Uncool

WRINKLY modified

He’s an appraiser in Toronto. “This certainly supports what you have been saying,” Antonio tells me. The property recently sold to some hipsters in a bidding war. “The appraised value was $75,000 less than the purchase price because of that,” he says. “It didn’t kill their financing due to a good down payment, but I cannot imagine anyone getting any satisfaction from learning they just paid $775,000 for a $700,000 house.”

Of course the buyers will shrug, point at the latest issue of Toronto Life on the drugstore newsstand (“REAL ESTATE MANIA. Outrageous Tales from the Overheated Market”) and figure the extra seventy-five grand in equity will magically appear in a few months. Whatever. It’s cool.

TLIFE  But I’m not so sure. There are just too many indicators that we’re in a zombie economy these days, and a poor time to be paying 110% of the price of anything. For example, heed Carolyn Wilkins, the new No.2 at the Bank of Canada, being a helluva lot more honest about things than anyone holding elected office.

Wilkins says we’re now creating just half the jobs needed to get the economy back on its feet. “The average monthly gain in employment is about 6,800 and that’s just a little bit over half of what we need,” she told Bloomberg on Tuesday. “There is still excess supply out there, that it’s been actually pretty constant for a little while.”

No kidding. We lost 111,800 private sector paycheques last month alone. Had it not been for 90,000 under-employed people trying to create their own jobs, the overall loss would have been Biblical. Unemployment is stuck at 7% and would be worse if 21,000 people hadn’t given up looking for employment in August. The labour participation rate (66%) is the worst in 13 years.

So the central bank figures it’ll take at least two years for things to improve. Meanwhile for those people who are working, not much is getting better. The average wage is growing at exactly the same rate as inflation (2%), which means average people have no more money. And as I told you the other day (it’s worth repeating), a recent survey finds 51% of Canadians figure they’d be screwed if the next paycheque was one week late.

It gets worse. The Millennials are pooched, too.

While many think these over-educated, whiny, entitled, self-centred little snots deserve their sad, basement-dwelling existence, the economy needs them. A new Conference Board study lends support to the notion the kids are saddled with educational debts that did nothing to land them lucrative jobs. In fact, generational job prospects suck with stagnating wages and little more than entry-level positions available, making house-buying almost impossible. This has led to the rise of the Bank of Mom, the bloating of condo sales and even more debt accumulation.

Used to be, says the Conference Board, that twentysomethings earned 47% less than what fiftysomethings did in the 1980s. Now the gap has widened, to 64%. “Our report provides some pretty persuasive, quantitative evidence that yeah, there really is a systemic pattern here. These aren’t just stories of individuals — there really is a pattern that’s unfolded over a prolonged period, a pattern which has some disturbing implications going forward.”

You bet. Like paying into the CPP for the next 25 years to support all those wrinkly Boomers with their plastic hips and botox lips. Or simply churning out enough income tax to keep the health care system functional as the biggest cohort in history washes over it. Or, how about real estate?

Remember that four in ten people already over 50 say they’re desperately behind on their retirement savings. Surveys show between a third and half of all Boomers figure they’ll have to sell their houses and downsize or rent – simply because they’ll run out of money otherwise. Meanwhile 80% of all TFSAs are in cash or dead-end GICs, while interest rates are at historic lows. That means billions of dollars are making zero.

See how irrational and potentially destructive a housing bubble can be? House lust, rising prices, unethical realtors and ad-starved media all divert from the things we should actually be worried about. For the kids, walking into heaps of mortgage debt when prices have peaked, is risk-on-a-stick. For the wrinklies who think GICs and real estate will save them, the next two decades could be a swamp.

Who, exactly, do they think will be buying their houses?

Without enough jobs and with an underemployed (if snivelly) next gen, how can anyone expect house prices to remain at current levels? After all, mortgage rates can’t really fall further. Households can’t stomach much more debt. Taxes sure aren’t going down, and yet the economy’s not goosing incomes. So, what’s the plan?

Exactly. There isn’t one.

194 comments ↓

#1 raisemyrent on 09.23.14 at 7:02 pm

Meanwhile, not one person on my fb feed in vancouver was against the tax on empty properties.
People thinking it’s time to “take back real estate”; when some of them have been fired or have no retirement savings.
It’s easy to blame someone else when you’re so far from the truth, you can’t even tell.

#2 Larry Laffer on 09.23.14 at 7:04 pm

Well, that was cheerful!

#3 CPG on 09.23.14 at 7:06 pm

“Hindsight is a wonderful thing, especially when it comes to explaining market crashes. Six times in the past 50 years US equities dropped more than 30 per cent in 12 months. After most of them investors looked back at glaring warning signs and were baffled that they missed them.”

The glaringly obvious guide to the next crash

http://www.cnbc.com/id/102024354

#4 Cow Man on 09.23.14 at 7:09 pm

Sir Garth: Yes there is a “plan” it is called Free Trade. And the free trade deals Canada has signed are the reason why: “that twentysomethings earned 47% less than what fiftysomethings did in the 1980s”

We are lowering our standard of living to match those countries like Mexico where the auto making sector is moving too. No wonder twentysomethings are earning 47% less.

#5 the Jaguar on 09.23.14 at 7:09 pm

Imagine what happens to the price of that house when the “inevitable” happens. That’s when the owners of that home will figure out the ugly truth about how much they really overpaid.
There is such an aura of despair surrounding all this madness. Like gamblers who can’t leave the Blackjack table cause they just “know” they are going to have a winning hand if they just put down a little more cash on the table.
I like your style, Garth.

#6 Happy Renting on 09.23.14 at 7:13 pm

This post was worthy of Misery Week.

#7 Frustrated Kiwi on 09.23.14 at 7:14 pm

The plan is to sell to foreign buyers? :-) Following on from yesterday’s post, an interesting just-posted article on Australia’s market wrt offshore $:
http://www.macrobusiness.com.au/2014/09/7-30-report-dissects-foreign-property-debate/

#8 crowdedelevatorfartz on 09.23.14 at 7:16 pm

“While many think these over-educated, whiny, entitled, self-centred little snots……”
++++++++++++++++++++++++++++++++++++

Millenial mindset

“The synergies of organically empowering myself to a new level of wholistic thinking will get me that new “McJob” (but only if I network and brown nose the boss with my best bobblehead nod imitation)

#9 CPG on 09.23.14 at 7:18 pm

“So we can say that debt represents future consumption taken today. As long as it is my decision to go into debt and the repayment is my responsibility, then everything is cool.

However, once we consider that our current levels of debt will require the efforts and incomes of futuregenerations to pay them back, we start to trend into the moral aspect of this story.

Is it really proper for one generation to consume well beyond its means and expect the following generations to forego their consumption to pay it all back?”

http://olduvai.ca/?p=28089

#10 Jack B Nimble on 09.23.14 at 7:18 pm

Not to mention that BOC Gov Poloz is strangling the $C to get the rocks and trees moving again. How very 1950’s of him. Instead of helping CDN companies buy increasingly efficient plant and equipment to produce more and faster with more employees. Poloz wants us back in the fields cutting down tree’s and in the mines. What did anyone expect when this dinosaur from the ‘export council’ was appointed?

With no manufacturing in Canada and head offices not moving here, where are these new jobs going to come from? The US FED killed any option of inversion taking an interest in Canadian companies . Thx Mr Obama. That’s what slapped our market upside the head since Friday.

#11 I'm stupid on 09.23.14 at 7:19 pm

I’m going to let the blog dogs in on a little secret. In my 15 year career I’ve done work on almost 10k houses. All of them new builds. This year has been a disaster and if it’s a disaster for me (given the amount of market share I have in my field) it’s been a disaster for everyone. I’ve done 30% less work this year in comparison to the same time last year. The only time I’ve seen it this bad was in the 2 years following GFC. The sales aren’t there and the builders aren’t building until a home sells. It’s resulted in tract housing consisting of 3-400 houses being built in 20 or 30 homes at a time.

I have 1500 houses under contract but many might not get built for years to come. I’ve spent the last few years preparing for this so I should be able to weather the storm but I feel sorry for those that aren’t.

#12 Mark on 09.23.14 at 7:22 pm

Another great post. People who own assets need to remember that assets are only worth what the buyers will pay for them. And in this case, the buyers, the young people, don’t have much money.

At least stocks tend to have a buyer of last resort — the issuers themselves, with corporate profits and debt issuance. In the form of share buybacks. Real estate, no similar analogue exists.

#13 VanIsle Retiree on 09.23.14 at 7:25 pm

About 2-3 years ago, I suggested right here that the biggest risk to our situation was not a drop in house prices, or the lack of knowledge about sensible investing practices (it seems too many people have nothing to invest, though), but rather the systemic influence of a loss in spending power caused by less disposable income. The US economy is chugging along, which is helping our exports, and now we see predictions of an 82 cent dollar which will help a lot. But is it enough to save us from a significant economic hit over the next few years. CPP, OAS, health care, education – what will they look like in a few years?

#14 Nemesis on 09.23.14 at 7:31 pm

#CrypticParables…

http://youtu.be/HurGQ8ZnIy8

http://youtu.be/KcXiBWy_UBI

#15 saskatoon on 09.23.14 at 7:31 pm

bingo…

canada has entered the roach motel, race-to-the-bottom economy:

the government checks itself in, but it sure ain’t checking itself out.

#16 Geofferson on 09.23.14 at 7:32 pm

My family was featured on the Toronto Life July cover and in article on raising a family downtown. They got our story out of whack – regarding wanting a house but prices are insane. Yes, they are overpriced, but we are happy renting in our 2 bedroom, 2 bathroom downtown condo (they assumed we owned and never checked). Will look at a 3 bedroom loft downtown next year when things summer down.

#17 Suede on 09.23.14 at 7:33 pm

So many fundamentals and technical reasons for prices to decline, so few people interested except those here.

Look up Google trends “housing bubble (vancouver/toronto/calgary) for an idea of when people are interested. When this rises, the trend is well underway.

Ps. Small caps are having a back to school sale on the tsx

#18 ShawnG in TO on 09.23.14 at 7:34 pm

A lot of smart people called out american housing bubble in 2006, but nothing really happened until ~2008. Same thing in Canada, despite many clear indicators, absolutely no one can predict when the real estate bubble will burst.

One thing is for sure (well, 2 things) the later the bubble burst, the more negative impact it will have on our economy. More families’ finances would be ruined.

The other thing is we have no more financial ammo to deal with it in Canada. even if they lower the interest rate to below 0, how low can they go? it’s just shifting more wealth from the savers to the spenders.

#19 Freedom First on 09.23.14 at 7:34 pm

Reading your Blog is a very positive action that I do for myself Garth. While I have empathy for the many Canadians of all age groups who are having/facing financial hardship, and the masses world wide who have recently been financially slaughtered by the same behaviors Canadians are still practicing, your Blog is a very positive reinforcement, and helps me to ignore the bad behaviors I see on your Blog and by people all around me, as I know it is very calming to just focus on my own behavior, knowing I can rarely help the financially challenged. Thanks Garth.

#20 Catalyst on 09.23.14 at 7:35 pm

The answer has been, and continues to be immigration.

#21 Bill Gable on 09.23.14 at 7:41 pm

Today’s post had me laughing out loud, but it isn’t funny.

Demographics matter. Just take a look at Japan.
This is NO DRILL.

The lifeboats are already being lowered, as some of the big hitters are getting out of stocks. Soros just made a huge bet against the market and Warren Buffet is rushing to cash.

Why?

Correction time in the clubhouse.

Garth and his partner, Scott are talking about reality, while the MSM and the folks at RE Offices must be plutzing.
(*Yiddish for HOLY CR*P!).

One of the most popular blogs in Vancouver is “Deserted Luxury Properties”. “Investors” that have amazing homes unkempt and unloved, and neighbours are fed up. The blogger is swamped.

It’s going to get ugly any day now.

Time to get the heck out of Vancouver for good.

So we are.

We will never come back. It’s no longer a place to call home.

It’s like living in a bowling alley.

#22 Mark on 09.23.14 at 7:46 pm

“A lot of smart people called out american housing bubble in 2006, but nothing really happened until ~2008.”

Actually prices peaked in 2005-2006, coinciding with the peak in subprime financing. Much like happened in Canada with the peak of subprime financing coinciding with the CMHC subprime mortgage insurance changes in Budget 2013.

For the past year or two, housing price declines have been masked by changes in the sales mix. High end still moving fairly well, subprime stuff not moving very well.

Increasingly, the sales mix changes cannot mask the declines, which leads us to the declines that are now quite visible even in the numbers today across most major Canadian cities.

#23 Son of Ponzi on 09.23.14 at 7:46 pm

I don’t think self employed people should be counted as full time. Counting them as part time woul be more accurate. Many of them make barely above minimum wage.

#24 Mark on 09.23.14 at 7:46 pm

Oops, sorry about the bold everyone!! Misplaced tag :(.

