A valuable lesson

CASKET modified

In late 2007 I figured we were on the wrong path. The government had just introduced 40-year mortgages and 0% down payments. As an MP and member of the House of Commons Finance Committee, I tried to stop that. I failed. Conservative members pushed it through.

I then wrote a book, “Greater Fool” about how the US real estate meltdown, at that time just gathering speed, had the potential to come to Canada. My publisher hosted a stirring little reception on Parliament Hill to launch it. Lots of MPs came, got their free copy, look bemused, had several glasses of wine and split. With the book.

DDM The next day a Conservative MP rose in the House to mock the book, and me, as “Parliament’s greatest fool.” That was Dean del Mastro, who served as the prime minister’s Parliamentary Secretary. He’s on trial right now for electioneering fraud, and I hear it’s not going well.

Then the financial crisis washed over us. Housing markets plunged. The central bank brought in emergency interest rates and real estate revived. You know the rest. After five years of artificially cheap money, Canadians have decided there is only one asset they can trust – their homes, regardless of the cost.

We now have more public and private debt than anyone could imagine when I wrote that book. The home ownership level has risen. The average single-family home in two major cities now costs more than $1 million. Real estate became a cult, then a mania and finally a religion. As a result, risk has elevated exponentially.

You know why. Incomes are stagnant. Job creation is uneven and sparse. Half of us couldn’t survive one missed paycheque and the Millennials can’t climb out of basements. Now real estate accounts for more of the economy than oil and gas and manufacturing combined. And at the same time, half the housing markets in Canada are in some kind of distress.

Yesterday I received this email from a guy in Burnaby – supposedly one of the hot spots.

“We put our home up for sale a month and a half ago. So far we have no bites and priced it at the lowest proposed value by the agent to be competitive. Outlook is bleak. We are going to take a hit on it (it’s been languishing on the market and the agent suggests a reduction as no offer is on the horizon). I’m fine with the hit so I can rid myself of this mortgage and unit I stand to lose 60-90k in this valuable lesson. Our agent has marketed this puppy ceremoniously and the greater fools are just not making offers.”

How can this happen when five-year mortgages are available for 2.9%, when down payments are tiny or non-existent, when bankers dole out loans to anyone who doesn’t drool, when you can raid your RRSP to buy and everybody you know says real estate’s for sure?

Because it will end. It always does. All booms finish badly.

So this pathetic little blog has spent the past six years suggesting you get ready. That explains the constant, tedious, boring, repetitive, deadening, irritating endless repetition of lessons on diversifying out of real estate to mitigate risk. How to build a balanced, diversified financial portfolio. What to do with TFSAs, income-splitting, RRSPs and tax avoidance. And if you do buy a property, ways to protect yourself, read past the misleading data, write the best offer plus escape the clutch of the unethical realtor. I think enough people took heed to make all the crap I’ve endured worth it. At least old Dean’s not dissing me anymore.

All of this came to mind as I read about a new guy with a new book. Hilliard MacBeth is from Edmonton and will soon publish “When the Bubble Bursts: survive the Canadian real estate crash.” He says this will happen in the spring, and your house could lose 50% of its value. His core advice is to sell now and rent.

I’m happy the house-humpers, sleazy real estate marketers and whackos on this site will have someone else to vilify. But nobody should get too excited about houses losing half their value, since it won’t happen. (The US melted when houses lost 32%.) If it did, with 25% of the GDP at stake, you’d have more consequential things to worry about – like 1930s-style unemployment and where to find a squirrel gun. Far more likely is what the Burnaby dude is experiencing – illiquidity and equity evaporation. This is a killer of personal wealth, without being a slayer of the economy.

Worse, it’s probably too late to avoid. Outside of 416, 604 and the oily parts of Cowtown, these are already realities that even dirt-cheap home loans cannot prevent. Over time the holdout markets will be impacted. Those who have leveraged the most will find themselves underwater and facing some tough, ugly choices. Those who will fare best are the ones in urban detached houses they view as homes, not investments, and who’ve diversified into plump, balanced portfolios.

