this is the enemy……………………..

#35 Son of Ponzi on 09.22.14 at 7:12 pm

Not alone?
what do you expect from Commonwealthers with their “your house is your castle” thinking.

#36 Mark on 09.22.14 at 7:15 pm

“the global flow of capital back into Western real estate markets is the result of an enormous level of trade with countries that have no guarantee of due process and respect for private property.”

Only problem is, there’s zero evidence of such capital flows. But plenty of evidence of large amounts of domestic debt. If RE was actually an asset class that received foreign inflows, leverage would be dropping, not rising. And sellers of RE would have money to invest in other stuff. As it stands, Canada’s RE bubble is almost entirely domestic, not supported by foreign inflows at all. Garth is right in not acknowledging the nonsensical position of “foreign inflows”.

#37 crowdedelevatorfartz on 09.22.14 at 7:18 pm

@#9 Shawn
Did Smoking Man inform you about people like moi?

#38 NostyVlad the Snugglebombed on 09.22.14 at 7:21 pm

“What is evident to everyone – in bidding wars for piles of crap like 3 James Lane, for example – is being officially denied by the very agencies that could mitigate the looming disaster. The feds say it’s not their problem. The central bank says rates must stay low or the economy will croak. And the regulator won’t curb mortgage lending for fear of hurting the banks. The parallels are spooky.”

This ties in nicely with #93 valleyrenter on 09.22.14 at 12:03 am — “SM and Vlad-might like this bit of MSM muppetry, goggle ‘Kevin Spaceys breath in a jar’ and watch the full force of parroting in motion.

Better known as ‘dazzling ’em with brilliance or baffling ’em with bullshit’. Indeed, this was a good call by you to recommend this to SMan and yours truly as it not only juxtaposes with Garth’s missive today (Not alone), it also ties in neatly with the first pic (Do not eat Air Freshener), as it is a reflection of the m$m — a pointless waste of time!
*
And now — Russia invents new fuel with no nuke waste, Russia and Zimbabwe New platinum mine, America’s Secession Movement, Russia dumping dollar, New Gold fix planned by west, because China is about to start selling physical gold, not paper contracts or futures.

#39 Harbour on 09.22.14 at 7:24 pm

#5 Mark
Don’t confuse a very strong USD$ with CAD$ weakening. As housing continues to fall in Canada, and as the USD$ loses strength, the CAD$ should be well over parity.

——————————————————–

Parity…. LMAO

#40 Ret on 09.22.14 at 7:36 pm

A little carpet and paint, rocket science it ain’t!

It could be a great student rental. Are there any “mortgage helper” basement rooms?

#41 saskatoon on 09.22.14 at 7:38 pm

#17 Smoking Man

bottom line: the canadian macro-economy is a five-star roach motel.

#42 groovin123 on 09.22.14 at 7:48 pm

What REALLY blows my mind, is this poor old guy spent his final years living in this rat-infested crackhouse, all the while sitting on $2.6 million useless, idle, dollars. Who’s the greater fool here?

#43 Aaron - Melbourne on 09.22.14 at 7:55 pm

Not all sales are conducted by Auction in Oz. That’s just a habit of teh RE Industry in major capital cities (and particularly Melbourne) because they don’t know the value they’re going to get on the day. Drive one hour out of town and its far more likely that you’ll see a price range and sale by private negotiation.

#44 Realties.ca » Not alone on 09.22.14 at 7:56 pm

[…] Source: http://www.greaterfool.ca/2014/09/22/not-alone/ […]

#45 kg on 09.22.14 at 7:56 pm

A world of perspective…lost.

#46 Muttley O'Toole on 09.22.14 at 7:57 pm

Another brilliant post from our host; he cuts through the crap and tells it like it is.
We are doomed; I tell you we are DOOMED.

#47 dinglenuts on 09.22.14 at 7:58 pm

It’s your welcome…not “you’re” C’mon man!!! :)

#48 Aaron - Melbourne on 09.22.14 at 7:59 pm

Also glad to see Oz is getting a bit of coverage here. I’ve been coming to this blog for a few years now as a sanity check on what has been happening in Australia.

Just as I entered the workforce in 1999/2000 the “bubble” in Australian real estate commenced for myriad reasons. Its had a 14 year run and its time is up.

The door is about to get slammed on HAM.

#49 Not Spending on 09.22.14 at 8:03 pm

Garth,

The fact that Joe has 8 IP’s couldn’t possibly have anything to do with him not wanting to change anything could it?
And our beloved Captain Glen from the RBA sitting on his hands saying – “What bubble – just a bit of frothiness here and there”

The general consensus amongst most aussies is that Mining will bounce back, China will be full steam ahead and everything will be all ok again.

We’re different over here, right ?

#50 john m on 09.22.14 at 8:04 pm

“Vancouver’s empty, run-down million-dollar homes receiving global attention, local anger”..IPolitics today…..i wonder how many of these homes and there are lots of them are now owned by the taxpayers?…many purchased without any appraisals just minimal down payments to meet CMHC’s relaxed requirements? and endorsed by the banks no=lose policies created by the harper government?

#51 Kenchie on 09.22.14 at 8:05 pm

#164 Smoking Man on 09.22.14 at 3:03 pm
“Sucks for savers and basement dwellers.
Low rates forever….”

Holy smokes, Smoking Man is quoting the MSM.

#52 Sheane Wallace on 09.22.14 at 8:10 pm

#181 Kenchie on 09.22.14 at 6:53 pm

do you understand the difference between a bank and an insurance company?

I have over 10 years experience in insurance my friend and can afford to speak on the topic.

Don’t mix banks that provide limited public financing with CMHC. just look at the volumes of their liabilities!

CMHC is moral hazard and will bankrupt us. Period.

#53 Smoking Man on 09.22.14 at 8:11 pm

DELETED

#54 Sheane Wallace on 09.22.14 at 8:12 pm

Oops, Australia has it as well. How convenient… I guess they have the same bankers/owners who invented the perpetum mobile backed by taxpayers.

#55 Mark on 09.22.14 at 8:12 pm

“Parity…. LMAO”

Really? A country (Canada) that is a prolific long-term net exporter should have its currency trade at a valuation that is chronically significantly lower than that of a nation (the USA) that consumes more than it produces, and has no credible long-term plan to fix such?

Give your head a shake! Canada’s moving up in the world, and will not be able to devalue its currency merely to bail out its domestic RE borrowers.

#56 Smoking Man on 09.22.14 at 8:14 pm

#50 Kenchie on 09.22.14 at 8:05 pm“Sucks for savers and basement dwellers.
Low rates forever….”

Holy smokes, Smoking Man is quoting the MSM.
……

MSM caught up to me… Go the archives Ketchup..

#57 frank le skank on 09.22.14 at 8:15 pm

I think you’re exaggerating the dilapidated state of that Victorian house. Throw some granite in the kitchen, some stainless steel apps, a new grass roof and it’ll be a kick ass pad.

#58 Smoking Man on 09.22.14 at 8:20 pm

Ha Gartho, your not going to let me swap an A for a U.
I can’t figure you out.

No matter how much I try and hide it.. Obviously your off your pain meds…

#59 Roman on 09.22.14 at 8:27 pm

Whole MSL should go in Australia for a week to have training.

If they want to sell “a house” for 2.5mil – just invite homeless from Toronto Downtown to live there for couple of months. Bidding war is guaranteed.

Homeless dudes will be willing to help for a very reasonable 1% cut

#60 Smoking Man on 09.22.14 at 8:33 pm

#9 Shawn on 09.22.14 at 6:00 pm

The irony, 99% of blind people know the Dings.

#61 Smoking Man on 09.22.14 at 8:37 pm

#41 saskatoon on 09.22.14 at 7:38 pmbottom line: canadian macro-economy is a five-star roach motel.
……..

Roach motels have character.

#62 JSS on 09.22.14 at 8:41 pm

Let’s face it.

No one cares. Other than those who frequent this blog.

Government doesn’t care. Canadians saddled in debt up to their eyeballs don’t care. Newcomers to Canada don’t care, as they’ve likely never seen what an increase in interest (or mortgage) rates can do to debt.

#63 Harbour on 09.22.14 at 8:41 pm

#55 Mark

Your living in dream land… Canada has never been anything but an exporter.

How old are you?

#64 AK on 09.22.14 at 8:44 pm

“Here’s his kitchen:”
==================================
And I thought my garage looked a little messy. :-)

#65 Mark on 09.22.14 at 8:46 pm

“Your living in dream land… Canada has never been anything but an exporter.”

Exporters eventually become importers. And vice versa. No country can perpetually be an exporter, any more so than no country can perpetually be a net importer.

#66 AK on 09.22.14 at 8:48 pm

#39 Harbour on 09.22.14 at 7:24 pm
#5 Mark
Don’t confuse a very strong USD$ with CAD$ weakening. As housing continues to fall in Canada, and as the USD$ loses strength, the CAD$ should be well over parity.

——————————————————–

Parity…. LMAO.
====================================
I second that. ROTFLMFAO..

Mark,

Turn the clock back to 2001 in order to see the future of the bush league loonie..

#67 Spaccone on 09.22.14 at 8:48 pm

#7 Italians love real estate on 09.22.14 at 5:56 pm

Just be careful of a possible start of a trend, I saw a real estate commercial on Telelatino by some heathenous agent of Italian roots (in Montreal) suggesting that once their children in their 30s and 40s leave the roost that they should consider selling their oversized house.

#68 Funny on 09.22.14 at 8:53 pm

#57 frank le skank

I enjoyed that.

Alwyn

#69 Your credentials on 09.22.14 at 9:00 pm

#65 Mark and many other insightful posts.

Hi Mark, I look forward to reading your informed posts on this blog. Keep it up and tell us about your background, if you will.

Thanks, Alwyn

#70 TEMPORARY® Foreign Prime Minister on 09.22.14 at 9:01 pm

“…….And the regulator won’t curb mortgage lending for fear of hurting the banks……”
========================

You mean our Harper Conservative government has an evil twin, halfway around the world, which also gives record bank profits priority over the welfare of its own citizens?