#25 Smoking Man on 09.23.14 at 7:47 pm

The herd don’t know two dings are for down, and one ding for up.

The only thing they know is what Lisa Laflame in her designer clothing says to them. What Peter Mansbridge authorativly tells em.

They don’t think nor do the parents, hence this party bus keeps on trucking.

Do you really want to bet against that…

#26 mikef on 09.23.14 at 7:47 pm

Where are you located “#11 I’m stupid”?

#27 Realties.ca » Uncool on 09.23.14 at 7:51 pm

[…] Source: http://www.greaterfool.ca/2014/09/23/uncool-2/ […]

#28 Son of Ponzi on 09.23.14 at 7:52 pm

canada has entered the roach motel, race-to-the-bottom economy:
the government checks itself in, but it sure ain’t checking itself out.
—————-
They can check out anytime they want, but they can never leave.

#29 omg on 09.23.14 at 7:52 pm

#3 CPG

Six times in the past 50 years US equities dropped more than 30 per cent in 12 months.
—————

People need to ask of themselves “am I a speculator or investor?”

If you are a speculator and think you can time the market go play with the big boys and try to sell before the big correction – then buy back in low. You can make your millions if you think you can do that.

But if you are a long term investor do not worry about it – after each 30% drop, the market ended-up recovering and making new highs.

There are big problems with trying to time the market.

1) Nobody really knows what the market will do – those that claim they made the prediction were just plain LUCKY – out of the thousands of guys out there saying what the market will do, some will get it right just by CHANCE.

2) When do you call the bottom – if it has dropped 15% is that the bottom, maybe there is another 15% downside maybe not, maybe there will be a 70% downside like the Zerohedge wackos say. Just when do you BUY BACK IN.

3) if you miss the bottom and the market starts back up you will be frozen out – i.e. too CHICKEN to buy back in because the market has moved up and left you behind – millions are in this boat now – they sat on the sidelines in 2010 to 2013 and missed the biggest BULL market in a couple of generations.

4) Maybe there will not be a MAJOR correction and we will have a repeat of the 1990s when the market just keep going up and up without any sizeable correction.

THINK YA CAN CALL IT – GO AHEAD

#30 Pulp Faction on 09.23.14 at 7:53 pm

Great article !

This is exactly what I have been telling people about houses and nobody believes me or wants to hear it.

#31 devore on 09.23.14 at 7:59 pm

#3 CPG

It’s not so much that the signs were there before a downturn, but if that’s all you’re looking at you’re getting a bunch of false positives. Lots of times the signs are there, but nothing happens. This is why doomers are always in for a rough time, having predicted 20 of the last 5 recessions.

#32 omg on 09.23.14 at 8:02 pm

LET’S TALK ABOUT PEOPLES’ EXPECTATIONS

Right now in Canada people are expecting high prices for houses – and that is the way it will stay until some major catalyst changes the economics of the real estate market and brings people expectation down. END OF STORY.

Real estate prices are very sticky – people do not like to sell at a loss. They will get rid of their second Toyota, they will eat at home, they will ask their parents for help, my god they will even cancel HBO!

ONLY a CATALYST that will force people to sell will change the supply/demand enough to move prices lower. And currently the only catalyst that can do that is a significant increase in rates.

And with the way the Canadian economy is, do not expect rates to move up anytime soon.

(BTW, I have been a housing bear for longer than most of you have been out of high school. So let’s say it has taken me a while to come around to this viewpoint.)

#33 Nemesis on 09.23.14 at 8:03 pm

#BonusCryptic….

http://youtu.be/Yw-oVOmuFDg

#34 Inglorious Investor on 09.23.14 at 8:05 pm

Good post, Sir.

#35 Cato the Elder on 09.23.14 at 8:10 pm

Democracy only lasts until people realize they can vote themselves other people’s things.

Looks like we’re well past that point. We’re living in an age of mob rule. Make sure you’re on the side of the 51% when they get angry.

Pretty soon you’re only going to have ‘rights’ when you’re a part of some group. The individual is no longer sovereign. Heterosexuals will soon have to pretend to be gay in order to receive preferential treatment, Canadian born will have to pretend to be immigrant, and believers in limited government will have to pretend to love the nanny state.

Think I’m wrong? It’s already happening. Watch how quickly people get destroyed on television when they express any semblance of individuality.

It’s coming. People rarely think for themselves – they’re always staring at their phones. We are going to become the borg. I’m not joking.

#36 Italians love real estate on 09.23.14 at 8:14 pm

#20 Catalyst on 09.23.14 at 7:35 pm
The answer has been, and continues to be immigration.

Yes and it will continue, virtually unabated , for many years. One area it will be especially evident is along the yonge street corridor , north of steeles and south of major Mackenzie drive .

Given the coming LRT , an RE purchase along the route is a no lose proposition.

That was it. You’re out. — Garth

#37 Mark on 09.23.14 at 8:16 pm

“ONLY a CATALYST that will force people to sell will change the supply/demand enough to move prices lower.”

And that catalyst already exists — too many houses relative to demand for the houses from credit-worthy buyers. That’s why prices have been dropping for the past year and a half. And with prices remaining significantly elevated compared to replacement costs, additional new supply continues to flood into the market creating an additional glut.

Its not rocket science. The “catalyst” for the slowdown was simply demand exhaustion and tightening of CMHC subprime mortgage insurance rules.

#38 joblo on 09.23.14 at 8:18 pm

Just what the Machine wants and needs to control the sheeple of Kanata?
Debt up to your ears, Check
No increase in wage, Check
Fearful of job loss, Check
Dependance on social assistance, Check
Do not mention the elephant in the room, Check
GOTCHA

#39 Son of Ponzi on 09.23.14 at 8:21 pm

Talking about dinging:
Air Canada, WestJet and [email protected] come to mind.

#40 TS on 09.23.14 at 8:21 pm

Millenials:

My Brother and I took 3 year Engineering Technologist diplimas (graduated in 2001) that cost us $900 X 6 semesters plus books. I figured it was about $8000 for the 3 years.

Everybody I know who took that class is making $80,000+. My brother and I are making approx 6 figures.

I’m sure the tuition costs have gone up, but this is still true.

PICKING THE RIGHT COMMUNITY COLLEGE DIPLOMA IS YOUR BEST RETURN ON INVESTMENT!

#41 Uh Oh Canada on 09.23.14 at 8:23 pm

I’m sure all those wrinkly Boomers, with their plastic hips and botox lips, and little to no retirement savings are the parents of the over-educated, whiny, entitled little millennials. It’s a vicious cycle.

Garth- thanks for calling a spade a spade and for not being part of mainstream media. MSM is all about pop culture nowadays. Thanks for being uncool.

#42 Retired Boomer - WI on 09.23.14 at 8:26 pm

So, where to from here, asked the economic cab?

Wanna job, or buy a new home? Both seem important, but only one is really needed, that being the job. Do you ‘need’ a high cost education to get one, or improve on the one you might already have? Probably not yet.

Sure, an education is worth something, but I fear much less than advertised.

In an economy where jobs are being punted almost daily, where does one turn? Say NO to debt, that’s a given.

The basement is a nice refuge at least temporarily.
In my own past, it took many a year of working in less than stellar areas to develop the knowledge base, and experience to be ‘worth’ something more to an employer.

Since I am a mechanical idiot, a decent talker, and like people, sales was a natural. I also liked the transport industry, who always seems to need people.

Not a truck driver, but with enough basics to sell transportation there was my ‘in.’ After being fired a few times, but by now at least knowing the workings of that trade it was an easy fit to manage someone’s distribution needs.

No degree needed there just your contacts, and street smarts. Transport has always paid well but the hours are long, and the intricacies of the business many.

So for the under employed, just a thought. Wherever you make the crap, the market will be elsewhere, it’s been that way for a century. Go forth and prosper, do NOT whine. No one has all the answers.

Talk to those already in the industry, get an entry level position, see how you like it. It may not be for you. Hey, what have you to lose here?

#43 miketheengineer on 09.23.14 at 8:26 pm

Garth said:

“It gets worse. The Millennials are pooched, too.”

Garth my good buddy, you forgot to mention how US Steel is going screw lots of little old “Grandma’s” and
“Grandpa’s” out of their pension money. 15000 of these old people, some to old to fight for themselves, due to poor heath, are being taken advantage of by this company. This is a shame, that these old people, who produced steel for this country during WWII, now have to sweat and worry and fear, if they are going to get their monthly check, fought for by lengthy strikes over many decades. Shame on the company. Shame on the politicians. This should not be happening to 90 year old grandma’s and grandpa’s.

Here is a link to the article:

http://www.thespec.com/news-story/4874690-u-s-steel-owes-94-million-to-suppliers/

http://www.thespec.com/news-story/4869635-union-says-u-s-steel-plan-conspiracy-to-commit-fraud-/

The companies in and around Hamilton are going to have dire financial difficulty now. The pensioners are going to have financial difficulty now. How many people are going to go bust in Hamilton. Where are all those Grandma’s going to go? How about real estate values when 15000 pensioner’s go to unload their home on mass in the next 2 to 4 years, when they run outa money. Think about this people. This is serious. This is seriously going to affect the city of Hamilton.

#44 Mark on 09.23.14 at 8:27 pm

“With no manufacturing in Canada and head offices not moving here, where are these new jobs going to come from?”

Luxury consumption is likely to be a significant growth area in Canada as homeowners get a lot poorer, while owners of financial assets, particularly stocks, get much richer. The RE crash in Canada is going to concentrate a lot of wealth in the hands of the top 1-5% of Canadians who are heavily invested in stocks and other financial assets, relatively speaking. Civil servants and “joe sixpack” homeowners will once again be eating Hamburger Helper and crying poor, after the past decade or two of being propped up with high house prices and cheap debt.

#45 crowdedelevatorfartz on 09.23.14 at 8:28 pm

@#16 Geofferson

Is your first name “George” and do you rent a “dee-lux apartment in the sky”?
All I can say is……..Good Times

#46 Italians love real estate on 09.23.14 at 8:28 pm

#37 seriously who or what sensibility did I offend ?

The only one that matters. Ciao. — Garth

#47 Mark on 09.23.14 at 8:30 pm

“My Brother and I took 3 year Engineering Technologist diplimas (graduated in 2001) that cost us $900 X 6 semesters plus books. I figured it was about $8000 for the 3 years.”

Great for you, but I know graduates of that era in certain technologist and engineering fields who still aren’t employed. Why? Because their training was in electronics and IT, and that particular industry in Canada mostly collapsed.

So I’d extend your comments by saying that the field of choice also matters, and hopefully its one that’s in favour upon graduation and for at least a number of years afterwards. Because if its out of favour, well, just like the IT grads of that era, the ‘education’ may very well be worthless.

#48 crowdedelevatorfartz on 09.23.14 at 8:31 pm

@#21 Bill Gable
Actually its like living above a bowling alley with a view of the 7-11 across the lane.

Nothing like a 4am “wake-up” call from the garbage trucks back up “beepers” when they’re dumping bins…..

#49 bigrider on 09.23.14 at 8:36 pm

#36 Italians love real estate.

Don’t know why you are being kicked out at all , but based on your posts yesterday , some funny ,some not so much , on balance you can be annoying .

You are dead wrong on your “RE goes up forever” mantra.

I read the T.O Life article. On balance, all it did was add fuel to the millennial obsession with RE

#50 ILoveCharts on 09.23.14 at 8:36 pm

The plan has three components:
1) The HAM
2) Continued movement into cities (a worldwide phenomenon) will help those prices to stay high
3) As our currency hits the crapper, it gets even better for HAM and also helps our export industries

#51 crowdedelevatorfartz on 09.23.14 at 8:37 pm

@#40 TS
“My Brother and I took 3 year Engineering Technologist diplimas ….”
+++++++++++++++++++++++++++++++++++
Glad to know those “diplimas” weren’t in English Composition.

But….you’re right.

English Lit. majors are working at Starbucks while you and your brudda are makin the bucks!

shine on you crazy diamond.

#52 Brian Ripley on 09.23.14 at 8:38 pm

Savills released their HNW (High Net Worth) city appraisal this week.
Canadian cities did not make their top 12 list.

Some Charts here:
http://www.chpc.biz/history-readings/commuter-lament

Shanghai, Moscow & Mumbai: Potentially over-valued with weak or falling rents.
London, Singapore, Hong Kong & Paris: Fully valued, static prices or trending down.
New York & Sydney: Becoming fully valued but still rising at slowing rates.
Tokyo: Recovering, still trending modestly upward.
Dubai & Rio de Janeiro: Growing strongly but volatile.

#53 Happy Renting on 09.23.14 at 8:41 pm

#142 Millennial_Falcon on 09.23.14 at 10:43 am

I liked Mark’s answer to you, yesterday, and have another thought to add. The “bubbliness” only matters to the extent that it affects you (i.e. how much risk you’ve taken on.)