Will that include you?

170 comments ↓

#1 Mr. Nihilist on 09.24.14 at 4:59 pm

Like many people over 40, my job was eliminated by a restructuring at my former employer. The only nibble I’ve had since winter are part time or temporary positions. Luckily, as a renter I can leave Toronto for Calgary if nothing comes up here. The number of people I know who lost their job, and do have a house with a whopping mortgage is saddening. And pretty soon the Tories will ban prostitution, so I imagine a lot of foreclosures are in the pipeline.

#2 Mean Gene on 09.24.14 at 5:00 pm

It is wishful thinking, however, maybe the Burnaby property is a total dump?

Less than five years old. — Garth

#3 schadenfreude on 09.24.14 at 5:04 pm

Del Mastro is going down . Guilty written all over his face Hahahaha!

#4 Shane on 09.24.14 at 5:05 pm

Garth, I could see 50 percent in some places like Markham parts of Toronto.

#5 espressobob on 09.24.14 at 5:07 pm

Irvin Leroux update. This is one cool dude!

https://www.indiegogo.com/projects/road-to-justice-and-accountability

#6 westsider on 09.24.14 at 5:10 pm

50% drop in Vancouver and the properties would still be over-valued!!!

#7 Mike S on 09.24.14 at 5:20 pm

“But nobody should get too excited about houses losing half their value, since it won’t happen. If it did, with 25% of the GDP at stake, you’d have more consequential things to worry about”

This is exactly what I worry about now. Why won’t lose 20% 30% or more of the equity? After all they are overvalued by that much and more.

Over a few years, it could happen. Over a few months, not a chance. — Garth

#8 Roman on 09.24.14 at 5:36 pm

Hmmm, 50 percent too much?

How come much better houses in US, in much-much better places than ugly Toronto suburbs and they cost much-much-much less?
Like THREE times less.

So all this RE crap HAS to drop at least 50 to become on-par with US, but even in that case its still probably will be overvalued.

Plus nobody believe it. Even pathetic blog sheepishly suggests 30 max. Reversion to the mean going to be more unexpected and ugly than anybody thinks, because it’s never slow, pretty and telegraphed in advance.

#9 notagreaterfool on 09.24.14 at 5:42 pm

Very early today Garth.

Is the media reporting these story types on election year? LOL

#10 -=jwk=- on 09.24.14 at 5:42 pm

Just got back from 3 weeks in China. Greater Fool isn’t accesible in china (some thign called Cloud Flare says no).

I assume I didn’t miss anything. As long as the government continues to give away unlimited amounts of free money, prices will not come down. Interest rate rising will not bring prices down either. Imagine if the car manufactures could sell car loans risk free. We’d all be driving loaded BMW’s.

The avg SFH in GTA is around 800k, and prices are rising 10% per year, over 3 weeks we have seen a 0.567% increase. That means anyone reading this who did not buy 3 weeks ago, just lost $4615.

Me, I just filled out 12 cheques for the Landlord. 0% increase for 3rd year in a row. $1500 to rent a house that would cost 700k to buy. We will never own a home in GTA, and we are fine with that. The condos and houses in the US we own will have to suffice.

#11 -=jwk=- on 09.24.14 at 5:43 pm

Oh yeah, you think Toronto is a housing boom? No. Shanghai is absolutely insane. Every street has 2-3 realtors on it, every block. They are everywhere. Buying and flipping is an art form here.

#12 DV01 on 09.24.14 at 5:48 pm

No idea why you’re all so concerned about Canadian RE being over valued. The PM gave everyone a personal guarantee today, saying a “Housing Crisis Is not Going to Happen in Canada” see?

#13 Mister Obvious on 09.24.14 at 5:54 pm

Don’t forget that it takes only a 33% drop to reverse a 50% gain. In terms of percentage, there is more pain on the downhill side. Cheers!