Holy Doppelgänger, Batman!

#71 Retired Boomer - WI on 09.22.14 at 9:01 pm

Well Australia can keep its own trash. Canada could relieve house porn price pressures quite simply. Reduce CHMC coverage to $500,000 or less.

The young priced out without the -Bank Required 20% down payment. Hey, now on a $600,000 home they’re holding the risk.

Political pressure? Dam right. Low rates forever, maybe
I don’t have a crystal ball that works, do you?

All I know is cash, and flexibility make sense right now.
So does a balanced portfolio for unbalanced times.

Looks like we are all a bit unbalanced, right Janet & Joe?

#72 Catalyst on 09.22.14 at 9:06 pm

Your persistence is admirable.

#73 TurnerNation on 09.22.14 at 9:07 pm

My landlord:

Globe says Morguard North CEO buys shares on pullback; Monday September 22 2014 – In the News

The Globe and Mail reports in its Saturday, Sept. 20, edition that it reported on May 5 that insiders at Morguard North American Residential Real Estate Investment Trust ($10.40) were buying units in the company when they were trading at $10.45. The Globe’s Ted Dixon writes in the Who’s Buying and Selling column that since he reported the insider buying action, REITs have been moving in close sympathy with the bond market and Morguard North American is no exception. It climbed to a 52-week high in August but has since retreated as investors fret about higher United States interest rates. Mr. Dixon says it appear that chief executive officer Rai Sahi views the latest pullback as an opportunity. On September 16, he purchased 105,200 units at $10.08. Vice-president Angela Sahi also bought 6,000 units.
… © 2014 Canjex Publishing Ltd.

#74 chraotic on 09.22.14 at 9:17 pm

I bet Canada’s going to follow suit. Idiotic leaders seem intent on blowing up the real economy.

Hmmm, should I short the Canadian and Autralian dollars, or take advantage of the free money the feds will soon be doling out to snag some RE with the hopes of a 11% yearly fliponomics price climb? Unless of course this RE thing is just lipstick on the pig, and is going to blow over hard sometime soon.

#75 Supply and demand on 09.22.14 at 9:29 pm

“Government authorities” don’t want to do anything that will crash inflationary RE markets. They are trying to engineer “a soft landing” (as well as praying for one).

The greater enemy is deflation and the scary thing is that Governments don’t really know how to reverse the deflationary pressures that grow when you have over supply / insufficiency of demand.

Nearly all governments are deeply in debt and the option to “spend their way out of it” does not exist.

The most important thing for individuals to do in a deflationary environment, is to get rid of debt.

Alwyn

#76 Harbour on 09.22.14 at 9:32 pm

#65 Mark

We are an export nation and 80% of our exports are to the biggest economy in the world.

We export our lumber to them and they sell their houses cheaper.
We export our oil to them and they sell their gasoline cheaper.
We export our crops to them and they sell their food cheaper.

Here is our trade balance with the world… no other country even comes close with the U.S.

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec02a-eng.htm

Sorry but without the U.S we’d be pretty f $%& ed

#77 Leo Tolstoy on 09.22.14 at 9:35 pm

Another ‘parallel’ is less ‘spooky’.

RE prices continue to rise across the board in both countries.

PS: how is gold doing?

#78 devore on 09.22.14 at 9:37 pm

#67 Spaccone

Just be careful of a possible start of a trend, I saw a real estate commercial on Telelatino by some heathenous agent of Italian roots (in Montreal) suggesting that once their children in their 30s and 40s leave the roost that they should consider selling their oversized house.

And my barber said I need a haircut. Agents only make money when you buy and sell, ideally both.

#79 Kenchie on 09.22.14 at 9:40 pm

#52 Sheane Wallace on 09.22.14 at 8:10 pm

“#181 Kenchie on 09.22.14 at 6:53 pm

do you understand the difference between a bank and an insurance company?

I have over 10 years experience in insurance my friend and can afford to speak on the topic.

Don’t mix banks that provide limited public financing with CMHC. just look at the volumes of their liabilities!

CMHC is moral hazard and will bankrupt us. Period.”

Yes, I do know the difference between an insurance company and a bank. To quote you: “Government should not be in the Business of insuring mortgages.” This implies you are admitting that the CMHC is a mortgage insurance company. Yet, you say the “CMHC has nothing to do with insurance”. So you are contradicting yourself. Just because you work in the insurance industry doesn’t mean you know what you’re talking about. [email protected] certainly doesn’t know everything about banking!!

But the real questions are: do they accept premiums? Do they make payouts when claims are made? Do they make profits for their shareholders? Do they provide risk management to willing customers? (Albeit this last one is gov’t mandated). If it walks like a duck, it quacks like a duck… it’s a duck. Banks, I am sure you know, are vastly different.

I never said the CMHC is a traditional insurance company. There are some clear differences and benefits from gov’t ownership.

The reason I brought up the various European bad banks is because they came to fill a void in those markets that is filled by the CMHC in Canada. Without the CMHC before for the GFC, chances are that there would be a NAMA equivalent in this country. Even the mighty Germans needed to clean up their banking sector from the bad loans to property.

While I agree that moral hazard is an issue with CMHC, that’s where regulation comes into play. Proper documentation during bank lending, and the fact that our oligopoly of banks don’t face nearly the competition for lending as the banks in the US did pre-GFC, will minimize the cost to taxpayers if there is a downturn.

And you are straight-up being hyperbolic with the “bankrupt us” comment.

#80 Dirdle on 09.22.14 at 9:40 pm

Garth

Being a bit harsh aren’t we? I mean get a few potted plants, a wide screen TV, and put a hot tub in the middle of the room and the place becomes a
rock star-style chick magnet crib……I mean the kitchen even has a wok, what else could you want/need

#81 Son of Ponzi on 09.22.14 at 9:41 pm

#69 Your credentials on 09.22.14 at 9:00 pm
#65 Mark and many other insightful posts.

Hi Mark, I look forward to reading your informed posts on this blog. Keep it up and tell us about your background, if you will.

Thanks, Alwyn
—————–
When I worked for a major Credit Union, the guy in charge of Treasury was a lot like Mark.
All talk, no walk.

#82 Kenchie on 09.22.14 at 9:43 pm

#71 Retired Boomer – WI on 09.22.14 at 9:01 pm

“Well Australia can keep its own trash. Canada could relieve house porn price pressures quite simply. Reduce CHMC coverage to $500,000 or less.”

Totally agree. This is a reasonable idea that will mitigate future risk to taxpayers.

#83 Mark on 09.22.14 at 9:46 pm

“Hmmm, should I short the Canadian and Autralian dollars”

Hell no! You’re just asking to get your head ripped off if you short currencies that are obviously going into significant domestic deflation.

Sorry but without the U.S we’d be pretty f $%& ed

Not really. We’d have more domestic surplus to consume ourselves.

#84 Kenchie on 09.22.14 at 9:47 pm

Gawd…

http://www.theglobeandmail.com/report-on-business/top-business-stories/return-of-nhl-good-news-for-canadian-economy-moodys/article20717761/

#85 Smoking Man on 09.22.14 at 9:54 pm

I finally got the mixture right on my e cig

After 2 days on it, my cough stopped, my gums are coming back..

What I do know, Wynne is going to try and figure out how to tax this.

I have a small unit in Uxbridge.. Loading it up with a 10 year supply of Vapour bottles.

#86 Mark on 09.22.14 at 9:54 pm

“But the real questions are: do they accept premiums? Do they make payouts when claims are made? Do they make profits for their shareholders? Do they provide risk management to willing customers? (Albeit this last one is gov’t mandated). If it walks like a duck, it quacks like a duck… it’s a duck. Banks, I am sure you know, are vastly different. “

I’m not going to personally waste a lot of time arguing whether CMHC is in the business of subprime mortgage insurance or not. But here’s my 2 cents:

Traditionally “insurance” is a bunch of people with a pre-defined, but random risk getting together, and pooling their funds so that the risk of individual loss is distributed over the entire pool. Premiums reflect the probability of random loss occurring, at a relatively low rate. No insurance scheme is designed to withstand a systemic loss, and all insurance policies contain exclusions based on loss due to systemic factors (“acts of war”, natural disasters, etc.).

CMHC’s actuarial calculations are obviously based on a few one-off events in the insurance pool happening. Dave and Suzie both losing their jobs at the same time and being forced to dump their house at a minor loss.

However, CMHC does not contain exclusions for a systemic and correlated downturn in the Canadian housing market. Hence, CMHC is dangerously undercapitalized to make good on the claims against its pool because it did not properly limit the scope of the ‘insurance’ it offered. The likelihood of CMHC requiring capital beyond its internal resources is high in a housing downturn, especially with 45X leverage into subprime mortgages. Effectively, CMHC, over the past 5 years, has become dominant in the subprime mortgage market, as the banks insured nearly every mortgage they wrote through the CMHC or its private re-insured partners.

#87 Tony on 09.22.14 at 9:58 pm

I guess the Aussies just like the Canadians will end up penniless in retirement with no house and no retirement savings. Housing in both countries will probably revert back to 1990 values. What better way to wipe out your whole RRSP than by losing your house to the bank? No wonder the Aussie dollar took a big hit last Friday.

#88 Harbour on 09.22.14 at 10:03 pm

Sorry but without the U.S we’d be pretty f $%& ed

Not really. We’d have more domestic surplus to consume ourselves.

………………………………………………………………………

You talking about survival… living in a tree house?

#89 Tony on 09.22.14 at 10:05 pm

Re: #83 Mark on 09.22.14 at 9:46 pm

If commodities implode and the U.S. dollar stays strong a very safe bet would be to short the Aussie dollar against the Canadian dollar. Canada bordering America would mitigate a freefall in the Canadian dollar. Such can’t be said for Australia. The Aussie dollar was worth about 30 percent less than the Canadian dollar many years ago.

#90 young & foolish on 09.22.14 at 10:09 pm

Is this place at 3 James Lane for real, or some kind of bad joke?

#91 Aussie Dave on 09.22.14 at 10:14 pm

Garth have followed your BLOG for some time now. I certainly agree that this wild ride up cant continue. So selling Sydney home which we purchased in 2009 for A$1,020K.