If your house’s value tanks 30% but you have secure income, can easily make the mortgage payments, are diversified into other assets, and aren’t looking to sell for a couple of decades, then no problem. You’re not a flipper, the house is just a place to live. If you have minimal equity in the place, could barely make the payments, then lost your job, you are screwed. Same market action, but playing it too close to the edge (as it seems many are) makes the effect catastrophic. Plus, owning a single house is not diversified.

So say we get a stock market correction (say everything goes: Canadian, US, International equities.) What are the bond, REIT, preferred, and cash portions of your portfolio doing? The diversification should help temper the overall decline, maybe even completely compensate for the loss in value of the equity portion. You’ll sustain lasting hurt if you needed to sell your equities in the near term and required the money to live on, or if you levered up and are now getting margin calls. But as a Millennial, you should be saving and investing, not looking to live off the value of your assets any time soon, and not buying on margin unless you’re really confident you know what you’re doing (sure enough of yourself that you had an answer to your friend’s question – you are on your way but not quite there yet.) Market timing is notoriously tricky. Anyone still waiting since 2009 can tell you that.

Read blog posts back a few weeks, I recall Garth did comment on PE ratios recently (sometime this month?) They are not nearly as bubbly as Tor/Van RE.

#54 NoName on 09.23.14 at 8:45 pm

#35 Cato the Elder on 09.23.14 at 8:10 pm

“We’re living in an age of mob rule. Make sure you’re on the side of the 51% when they get angry.”
what hey gonna do to other 49%, unfrend’em?!

51% percenters
http://youtu.be/uEY58fiSK8E?t=1m24s

#55 Smoking Man on 09.23.14 at 8:45 pm

#32 omg on 09.23.14 at 8:02 pm

Winner, winner chicken dinner.

Nice to see some thinkers in here as opposed to wish full bias parrots.

#56 Cato the Elder on 09.23.14 at 8:47 pm

#46 Italians love real estate

#37 seriously who or what sensibility did I offend ?

The only one that matters. Ciao. — Garth

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

Garth is the don.

#57 bubu on 09.23.14 at 8:50 pm

The prices can go higher if Ottawa wants.. change the CMHC rules to 40 years again.. do the math at 2.89% and you will see it is possible…

#58 I'm stupid on 09.23.14 at 8:52 pm

#26 Mikef

GTA

#59 Doug in London on 09.23.14 at 8:56 pm

Who, exactly, do they think will be buying their houses?
—————————————————————-
All those wealthy foreigners, with their HAM, that’s who. Ya right, if you believe that I’ll sell you some Nortel shares at the bargain basement price of “only” $1000 each.

@I’m stupid, post #11:
If you see the storm coming and are preparing for it, you’ve been paying attention and aren’t so stupid after all. A lot of people who don’t see what’s coming will be caught off guard and won’t know what hit them.

#60 Pounding sand in Peachland on 09.23.14 at 8:56 pm

Cool

#61 miketheengineer on 09.23.14 at 9:03 pm

More on the US Steel Bankruptcy:

If you want the full story, here it is.

http://www.uswa1005.ca/Information_Update_24_September_18_2014.pdf

When you look at the photo in the link, my father was usually holding 1005 banner on the left side and his good buddy Larry would be holding the right side. My dad passed last year due to asbestos in his lungs (due to exposure on the job at Stelco, back in the late 1950’s and early 1960’s, before WHMIS). He (my dad ) can’t continue the fight for all the other widower’s that depend on the pension check (the get 1/2 of what their spouse would get). Cutting the pension checks, thanks to US Steel…is going to cause a lot of hardship for a lot of pensioner’s in Hamilton, who due to age, or poor health, can not fight the company any longer.

http://www.uswa1005.ca/Information_Update_24_September_18_2014.pdf

It is a sad day for me, I just had to bury another of my Uncles, today, due to Cancer, and he died the same way my dad did.

#62 The Plan: on 09.23.14 at 9:12 pm

The plan is REVERSE MORTGAGES, I’m thinking…..
That is, for those that actually HAVE any equity left in their houses to begin with!

#63 Linda on 09.23.14 at 9:12 pm

Garth, I agree that many Boomers are depending on RE to bail their retirement out & like you say, the first wave will get the gold, the rest will be crying as no one will want or be willing to pay for the vast amount of RE for sale.

Regarding the Gen X,Y, Z etc – given that the ‘youngest’ Canadian baby boomer will be 65+ in 2031 – 17 years from now – & the youth of today w/b in their 40’s at most I’d say they are not going to suffer as much as the doom & gloom merchants would have you believe. Sorry, but unless the health system gets a treatment that will allow all the wrinkly Boomers to live forever with youth & functioning brains enough to keep on working, a LOT of people will be hitting the retirement home. More than the ones left behind. So though it may take a while yet, all those Gen X, Y & Z types will have jobs a-plenty to pick from, always presuming the work doesn’t get moved abroad – if nothing else, desperate Boomers will be hiring the youth of today to change their Depends, mow the lawn their arthritic bodies can’t take care of etc. Maybe they will make their wills in favour of said youth as many have no children of their own to pass the goods on to……

#64 Thomas on 09.23.14 at 9:21 pm

I have to say, all this talk about sniveling Millennials is off base. Never before has a generation REQUIRED so much (i.e. at least a bachelor’s degree) to even be considered for employment. If the baby boomers and gen x’ers tried to get the positions they have today with the entry requirements they had when they started out they would never get jobs. Moreover, it was baby boomer and gen x parents who told their Millennial children the world was their oyster, so who can blame them for wanting more out of life than a McJob.

#65 Smoking Man on 09.23.14 at 9:30 pm

#62 Linda on 09.23.14 at 9:12 pm

Let’s look at boomers parents, just try and pry them out of there homes…

This is what happens as people age… They start buying loto tickets, mind goes a bit, they go religious. A bit more and they don’t remember draw night, they stop watching TV.

But don’t dream of putting them in a home, they don’t like change..

You make your assumption on aging boomers based on logic.. And a young mind.

I base mine on what I’ve seen with own eyes what happens to the aged.

They ain’t selling… Trust me..

#66 The Plan on 09.23.14 at 9:35 pm

The plan will be REVERSE MORTGAGES, I’m thinking…..
That is, for those that actually HAVE any equity left in their houses to begin with! Boomers will figure “oh, what the heck, I paid this thing 80G’s way back then, I have no money, I deserve to retire and I still need a place to live, so hey, what if I “lose” a couple of bucks on a reverse-mortgage?”

They will probably enforce their thinking by saying: “my kids are pretty smart, they’ve “made it”, they don’t REALLY need an inheritance anyway…Nobody left ME anything..”

#67 Leo Tolstoy on 09.23.14 at 9:38 pm

#62 Linda
“Garth, I agree that many Boomers are depending on RE to bail their retirement…”

Garth didn’t say this. And it isn’t true anyway. Boomers are the wealthiest cohort in the country. Their homes have the least mortgage debt (if any at all) and they are flush with pension benefits and cash.

Their real estate, like all Canadian home owners, continues to appreciate. As it has been for 20 years. This is why posters never cite any price change data longer than a handful of months (if they cite price data at all).

#68 Shawn on 09.23.14 at 9:38 pm

Billions of Dollars making Zero?

“Meanwhile 80% of all TFSAs are in cash or dead-end GICs, while interest rates are at historic lows. That means billions of dollars are making zero.”

*****************************************
Don’t worry the banks are using those billions to make tens of millions for bank shareholders. And that, surely, is a good thing.

#69 Nemesis on 09.23.14 at 9:39 pm

#JustForMike… #TheEngineer.

#TheBeatingHearts… #TheyWereInvolved…

http://youtu.be/jN90nHRHBVI

#Circles… #OfSteel.

http://youtu.be/yUshOpTPdl4

[NoteToMike: I know a thing or two about SteelyResolve { http://youtu.be/TcXfk0op6JA }. I am so sorry for your loss. Condolences.]

#70 devore on 09.23.14 at 9:43 pm

The Italian Dude shtick overstayed its welcome, I wonder which annoying fake persona is next? Who knew this blog would be such a drama-filled place. Can’t wait for next episode!

#71 Mark on 09.23.14 at 9:45 pm

“The prices can go higher if Ottawa wants.. change the CMHC rules to 40 years again.. do the math at 2.89% and you will see it is possible…”

Nope, once momentum is to the downside (which it now is), and once over-investment in an asset class is apparent to all (which it now is in Canada) no amount of extra credit emission can save things. Ownership rates are already at 70%, which is a historic high. There is no “pent-up demand” which could be satiated through weaker credit standards and lower interest rates.

Nobody (except the very stupid) will deliberately take on leverage if the common perception is that an asset is losing value. And I don’t think you can really argue that buying Canadian RE at the current nosebleed levels (albeit down minorly from the peak a year and a half ago) is any sort of long-term contrarian play.

#72 Mark on 09.23.14 at 9:47 pm

“They will probably enforce their thinking by saying: “my kids are pretty smart, they’ve “made it”, they don’t REALLY need an inheritance anyway…Nobody left ME anything..””

Okay, but that will be quite an inheritance for the smart kids who bought bank shares. It has been said that with a conventional mortgage “to buy”, you pay for a house approximately 3 times. So for a reverse mortgage, the buyer may very well only get 1/3rd of the long-term equity out as consumption.

So effectively, a retiree who spent all their life paying on a mortgage (ie: buying 3 houses, 2 for the bank, 1 for themselves), and reverse mortgages, may very well have bought the equivalent of 9 houses and only gained the consumption of one over their lifetime. What a pathetic and sad state of affairs, which is why bank shareholders over the long term become very wealthy!

#73 economictsunami on 09.23.14 at 9:48 pm

A couple of interesting reads:

OECD: America Is No. 1 In Low-Paying Jobs

http://www.businessinsider.com/oecd-low-wage-paying-jobs-by-country-2014-9

Ireland, Canada and the UK round out the top four.

Why did they borrow?

http://coppolacomment.blogspot.co.uk/2014/07/why-did-they-borrow.html

Let’s abandon the generational divides; many, unfortunately will end up in the same boat.

No need to re enact arguing over the bar bill on the Titanic…

#74 Shawn on 09.23.14 at 9:48 pm

High Paying Trades Jobs

Talked to an 18 year old kid on the weekend. Friend of my own 19 year old. The kids were on the same hockey teams years ago.

So the 18 year old is taking power engineering. I asked how long the program is. He said after just this academic year he will get his 4th class power engineering and will be “set for life”. But he might upgrade to third or second class later with another year or so school.

Kid’s dad is a plant operator at a petro chemical plant and makes big dollars on 12 hour shifts.

Coincidently on global tonight Jason Kenny is talking about how the Northern Alberta Institute of Technology in Edmonton got something like 1600 applications for 100 spots in power engineering.

Another friend of my sons around 19 or 20 years old took a trade and apparently lives “at home” and makes $100k a year.

These kind of stories are why I don’t find a university education to be superior to trades. Unless you do medicine or law or something in demand a university degree has a poor cost /benefit ratio these days compared to many trades.

#75 Mark on 09.23.14 at 9:49 pm

“Never before has a generation REQUIRED so much (i.e. at least a bachelor’s degree) to even be considered for employment. “

Actually most jobs created over the past decade have deliberately excluded those with Bachelors degrees, except in health care. “overqualification” is very common. The Bachelors degree actually seems to have negative value in this environment.

#76 Mark on 09.23.14 at 9:51 pm

“Read blog posts back a few weeks, I recall Garth did comment on PE ratios recently (sometime this month?) They are not nearly as bubbly as Tor/Van RE.”

I calculated a P/E of around 35 for Canadian RE, which, if RE was a stock, would be considered horrifically high for a “stock” that only grows its earnings roughly at the rate of inflation (ie: 2%/annum).

The TSX can be bought at a P/E of around 15, with long-term earnings growth in the 3-5% range. For a total implied long-term return of between 10 and 12%/annum.

#77 Smoking Man on 09.23.14 at 9:55 pm

#40 TS on 09.23.14 at 8:21 pm

Getting a university education is a huge risk. I never stopped my offspring from participating. But they didn’t need It. And none finished. Lasted a year.

The only thing useful University does is embed an ego, a feeling of importance over the un schooled.. That’s it, everything else free of charge at the University of Google.

With my kids, the felt special from the get go.. Like pops, they didn’t need It.

A superiority complex is all that’s required for the yellow brick road, a bit bumpy at times..

That’s life…

If you bring your kids up with phyco discipline, rules and order. Send em to school…

#78 Grantmi on 09.23.14 at 10:08 pm

Don’t believe that whole SELF-EMPLOYED mubble jumbo numbers.. every Canadian does it after they get fired or laid off…..

i was laid off during the 2008 crisis.. and the only thing that gave you hope was to start a consulting business as self employed just in case you got any customers you were getting the tax right offs right away..

In the mean time.. i was looking for full time work the whole time i was SUPPOSEDLY SELF-EMPLOYED!!!