#14 Mike S on 09.24.14 at 5:54 pm

Over a few years, it could happen. Over a few months, not a chance. — Garth

I don’t think it can happen over a few months

But it happening over a few years doesn’t it create some “more consequential things to worry about” for those of us living in Canada?

#15 ILoveCharts on 09.24.14 at 5:56 pm

I sometimes give Garth a hard time due to his HAM blindness, but this blog did play a major role in preventing me from making a purchase in the 604 last summer and for that I am eternally grateful.

#16 johnny d on 09.24.14 at 6:05 pm

REAL ESTATE IN CANADA TO SHED 457.9% OF IT’S VALUE!!!

#17 A Yank in BC on 09.24.14 at 6:09 pm

#8 Roman

It’s difficult to draw direct “Apples-to-Apples” comparisons between the US and Canadian housing markets, mainly because building costs are way lower in the U.S., and the U.S. system of taxation is not nearly as punitive as in Canada. About the only way there could be true parity between them would be if there were to be a drastic reset of property values in Canada, along with a dramatic fall in the Canadian dollar.

#18 Ray Skunk on 09.24.14 at 6:15 pm

Garth, will you putting in an appearance – front and centre – in the public gallery for the inevitable reading of the guilty verdict?

If I were in your shoes, that’s something I would camp out overnight for.

I’d need plastic surgery to remove the smile from my face.

#19 Retired Boomer - WI on 09.24.14 at 6:16 pm

#8 Roman

Reversion to the mean used to indicate that prices (or returns) will return to their historic norms.

That does NOT mean it will do so in an orderly, timely manner. As prices overshoot on the up side, they may also do on the downside. That explains the early zoom down in RE prices in Vegas, and parts of SE Calif, or Florida, now much more quiescent.

Careful what you wish for here. All it takes is a market stall, then a large employer, or several to cut personnel, or close up shop and a mad panic can begin! There goes order, next panicky owners become sellers… rinse and repeat.

What took 5 or 6 years to build up might come down astonishingly fast-and disorderly.

Not a wish, or a prediction. Just remember when on a slippery road you gotta worry about everyone else and yourself, too.

#20 Shawn on 09.24.14 at 6:20 pm

Invert, Always Invert

Roman says:

So all this RE crap HAS to drop at least 50 to become on-par with US, but even in that case its still probably will be overvalued.

*****************************************
Charlie Munger (SEE I don’t ALWAYS invoke Buffett) says: Invert, Always Invert

Turn your thinking around and you realize that the other possibility is for U.S. house prices to double and reach parity with Canada that way.

I suspect it may be something of a meeting in the middle.

Just today new figures showed higher-than-expected new home sales in August in the U.S.

#21 Millenial on 09.24.14 at 6:20 pm

Hey Garth,

When prices revert to some normalcy I could see condos in Toronto going down 50%, easily. Things are totally out of control in this city with condos; it’s absurd the number of white ‘Development Proposal’ signs there are around. Saw a new one the other day, a 55-story residential tower on Edward street right across from the dental school. I can’t imagine the congestion in that area if it’s built, what with the bus terminal there – it’s already a nightmare.

#22 Marquis de Sale on 09.24.14 at 6:23 pm

Calling you “Parliament’s greatest fool” is Del Mastro-bait!

#23 Shawn on 09.24.14 at 6:29 pm

Will that include you?

Of course, and I will be ready to buy a million dollar house for $500, if it happens and sell my $500 house for $250k. My net cost of the move-up will be $250k as opposed to $500k if I moved up today.

So, you see, even for home owners a decline in price is not necessarily all bad.

Although I suppose my net worth would be down by $250k in my scenario. But is that important when my house will be one that is twice the size and or location (i.e. twice the value of the old) and my cash outlay to move up will be half of what it would cost to move up today. Though if I moved up today even with borrowed $500k my net worth would be unchanged.