.http://www.realestate.com.au/property-house-nsw-putney-117921907

Will advise how it all goes when auctioned next month.

#92 Mark on 09.22.14 at 10:19 pm

“I guess the Aussies just like the Canadians will end up penniless in retirement with no house and no retirement savings. Housing in both countries will probably revert back to 1990 values. What better way to wipe out your whole RRSP than by losing your house to the bank? No wonder the Aussie dollar took a big hit last Friday.”

Nah, a housing crash wouldn’t actually destroy wealth. It would just redistribute it. Those who saved diligently, ran productive non-RE-correlated businesses, gained useful and gainful educations, etc., without blowing their brains out on RE and consumer debt, will do just fine. In fact, they will prosper and eventually will become the owners of the RE that is currently owned by the over-leveraged.

A RE crash isn’t doom and gloom. Its opportunity. Those with savings, and liquid financial assets will, over the next number of years, have the opportunity of a lifetime to deploy such into either inexpensive Australian/Canadian RE, or even overseas because of a high Canadian or Australian dollar relative to the currencies of the chronic importers.

If commodities implode and the U.S. dollar stays strong a very safe bet would be to short the Aussie dollar against the Canadian dollar.

It wouldn’t surprise me if that turned out to be a good trade, but both currencies certainly have plenty of room to strengthen against the USD$. USD$ strength will eventually dissipate as the fundamentals of their trade deficits resume front and centre stage.

#93 Ripped on 09.22.14 at 10:31 pm

Canada back in surplus?

Solid export growth is the main reason. Since last December, Canada has put together a string of impressive monthly growth stats, with few interruptions. External demand is coming primarily from the United States.

Clearly, exports are only half of the trade surplus story. Exports may soar, but if imports are doing the same, then the balance can be static or even deteriorating. In this case, imports are growing at a tepid pace. That speaks to the weakness of Canada’s internal economy, which is beset by highly-indebted consumers and an overbuilt housing market, to say nothing of the public sector, which remains in austerity mode

It looks like Canada is set to move back into a sustained trade surplus in the near term. The weaknesses in the domestic economy are not likely to go away for a few years, and will continue to weigh on imports. At the same time, the re-emergence of the US economy is expected to fire up demand in other OECD markets and in emerging markets alike over the coming months.

You should have credited Peter Hall, chief economist at the EDC, for these words you have copied/pasted. — Garth

#94 45north on 09.22.14 at 10:43 pm

Mark : Only problem with this is that falling housing prices and de-leveraging is profoundly deflationary, and supportive of the currency..

I suppose that if I have $1000 Canadian to buy Canadian services then that $1000 is more valuable because the workers don’t have to pay as much for housing?

Italians Love Real Estate : I’m still making love to my bricks and mortar north of hwy7 and south of major Mackenzie.

you said it not me. this is idolatry.

Mad Scientist : The true moral of this story is don’t become an academic.

pretty funny

#95 Joe Hockey - Treasurer and Member for North Sydney on 09.22.14 at 10:47 pm

No, Meestah Turnah, that’s not Sydney in your pathetic Nova Scotia (as if the original was any worse), but here on the naw shaw of Sinny, in beautiful Oz.

Now me mates to-die have been telling me of some bloke and his Oz bashing happening on a blog. That’s bull dust to me, you ocker.

Crikey mate, hant you got some better targets than us, taking an x to us like we’re some bug infested tree?

You Canajians have nothing to boast about. Egg jelly, yer in for some real trouble. Your air fridge Canajian could be a little more assprad with their debts and money up there, and you need a better bandry on who gets loans. Scona rine big time up there, but the sun will shine on Oz forever.

It’s different here, mate. Our prices keep going up. We have beautiful year round beaches. And our lovely, musical Strine.

(And no, my web address is not for sale to any pathetic Canajian, no jans of that. But you can admire it, here:)

http://www.joehockey.com/

I hear you got run right out of your tan cancel, Meestah Turnah. I can see why. You’re a wowser, mate.

Well, it’s night here and the kids ere sander’s lape and Oy’m knackered meself, so I might as well just turn on the egg nishner and have a laidan too.

Oy’lll check back here inner narkup luddaze, and hope you’ll be retrine to play a little nicer. Australian rules, doncha know.

Now, wezzme pillah…?

#96 Sheane Wallace on 09.22.14 at 10:49 pm

#79 Kenchie

There are moments you almost sound sane..
Have you seen their risk model?
Insurance is for profit my friend. If there was profit in their model it would have been privatized and private entities would be doing it.

Capiche?

#97 Sydneysider on 09.22.14 at 10:50 pm

Don’t forget to mention the stamp duty amounting to $133K on this propery (i.e. +5% of its value).

#98 For those about to flop... on 09.22.14 at 10:50 pm

This sale is on one end of the real estate scale in Oz.
But just like in Canada ,there are less glamorous cities with reasonably priced real estate and short commutes.
It dosn’t matter which country your living in if you’ve got the corn ,spend it .If you don’t rent,owning a house is not a right anywhere.I owned a house in Oz once ,now I rent in Vancouver .I have more money now but I am not stupid enough to blow my brains out on a $ 900,000 block of land in East Van.Live within your means for
F*#¥s sake.

#99 Ripped on 09.22.14 at 10:52 pm

Here’s the link

http://www.edc.ca/EN/Knowledge-Centre/Subscriptions/Weekly-Commentary/Pages/back-in-surplus.aspx

#100 Sheane Wallace on 09.22.14 at 10:57 pm

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

#79 Kenchie

It is insurance when there is adequate risk management! There are risk management courses, I advise on taking some before speaking on the topic.

If you are convinced that premium justifies the risk in the CMHC case I can’t help, you need psychiatrist.

#101 Blacksheep on 09.22.14 at 10:57 pm

Mark #55,

“Really? A country (Canada) that is a prolific long-term net exporter should have its currency trade at a valuation that is chronically significantly lower than that of a nation (the USA) that consumes more than it produces, and has no credible long-term plan to fix such?”

“Give your head a shake! Canada’s moving up in the world-”
————————————————-
That’s the funniest thing I’ve read on this blog in a while.

OK, lets be serious.

Canada, is a automation and technological backwater that has resisted reinvestment for decades, relying instead on a low currency. Even you recently commented that we better take advantage of low rates to upgrade equipment, but know of course, we won’t.

Corps are buying back their stock instead of reinvesting in equipment cause future growth, looks like shit. It took 6 years for the US to get to a measly 4% growth and that’s with massive, unprecedented stimulus?

“I think were turning Japanese, I really think so”

Every body can see it, but few In the MSM have the balls to say it.

There will be no rope pushing.

#102 Mark on 09.22.14 at 10:59 pm

“I suppose that if I have $1000 Canadian to buy Canadian services then that $1000 is more valuable because the workers don’t have to pay as much for housing?”

Well, that. But also, with deflation, there are few people competing against you for goods and services. That’s why prices fall.

Over the past decade, think of all the competition that people with cash in their pockets have faced from people able to borrow. Prices of almost everything have risen (or have been kept from collapsing) because of this.

Take away that demand, and add newly created supply, and wham, you have falling prices and deflation.

The most severely affected goods and services will be those heavily bought significantly on HELOCs and with credit. Cars, furniture, vacations, recreational vehicles and boats. Getting a contractor to do renos should get quite a bit less expensive. A poster here recently stated that a friend at a prominent “orange” Home improvement “depot” was privy to a forecast of a large sales collapse. This is an example of deflation and inventory of such an outfit will only be liquidated at significantly lower prices.

#103 Smoking Man on 09.22.14 at 11:02 pm

#90 young & foolish on 09.22.14 at 10:09 pm

How about James Street in etobicoke, 40 onz of JD in the barbaque tank. The 26 onz in the milk box.. Wife poo has it figured out, two wines for you bastard. Ha

No one can stop my mission. Death before 97

#104 Oh Boy! on 09.22.14 at 11:03 pm

Said it before in your comment section, I’ll say it again. Replace the words Canada, Canadian, Canadian city names, with Australia, Australian, Australian city names, and you Garth, have a double whammy blog. You can write about two countries in one blog artcle.

As for our highly esteemed treasurer, the Hon. Min. Mr. Joe Hockey, many of us here are scratching our heads on whether he is tied to this in some way;

http://www.hockeys.com.au/

It maybe more than coincidence.

Also, our esteemed Senator, Hon. Sen. Mr. Nick Xenophon, this is where his duties, I mean interests lay;

http://theconversation.com/politicians-hold-300m-in-property-so-how-should-they-influence-housing-policy-30206

Since 2008, this is what Australians have been hearing, “we have a strong banking system, with sound economic fundementals, and an unemployment rate the envy of the world”.

#105 Sheane Wallace on 09.22.14 at 11:06 pm

#79 Kenchie

CHMC might be worse, much worse than AIG with their MBS and CDS ‘insurance’

#106 Mark on 09.22.14 at 11:07 pm

“In this case, imports are growing at a tepid pace. That speaks to the weakness of Canada’s internal economy, which is beset by highly-indebted consumers and an overbuilt housing market, to say nothing of the public sector, which remains in austerity mode”

Public sector in austerity mode? Where does this guy come up with this stuff? :lol: I know greaterfool can be comedic at times, but this takes the cake!

On a more serious note, a good amount of the import growth has been to support the ‘consumer’ economy. You know, new home buyers filling their houses with manufactured imported stuff. As the RE downturn picks up pace, look for those numbers to turn into contraction.

#107 Snowboid on 09.22.14 at 11:11 pm

I’m sorry Australia, but I think you have us beat in Canada. Nothing close to this hovel listed at that price, even in Vancouver.

Now if I had about $ 2 million US to spend on a property I would likely spend it on these places in some of the best areas of the Valley of the Sun.

http://www.estately.com/listings/info/6819-e-hummingbird-lane

http://www.estately.com/listings/info/14431-e-cortez-drive

http://www.estately.com/listings/info/10739-e-cinder-cone-trail

I do tend to like modern, minimalist style, so I may pop for the extra $ 250K for this one

http://www.estately.com/listings/info/11565-e-salero-drive

This is how out of touch real estate in Canada and Australia has become, in my humble opinion.