Those numbers lie!!!!

#79 Smoking Man on 09.23.14 at 10:09 pm

We live in a world where the black hole of money, it’s gravity getting stronger attracting even more..

A black tee shirt and a cardboard sign, and a protest will get you in a fema camp..

Learn to sell dogs… The only thing the black hole appreciates and rewards..

#80 Victor V on 09.23.14 at 10:11 pm

PRICE DROP #3 – 224 Dovercourt Road -BEACONSFIELD VILLAGE

http://themashcanada.blogspot.ca/2014/09/price-drop-3-224-dovercourt-road.html

This is going to take a while.

The ‘Romantic Mansion’ bed and breakfast at 224 Dovercourt Road was first listed a year ago in October (yes, it is almost October).

It has 9 guest bedrooms and 5 bathrooms and it sits on a 28 x 100 foot lot.

And they were asking $3,750,000.

Suuuure…

There was no WAY this was selling for almost $4 million!!!

It didn’t sell and in February, the price was dropped to $2,999,900.

Still no sale and by April, the price was down to $2,695,000.

It still hasn’t sold and the price is down again.

The new asking price is…

$2,490,000.

Though it is still WAAAY too high….

#81 Horst Von Landengrabber on 09.23.14 at 10:13 pm

Garth

How much will RE have to drop before you can declare victory and the war to be finished. In true contrarian fashion would you then be calling for the RE market to rise again. All of this schadenfreude must have an endgame, ya?

#82 WhiteKat on 09.23.14 at 10:13 pm

@The Jaguar, #5, Garth has a ‘style’?

#83 Smoking Man on 09.23.14 at 10:26 pm

DELETED

#84 Waterloo Resident on 09.23.14 at 10:29 pm

While the over-heated housing market does not seem to be falling in the greater Toronto area, the stock market has begun to fall a little bit.

I sold a little while ago while the S&P 500 was at 1995. Then it fell a bit, then shot up dramatically on ‘HOPE’ that China would be bringing out huge stimulus packages, but that fell through and now the S&P 500 is at 1983 and I expect it to fall down to about 1960 before continuing its run up.

I don’t expect the stock market to crash by 20% like everyone seems to be talking about, but it will fall a bit more than it is now, then rise up again.

As for houses; I expect as the interest rates rise —- heck, people are NUTS, anything is possible there also. Frankly I think the housing market will keep going up and up to the moon until only Billionairs can afford a house in Toronto.

#85 Harbour on 09.23.14 at 10:42 pm

“Meanwhile 80% of all TFSAs are in cash or dead-end GICs, while interest rates are at historic lows. That means billions of dollars are making zero.”

……………………………………………………………………..

Count me in on that group… the only reason I opened a TFSA up and put $10 in it was because then I wouldn’t have to pay $6 a month bank account fee.

#86 Mark on 09.23.14 at 10:44 pm

“How much will RE have to drop before you can declare victory and the war to be finished. In true contrarian fashion would you then be calling for the RE market to rise again. All of this schadenfreude must have an endgame, ya?”

I’m not Garth, but I’d want average housing to be less than 2.5X annual wages, and for subprime credit largely to be extinguished from the marketplace before it would even begin to interest me.

The rule of 100, or never pay more than 100X monthly rent, for investment real estate, also would be a metric indicative of a good investment opportunity. The calculated P/E ratio on an asset that grows at the rate of inflation should be around 8. Might stretch a bit for a principal residence.

Psychology also has to shift. Mothers-in-law have to forever be disabused of the notion that buying housing with large amounts of credit is the first thing that newly married people have to do. Ownership rates should be down in the low 60% range. Mortgages only handed out to the highest quality and more credit worthy borrowers, after extensive examination of their assets and long-term repayment credibility.

#87 Smoking Man on 09.23.14 at 10:46 pm

Deleted, bahaha

Oh Garth, love you man. Why does this delete remind me of my wife…

When we have bed time fights over who gets the last word in.. Even fake, Cs, AK. caughs are considered words and battle for last word continues… I usually lose, only cause I pass out..

Your a beauty dude, never change.. You competitive bastard….

#88 Kenchie on 09.23.14 at 10:54 pm

#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?”

Ummm, gov’t owned corporations can and are run, generally-speaking, as for-profit organizations. Otherwise, they would be explicitly subsidizing consumers. However, Crown corps do usually have some other mandate to go along that doesn’t necessarily attempt to maximize profits (which isn’t advisable because they often have monopolies).

For example: LCBO makes a profit. ICBC makes a profit. BC Liquor stores makes a profit. BC Hydro makes a profit, often at the expense of Americans (read up on Powerex lawsuits). I assume SaskTel operates at a profit too. Quebec Hydro makes a profit. And yes, CMHC makes a profit (according to the NP article it’s provided $18bn in dividends/transfers to the gov’t in the past decade).

Just because organizations owned by gov’ts doesn’t mean they aren’t managed by professionals to run them as efficiently as possible (as if they are private organizations), and provide extra funds to the gov’t, which allows the gov’t to not levy taxes.

Take CPPIB, a gov’t owned enterprise, for an example. My cousin was “lured” back to Canada (his words) from a NY hedge fund because CPPIB has competitive pay packets and better work-life balance. CPPIB gets 100s, if not over 1000, of applicants for analyst roles when they come up. It’s exceptionally competitive, believe it or not.

The world is a different place than when Milton Friedman et al said that gov’ts can’t do anything efficiently and it’s best left to the private sector. MF’s blanket statement needs to be taken on a case-by-case basis.

Capiche?

PS: just like LCBO for the Ontario gov’t, why would the Feds give up a cash-cow like the CMHC? If it’s a great company that is run well, it’s common sense to own the whole company (like Warren Buffett likes to say) for the long term.

#89 Inglorious Investor on 09.23.14 at 10:56 pm

Income growth and inflation.

Over the past several years we’ve heard many economists and analysts lament that incomes have not grown in real terms. Let’s assume this means that incomes have grown at the same rate as inflation. (We all know CPI does not reflect real inflation, but for the sake of argument, let’s say inflation=CPI.)

So incomes are stagnant in real terms. So what? What’s wrong with that? Keep in mind that rising incomes are a source of price inflation.

IMO, a person’s income should be indexed to inflation, but any raise in pay should not exceed the rate of inflation unless their job description changes (e.g. promotion, increased responsibilities). If an employee performs beyond expectations in a given year they should be rewarded with a bonus and/or other rewards/recognition. This approach rewards employees based on performance and avoids salary creep, while keeping pay steady in real terms.

Martin Armstrong says that without inflation, assets would not rise in value, so be careful what you wish for. I am surprised that someone like him would make such a statement. I would argue that, for real assets under steady state conditions, that’s indeed the case, with or without inflation. Price increases in real estate largely reflect inflation (the debasement of money). So, under more or less static conditions, if a house price increased from, say, $500,000 to $550,000, the real value of the house did not change. The higher price simply reflects the reduction in the purchasing power of the currency.

However, there are other factors that do raise the value of assets in real terms. Demand is one. Productivity is another. Real estate values can increase in real terms if demand is sufficiently high to drive prices higher beyond the rate of inflation. While assets like stocks can rise in real value if a company becomes more productive.

This steady state of affairs would require a sound currency, rather than the paper trash we use today that is being debauched like a $50 whore at a gang bang. But if, by some miracle, we ever do have an actual sound monetary system with a stable currency, price increases in the economy would signal actual growth––growth in demand and growth in productivity. GDP would actually mean something. But when a currency is being debased, as today, price signals become distorted and lead to malinvestment, making a bad situation even worse.

Furthermore, in a healthy economy, technical innovations would increase efficiencies while increasing productivity. So there will be more wealth and consumer prices can decline in real terms because the only source of inflation would be actual, bonafide demand, which would come from real increases in wages, which would come from real increases in productivity.

One can dream…

#90 Kenchie on 09.23.14 at 10:59 pm

#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.”

Ummm, do you know the intricacies of the CMHC’s risk management program? How do you know they don’t parcel out their risk to global investors via Lloyds of London? Unless you do, don’t bother talking about them as if you do know. I’m sure they hire more qualified actuaries than yourself.

#91 Mark on 09.23.14 at 11:03 pm

“PS: just like LCBO for the Ontario gov’t, why would the Feds give up a cash-cow like the CMHC? “

The CMHC isn’t a ‘cash cow” over the entire long-term cycle in housing. Quite the opposite, its a cash sink, which will require a substantial bail-out as its 45X leverage into subprime mortgage guarantees explodes in their face in the declining housing market. And actually did require a bail-out in the past.

As for the LCBO, its inefficiently run, and represents a poor use of the capital of the taxpayers of Ontario.

#92 Mark on 09.23.14 at 11:06 pm

“Ummm, do you know the intricacies of the CMHC’s risk management program? How do you know they don’t parcel out their risk to global investors via Lloyds of London? Unless you do, don’t bother talking about them as if you do know. I’m sure they hire more qualified actuaries than yourself.”

If CMHC had external re-insurance of its obligations, it certainly would be disclosing such in its reporting, right? But all we see in their reporting is effectively 45X leverage into subprime mortgage loan guarantees. Roughly $600B written by them, and another $300B of 3rd party subprime mortgage insurance re-insured by the CMHC at 90%.

CMHC claims their level of capitalization is adequate using an actuarial analysis that obviously only considers random losses, not systemic losses due to a broad based decline in the housing market. The same fatal flaw engaged in by the various participants in the US financial system in their financing bubble. Everyone assumed that a few subprime mortgages would go bad in a pool, but they never envisioned that an entire MBS pool worth of them could go bad all at once!

#93 Shawn on 09.23.14 at 11:06 pm

Return on TSX

Mark at 75 said:

The TSX can be bought at a P/E of around 15, with long-term earnings growth in the 3-5% range. For a total implied long-term return of between 10 and 12%/annum.

*******************************************
I believe you will find that the formula is Cash Dividend yield plus expected growth equals expected return. Not earnings yield plus growth in earnings.

TSX dividend yield, last I checked was in the high 2’s so not more than 3.0%. With 3 to 5% growth that is 6 to 8% expected total return which is not too bad when interest rates are so low.

#94 Fed-up on 09.23.14 at 11:09 pm

“So the central bank figures it’ll take at least two years for things to improve.”

————————————————————————

I really have to laugh at vague and meaningless statements such as these. What on earth will happen in 2 years that will make things “improve” in Canada when it comes to good full time jobs?

-manufacturing going down the drain fast
-tech jobs disappearing at an alarming rate
-bloated debt everywhere
-primed for a serious real estate correction that now makes up about 25% of the economy all considered
-strong possibility of significantly higher interest rates
-beyond obese and unsustainable public sector (we’ve basically turned into Greece in this regard). We all can’t work for the government!!!

Just wondering that’s all.

#95 Stomper on 09.23.14 at 11:13 pm

Garth – can you post a link to the report?

#96 Shawn on 09.23.14 at 11:17 pm

Another Reason House Prices are so High

A reason you seldom hear…

Consider that we have set up our society such that a good job, once obtained, is relatively easy to keep, and hard to lose. That is jobs are sticky.

The higher the job pays, in general the harder it is to lose. Not many government people get fired or laid off. People working for the banks and the likes of CN don’t often get fired. Even at private companies there is a certain tendency to be able to hold onto a job unless you really mess up. Yes, I know jobs can be lost when business turns down, but in general if you have a job today, you likely will have that same job next year. And unless you leave on your own there is a pretty good chance that if you are over 30 and have a good job, you will be with that same employer in ten years if you wish to be. Most people leave on their own, getting laid off or fired from a good job is not super common.

Society frowns on indiscriminate firings and tends to require severance pay.

Now, what has this got to do with house prices? Well, everything actually.

If jobs were not sticky and easy to hang on to and were not usually stable then the banks (and CMHC) would have a much harder time getting comfortable lending hundreds of thousands to average families.

Sticky jobs means stable employment means low risk of default means cheap money means expensive houses.

Now sticky jobs alone are not a guarantee that house prices will stay high, but they are a factor that has supported today’s house prices.

#97 Kenchie on 09.23.14 at 11:17 pm

#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’”

Finally, a reasonable response from you my friend. I agree that the insured Securitized products are where the unknown risks are. But CDSs are significantly riskier than insuring property as the CMHC does.

First of all, CDSs are triggered upon default (AIG had to payout $440bn because they were on only one side of the trade – i.e didn’t offset risks), in which the CDS issuer has to payout cash and take ownership of the bond. These bonds have likely fallen to zero or just a few cents on the dollar. Conversely, CMHC takes ownership of the house/land, which also may have fallen, but it isn’t going to fall to zero, or just a few cents on the dollar.

Secondly, CDS notional values greatly outstripped the value of the bonds that they underlined, and the owner of the CDS didn’t even have to own the bonds in order to get a payout. So it was more akin to gambling and the cash flows at risk were significantly higher than the underlying bonds.