Sometimes the math moves in mysterious ways.

I believe my math example here illustrates that just relying on net worth calculations may not always make sense.

P.S Any advice what kind of hot car looks good parked outside of $million house?

#24 Catalyst on 09.24.14 at 6:30 pm

The thing is, when the drop happens, no one will know as they control the media. It could have already happened and we don’t know. I can tell when the Dow drops 10% in a day but I can’t with housing.

#25 Mike in Metrotown on 09.24.14 at 6:32 pm

I’m in the Metrotown – Deer Lake area in Burnaby and my own observation is it’s been a busy year for detached; at least for stuff under $1.5 million or so. Lots of sold’s everywhere I look and stuff doesn’t take long to sell. Many new builds happening too. Maybe other areas of Burnaby are different. Not sure about condos but the new towers seem to advertise ‘phase one sold out’ quite often. Lots of new towers going up too. Maybe this guy needs a different agent.

#26 rk usa on 09.24.14 at 6:33 pm

re a 50% drop

the author has based this call on a US study of bubbles that shows all bubbles studied revert to mean price rise and in Canada’s case this will mean a price drop of 40 to 50%

#27 Bill Gable on 09.24.14 at 6:34 pm

> How is the Economy doing? LOUSY in most quarters – BUT >>

HOLY CANOLI – you should have seen the fervent techies at Vancouver’s Apple Store today!

Everyone was reserving their new overpriced “have to have”, iPhone 6.

I was nearly trampled by caffeinated 20 somethings, as they rushed to get in line.

Walking in Vancouver is becoming a contact sport, as people walk blindly along, face on the iPhone or whatever.

Conversation? What’s that? Is there an APP for that?

#28 Shawn on 09.24.14 at 6:36 pm

U.S. New Home prices and sales

From a report today about U.S. wide new home sales

The median price of new homes in August rose to $275,600, up 8% from a year earlier. August’s supply of new homes on the market fell to 4.8 months at the current sales pace from 5.6 months in July.

New-home sales in August were up 33% from a year earlier.

http://www.marketwatch.com/story/new-home-sales-in-august-surge-to-six-year-high-2014-09-24?siteid=yhoof2

Wow, that is an amazing difference in prices. And keep in mind this is not Detroit houses this is average for the U.S. and would presumably include mostly suburbs.

#29 rk usa on 09.24.14 at 6:36 pm

re: a 50% price drop

this will occur over a period of 5 to 7 years like it did down here in the US

#30 to_be_frank on 09.24.14 at 6:42 pm

If houses are as overpriced in Canada as they were in the US at their peak, and if their prices fell 32% on average, then it seems reasonable to anticipate a similar outcome here. In fact, some stats you have presented in past posts, Garth, suggest that the situation here is even worse than it was in US at the height of their housing bubble. So specific markets (real estate being local, as you say) could potentially fall 45% as happened in Miami or 60% as in Las Vegas, or as little as 4% as in San Antonio which was the least affected major city in the USA (source: Homes.com-Rebound-Report-June-2014-FINAL.pdf). A key question is whether the decline is fast and heavy or slow and steady, which could have substantially different implications for the Canadian economy longer term.

By the way, for anyone living in Toronto, a racoon gun would be more useful than a squirrel gun.

#31 Done by Forty on 09.24.14 at 6:48 pm

Hi Garth. I love reading your blog as a means to calm my house lust. We’re buying four rental properties in the US this year, but all are fairly modestly priced single family homes, sub $100k, save the one duplex ($160k). We’ve paid off our mortgage on the primary residence so I suppose that limits the risk a good bit, and we keep on investing in diversified index funds as well.

Still, I wonder if we’re doing the wrong thing by leveraging up and buying real estate instead of doing the simple thing and buying paper assets. I love the cash flow aspect of rental properties…but with debt comes risk.