#108 Son of Ponzi on 09.22.14 at 11:15 pm

Here’s the reality from the RE trenches in Richmond.
About 160 properties will be auctioned off because of failure to pay property taxes.
————-
Further on the 5 tax sales on Scratchley Cres.
All 5 were advertised on craigslist in July 2014
“5 BRAND NEW LUXURY Single Houses OPEN … – Craigslist
vancouver.craigslist.ca/rch/reb/4554267369.html
Jul 5, 2014 – 3411, 3431, 3451, 3471, 3491 Scratchley Cres in Central Richmond. OPEN HOUSE every Saturday and Sunday afternoon from 2-4pm.”
They were also marketed in various Chinese RE sites on Aug 22, 2014. This is the sales pitch (in Chinese)”This property is Top Choice to either live in yourself or hold for appreciation. This opportunity will not last. If you want to buy better act fast! Better yet, buy all 5 with your relatives and friends to make great neighbors”

#109 Sheane Wallace on 09.22.14 at 11:15 pm

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

CDS description. Sounds familiar?

Differences from insurance[edit]
CDS contracts have obvious similarities with insurance, because the buyer pays a premium and, in return, receives a sum of money if an adverse event occurs.

However there are also many differences, the most important being that an insurance contract provides an indemnity against the losses actually suffered by the policy holder on an asset in which it holds an insurable interest. By contrast a CDS provides an equal payout to all holders, calculated using an agreed, market-wide method. The holder does not need to own the underlying security and does not even have to suffer a loss from the default event.[18][19][20][21] The CDS can therefore be used to speculate on debt objects.

The other differences include:

the seller might in principle not be a regulated entity (though in practice most are banks);
the seller is not required to maintain reserves to cover the protection sold (this was a principal cause of AIG’s financial distress in 2008; it had insufficient reserves to meet the “run” of expected payouts caused by the collapse of the housing bubble);
insurance requires the buyer to disclose all known risks, while CDSs do not (the CDS seller can in many cases still determine potential risk, as the debt instrument being “insured” is a market commodity available for inspection, but in the case of certain instruments like CDOs made up of “slices” of debt packages, it can be difficult to tell exactly what is being insured);
insurers manage risk primarily by setting loss reserves based on the Law of large numbers and actuarial analysis. Dealers in CDSs manage risk primarily by means of hedging with other CDS deals and in the underlying bond markets;
CDS contracts are generally subject to mark-to-market accounting, introducing income statement and balance sheet volatility while insurance contracts are not;
Hedge accounting may not be available under US Generally Accepted Accounting Principles (GAAP) unless the requirements of FAS 133 are met. In practice this rarely happens.
to cancel the insurance contract the buyer can typically stop paying premiums, while for CDS the contract needs to be unwound.

#110 to_be_frank on 09.22.14 at 11:18 pm

In “Owning the Earth,” author Andrew Linklater discusses real estate booms and busts in the 19th century:

“The pattern of was most obvious in the United States, where five abrupt busts in 1819, 1837, 1857, 1873 and 1893 brought ends to periods of boom. Within each boom, there was a general upward rise in land prices over the period, at first gradual but then steepening as mortgage-lending accelerated to keep up, thereby fueling an unsustainable burst of demand, and a final price explosion. Similar cycles occurred in South Africa, Australia, and New Zealand, with similar symptoms of euphoric confidence. In Melbourne, a house boom in the 1830’s enabled one speculator to buy a town lot for £150 in 1836 and sell it 3 years later for £9,280.”

Notice that in the USA the busts cited were all 17-20 years apart. Not mentioned in the book, there were similar real estate busts in 1914 and 1926-1933, roughly in line with this interval.

The last major housing correction in Canada was in the early 1990s. By that measure we are due for a repeat. So keep these bidding wars and the apparent insanity in perspective as to where we are in the cycle – we’ve been there before.

#111 Mark on 09.22.14 at 11:21 pm

“Canada, is a automation and technological backwater that has resisted reinvestment for decades, relying instead on a low currency. Even you recently commented that we better take advantage of low rates to upgrade equipment, but know of course, we won’t. “

Canada has been the subject of significant capital rationing over the past few decades on account of the high weight to the relatively poorly performing commodities industry. The 80s and 90s with declining commodity prices were brutal and brought re-investment in those sectors to a significant halt. The past decade has been one of very significant re-investment, particularly in a sector that Canada excels at — energy and mining.

Canada has excellent productivity — we are a net exporter, which pretty much says it all — prima facie proof of productivity, as we produce more than we consume. In the USA, there is an excess contribution to the ‘economy’ and GDP through zero-sum “financial” activity, which has the effect of exaggerating productivity.

As for productivity in manufacturing improving, sure, if there’s a business case for such, it will occur. But quite frankly, the business case for investment in manufacturing hasn’t existed for a while. Canada, with the high standard and cost of living, will never be competitive, manufacturing-wise with places where workers can be paid a mere fraction of the wages. Sometimes the best business decision is simply not to invest at all, and to focus on one’s strengths.

Having said that, yes, the low cost of capital due to the deflationary environment in Canada will lower the hurdle rate for investment in advanced, minimal-labour manufacturing lower than it was previously. But don’t expect miracles, nor big factories with huge payrolls coming back to Canada anytime soon.

#112 Sheane Wallace on 09.22.14 at 11:24 pm

Risk[edit]
When entering into a CDS, both the buyer and seller of credit protection take on counterparty risk:[7][12][22]

The buyer takes the risk that the seller may default. If AAA-Bank and Risky Corp. default simultaneously (“double default”), the buyer loses its protection against default by the reference entity. If AAA-Bank defaults but Risky Corp. does not, the buyer might need to replace the defaulted CDS at a higher cost.
The seller takes the risk that the buyer may default on the contract, depriving the seller of the expected revenue stream. More important, a seller normally limits its risk by buying offsetting protection from another party — that is, it hedges its exposure. If the original buyer drops out, the seller squares its position by either unwinding the hedge transaction or by selling a new CDS to a third party. Depending on market conditions, that may be at a lower price than the original CDS and may therefore involve a loss to the seller.
In the future, in the event that regulatory reforms require that CDS be traded and settled via a central exchange/clearing house, such as ICE TCC, there will no longer be ‘counterparty risk’, as the risk of the counterparty will be held with the central exchange/clearing house.

As is true with other forms of over-the-counter derivative, CDS might involve liquidity risk. If one or both parties to a CDS contract must post collateral (which is common), there can be margin calls requiring the posting of additional collateral. The required collateral is agreed on by the parties when the CDS is first issued. This margin amount may vary over the life of the CDS contract, if the market price of the CDS contract changes, or the credit rating of one of the parties changes. Many CDS contracts even require payment of an upfront fee (composed of “reset to par” and an “initial coupon.”).[23]

Another kind of risk for the seller of credit default swaps is jump risk or jump-to-default risk.[7] A seller of a CDS could be collecting monthly premiums with little expectation that the reference entity may default. A default creates a sudden obligation on the protection sellers to pay millions, if not billions, of dollars to protection buyers.[24] This risk is not present in other over-the-counter derivatives.[7][24]

As is the case with derivatives I would like to see margin calls and continuous premium payments on CMHC ‘insurance’.

#113 Harbour on 09.22.14 at 11:25 pm

#101 Blacksheep

Yup, it’s a lot easier to flog your crap at a lower price (currency) ain’t it.

#114 Son of Ponzi on 09.22.14 at 11:26 pm

#104
Since 2008, this is what Australians have been hearing, “we have a strong banking system, with sound economic fundementals, and an unemployment rate the envy of the world”.
———————
Canada has become the envy of the third world,
And the best place on earth, Vancouver has become the best place in China.

#115 Spectacle on 09.23.14 at 12:08 am

Re: #80 Dirdle on 09.22.14 at 9:40 pm
Garth
……..I mean get a few potted plants, a wide screen TV, ……..……I mean the kitchen even has a wok, what else could you want/need
*****************
Did you say WOK ? Hah, I knew it, HAM bidder !

Ouch, I sound like a troll, but in good humour,

#116 T.O. Bubble Boy on 09.23.14 at 12:23 am

Apparently Bitcoin is tanking because the “investors” decided to cash out and speculate on the Alibaba IPO?
http://www.cnbc.com/id/102016503

Still doesn’t explain why it tanked from $1100+ less than 1 year ago to $400 today.
http://bitcointicker.co/

#117 Rabi Dmangycur on 09.23.14 at 1:20 am

Jack Bauer. (Kiefer Sutherland -24)

Everything he does to try to save America is met by incompetence and conspiracy.

I am new to this blog, but have read the archives from its inception up to March of this year.

I have to say that Garth is the financial Jack Bauer of Canada. Trying to prevent smoking craters in 3 Canadian cities. But the powers of stupidity and conspiracy seem to be overwhelming- just like the TV show.

Watching this RE meltdown is like watching a slow motion train wreck. The evidence from Aussie land confirms that bubble meltdowns cannot be prevented.

Garth – please continue to keep peoples’ toes to the fire on this. I don’t know how you keep your sanity.

#118 Goldie on 09.23.14 at 1:23 am

It’s great to see how many auzzies read this blog. I guess we’re united in our misery.

#119 Mark on 09.23.14 at 2:19 am

http://www.cbc.ca/news/canada/british-columbia/arbutus-corridor-worth-400m-cp-rail-ceo-e-hunter-harrison-1.2774650

Greedy Vancouver City Council trying to bully Canadian Pacific and its shareholders into selling valuable land at an extreme discount. Thus depriving CPR’s shareholders of the benefit of Vancouver land ownership.

#120 JUNO on 09.23.14 at 3:35 am

With low interest rates, continuing, I’ve notice huge jumps in my portfolio. Recently I’ve been up approxiately 20%

Yes low interest rates have been fueling real estate. But as real estate grinds slowly to a halt, the low interest speculators are now gambling on a hot market.