Thirdly, if an overextended private-sector insurer, such as AIG 6 years this week, is in trouble, the capital markets will run away from them like the CEO has ebola. However, CMHC, with it’s backing of the gov’t of Canada, will still be able to tap the markets. It may cause some short-term losses for taxpayers, but not nearly as much as the $172bn the US taxpayers stumped up over the course of AIG’s bailout.

#98 NotAGreaterFool on 09.23.14 at 11:18 pm

Can’t remember the name but one of these groups said (this week) wages needed to go up to support mortgage payments. Same thing Ed Clark had said recently. This means Canada will continue to become less competitive (bye bye car manufacturers).

#99 Shawn on 09.23.14 at 11:22 pm

And SHOULD Jobs be so Sticky?

I don’t know. It certainly helps out with stability in the community. It means we can borrow easily.

But it also means that it is not that easy for employers to clear out the deadwood.

And if it is hard to get rid of a sub-par employee, then guess what? Employers are hesitant to hire.

If you have a good job, you are not wise to quit without getting another good job first. But those are hard to find. So we end up with lots of people stuck and bored in jobs they don’t like. And employers are often stuck with sub-par employees.

A LOT more labour mobility and less stickiness of jobs would have its benefits.

But overall society has chosen to make jobs fairly sticky.

#100 Mark on 09.23.14 at 11:23 pm

“Martin Armstrong says that without inflation, assets would not rise in value”

Of course assets would rise in value without inflation. If legitimate improvements were made to assets, their value would rise. Low inflation has propped up house prices by creating an environment in which lenders feel comfortable lending. The worst possible thing that could happen to house prices worldwide would be for inflation to pick up as lenders would demand a significant risk premium not only for current inflation, but to compensate for predicted future inflation.

In the extreme case, hyperinflation, houses become nearly worthless as there is no credit, and no money to speculate on them.

#101 NotAGreaterFool on 09.23.14 at 11:25 pm

Here is a quick and easy summary of the dilemma faced by Government and Banks in Canada.

Why banks want saving from themselves:

http://www.macleans.ca/economy/economicanalysis/the-household-debt-bomb-why-banks-want-saving-from-themselves/

#102 Kenchie on 09.23.14 at 11:26 pm

#109 Sheane Wallace on 09.22.14 at 11:15 pm
“http://en.wikipedia.org/wiki/Credit_default_swap

CDS description. Sounds familiar?”

Saw this post after writing my above post.

Since you acknowledge that they are different and you describe the problems with the AIG collapse, why would you insist that the CMHC is riskier than AIG in 2008?

#103 Mark on 09.23.14 at 11:27 pm

“And SHOULD Jobs be so Sticky?
I don’t know. It certainly helps out with stability in the community. It means we can borrow easily.
But it also means that it is not that easy for employers to clear out the deadwood.

And if it is hard to get rid of a sub-par employee, then guess what? Employers are hesitant to hire.

Higher inflation means that employers, instead of firing sub-par employees, can simply not give them raises for a number of years, and hope that the ‘dead wood’ eventually goes away. The low inflation environment as we’ve seen over the past decade means that employers have to take more active steps to rid their workplaces of underperformers. As the current doctrine really doesn’t facilitate just lowering people’s salaries.

The poor economy we’ve seen over the past decade, ex-FIRE, ex-O&G, has kept a lot of good people ‘stuck’ in jobs they’re not fully suited for. Excessive labour slack can be profoundly damaging to employers as they fail to recognize the need to place employees in roles that are best suited to their talents. This is why Janet Yellen is absolutely correct in identifying that excessive labour slack, and not necessary a shorter-term up-tick in inflation is one of the greatest threats to the economic stability of the US economy.

#104 Kenchie on 09.23.14 at 11:30 pm

#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…”

And all this “irrational exuberance” despite the steadfast usage of the gold standard. What a kawinkydink, eh? Nope, it’s not. No matter how hard a currency is, it can’t stop irrational human behaviour.

#105 Nemesis on 09.23.14 at 11:33 pm

#CowboyWake…

http://youtu.be/H_XhTnzlmbk

#106 young & foolish on 09.23.14 at 11:35 pm

“So, what’s the plan?”

… kicking the can, and waiting for the “next big thing” ….

#107 Mark on 09.23.14 at 11:36 pm

However, CMHC, with it’s backing of the gov’t of Canada, will still be able to tap the markets. It may cause some short-term losses for taxpayers, but not nearly as much as the $172bn the US taxpayers stumped up over the course of AIG’s bailout.

Yeah, the GoC/CMHC will have to borrow from the banks to whom they’re making the CMHC subprime mortgage insurance payouts, to actually make the payments. So basically the banks will earn it twice – first on lending to the government, especially in a situation which may be a bit distressed. And secondly, on getting repayment in full on CMHC insured subprime mortgages in an environment in which such mortgages are significantly valuable. There will probably be an issue with the quantity of funds available in the Canadian marketplace to do this, hence, the BoC will have to engage in policy actions (ie: QE) to create the funds much like occurred in the US.

$172B doesn’t actually sound that far off the market for the ultimate liability of the CMHC. Considering they have $900B of subprime mortgages under insurance, and considering that Canadian RE probably has to drop 50-70% to mean-revert to historic average metrics.

#108 Mark on 09.23.14 at 11:40 pm

“Since you acknowledge that they are different and you describe the problems with the AIG collapse, why would you insist that the CMHC is riskier than AIG in 2008?”

AIG was a large diversified insurance conglomerate, in a large number of lines of business. With no sovereign backing, and certainly better risk management practices than the CMHC. There was real private sector money at stake with AIG.

CMHC is almost a one-trick pony with the subprime mortgage insurance they offer. A good chunk of CMHC’s “assets” are correlated to the housing market (such as their social housing “investments”). The leadership of CMHC is politically appointed and has no meaningful “skin in the game”. Risk management is an obvious joke (charging the same subprime mortgage insurance premium to someone who lives in Brandon, MB as someone in Vancouver, BC!!!).

#109 young & foolish on 09.23.14 at 11:44 pm

Perhaps we are living through a period which will be remembered as the “Hubris of Keynesianism” …. huge debts and endless regulations chocking the developed economies. Everybody in the G20 is drinking the same koolaid.

Your balanced portfolio won’t save you either.

#110 Kenchie on 09.23.14 at 11:52 pm

#112 Sheane Wallace on 09.22.14 at 11:24 pm

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

Agreed. Although increasing the principal by the CMHC fee does effectively increase the interest rate beyond the listed interest rate.

For example:

Price: $500,000.00
Downpayment: $60,000
Payment: $2,136.61
Rate: 3%
Term: 25

CMHC Premium = $10,560.00
Total Mortgage = $450,560.00

Effective interest rate = 3.2173%

About 22 bps higher than listed interest rate.

That said, it may or may not be enough of a spread to cover default risk. But that’s a question for the CMHC actuaries to worry about.

#111 Mark on 09.23.14 at 11:53 pm

“I believe you will find that the formula is Cash Dividend yield plus expected growth equals expected return. Not earnings yield plus growth in earnings.”

They both come out to roughly the same numbers. Retained earnings re-invested drive a much higher dividend growth rate than using earnings + nominal GDP growth.

TSX dividend yield, last I checked was in the high 2’s so not more than 3.0%. With 3 to 5% growth that is 6 to 8% expected total return which is not too bad when interest rates are so low.

3 to 5% annum dividend growth on a typical TSX-listed company that retains 2/3rds of its earnings for (hopefully) accretive re-investment is on the low side. The real number is closer to 7-10%/annum over the long term, hence, back to the 10-12%/annum total return.

If you expect an 8% return, and the TSX is currently implying a 10-12% return, then you probably should be buying hand over fist. I know I am :).

#112 AngryMan127 on 09.23.14 at 11:58 pm

er…..more backroom deals with despotic regimes?

#113 Kenchie on 09.24.14 at 12:01 am

#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.”

Also, gold has a negative cash flow in the form storage costs too. Only way to make it cash flow neutral is to lend it to others (who usually use it for a more profitable trade).

And buyers of gold can also speculate with copious amounts of margin too, if they have a willing lender.

#114 So Why The Temp Immigration Programs? on 09.24.14 at 12:13 am

“The average monthly gain in employment is about 6,800 ..”

So why the TFW, IMP, and Intra-Company transfer programs that have well over 200,000 entries per year?

Biggest scam out there.

#115 Kenchie on 09.24.14 at 12:28 am

#11 I’m stupid on 09.23.14 at 7:19 pm
“I’m going to let the blog dogs in on a little secret. In my 15 year career I’ve done work on almost 10k houses. All of them new builds. This year has been a disaster and if it’s a disaster for me (given the amount of market share I have in my field) it’s been a disaster for everyone. I’ve done 30% less work this year in comparison to the same time last year. The only time I’ve seen it this bad was in the 2 years following GFC….”

Thanks for your tidbit. Always appreciate insider knowledge.

#116 Babblemaster on 09.24.14 at 12:36 am

“So, what’s the plan?” – Garth

—————————————————————

The folks who, in recent years, had no plan have done very well with RE. Whose to say the most recent crop of greater fools won’t be as lucky? I understand all your argument based on fundamentals, but those same arguments could have been made years ago and it didn’t matter. RE just kept escalating. Fundamentals don’t mater.

What’s the plan? I do believe that, if the RE market takes a dive, many believe that the govt. will step in to save them. I believe it as well.

#117 Rabi Dmangycur on 09.24.14 at 12:40 am

What does the LCBO, a hockey referee and a politician have in common?

I would say they all have a duty to protect people from themselves. In Canada I would say the first two do the job (more or less).

With the current state of the housing bubble, I would say the third group allows the banks and real estate industry to pander to the public.

Any good politician who stands up to protect the public from itself will get unceremoniously dumped from caucus. This seems wrong to me.

#118 Sideline Sitter on 09.24.14 at 1:00 am

#79 you commented on The Mash

…which I adore, and when I sold my house in 2012 it was one of the posts. They said I was overpriced, but I got 99% of asking :-D

been sitting on the cash ever since (although, slowly moving it into actual investments)

#119 MP on 09.24.14 at 1:01 am

The economy stinks in Europe and hence a form of QE will be implemented soon. The US is slightly better but by not much.

In any case rates will go up not enough to deter anyone from buying. 1 or 2% more, if ever won’t deter buyers. And when you factor in currency war (think other countries respond to a lower euro or higher dollar?) you have low rates for a very long time. Long enough that RE won’t collapse or lose much of their values.

#120 Nebbio on 09.24.14 at 1:03 am

“Our report provides some pretty persuasive, quantitative evidence that yeah, there really is a systemic pattern here. These aren’t just stories of individuals — there really is a pattern that’s unfolded over a prolonged period, a pattern which has some disturbing implications going forward.”

I wish people would stop saying “going forward”. It is the most useless phrase imaginable. Take it out of any sentence where it is used and it makes no difference to the meaning. Unless we have recently developed time travel, we are always “going forward”.

#121 Joe Calgary on 09.24.14 at 1:17 am

Extend mortgage terms to 40 years again when prices start falling. That’s the plan!

#122 Son of Ponzi on 09.24.14 at 1:59 am

#56 Cato the Elder on 09.23.14 at 8:47 pm
#46 Italians love real estate

#37 seriously who or what sensibility did I offend ?

The only one that matters. Ciao. — Garth

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

Garth is the don.
—————–
Garth is the Capo di Tutti Capi.

#123 Linda on 09.24.14 at 2:34 am

#66 – Leo – Garth’s post (this post) states 4 out of 10 people over 50 are way behind on retirement savings. Also states between 1/3 to 1/2 of all Boomers surveyed say they are planning to sell/downsize upon retirement in order to have enough funds to live the rest of their lives on. Other posts by Garth cite stats on the lack of work related pensions other than CPP for a rather large percentage of Canadian workers & how many Canadian households claim they would be in financial difficulty if they miss just one pay cheque. Are you saying all those surveys & stats aren’t telling the true picture?

If Boomers have such rich pensions, why is it they are not retiring? Yes, there are usually rules about the age & number of years of service you have to have before you can retire, but surely a fair number of Boomers have achieved the age/years of service for retirement by now. I can’t believe they all of them love their jobs so much they’d choose to forego the rich pensions you say they would have upon retirement. Could it be possible those pensions either don’t exist or are not so lavish after all? Seems to me that people don’t want to admit the emperor has no clothes.

#124 Son of Ponzi on 09.24.14 at 2:39 am

Ladies and Gents,
I’ll give you (drumroll)
The Mark, Shawn and Kenchie Show!

#125 Setting the Record Straight on 09.24.14 at 2:45 am

“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.”

No doubt, although we might ask how CP came to own it.
Vancouver taxpayers might hope there is no deal. If this is the top of the market, then better not to buy at market value.

#126 Casual Observer on 09.24.14 at 2:48 am

#192 Bottoms_Up on 09.23.14 at 6:17 pm

How much liquidity should they [CMHC] have?