Its definately causing a speculative bubble. Just wondering how much longer they can substain this.

Interesting how government inteference has screwed things up. All for political reason, and when the SHTF
those weasely politicians duck and run for cover and find some scapegoat to place the blame on

#121 cynically on 09.23.14 at 3:54 am

Dear Mark, take your head out of your economics books and look around your country. Canada is a third tier country in the world if you look at its GNP and GDP. We’re still “drawers of water and hewers of wood” to a great extent in this age. We’ve never been great manufacturers and producers of goods and services because we’ve always had and depended upon the US to supply us in exchange for our resources. Over the years they have become very good at research and development in most areas of their economy, something we’ve never been too keen at doing. Also their immigration policies have been conducive to new ideas and inventions while Canada’s has remained relatively closed over the last 150 years and only in re
cent times has opened up so we have to play catch up.
For these reasons I don’t think Canada is going to get ahead of our good neighbours to the south either economically or financially as you seem to think but you do sound like a good national Board of Trade spokesman

#122 Yuus bin Haad on 09.23.14 at 5:46 am

Apparently they DO ring a bell at the top!

(Stolen from David Stockman writing about the Ali Baba IPO.)

#123 I'm stupid on 09.23.14 at 6:33 am

Those that hold huge amounts of gold are in some way equivalent to those who are over exposed to Realestate. Without appreciation both get screwed. The only difference is that housing can be bought with such high leverage that it can wipe away your entire net worth.

#124 earthboundmisfit on 09.23.14 at 6:52 am

$2.68M!!!?. At long last, I have seen The Greater Fool defined.

#125 Italians love real estate on 09.23.14 at 7:53 am

#67 Spaccone on 09.22.14 at 8:48 pm
#7 Italians love real estate on 09.22.14 at 5:56 pm

Just be careful of a possible start of a trend, I saw a real estate commercial on Telelatino by some heathenous agent of Italian roots (in Montreal) suggesting that once their children in their 30s and 40s leave the roost that they should consider selling their oversized house.

No way Spaccone. Italian Canadians as well as their offspring would give up their belief in God himself before they gave up on the home ownership religion.

Italian Cdns foam at the mouth at the mere thought of RE aquisition

#126 maxx on 09.23.14 at 8:14 am

#1 saskatoon on 09.22.14 at 5:47 pm

“Carolyn Wilkins, Bank of Canada senior deputy governor, said “persistent headwinds” could mean that “some degree of stimulus” will be needed to keep inflation on target, EVEN AFTER THE ECONOMY RETURNS TO FULL CAPACITY.”

“will be needed” being the operative wish-words. What tool(s) are actually available and/or practicable is another matter. Canada will have no choice but to deal with the external economic forces of the times and cb fools might not have as firm a grip on the interest rate levers that diddle and destroy because FIRE, energy and raw materials won’t be as buoyant- especially dirty energy. Cleaner and more ethical supplies are being sourced elsewhere as we blog.

This is what happens when the greater common sense of the outside world (happily) cleaves with greed, gross mismanagement and wholesale destruction of nature- Canada’s exceptional and priceless crown jewel.

The jobs sector is also rotting out- joe-jobs replacing better, life-supporting ones. Real life, not bare sustenance.

This low interest, high-debt, sell out of the real economy is a hellish bog that cb and ministers of finance will NOT easily crawl out of. There will be no eureka! moment and the slog is set to go on for decades.

Money is so much harder to earn now, and even harder to keep. Low interest rates won’t save the majority from a nightmarish retirement at a time when government deficits and debt are putting serious pressure on social programs.

#127 Rational Optimist on 09.23.14 at 8:37 am

Cato the Elder is a humourless nincompoop who’s clearly spending a lot more time posting than reading. He responded yesterday to my joke post in seriousness. The poster Singaporean Investor is obviously not opposed to people buying real estate for investment reasons- look at his handle. What he said was he didn’t like the idea of “inCESTors” buying houses to leave vacant. I had never heard that word before, but I agree that it sounds like something unseemly and should be addressed.

I will endeavour to be a lot less subtle in the future.

Always a sound decision on this blog. — Garth

#128 Stumpy on 09.23.14 at 8:42 am

“No way Spaccone. Italian Canadians as well as their offspring would give up their belief in God himself before they gave up on the home ownership religion.

Italian Cdns foam at the mouth at the mere thought of RE aquisition”

Why is the above racist drivel tolerated here?

You’re right. But it’s not racist. Just juvenile. — Garth

#129 robert james on 09.23.14 at 8:43 am

Vancouver `s empty homes…. http://www.theprovince.com/business/Empty+Vancouver+homes+receiving+global+attention+with+blog/10223503/story.html

The blog that advocates squatting in other people’s houses. Just the kind of attention Vancouver needs. — Garth

#130 maxx on 09.23.14 at 8:51 am

#19 Mark on 09.22.14 at 6:25 pm

“Canadian wireless costs among highest in world, PC Mag finds”

“Perfectly normal. Canada has some of the lowest population density in the world, and some of the highest labour costs. Additionally, Canada has almost universal replication of infrastructure, which increases costs further.”

Agreed, however, Canada also has many of the world’s most docile, pliable and accepting sheeple. Wadr, far too many do not/will not or are afraid to challenge the status quo of pricing and price increases. Until this changes, everything in Canada will be more expensive.
The phenomenon of “country pricing” is based upon what a population is willing to pay for goods. Ridiculous. Just as many corporations are now global enterprises and are in a position to mitigate costs vs profit, so must consumers look beyond their borders to see what others are paying, thereby knowing to what extent they are being ripped off.

#131 Kenchie on 09.23.14 at 8:52 am

“You ever heard of soap? You stink”
-NYPD office

https://www.youtube.com/watch?v=Ef_BznBwktw

#132 Ripped on 09.23.14 at 9:02 am

#106 Mark on 09.22.14 at 11:07 pm

“In this case, imports are growing at a tepid pace. That speaks to the weakness of Canada’s internal economy, which is beset by highly-indebted consumers and an overbuilt housing market, to say nothing of the public sector, which remains in austerity mode”

Public sector in austerity mode? Where does this guy come up with this stuff? :lol: I know greaterfool can be comedic at times, but this takes the cake!

On a more serious note, a good amount of the import growth has been to support the ‘consumer’ economy. You know, new home buyers filling their houses with manufactured imported stuff. As the RE downturn picks up pace, look for those numbers to turn into contraction.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

You don’t even make sense.

#133 Shawn on 09.23.14 at 9:08 am

Attack on the Rentiers?

Ben at 22 said:

Let’s have a land value tax now and drive a stake through the heart of the rentier whilst making work count. Let’s life the doers and sink the rentiers.

****************************************
Rentier – meaning of the word…

Looks like even some dictionaries are a bit socialist , well it figures, dictionaries are written by Arts graduates

Dictionary .com

noun
“a person whose income consists primarily of fixed unearned amounts, such as rent or bond interest.”

Unearned?

Webster.com is less judgmental, maybe not a socialist

Definition of RENTIER

“a person who lives on income from property or securities”

So what does unearned men? Is it the same as undeserved:

Webster.com

unearned:

: not earned by working

: not gained by labor, service, or skill (unearned income)

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

Well okay maybe both dictionaries are socialists, they seem to think money earned from rent and interest are unearned.

They are wrong. Interest is earned by first foregoing consumption in order to build up money. And then it is earned at the risk of not getting the loan paid back and at the cost of continued delays in consumption as your money is loaned out that others may consume now.

Rentier is a pejorative and silly word.

There in NOTHING unearned about income from rent and interest.

But whatever, it’s a good excuse for those who are jealous of those with money.

#134 Italians love real estate on 09.23.14 at 9:09 am

#128 Stumpy on 09.23.14 at 8:42 am
“No way Spaccone. Italian Canadians as well as their offspring would give up their belief in God himself before they gave up on the home ownership religion.

Italian Cdns foam at the mouth at the mere thought of RE aquisition”

Why is the above racist drivel tolerated here?

You’re right. But it’s not racist. Just juvenile. — Garth

Thanks for setting stumpy straight Garth.

Allow me to be less ” juvenile ”

The idea of Italian Cdns. giving up on RE ownership as a cornerstone of their wealth creation strategy is as likely as a two mile long asteroid strike , epicenter being Downtown Toronto , sometime between now and noon tomorrow .

And if it does strike , Italian Cdns will be in the day after buying distressed properties .. LMAO

#135 Rational Optimist on 09.23.14 at 9:17 am

101 Blacksheep on 09.22.14 at 10:57 pm

“Canada, is a automation and technological backwater that has resisted reinvestment for decades, relying instead on a low currency. Even you recently commented that we better take advantage of low rates to upgrade equipment, but know of course, we won’t. “

The first sentence cannot be argued, Canadian productivity has always lacked. I think you’re wrong about the second. I think that there are plenty of small- and medium-sized firms in Canada who have been taking advantage of the high Canadian dollar to invest in equipment and equipment upgrades. I’m not saying that it will be enough to close our fabled “productivity gap,” but it is happening. Look at Stats Can, Capital expenditures for machinery” and you will see that they have increased since the recession generally. For manufacturing, I think that took longer but is now increasing again- and not too late to take advantage of a low US dollar.

Your comment about 4% growth being “measly” is nutty. What kind of growth do you expect from a developed economy?

#136 Kenchie on 09.23.14 at 9:22 am

When google says it, you know they have the information to back it up…

http://www.bloomberg.com/news/2014-09-22/google-quits-alec-says-link-with-climate-skeptics-wrong.html

#137 LH on 09.23.14 at 9:41 am

Sorry blog dogs, but 3 James Lane in Sydney offers UNOBSTRUCTED VIEWS of the SYDNEY HARBOR BRIDGE and is about 1min walk to the ferry stop that takes you to Circle Quay and the central business area within 10minutes door to door. This is like having something on Central Park West with full frontal views. The funny listing pictures are a non-issue, as the house will be essentially rebuilt anyways. What the lucky buyer is paying for is location location location. If anything, this price looks like a bargain compared to Point Piper in the Eastern Suburbs.