From a 2013 report by Dan Werner, an equity analyst at Morningstar covering the financial services sector.
http://cawidgets.morningstar.ca/ArticleTemplate/ArticleGL.aspx?culture=en-CA&id=596883

While many Canadian mortgages have low loan/value ratios because of recent home price appreciation, 28% of insured Canadian mortgages have ratios of 80% or greater…

…we estimated that if home prices were to decline 20%, and if 20% of underwater loans defaulted and had 60% recovery rates, the resulting $12 billion of losses would consume more than 90% of the insurance fund’s $13 billion of capital.

According to CMHC’s latest quarterly report…
they have $551B of insurance-in-force (Pg. 24), $402B of guarantees-in-force (Pg. 29), and $15.55B in equity (Pg. 22).
http://cmhc.ca/en/corp/about/core/upload/Q2_2014_QFR_Final_EN.pdf

From “Securitization Activities Facts Sheet” (Pg.2)…
“The $600 billion guarantees-in-force limit is separate and distinct from the $600 billion limit on mortgage insurance-in-force.”
http://www.cmhc-schl.gc.ca/en/corp/nero/jufa/upload/CMHC_Securitization_Activities.pdf
I take this to mean there is no overlap, so that would make a total of $953B worth of insurance and guarantees at risk.

According to CMHC’s latest “Mortgage Loan Insurance Business Supplement” (Pg. 3)…
The average LTV ratio for “Transactional Homeowner” (“THO”) mortgages for the last 3 months is 92%. That means the average homebuyer over the last 3 months had only 8% equity.

Overall LTV for all “THO” mortgages (Pg. 6) is a more respectable 66%, however, a closer look finds that the majority of those mortgages (68.5%) have a LTV in excess of 70% (<30% equity) and 38.3% have a LTV of over 80% (<20% equity).
http://cmhc.ca/en/corp/about/core/upload/Q2-14-MLI-Business-Supplement.pdf

During the US housing crisis, at the end of Q3 in 2009, the combined percentage of all mortgage loans in foreclosure or delinquent was 14.41%, while the percentage of loans actually in the foreclosure process was 4.47 percent.
http://www.mbaa.org/NewsandMedia/PressCenter/71112.htm

If Canadian numbers get anywhere close to these, CMHC’s equity would be wiped out.

So to answer the question about how much equity/liquidity should CMHC have?

One word – MORE.

#127 Setting the Record Straight on 09.24.14 at 2:50 am

yesterday Mr. Turner wrote
“Without the stimulative monetary policy we would be in a depression. Fortunately we are in the midst of a slow recovery. — Garth”

Since you believe that, I am perplexed as to why you rail against the presumptive housing bubble. Central banks blow bubbles. They can’t help it. Its their DNA. Its just a manifestation of stimulative monetary policy.

#128 Barkin up the wrong tree on 09.24.14 at 2:57 am

Why does the government think we’re stupid? Because more people own cats than own stocks.

http://money.cnn.com/2014/09/09/investing/stock-market-investing-us-families/index.html?iid=EL

#129 Second Class on 09.24.14 at 3:03 am

Shawn:

Me and my co-workers would appreciate if you would stop telling the world power engineering is a great job. You work stupid hours, days, nights, holidays.

I don’t know anyone in the industry who works for 100k a year. I would really appreciate if there were no new people coming into this industry. I havent seen a wage adjustment from my company by more than 2% cost of living in 3 years now.

;)

#130 International Guy on 09.24.14 at 3:23 am

#37 seriously who or what sensibility did I offend ?

The only one that matters. Ciao. — Garth

I have to say, a little bit of drama on this “pathetic blog” does add to it’s addictiveness.

#131 Some guy on 09.24.14 at 6:41 am

“We lost 111,800 private sector paycheques last month alone. Had it not been for 90,000 under-employed people trying to create their own jobs, the overall loss would have been Biblical.”

Garth, for what it’s worth I was recently one of the people polled on my employment status. I said I was self employed because I was embarrassed to say it’s been nearly a year since I worked. I know it’s anecdotal, but I would put a lot of doubt into the definition of self-employed. I suspect that if stats Canada only counted self-employed people that earned say, the equivalent of a minimum wage full time job, then the job situation would look quite a bit scarier.

I think there is as much smoke and mirrors in the jobs data as there is in the real estate data. In both cases vested interests have a significant interest in making things appear a certain way.

I still don’t understand how you can continue to predict a (relatively) soft landing, or anything other than an economic catastrophe. Too many factors are lining up all at once. The demographic time bomb, the unemployment, the inequality, the housing bubble, and all of this while interest rates are near zero, at the lowest they’ve ever been in the history of the country. What tools does the government and the central bank have when the wheels come off the housing market? How can this be just a mild correction, or as you previously called it, a “slow melt”?

#132 Smoking Man on 09.24.14 at 6:59 am

http://m.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/richardson-gmps-hilliard-macbeth-sounds-the-housing-crash-warning/article20750421/?service=mobile

I bet the guy coming out with this book is a blog dog.

#133 Italians love real estate on 09.24.14 at 7:10 am

Garth, many bloggers have referenced my post at #37 which , when reading them , seem to indicate that they too cannot understand why I have been banned.

You may not agree with my bullish call on RE but does that deserve a ban ?

I warned you about incessantly pumping the merits of real estate in one geographic area. It adds zero to this conversation, and identifies you as a mindless property pimp. The world’s teeming with them. We don’t need another here. If you have something new to add, say it. — Garth

#134 maxx on 09.24.14 at 7:57 am

“Our report provides some pretty persuasive, quantitative evidence that yeah, there really is a systemic pattern here. These aren’t just stories of individuals — there really is a pattern that’s unfolded over a prolonged period, a pattern….”

Long-term, cb-suppressed, artificially low rates, so as to diaper and mollycoddle banks, RE, stocks and also keep institutional actuaries happy (after all, they know better, don’t they?) would create a “pattern”.

Got the pattern?

#135 Randol on 09.24.14 at 8:10 am

Italians Love….to talk

You do nothing more than spam this blog with your incessant RE pumping. Good riddance.

#136 Capt. Obvious on 09.24.14 at 8:19 am

#115 Babblemaster
What’s the plan? I do believe that, if the RE market takes a dive, many believe that the govt. will step in to save them. I believe it as well.

Why do you believe this? House prices have fallen before in Canada, and remained below peak levels for years. The gov’t might come up with a plan to avoid outright defaults when people need to refinance at higher rates in the future, but they’re not going to save anyone’s investment (especially since when you sell your house you do not pay capital gains tax).

#137 Italians love real estate on 09.24.14 at 8:50 am

#132 Italians love real estate on 09.24.14 at 7:10 am
Garth, many bloggers have referenced my post at #37 which , when reading them , seem to indicate that they too cannot understand why I have been banned.

You may not agree with my bullish call on RE but does that deserve a ban ?

I warned you about incessantly pumping the merits of real estate in one geographic area. It adds zero to this conversation, and identifies you as a mindless property pimp. The world’s teeming with them. We don’t need another here. If you have something new to add, say it. — Garth

Ok, I will stop doing that . I didn’t know it was particularly wrong and don’t remember getting the warning.

I hope that you will continue to allow the humour from time to time and my true bullish leaning towards RE in the GTA.

You are on probation. Short leash. — Garth

#138 crowdedelevatorfartz on 09.24.14 at 8:57 am

6pm Global “news”.
House in British Properties sells for 600k over asking…..
Typical lowball listingwith the “bidding” results.
33 offers on the house, listed at 1.5 million ( where neighborhood houses have sold for 2 million).
The “winning” offer…….2.1 million.
The reporter LIVE on the scene ( only murders seem to warrant the same hype) explained the lowball strategy.
But, the news anchor, ignored the explanation and offered his “gosh golly gee $600k over asking!” as the final comment on this sale before switching to the weather….. Rain, vast amounts of rain.

#139 Shawn on 09.24.14 at 9:15 am

Mark Responds (again…)

Mark responded to me

“I believe you will find that the formula is Cash Dividend yield plus expected growth equals expected return. Not earnings yield plus growth in earnings.”

They both come out to roughly the same numbers. Retained earnings re-invested drive a much higher dividend growth rate than using earnings + nominal GDP growth.

***************************************
Mark you used the wrong formula. A rooke mistake to use earnings yield in a formula that calls for cash dividend yield. You know it, I know it and God knows it.

Then you squirm and offer a different formula (the sustainable growth formula) there mistaking ROE for R on market value.

Learn to recognize when you are out gunned.

P.S.

Just what have been your returns on investments? Give any history that you care to share. Mine have been posted previously

#140 Holy Crap Wheres The Tylenol on 09.24.14 at 9:16 am

#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…
______________________________________________

Never ran into him, everybody who flew in the forces knew of him. He was a rich kid connected to the CIA or some special team. Quite a pilot I heard had flow just about everything as I recall. My CO once ran into him in Laos and said he was an excellent and skilled pilot but a bit of an eccentric and quirky. My CO said his kind of piloting was not for the USAF as he was not a team player. I just think that he must of pissed off my CO.
Oh yes an his father was the engineer who created the Lear jet, go figure!

#141 T.O. Bubble Boy on 09.24.14 at 9:17 am

A new way to say “buy now or be priced out forever”:
https://www.ratesupermarket.ca/blog/why-your-starter-home-may-be-your-only-home/

#142 Shawn on 09.24.14 at 9:20 am

Irony of Ironys

Remember Famnnie an Freddy which largely caused the credit crisis?

They are number one and two on the list of most profitable companies in the world in 2013.

One-time impacts to be sure, but still…

http://www.forbes.com/global2000/#page:1_sort:4_direction:desc_search:_filter:All%20industries_filter:All%20countries_filter:All%20states

You may have to hit the buttons to sort the list by profit.

By the way, Buffett bashers, Berkshire is number 5 overall in the world on Forbes way of sorting the list. Not bad for Buffett taking over a broken down textile operation 50 years ago.

#143 bigrider on 09.24.14 at 9:28 am

Italians love real estate- all posts.

It is not cool to pump a particular area for RE any more than it is to pump a particular stock, gold or any other asset even though I think you are probably correct.

As an Italian Cdn myself I have never found any of your posts to be racist whatsoever, the truth in them resonates with me, I do understand the humour in them and have made a few myself along the same vein.

Just cool it down a bit and stick around. I enjoy your posts ! LOL.

#144 Andrew on 09.24.14 at 9:29 am

Not that it’s a good idea but the majority of wrinklies would rather use home equity lines of credit to fund retirement until they are forced to sell rather than downsize early. Rates are staying low for the forseeable future. Because of the massive amounts of debt in the system, Governments need only raise rates a tiny amount to receive the desired effects.

#145 Daisy Mae on 09.24.14 at 9:52 am

CBC: “As governments create more and more free money — in the form of no-interest loans — and inject it into the financial system, companies have stopped investing in the future.

Instead, as Edward Luce noted the other day in the Financial Times, companies are pouring hundreds of billions of dollars into share buybacks that produce nothing. Except higher share prices, and therefore higher executive bonuses.

“If you need an explanation for why the top 0.1 per cent is doing so well,” says Luce, that is where to look. Luce’s solution is to change the rules so that executive earnings are based on something other than short-term share prices….”

#146 Hicksville Alberta on 09.24.14 at 10:17 am

#143 Andrew

“Rates are staying low for the forseeable future.”

That’s one of the reasons exactly why i have stopped spending completely and advised others to do the same. Spending management is equally if not more important as earning.

I have also helped mentor the sale of a friends oil and gas servicing business for about $15 million over the past year and as well helped put the kibosh on another friends proposed purchase of a Vancouver business that employs about 40 people.

In other news around here the John Deere dealership around here just was sold after being in the family for over 70 years and farm commodity grain prices seem to be going in the crapper so it will be interesting to see what and whether this will start to have a significant effect on farm land prices and general activity in the area.

Interesting times indeed.

#147 Kenchie on 09.24.14 at 10:33 am

Probably the best synopsis yet on the Conference Board report on age inequality:

http://www.theglobeandmail.com/globe-debate/stop-pretending-seniors-are-financial-victims-and-help-the-twentysomethings/article20755671/#dashboard/follows/

#148 Bob Rice on 09.24.14 at 10:45 am

“When the Bubble Bursts.” http://www.theglobeandmail.com/report-on-business/video/real-estate-crash/article20741872/#video0id20741872

Another doomsayer. The problem I see is that many of the doomsayers have a lot at stake b/c they are asset managers. When a lot of folks have cash tied up in bricks and mortar, there’s less cash for investing. So, is their opinion unbiased? Not so sure anymore…

http://www.theglobeandmail.com/report-on-business/video/real-estate-crash/article20741872/#video0id20741872

Maybe they’re trying to save fools from a one-asset strategy destined for trouble, or simply counter-weighting a society rife with self-serving house-pumpers. — Garth

#149 Kenchie on 09.24.14 at 10:49 am

Food for thought…

http://www.psychologytoday.com/blog/your-online-secrets/201409/internet-trolls-are-narcissists-psychopaths-and-sadists

#150 Kenchie on 09.24.14 at 10:50 am

Garth,

WSJ is reporting on Australia’s housing situation. Thought you may find it interesting:

http://blogs.wsj.com/economics/2014/09/24/australias-central-bank-makes-pre-emptive-move-on-house-prices/

#151 Bottoms_Up on 09.24.14 at 10:55 am

#144 Daisy Mae on 09.24.14 at 9:52 am
——————————————
Interesting….match executive bonus to long-term growth (instead of share price) and sha-bing, you will see greater investment in the company, employees (an incentive to retain and inspire) and a striving for efficiencies and new markets.

#152 Bottoms_Up on 09.24.14 at 10:58 am

#138 Shawn on 09.24.14 at 9:15 am
————————————
People should stop responding to Mark. He believes he is paying less for food, utilities and gasoline than 5 yrs ago. Only explanations for this is he’s either schizophrenic or he unknowingly now lives in the USA?

#153 T.O. Bubble Boy on 09.24.14 at 10:59 am

An interesting read on China’s housing boom… it gets into a ton of formulae later on (that are way over my head), but some great stats:
http://www.ritholtz.com/blog/2014/09/the-great-housing-boom-of-china/

A few examplese:

– In 2013 the national urban housing vacancy rate reached 22.4%, far above the level of developed countries (U.S. was only about 3% during the peak of the housing bubble). But, the majority of the ghost apartments are sold properties, which suggests an excessively strong (speculative) demand rather than excess supply.

– 35.1% of entrepreneurial households own vacant houses!

– The gap between real housing price growth and real wage growth is more than 7 percentage points!

#154 Grantmi on 09.24.14 at 10:59 am

Three types of Commercials on RADIO CKNW on the Wet Coast.

1. Find, fund and Flip commercials like every 10 minutes on CKNW…

2. Home Equity loans funding from your paid off Boomer home.

3. Car dealers.. no money down, Zero interest rates, 9 year spread.

That’s it!!!

#155 Holy Crap Wheres The Tylenol on 09.24.14 at 11:21 am

#64 Smoking Man on 09.23.14 at 9:30 pm
#62 Linda on 09.23.14 at 9:12 pm
Let’s look at boomers parents, just try and pry them out of there homes…
This is what happens as people age… They start buying loto tickets, mind goes a bit, they go religious. A bit more and they don’t remember draw night, they stop watching TV.
But don’t dream of putting them in a home, they don’t like change..
You make your assumption on aging boomers based on logic.. And a young mind.
I base mine on what I’ve seen with own eyes what happens to the aged.
They ain’t selling… Trust me..
_____________________________________________

Agree 100% with Smoking Man, out here in Oakville we have many neighbours that are retired, only a few have done the cut and run thing with their homes. Everyone else I talk to is in it for the long haul. They hate highrise condos and can’t stand uncontrolled fees. They all own their homes outright! As Smoking Man says “They ain’t selling, and they ain’t leaving.” My one neighbour is 72 and says the only way he is leaving is in a pine box. The kids will get the home eventually and someone will have to sell it.
I don’t blame them. I kind of like my home and will stay as long as I can take care of it.

#156 learningfromyou on 09.24.14 at 11:28 am

Thank Garth for all these posts, in my silence I was reading you.

I saw some REIT trust returning even 13% for the investment, but the REIT indexes are far from this performance, I understand because the index contain multiple of them and their return are not similar in all cases.

I wonder how risky is to invest in one of these REIT directly, I assume that the big players are diversified in multiple markets by themselves but always the Garth glasses proved to find important pieces not considered in my formula yet.

Thank you in advance for your answer.

Don’t chase yield. Buy quality, instead. Be happy with 5% or better. And make a REIT purchase but one element in a balanced portfolio – 7% of so of the total is enough. — Garth

#157 miketheengineer on 09.24.14 at 11:38 am

So you think your pension is safe….what a joke!

Check this out….

“Local 1005 president Rolf Gerstenberger said the end game of that plan is clear: a standalone Hamilton operation would be allowed to go bankrupt, wiping out pension plan underfunding and leaving 9,000 Hamilton retirees facing cuts of up to 30 per cent in their retirement income.

“It doesn’t take a nuclear physicist to see there’s something shady going on here,” he said.

“It’s clear that down the road they intend to bankrupt it because they want the facilities but they want to dump the pensioners first.

“We’re hoping the courts and the justice system in Canada won’t let this happen,” he said.

Here is the link:

http://www.thespec.com/news-story/4876336-u-s-steel-plan-seeks-quick-sale-of-hamilton-plant/

See Garth…screw little old grandma’s that can’t fight for themselves to fatten the corporate books of a foreign owned company….shame on these CEO’s …shame on them.

#158 Son of Ponzi on 09.24.14 at 11:43 am

I warned you about incessantly pumping the merits of real estate in one geographic area. It adds zero to this conversation, and identifies you as a mindless property pimp. The world’s teeming with them. We don’t need another here. If you have something new to add, say it. — Garth
————–
“property pimp” seems a little harsh.
“property gigolo” goes better with the Italian theme.

#159 Rational Optimist on 09.24.14 at 11:43 am

85 Mark on 09.23.14 at 10:44 pm

“I’d want average housing to be less than 2.5X annual wages.”

Why should housing maintain the same relationship to wages over time if individuals desire different amounts of housing over time. After the war, the average home in Canada was 800 square feet. In the 1970s, the average home was a little over 1000 square feet and by 2000 it was almost 2300 square feet. This along with the fact that they include more amenities and have improved in many ways (it’s arguable whether homes have improved generally, but you can’t argue that 200 amp service is better than 60, and R-40 insulation is better than none).

That’s my question: why should the average house have the same relationship to the average wage now as in the past, if that average house is much better (and bigger)? I am not arguing that real estate is not overvalued, just thinking.

#160 Victor V on 09.24.14 at 12:07 pm

Canadians among world’s richest but debts ‘anything but sustainable’

http://www.theglobeandmail.com/report-on-business/top-business-stories/canadians-among-worlds-richest-but-debts-anything-but-sustainable/article20755982/

There’s a caveat there, however, one that has oft dogged Canadians: Their elevated debt burden.

“Canadians still not appear to have achieved a turnaround as far as their debt situation is concerned,” Allianz said.

“Although financial assets made a relatively speedy recovery in the aftermath of the crisis, achieving annual growth averaging 8.1 per cent per annum over the past five years, the financial situation of Canadian households is anything but sustainable,” the report added.

“Macroeconomic shocks like rising interest rates, a labour market slump or falling house prices could pose a serious threat to the solvency of highly-indebted households.”

#161 Financial Freedom at 40 on 09.24.14 at 12:08 pm

123 Son of Ponzi on 09.24.14 at 2:39 am
Ladies and Gents,
I’ll give you (drumroll)
The Mark, Shawn and Kenchie Show!
————–
Irresistible hot mess. Use of internal cliffhangers admirable. I can think of worse though – academia circles come to mind. How to turn financial cred preening into an art form.

Some sociology masters student could do an interesting study and write a paper on this blog’s comment section.

#162 Retired Boomer - WI on 09.24.14 at 12:13 pm

#66 Leo
#128 Linda

You are both kind of right.

Many Boomers have a home. About half are mortgage free or have savings / investments sufficient to retire the mortgage at retirement, with money left over for retirement.

Many Boomers appear to be lopsided into Real Estate as a percentage of their overall net worth. RE is not very liquid, and therein lies a problem.

Most Boomers do NOT have a defined benefit pension (getting paid for having shown up for X number of years).

Many Boomers have a defined contribution system, which might work out well IF you contributed adequately to it, IF your investment choices were good, AND you chose the right mix of investments. (A lot did not because they did not have any investment education whatsoever…nor a good blog like this one from which to gain insights).

From what I have read many have NOT saved adequately for themselves toward their retirement. The numbers and percentages vary depending on the source of your data, but it appears to me that at least HALF of the BOOMERS will be inadequately prepared for retirement (say 20-30 years of it) unless they sell their RE at some point.

Determining the future value of a home is impossible in reality. It might be worth X right now, no guarantee it will not be worth X a year, five years, or ten years from now.

That said, if you are on the far end of the Boomers (born in the early 60’s) you have time to correct the trajectory of your retirement. Born in the late 40’s early 50’s you are pretty much baked in for the future, you may be retired, or so close you have little time to improve trajectory.

Retirement planning is best done 40 years away for it, but in reality we don’t think that way. Most are lucky to have gotten 30 or even 25 years in their planning. Better to start now wherever you are on the timeline, some saving investments are better than none.

#163 earlybird on 09.24.14 at 12:27 pm

Its not so much that RE has change…shelter is shelter…its what you are using to buy it with that has changed….LOSS OF PURCHASING POWER! I think real estate reflects the true rate of inflation.

#164 Pre-Retiree on 09.24.14 at 12:40 pm

Garth said it all before.
As a well-educated person who is not financially savvy, I am smart enough to know that when one reads something in the Globe, it has already happened, whether it is a “hot” tip for investing, or any other such trend.
So, since the Globe is now talking about the housing bubble as likely to happen in the near future, one has to assume it has already started, and both these links here below say that what someone can do to protect themselves is to be debt-free.

http://www.theglobeandmail.com/report-on-business/video/real-estate-crash/article20741872

http://www.theglobeandmail.com/report-on-business/top-business-stories/canadians-among-worlds-richest-but-debts-anything-but-sustainable/article20755982/

#165 Linda on 09.24.14 at 12:49 pm

#161 – Retired Boomer WI – thanks for the input, much appreciated. Question regarding DC pension stuff – I know it is market dependent. Does that mean the pension payments fluctuate in tune with the market once one starts to withdraw? Or does it just mean your pension is worth X when you start to draw & that X determines the amount of your monthly?

As for people staying in their homes, I get that. I know I would not wish to leave my home, especially if I had been living in it for many years & had an established network of neighbours etc. The key item I see in comments made on this subject is whether the house owner can continue to keep up the property as they age. An earlier post of Garth’s had a link showing a home where the owner had finally been persuaded to sell – it was in a terrible state & it is a wonder the owner had escaped serious physical harm, though for all I know that was what persuaded the owner to finally sell. Toronto sale so it sold for well above its true value but hey, maybe the owner will be able to live out their life in comfort…..

#166 4 AM Sunrise on 09.24.14 at 1:00 pm

Somebody tell me I’m more sleep deprived than I think I am – but did she just say that if you get rid of your car to live in a walkable urban centre, you can save $200k, which makes it okay to pay more for a downtown shoebox? i.e. “This shoebox is $600k, but since I’m saving $200k on my commute, it actually only costs me $400k.” I see this dumb logic in supermarket customers all the time:

http://www.bnn.ca/Video/player.aspx?vid=449060

#167 Helen on 09.24.14 at 1:08 pm

Las Vegas was one of the cities most effected by the crash in 2008. This link takes you to a conversation about the Las Vegas housing market today. Enjoy the parallels to Canada today.

http://knprnews.org/post/stability-new-normal-las-vegas-real-estate

#168 Renter's Revenge! on 09.24.14 at 1:10 pm

@148 Kenchie:

Good link! Some blog dogs are definitely showing signs of sadism in their comments. I won’t mention any names because we’re supposed to ignore them, although one guy’s a bit of a sop, if you know what I mean.

Not everyone’s as nice as you’d want them to be. These people seem to have an extra keen sense of what others might be insecure about, and relentlessly attack those insecurities. But they seem to get really frustrated when show that you’re not bothered by what they say and go on enjoying your life.

Reminds me of the old man in The Legend of Zelda, “It’s dangerous to go alone! Take this.”

#169 Sheane Wallace on 09.24.14 at 1:12 pm

This how they spin it:
https://ca.finance.yahoo.com/blogs/balance-sheet/housing-prices-in-canada-have-risen-by-an-210321807.html
Apparently there is lack of supply.

If not for government mortgage ‘insurance’ that screws the market and the price discovery the demand would be 5 times lower than the current demand so we would have oversupply, not lack of supply as they currently spin it.
But what should we expect from professional liars?

#170 happity on 09.24.14 at 1:23 pm

“So, what’s the plan?”

Central banks will raise rates, stock markets will drop, derivatives will implode, and no one will have anything tangible.

#171 Mark on 09.24.14 at 1:30 pm

“Mark you used the wrong formula. A rooke mistake to use earnings yield in a formula that calls for cash dividend yield. You know it, I know it and God knows it.”

Nope, I didn’t use the wrong formula. Both are equally valid, but if you want to use dividend growth rates, as opposed to (internal) earnings growth rates, you have to adjust accordingly.

#172 Mark on 09.24.14 at 1:34 pm

“So to answer the question about how much equity/liquidity should CMHC have?”