This auction result is like seeing a mad rush for that 740 Park Ave co-op in NY, or those prices for new units on those super talls like 432 Park. Frothy, yes, but nothing to worry about for the 99.9%. Yes, that means most of you!

LH

#138 maxx on 09.23.14 at 9:51 am

#40 Ret on 09.22.14 at 7:36 pm

A little carpet and paint, rocket science it ain’t!

It could be a great student rental. Are there any “mortgage helper” basement rooms?

Lol! No…the racoons had first dibs.

#139 rosie "moving forward" in the knowledge that, "this won't end well" on 09.23.14 at 10:11 am

As usual the MSM does’t get it. HAM will buy their houses, as long as there in the right places.

http://business.financialpost.com/2014/09/23/age-not-gender-is-the-new-income-divide-in-canada-new-study-finds/

#140 Kenchie on 09.23.14 at 10:27 am

Sorry Garth, meant to post it here.

#189 Kenchie on 09.23.14 at 9:56 am
More evidence of the future economic and political war between boomers and Gen Y… Could the next federal election be the official start of the political front of the war?

http://www.theglobeandmail.com/report-on-business/economy/canada-narrows-gender-income-gap-as-generational-divide-grows/article20732086/#dashboard/follows/

And

Looks like New Brunswick elected its first Gen Y/Millennial as their premier (barring a drastic change via recount):

http://www.theglobeandmail.com/news/national/technical-problems-derail-new-brunswick-election/article20736087/#dashboard/follows/

#141 Son of Ponzi on 09.23.14 at 10:33 am

#134
Your comment about 4% growth being “measly” is nutty. What kind of growth do you expect from a developed economy?
—————–
I think, given Canada’s aging population and “nutty” immigration policies, GDP growth should be in line with a developing country such as China.
Also let’s not forget that there are about 260 billion of infrastructure upgrades that need to be done by the cities.
Where’s that money gonna come from?

#142 Millennial_Falcon on 09.23.14 at 10:43 am

Hey all,

Sorry if this is a little off topic but I have been asked a question by a real estate pumping friend and I need some help.

He says that the stock market has also been booming for a while, and that it is also poised for a major correction.

Is he correct? I believe real estate is going to correct here in the GTA (as does my buddy), but how is the stock market any less bubbly?

-This is taking into account a balanced portfolio, the kind recommended by Garth a few months ago for us dumb Gen Y’s.

Thanks to whoever can help!

MF

#143 Mike S on 09.23.14 at 11:00 am

“Only problem with this is that falling housing prices and de-leveraging is profoundly deflationary, and supportive of the currency.”

You did say it a few times before, but can you be absolutely sure the CAD will get stronger?

As I see there are a few factors that should lower the CAD, for example:
– Slowdown in China already brings resources (oil, copper, gold, …) down, and thus the CAD also goes down. if the trend continues the CAD should weaken further

– Bigger rates in US, while Canadian rates stay lower creates downward pressure on the CAD

#144 Cato the Elder on 09.23.14 at 11:02 am

Re: #127 Rational Optimist

Sarcasm doesn’t translate well to written words. Regardless, my post was a good follow up counter argument against all the government taxing cheerleaders out there.

#145 Kenchie on 09.23.14 at 11:02 am

For those who missed (or got bored while reading) the St Louis Fed paper I posted last week, here is the WSJ’s take on it:

http://blogs.wsj.com/chinarealtime/2014/09/23/chinas-housing-bubble-puzzle-isnt-so-confusing-after-all/

#146 Mark on 09.23.14 at 11:08 am

“As is the case with derivatives I would like to see margin calls and continuous premium payments on CMHC ‘insurance’.”

So practically speaking, how would this work?

Would CMHC have to cough up cash collateral to the banks, as CMHC insured subprime mortgages held by the banks eventually go under-water?

Certainly this would increase confidence in the Canadian banking system, but we don’t exactly have a situation where there is a lack of confidence. Everyone who invests in Canadian banks at their contemporary valuations believes that the CMHC will make good on their legal obligation to make a timely payment of all valid CMHC subprime mortgage insurance claims arising from borrower defaults.

CDS description. Sounds familiar?

I would liken CMHC “insurance” to being effectively a “Put” option on the debt at 100 cents on the dollar. While a CDS is more like a futures contract on a particular credit instrument’s ultimate value.

Of course, in a deflationary environment where debt is losing value, such a put option can be of significant value. Those who held puts during the 2008/2009 stock market crash did well. The banks will do well as RE prices continue to fall. CMHC will be forced to pay out billions on exercised puts.

Insurance is for profit my friend. If there was profit in their model it would have been privatized and private entities would be doing it.

Most insurance schemes over the years, until very recently, were mutual not-for-profit endeavours, where people with a certain pre-quantified random risk pooled their resource to spread risk. De-mutualisation and the idea of “for-profit” insurance companies is only a relatively recent development.

Even today, many insurance funds run not for profit. So profit isn’t strictly necessary in insurance. But losses net of re-insurance may not exceed the capital of the pool without causing an obvious set of problems.

#147 luc on 09.23.14 at 11:20 am

Who will pay for are health benefits, pension plans and public services? Will the baby boomers suffer from the lack of wages and employment for our youth? Read what the Conference Board believes… http://www.ctvnews.ca/business/age-is-canada-s-new-income-divide-study-warns-1.2019781

#148 Mike T. on 09.23.14 at 11:48 am

Well, to put things in a different perspective, that 1850s cottage would be an upgrade for at least 1/3 of Earth’s population.

Anybody want to complain today?

#149 Mark on 09.23.14 at 11:54 am

“Is he correct? I believe real estate is going to correct here in the GTA (as does my buddy), but how is the stock market any less bubbly? “

I’ll sum it up quickly:

Canadian RE = P/E of around 35, and historic “earnings” growth at the rate of inflation.

The TSX = P/E of around 15, and historic “earnings” growth that exceeds inflation and is more in line with the nominal rate of economic growth (ie: 3-4%/annum, or 2% real GDP growth).

Historically, when housing has been severely overvalued, the stock market has been significantly undervalued, and vice versa.

At any rate, when you buy the stock market instead of a house in Canada at contemporary valuations, you get more than 2X the earnings, and double the growth, at the same price by buying stocks instead of RE.

Toronto/Vancouver/Calgary’s prices being higher, obviously tilts the math even more in favour of buying stocks.

#150 Nemesis on 09.23.14 at 11:56 am

#WelcomeToLifeInTheBordello…

[Salon] – Professors on food stamps: The shocking true story of academia in 2014

http://www.salon.com/2014/09/21/professors_on_food_stamps_the_shocking_true_story_of_academia_in_2014/

[TheTyee] – Work in the Age of Anxiety

http://www.thetyee.ca/Opinion/2014/09/22/Cure-For-Anxiety/

#MiseryLovesCompany…

[BloomBerg] – Shrinking Bond Desks Taken by Journeymen as Masters Fade

“The business model is broken and 50 percent of the people in our world who are in trading are stuck right now,” Maloney said in an interview in his New York office.

“For every 10 of them there’s going to be three or four left,” he said. “What’s the timeframe? Well, everybody I know is looking for a job — not looking for a job, looking for a career.” …

http://www.bloomberg.com/news/2014-09-22/shrinking-bond-desks-taken-by-journeymen-as-masters-fade.html

#EssentialComicRelief. #Crikey,Bruce!… #HaveYouSeenJoeHockey’sCastle?…

http://youtu.be/ki-Aw9PZFIQ

#151 Mark on 09.23.14 at 11:57 am

“Bigger rates in US, while Canadian rates stay lower creates downward pressure on the CAD”

I don’t believe higher rates are not generally supportive of a currency. What higher rates tell you is that the country in question is starting to suffer from an inflation problem, and inflation definitely damages the value of a currency (in fact, inflation is a reflection of a weakening/weak currency).

#152 Cato the Elder on 09.23.14 at 12:29 pm

Re: #145 Mark

I’ve read a little bit of each of your posts and I’ve noticed you’re trying to micro-manage and determine economic outcomes. This isn’t possible because regardless of what all these academics and mathematicians would have you think, economies are too complex to forecast. Government officials have been trying to do it since the dawn of time and it doesn’t work. Only general trends can be surmised, but the correct allocation of resources has to occur at such a constant basis it can’t be calculated.

Before people cry out for government to provide something, they need to understand: if a product or service can be provided PROFITABLY to the marketplace, it will exist. If it doesn’t, it will fail and cease to exist.

The existence of a profit is all that is needed in order to sustain the complexities of an economy.

The problem is we have governments that interfere and distort incentives in the market, and business owners respond to the wrong signals. A good example is when government subsidizes alternative energy, which would normally not receive investment because it is not profitable. These programs are destined for failure because they require the confiscation of productive assets from other areas of the economy in order to subsidize them. Yes, that’s what taxes are. Taxes confiscate real productive wealth and transfer it politically to where it is most likely wasted.

The CMHC shouldn’t exist. It is a government guarantee that uses the infinite taxing power of the state to back it up. If there was a role for some type of insurance like this, the market would have provided it by itself. Analyzing it over and over again and trying to ‘fix’ it is an exercise in futility.

What needs to happen is all these government guarantees need to be abolished. If certain businesses fail, that’s a good thing – they shouldn’t have existed in the first place. Propping them up with government supports just places a continual drain on productive economic activities.

Business failure is a wonderful thing. It send a signal to business owners that capital should not be allocated in that fashion. It also frees up capital as the bankrupted assets are sold off for better, more productive purposes.

A good example of this is GM vs Ford. Ford didn’t need any bailout money, but GM did. If GM had simply discharged it’s assets through bankruptcy like it should have, Ford could have bought them up. Ford would have done a better job with the assets, as history has proven. Now, instead GM has recalled all it’s production, and has killed passengers because government can’t run businesses properly.

#153 Shawn on 09.23.14 at 12:32 pm

Houses versus TSC Stocks

Mark at 148 said:

I’ll sum it up quickly:

Canadian RE = P/E of around 35, and historic “earnings” growth at the rate of inflation.