It is commonly believed that, with “prime” mortgages, leverage of 10-12X is the most that is prudent in the chartered commercial banks. Since we know that CMHC mostly insures subprime mortgages (at the time of issuance), it logically follows that the CMHC, to be a long-term sustainable institution, probably should have far less leverage than their commercial institution counterparts.

So let’s say, 5X leverage is all that’s really prudent into such loans. And CMHC has a book of $900B worth of guarantees. Hence, CMHC would, under such a model, need $180B of capital. They currently have $20B. So a deficit of $160B.

#173 Mark on 09.24.14 at 1:39 pm

“That’s my question: why should the average house have the same relationship to the average wage now as in the past, if that average house is much better (and bigger)? I am not arguing that real estate is not overvalued, just thinking”

Because if we’re truly getting more prosperous and able to afford more RE, won’t salaries/income have risen as well?

Your point, that consumer preferences in RE will (and have) shifted over time, is valid and well taken.

One point I would make is that industry has become far more efficient in actually delivering square footage. Structures are now analyzed using special computer software to minimize construction and material requirements. Fixtures are manufactured in automated factories. Supply chain management for the housing industry is far more sophisticated than in the past. So relative to income, and adjusted for quality, over the long term, housing prices naturally should be drifting down. It appears that, in modern times, only excess credit and speculation has driven up prices to elevated multiples.

#174 learningfromyou on 09.24.14 at 1:43 pm

Thank Garth for your answer #155

but I wonder which is the real inflation rate for a “common man.” not the value that is published every year but the one we feel going to the store or at the gas station?

I might sound a bit ambitious but I feel it’s more than 2 or 3 percent, to be honest more than 5.

Dollarama increased by 25% most of the products when they went from 1 to 1.25. it’s just one case.

It raises on me the following question.

?Is it a real possibility that using the index investing pattern we could retire one day in the future when we want, not because of our age?

#175 devore on 09.24.14 at 1:58 pm

#87 Kenchie

I would be shocked if a monopoly, especially a liquor monopoly, was not profitable.

#176 Mark on 09.24.14 at 2:23 pm

“but I wonder which is the real inflation rate for a “common man.” not the value that is published every year but the one we feel going to the store or at the gas station?”

A lot of an individuals’ perception of inflation depends upon what their particular consumption basket is. Those who claim that “inflation” is greater than the officially reported 2%, often have consumption baskets that are heavily weighted towards very specific inputs. Or they simply don’t understand or appreciate the standardized methodology that goes into calculating inflation.

A common mistake, for instance, is to directly compare prices without making quality adjustments.

#177 devore on 09.24.14 at 2:24 pm

#122 Linda

I can’t believe they all of them love their jobs so much they’d choose to forego the rich pensions you say they would have upon retirement. Could it be possible those pensions either don’t exist or are not so lavish after all? Seems to me that people don’t want to admit the emperor has no clothes.

That’s the biggest leap in logic I’ve read today, and it’s been a long day already. Just because someone keeps working, does not prove their pension is crappy.

The explanation is very simple. No pension is as rich as a salary, regardless of how lavish it may be. That’s why they keep working. They need money. More money than the income they will receive in retirement.

#178 Retired Boomer - WI on 09.24.14 at 2:31 pm

#164 Linda

My understanding of the 2 main types of pension schemes are this:

1. Defined Benefit is where the employer offers you X dollars based on X numbers of years of service. Say Acme Nut & Bolt (fictitious name) pays their retirees $50 a month based on years of service. Work there 40 years,
40 X $50 = $2,000 monthly at retirement. Usually they limit you to a 10 yr minimum seniority, and collectable at normal retirement age (65). THIS type of pension scheme is rapidly disappearing from the marketplace as employers do NOT want the responsibility of longevity risk (you live too long), and the investment risk. Therefore many employers have switched to the type 2 scheme. I can’t say as I blame them for that.
My son’s current employer has this type of scheme, and they just voted -by union contract- to switch to the type 2 scheme, effective in 2020, all current employees will earn the pension due on the date of conversion, at their normal retirement age. Yes, there are spousal survivor rights with their contract.

2. Defined contribution (401-K in the U.S.) Company puts 3-4-5-6% of your pay into your self directed account every year, or they offer to “match your contribution” at a set percentage. The company I worked for gave us 1% whether we contributed or not, and the matched us 100% for the next 3% of pay, then 50% on the next 2% of pay.
So, If you put in 5% they matched it 100%. (I put in 10-16% over the years).
THIS type of investment or “thrift” account is highly dependent on what it is invested in, and the length of time it is in there. The employee needs to be aware of the different types of offerings in their plan, and chose wisely.
The employee, not the company is at risk in the markets.
One thing we need to remember, this type of account it does keep growing after retirement. Say you took 4% to live on, the account may well grow that much or more some years, maybe not so much in others. It can keep up with inflation, giving you a slight raise every year. The trick is to have ‘enough’ in there at retirement to ‘earn the benefit under scheme type 1. It CAN be done. Then not to spend it too fast.
That’s where good advice like Garth’s is invaluable in planning.

As for aging Boomers keeping up their homes, the picture is a mixed bag. 2 Boomers have a better chance. A decade later there may well be only 1 with roughly half the income of 2. Without sufficient savings for taxes, insurance, utilities, maintenance, you probably SHOULD see some ‘forced sales’ due to practicality. I recall seeing a badly maintained wreck of a residence, probably inhabited by a widow, or widower, with failing mental capacities, and a weak checkbook.

RICH (at least with enough resources to be well taken care for) if they had sold the home, but alas…

We will probably see a good deal of this going forward, and who am I to say I might not be one someday?

One never really recognizes their reality in their old age do they?

#179 Westcdn on 09.24.14 at 2:41 pm

Just for humor: My Plan “C” – Investment Rats

http://www.enlightenmenteconomics.com/blog/index.php/2014/09/investment-rats/

My favourite line: “Marcovici’s plan, he writes, is to breed enough of them to set up a hedge fund.” No question the MER would be low on this one.

#180 Nomad on 09.24.14 at 2:42 pm

Kruger laying off 100 in Sherbrooke.
Real-estate mania yes.
Job-mania no.

#181 bguy1 on 09.24.14 at 2:49 pm

Garth,

Could the fallout from a housing correction help sink the federal government in the next election?

#182 Rebecca on 09.24.14 at 2:54 pm

generally people are lazy and want something for nothing. when it became easy to buy homes people became entitled to buying brand new high end etc. despite perhaps not having the funds to keep up the pimping baller lifestyle.
now that payments for their brand new cars,houses etc are becoming difficult to keep up they blame others (asians etc) for their excessive spending.
you cant fix stupid- they will just rationalize their stupidity.
no one wants to work hard for anything- only asians do.

#183 Luc on 09.24.14 at 2:57 pm

Global Wealth Study says Canadians are among the richest people in the world… Read here… http://www.ctvnews.ca/business/canadians-among-richest-in-world-but-debts-aren-t-sustainable-report-finds-1.2022463

#184 devore on 09.24.14 at 2:59 pm

#158 Rational Optimist

Why should housing maintain the same relationship to wages over time if individuals desire different amounts of housing over time.

Why should a nice personal computer today cost $2000 when a personal computer 20 years ago cost $2000, even if it is 1000s of times more powerful and capable? You are witnessing the wonders of technology and a rising standard of living.

#185 Mark on 09.24.14 at 3:15 pm

“Could the fallout from a housing correction help sink the federal government in the next election?”

Remember 1993?

#186 learningfromyou on 09.24.14 at 3:38 pm

#175
Thank Mark for your interest in my question.

Those who claim that “inflation” is greater than the officially reported 2%, often have consumption baskets that are heavily weighted towards very specific inputs.

>I consider what a frugal person needs doing conscious decision on the daily basis.

Or they simply don’t understand or appreciate the standardized methodology that goes into calculating inflation.

>Let’s say that I do not appreciate the methodology because it’s to far from what my table tells me at home buying regularly the same set of things.

My concerns stands unanswered

#187 Detalumis on 09.24.14 at 3:49 pm

#158 I can use my house as an example. It was built in 1960 and is under 1,200 square feet. It was sold in 1969 for 34,900 and in 1990 at the height of the last boom to me for 218K. Both times it was about 4 times average income. Today it would sell for 800K which is what, 10 times? Those numbers are not sustainable.

My area is also full of retired people, a dilapidated house means nothing. What happens is that when a person dies often their spouse gets depression, become reclusive and just sits around not caring about their environment. My one neighbour lived in a junk house that was collapsing around him. He was a retired dentist and was certainly not poor. It’s also often a sign of Alzheimer’s. It doesn’t have any relationship to their income.

#188 Setting the Record Straight on 09.24.14 at 3:50 pm

““My Brother and I took 3 year Engineering Technologist diplimas (graduated in 2001) that cost us $900 X 6 semesters plus books. I figured it was about $8000 for the 3 years.”

Great for you, but I know graduates of that era in certain technologist and engineering fields who still aren’t employed. Why? Because their training was in electronics and IT, and that particular industry in Canada mostly collapsed.

So I’d extend your comments by saying that the field of choice also matters, and hopefully its one that’s in favour upon graduation and for at least a number of years afterwards. Because if its out of favour, well, just like the IT grads of that era, the ‘education’ may very well be worthless.”

That is training not education. And thats a good thing.
But I do not think the state should provide either.

#189 Sheane Wallace on 09.24.14 at 4:03 pm

101Kenchie on 09.23.14 at 11:26 pm
Since you acknowledge that they are different and you describe the problems with the AIG collapse, why would you insist that the CMHC is riskier than AIG in 2008?
………………………………………………
Because of the sheer difference in the size of their portfolios.
Few hundred of billions for the US market is much less than over 1 trillion in government guarantees in Canada (1/10th of the US economy). How does AIG with portfolio of 10 trillions sound?
There is no risk from LCBO, OLG to the taxpayer. None, just revenue.
If you are stating that there is no risk in ‘insuring’ such massive mortgage amounts (comparable to the size of the economy) and CHMC is actually profitable you need some serious help from mental health professional.
If there is no risk let’s ‘insure’ all the world mortgages.

#190 Sheane Wallace on 09.24.14 at 4:09 pm

#89Kenchie on 09.23.14 at 10:59 pm
Ummm, do you know the intricacies of the CMHC’s risk management program? How do you know they don’t parcel out their risk to global investors via Lloyds of London? Unless you do, don’t bother talking about them as if you do know. I’m sure they hire more qualified actuaries than yourself.
And here I laughed really hard.

#191 joe sixpack on 09.24.14 at 4:21 pm

“Civil servants and “joe sixpack” homeowners will once again be eating Hamburger Helper and crying poor, after the past decade or two of being propped up with high house prices and cheap debt.”

Joe Six pack maybe, but not civil servants, the public pensions are all indexed. Civil servants live in a world where they never have to save and don’t care about losses because the taxpayer will always be there with a cheque at the end of every month until they die, and then they pass the benefits to the spouse and taxpayers pay until they die.

Don’t cry for the civil servants, they are Canadian royalty, above the 1%, because they take no risk and have nothing to fear of fluctuations in the market. This is why civil sssssservants have generally nothing saved, because we’ve guaranteed a screw up free existence.

You want to know who’s suffering now and will suffer even more as rates stay at zero and consumer inflation continues skyward, it’s the savers and seniors. These people are already starving and shivering in the dark due to grocery prices and energy poverty. Both these are government initiatives, quite cynical, who knows why, but a whole lot of average people have zero left in lifetime savings and see the cat food aisle as the gourmet section.

#192 Holy Crap Wheres The Tylenol on 09.24.14 at 4:23 pm

#169 happity on 09.24.14 at 1:23 pm
“So, what’s the plan?”
Central banks will raise rates, stock markets will drop, derivatives will implode, and no one will have anything tangible.
____________________________________________

No the plan is to kill em all except for six and save them as pall bearer’s!
Were all screwed!

#193 Linda on 09.24.14 at 7:27 pm

#177 Devore – So if people need money & the pension is less than what they earn (& you are correct, it is always less, even for CEO’s) I can see that keeping them from retiring. But my comment was more about pointing out that not every Boomer has a rich pension.

#191 Joe Sixpack states that government workers don’t have to save due to their pensions being DB & indexed. Since StatsCan has a 2007 info graph saying that 25% of government workers could retire with a full pension within 5 years (that would be the year 2012) obviously the logic that government workers won’t need to save due to their rich pensions is not correct, because I’m fairly sure that otherwise the putative 25% would have retired otherwise. My point being that even ‘rich’ DB plan members still have to save, because that pension plan isn’t going to be enough to live on.

#194 Snowboid on 09.24.14 at 10:00 pm

#193 Linda on 09.24.14 at 7:27 pm…

From the 2013 Annual report from Pensions BC:

Average pension: $ 30,100
Median pension: $ 28,200

Hardly the rich pensions the ‘broken-record’ posters like joe sixpack would have you believe.