The TSX = P/E of around 15, and historic “earnings” growth that exceeds inflation and is more in line with the nominal rate of economic growth (ie: 3-4%/annum, or 2% real GDP growth).

****************************************
Fair enough, that is growth…

What about dividends?

A house provides a dividend of living space that is worth what percent of the house cost?

TSX dividend is what?

Probably still favors TSX but what are the figures?, dividends should not be ignored.

#154 jess on 09.23.14 at 12:49 pm

hopscotch loans /

1 . “Such loans now let inverted companies avoid taxes on dividends by loaning to a foreign parent instead of the U.S. parent. Treasury’s rule would make such loans taxable as dividends in the U.S.

spinversion /inversions
2. a partial inversion under which a U.S. company transfers some of its assets to a newly formed foreign corporation. That corporation is then spun off to public shareholders. New rules would treat the spun-off company as a domestic corporation.

Obama administration takes first steps against tax ‘inversions’
http://www.treasury.gov/press-center/press-releases/Pages/jl2645.aspx

15 hours ago – But inverted companies can get around this rule by having a foreign subsidiary it controls make a “hopscotch” loan to the new foreign parent

#155 OMG on 09.23.14 at 1:00 pm

I will say it again – AIN’T GONNA BE NO HOUSING CORRECTION IN CANADA ANYTIME SOON.

Interest rates will need to spike significantly before there is any correction. Otherwise there is no catalyst on the horizon.

High rates of unemployment will do it you say – ya sure, like we have had a robust economy for the past decade while prices have continued to spiral upward.

There will be a major correction to the mean that is a given – but it will likely be long and slow over the next 10 to 15 years as inflation eats into the “real” value of homes.

Now if rates were to quickly spike 3 to 4 percent that would be interesting, but that is very unlikely given the fragile state of the world economy.

Too late. Half of Canada’s markets are already stagnant or in decline. Like Australia, we have a 3-city bubble. — Garth

#156 ronh on 09.23.14 at 1:23 pm

Since we are talking about the economy as well as housing, here is an interesting read. Decide for yourself if it is valid or noise.

http://www.zerohedge.com/news/2014-09-22/lower-oil-prices-good-news-or-bad-news

#157 Kenchie on 09.23.14 at 1:26 pm

Ha, another article on the divide between Boomers and Millennials

http://www.theglobeandmail.com/arts/television/john-doyle-dont-hate-baby-boomers-for-being-great/article20729397/#dashboard/follows/

#158 Son of Ponzi on 09.23.14 at 1:33 pm

#151
A good example of this is GM vs Ford. Ford didn’t need any bailout money, but GM did. If GM had simply discharged it’s assets through bankruptcy like it should have, Ford could have bought them up. Ford would have done a better job with the assets, as history has proven. Now, instead GM has recalled all it’s production, and has killed passengers because government can’t run businesses properly.
—————
Cato, you criticize Shawn for making predictions in an unpredictable economic environment.
And then you go on to make predictions yourself.
I agree that GM should not have been bailed out.
However, predicting that Ford would have been more successful as a result, is a stretch.
Lack of competition may have had the opposite effect.

#159 Funny that on 09.23.14 at 1:38 pm

wow! over 10% of all today’s comments are by Mark.
who would have guessed.
Hey Garth when you go on vacation you can just have Mark be the guest host. Sort of like Joan Rivers did for Carson.
But at least she was entertaining.

#160 Son of Ponzi on 09.23.14 at 1:44 pm

#152
15 hours ago – But inverted companies can get around this rule by having a foreign subsidiary it controls make a “hopscotch” loan to the new foreign parent
—————-
After this loophole is closed, next up is a “leapfrog” loan,
and so on and on.
That’s the sinister side on capitalism.

#161 elrowe on 09.23.14 at 1:44 pm

Thanks to your blog and its comments section that reminds me of going out for drinks with my peers after class back in college days, I am learning so much about personal finance and economics. Not that I am a total newb to this, but there is always more to learn especially in these days of rapid and massive change.

It used to take me hours to get through all the comments because I read each one thoroughly, clicked on every link, researched anything mentioned that I wasn’t already familiar with, and scratched my head over SMs comments then LOLed when I finally deciphered them.

However, with experience comes wisdom. Now I scroll right past posts by some of your more frequent commenters because anybody who can post several lengthy comments sharing misinformation on macro-economics, the merits of CMHC when they don’t have a grasp on the most basic facts of the matter, etc. on a pathetic little blog like yours (no offense, Garth) has way too much time on their hands. This means they probably don’t work, which suggests to me that their knowledge has no economic value. Certainly, their comments indicate they are not retired Boomers.

Now that I have become more selective in which comments I read, I have so much more free time!

#162 Debtfree on 09.23.14 at 2:11 pm

Little wonder Steve and tony have such an affectionate bromance going . They are both owned and operated by big oil,coal and gas .

#163 TurnerNation on 09.23.14 at 2:30 pm

I’m still bullish on Treasury Blondes into the new year at least. TLT to 120?

#164 Blacksheep on 09.23.14 at 2:36 pm

Rational Optimist #134,

“I think that there are plenty of small- and medium-sized firms in Canada who have been taking advantage of the high Canadian dollar to invest in equipment and equipment upgrades. I’m not saying that it will be enough to close our fabled “productivity gap,” but it is happening.”
—————————————–
There is of course, some investment being made in business, but the proliferation of share buy backs is telegraphing what many major corporation’s are really thinking. If reinvestment produced increased revenue for Corp. X, rational dictates $’s would be applied.
——————————————
“Your comment about 4% growth being “measly” is nutty. What kind of growth do you expect from a developed economy?”

OK…measly is a bit strong, but with the unprecedented stimulus actions taken, I would hope for a little better than a peak of 4%, post recession, with the historical average peak being over 10%.

These graphs tell the story. I guess I should be happy with 4%, based on the direction of these charts.

http://markettechreports.blogspot.ca/2013/01/declining-trend-in-gdp-growth-post-wwii.html

A 70 year consumer super cycle seems to reaching it’s saturation point.

#165 happity on 09.23.14 at 2:39 pm

So the global economy is sputtering…

After the us fed reserve printed $26 trillion?

What did all global central banks combined print?

And 5 years if that and dies anyone have any doubt that money printing doesn’t work?

Guess what’s next…

Without the stimulative monetary policy we would be in a depression. Fortunately we are in the midst of a slow recovery. — Garth

#166 Retired Boomer - WI on 09.23.14 at 2:42 pm

#151 Cato the Elder

Your Ford vs GM analogy is rather off-base.

1. Both car manufacturers have recalled vehicles that have “killed people” (Pinto, Explorer were Ford products)

2. GM’s design lapse dealing with their ignition system happened WELL before any “bankruptcy filing, and certainly were not Germain to it.

As for letting GM & Chrysler “go” as a result of their independent bankruptcies, there is some certainty that auto parts suppliers critical to Ford, Toyota and others would have been forced into involuntary bankruptcies as well from GM & Chrysler going into liquidation.

I did not support the government intervention, yet not doing so likely would have resulted in an overall worse debacle.

There ARE times when even the “government” needs to intervene in the life of idiot business choices, this was likely one time.

Despite your constant criticism that ‘government’ gets things wrong, no government, or a disengaged one would well be worse than what we have been blessed with.

Governments are designed by, staffed by, and operated by men. Human fallible imperfect men, be they a dictatorship, or a representative republic, or some other form. until you can design better humans, we are stuck with imperfection.

#167 Mike S on 09.23.14 at 2:43 pm

“I don’t believe higher rates are not generally supportive of a currency. What higher rates tell you is that the country in question is starting to suffer from an inflation problem, and inflation definitely damages the value of a currency (in fact, inflation is a reflection of a weakening/weak currency).”

maybe in general, but USD is a major reserve currency
deflation in the US would have happened without the 0% and QE

in Canada it is not necessarily the outcome of QE + 0/negative rates. These would probably result in lower currency, resulting in bigger inflation (which in turn will require to remove QE or increase the rate)

This is why you won’t have significantly lower CAD rate vs. the US

In addition to that Growth in China is the bigger question. If the growth there slows down (and it seems to happen in the past year or so) the CAD/AUD which are (At least partially) commodity dependent currencies might see downward pressure

#168 Mike on 09.23.14 at 2:52 pm

Just heard on the radio the other night that home builders here in Edmonton are now offering a $10,000 gift card to Southgate shopping mall if you buy one of their houses. Maybe 6-12 months ago I started to hear home builders advertise on the radio, and prior to that, absolutely nothing. Sounds like they’re having a tougher time selling all the houses they’re building here.

#169 saskatoon on 09.23.14 at 2:52 pm

#153 OMG

saskatoon is standing strong!

#170 Holy Crap Wheres The Tylenol on 09.23.14 at 2:53 pm

#103 Smoking Man on 09.22.14 at 11:02 pm
#90 young & foolish on 09.22.14 at 10:09 pm
How about James Street in etobicoke, 40 onz of JD in the barbaque tank. The 26 onz in the milk box.. Wife poo has it figured out, two wines for you bastard. Ha
No one can stop my mission. Death before 97
_____________________________________________

I told you about my experience with JD back in the early 70’s overseas. Stay away from Boom Boom Girls or wifypoo will turn you into a eunuch!

BTW your call on #17 Smoking Man on 09.22.14 at 6:11 pm
No accolades for the great, the masterfully, the all seeing great smoking man. Who’s calling this for a while
We can all call these things with a 50/50 percent success rate!
Kudos if it was your call!

#171 Holy Crap Wheres The Tylenol on 09.23.14 at 2:57 pm

Too late. Half of Canada’s markets are already stagnant or in decline. Like Australia, we have a 3-city bubble. — Garth
______________________________________________
Ah yes but the success of a city state has some long history! Rome for example!
Toronto does have the largest Italian based community outside of Rome! There ya go. Now go get Nero and start fiddling!

#172 devore on 09.23.14 at 2:57 pm

#158 Son of Ponzi

After this loophole is closed, next up is a “leapfrog” loan,
and so on and on.
That’s the sinister side on capitalism.

/rolleyes

Really? What does this have to do with capitalism? Capitalism didn’t create the “loophole”. The need to control and proscribe every minutia and detail is what created the loopholes in the first place.

With a million rules come a million ways around them. Complexity also creates opportunities to simplify and optimize for people who want to profit from efficiency.

That’s the sinister side of regulation.

#173 Casual Observer on 09.23.14 at 3:06 pm

I would liken CMHC “insurance” to being effectively a “Put” option on the debt at 100 cents on the dollar…
The banks will do well as RE prices continue to fall. CMHC will be forced to pay out billions on exercised puts.

I agree that CMHC will be forced to pay out billions in claims, but as has been pointed out before, they only have something like $20B in equity.

Recent talk about mortgage insurance deductibles, fraudulent/non-compliant mortgage originations, and “bail-in” legislation make it seem like the gov’t (CMHC) realizes the risk and is trying to set up the banks to bear some of the losses.

Where do you think CMHC will get the money to pay out claims if they become insolvent? Will the gov’t bail them out, or force the banking industry to pick up the tab?

#174 Italians love real estate on 09.23.14 at 3:18 pm

#153 OMG

What part of Italy are you from ?

#175 Italians love real estate on 09.23.14 at 3:23 pm

#169 Holy Crap Wheres The Tylenol on 09.23.14 at 2:57 pm
Too late. Half of Canada’s markets are already stagnant or in decline. Like Australia, we have a 3-city bubble. — Garth
______________________________________________
Ah yes but the success of a city state has some long history! Rome for example!
Toronto does have the largest Italian based community outside of Rome! There ya go. Now go get Nero and start fiddling!

#170 devore on 09.23.14 at 2:57 pm

The fact you mention about Toronto and Italians is a point grossly under estimated by our gracious blog host , since he cannot quite grasp the sheer compulsive madness and affinity they have to RE.

Italian Cdns provide an indestructible floor on GTA RE prices

#176 jess on 09.23.14 at 3:28 pm

…”that each 1% increase in mortgage rates drops home values by 4%?

Goldman’s Former Head Of Housing Research Predicts …
http://www.zerohedge.com/…/goldmans-former-head-housing-research-predict...
6 days ago – I am lamentably confident that home prices will fall by 15% within three … that each 1% increase in mortgage rates drops home values by 4%

#177 devore on 09.23.14 at 3:46 pm

#130 maxx

That is true to everywhere a provider has pricing power. Adobe was recently caught setting prices for the Photoshop suite in Australia so high, it was actually cheaper to fly to US, buy it there and bring it back. Some outrageous pricing certainly exists. Just look at our auto prices.

That said, in some cases it is definitely justified. Canada is huge, and providing some level of coverage pretty much everywhere people live is not a trivial or cheap task. You can’t just waive it away as a marginal expense, it is not. And CRTC will happily take your complaints for spotty service and outages.

#178 happity on 09.23.14 at 3:54 pm

“Without the stimulative monetary policy we would be in a depression.”

Bernanke when asked under congressional questioning said the money printing didn’t make it to main street, it was given to bankers to bail them out.

The banks are now bigger and have fixed nothing according to congressional questions of the regulatory bodies.

Someone had to pay, because money creation is a debt with interest that needs to be serviced, just like gov spending does not create jobs.

#179 Spaccone on 09.23.14 at 4:21 pm

#128 Stumpy on 09.23.14 at 8:42 am

>Why is the above racist drivel tolerated here?

Just a little humour. I have an Italian passport (along with a CAD one) which gives me authorization from the Italian govt to make jokes about Italians.

#180 Holy Crap Wheres The Tylenol on 09.23.14 at 4:22 pm

#173 Italians love real estate on 09.23.14 at 3:23 pm

Italia per sempre , viva roma!
comprare, comprare , comprare i miei amici

#181 sotiri on 09.23.14 at 4:27 pm

“Italian Cdns provide an indestructible floor on GTA RE prices”
#173 Italians love real estate on 09.23.14 at 3:23 pm

Where were Italian Cdns in the 90’s ??? You think they just showed up in Canada in 2014???

#182 Entrepreneur on 09.23.14 at 4:39 pm

Australia similar to Canada on the real estate which to me it shows that our political leaders follow one another in decision making. What should we do? Oh, look, the Australia banks are doing this so we will do that. Is there not a proper leader?

I applaud Ford for not taking the money from the Feds but the Feds should not have bailed out the other two car dealers. Harper did not want to participate in this but I think pressure was on him. Let them fall; let it correct; let it be capitalism.

#183 uman shinod on 09.23.14 at 4:46 pm

Bank of Canada: ETF liquidity risk concerns regulators: report

what about housing liquidity risk??

https://ca.finance.yahoo.com/news/bank-canada-etf-liquidity-risk-concerns-regulators-report-193523753–sector.html

#184 Son of Ponzi on 09.23.14 at 4:49 pm

#170
Devore,
Just another chicken or egg argument.
Unlike some of the posters here, I’m not pretending to have all the answers.
Just gotta live according to your Weltanschauung and hope for the best.

#185 Mark on 09.23.14 at 5:05 pm

“Where do you think CMHC will get the money to pay out claims if they become insolvent? Will the gov’t bail them out, or force the banking industry to pick up the tab?”

The Government of Canada is legally obliged to bail out the CMHC.

The US banking system crashed when there was some uncertainty over whether the US Government would stand behind Fannie Mae/Freddie Mac obligations. When that uncertainty was removed, the financial crisis was over. Enactment of a Fannie/Freddie guarantee (instead of the implicit promise) marked the bottom of the financial crisis in 2009.

I’m not sure how they could go after the banking industry financially without causing the banking industry to cease lending to the residential mortgage borrowing public (a cessation of lending would obviously cause a systemic melt-down!).

At some point, all the extra money injected into the economy through the CMHC bailouts will make its way into the banks, and into the bank shareholders’ hands. They will eventually allocate it towards an area of economic growth they find worthy. This will get the ball rolling in setting up another bubble that will ultimately eclipse the banks themselves.

#186 Mark on 09.23.14 at 5:08 pm

“Bank of Canada: ETF liquidity risk concerns regulators: report”

A little nonsensical, as the redemption process for an ETF involves swapping ETF units for a basket of the underlying shares/instruments that are contained within the ETF. Hence, its not the ETF itself that is illiquid or represents illiquidity risk, but rather, the potentially illiquid underlying securities.

If price discovery is impaired in a market because it trades very little and is very narrowly held, that’s a more traditional problem, and has nothing to do with ETFs.

#187 Mark on 09.23.14 at 5:14 pm

“maybe in general, but USD is a major reserve currency
deflation in the US would have happened without the 0% and QE”

The longer-term trend is for US dollars to be decreasingly held as overseas reserves, as the US isn’t a net exporter. And for Canadian dollars to be increasingly held overseas. So Canada will likely have to work extra hard to debase, while debasement in the USA will be more easily facilitated by having those dollars removed from reserves and spent.

Smart money is selling the USD$ at this point, taking advantage of what probably is its last big run higher, before resuming the downtrend that started in the late 1990s.

#188 Smoking Man on 09.23.14 at 5:15 pm

#168 Holy Crap Wheres The Tylenol on 09.23.14 at 2:53 pm

You ever run into a dude, a pilot from your era, Guy by the name of John Lear…

#189 Son of Ponzi on 09.23.14 at 5:24 pm

Italia per sempre , viva roma!
comprare, comprare , comprare i miei amici
————-
A lesson in conjugating Italian verbs:

http://italian.about.com/library/verb/blverb_comprare.htm

#190 Mixed Bag on 09.23.14 at 5:42 pm

#179 sotiri on 09.23.14 at 4:27 pm

“Italian Cdns provide an indestructible floor on GTA RE prices”
#173 Italians love real estate on 09.23.14 at 3:23 pm

Where were Italian Cdns in the 90’s ??? You think they just showed up in Canada in 2014???

—————————————–

They went to Woodbridge.

#191 Mike S on 09.23.14 at 6:11 pm

“Smart money is selling the USD$ at this point, taking advantage of what probably is its last big run higher, before resuming the downtrend that started in the late 1990s.”

What is the smart money buying?
PIMCO was decreasing their CAD bond holdings. Which economic strengths Canada has currently besides the resources and the construction sector?

#192 Bottoms_Up on 09.23.14 at 6:17 pm

#171 Casual Observer on 09.23.14 at 3:06 pm
——————————————————-
Ya, 20 billion only covers 80,000 homes/units at $250,000 per [in a market that has seriously declined].

How much liquidity should they have?

#193 Mark on 09.23.14 at 6:19 pm

“Where were Italian Cdns in the 90’s ??? You think they just showed up in Canada in 2014???”

I think these people who keep on claiming certain ethnicities are buying at top dollar, are a bit racist trying to slur them. After all, today’s buyers are those who will likely suffer the worst in losses as the RE decline continues and ultimately goes much deeper than most anticipate.

#194 Italians love real estate on 09.23.14 at 7:09 pm

#181 sotiri on 09.23.14 at 4:27 pm
“Italian Cdns provide an indestructible floor on GTA RE prices”
#173 Italians love real estate on 09.23.14 at 3:23 pm

Where were Italian Cdns in the 90’s ??? You think they just showed up in Canada in 2014″

Sotiri , they have been buying land since the 50’s !
Are you serious? Look at all the construction companies and developers ?? Notice a certain dominant ethnicity at all.. LMAO

#193 Mark on 09.23.14 at 6:19 pm
“Where were Italian Cdns in the 90’s ??? You think they just showed up in Canada in 2014???”

I think these people who keep on claiming certain ethnicities are buying at top dollar, are a bit racist trying to slur them. After all, today’s buyers are those who will likely suffer the worst in losses as the RE decline continues and ultimately goes much deeper than most anticipate.

I will only say this once. Absolutely no racism intended at all in any of my posts.. Humour yes.. Like Spaccone, I also have an Italian passport and authorization to poke some fun but let me make it clear, I am very proud if my heritage . I do find the obsession over RE comical.

Mark, based on your post ” where were Italians in the 90’s , I am sure you do not share the heritage to pose such a question. They have always been buying !!