#32 Flawed on 09.24.14 at 6:50 pm

Speaking of the USSAmerika police state…..leave your cash at home Canadians……(plus the phony US recovery continues as I just witnessed first hand in NY)

http://armstrongeconomics.com/2014/09/24/canada-warns-its-citizens-not-to-take-cash-to-usa/

#33 Smoking Man on 09.24.14 at 6:54 pm

Just saying those markets like Florida, Vegas house prices nearly doubled in one year before crash.

Here took about ten years to double.

My prediction, no crash here, wages to surge…

With all this easy money and forever stimulus running wild.

USA market after near doubling faced mortgage rate hikes at the peak..

It’s a different time here.. It’s different here..

#34 TEMPORARY® Foreign Prime Minister on 09.24.14 at 6:54 pm

“…..Conservative members pushed it through…….”
=========================

Seems like the Harper Conservatives are pushing through a lot of things these days; much to the chagrin of the Supreme Court of Canada, returning wounded Veterans, and anyone in general who cast their ballots for democracy, openness and transparency….. and have been subjected to the complete opposite.

I’m sure it’s difficult for ideologically-blindered, narcissistic, sociopathic politicians to accept the truth even when bitch-slapped by a book which fosters only complete common sense.

#35 Westside Realtor on 09.24.14 at 6:55 pm

Garth,

You are bang on.

There is a ton of weakness, beneath the headline stats, in Vancouver.

Keep up the great work.

Spring crash? Why not, we are due…

#36 Rabi Dmangycur on 09.24.14 at 7:00 pm

Just a quick stupid question:

Is it at all likely (and if so what % chance) that the bond market could crack sending interest rates up which in turns cracks the stock markets? Then a feedback loop develops whereby both stocks and bonds fall at the same time? Just wondering.

Thanks

#37 Frustrated Kiwi on 09.24.14 at 7:00 pm

#23 Shawn
Exactly. I was in the US during the meltdown and good friends were able to move up to a home they never could have afforded at the peak. Of course, this assumes that one still has equity to buy after the drop – that’s the catch. Another couple I knew couldn’t refinance at the new low mortgage rates because they were seriously underwater. Certainly couldn’t sell and move up.

#38 604 guy on 09.24.14 at 7:01 pm

Garth, it’s happening:

http://www.theglobeandmail.com/news/national/sky-high-housing-prices-in-vancouvers-west-side-short-lived/article2424414/?utm_medium=Feeds%3A%20RSS%2FAtom&utm_source=Home&utm_content=2424414

#39 TEMPORARY® Foreign Prime Minister on 09.24.14 at 7:05 pm

Today’s CBC news:

“…Harper dismisses reports of a Canadian housing bubble……”

“….Other analysts agree with the prime minister that there is nothing to worry about, including the head of Canada Mortgage and Housing Corporation Evan Siddall…….”
===========================

There you have it, Just Say No (housing bubble).

#40 Roman on 09.24.14 at 7:07 pm

#19 Retired Boomer

It’s going to be nasty reversion to reality. RE performs ok on for long period of time, at least in line with inflation. But when people suddenly start to think they can live off appreciating houses – watch out below.

The one thing in capitalism is assured: no free lunches.

#41 Shawn on 09.24.14 at 7:09 pm

Reversion to the Mean Growth Rate

Retired Boomer at 19 said

Reversion to the mean used to indicate that prices (or returns) will return to their historic norms.

***************************************
I don’t think the meaning has changed. Actually the phrase is fundamentally wrong.

The phrase implies the price returns to the historic mean.

That’s not it at all.

The price in theory returns to where it “ought” to be based on applying he long-term growth rate from starting point.

It’s not a law… sometimes maybe it works. Certainly not always.

#42 Sheane Wallace on 09.24.14 at 7:16 pm

Ca Real estate will correct between 40 and 70 % in real terms.

If BOC kills the dollar to make that dive lower in nominal terms this won’t change the real decline in value (against international basket of currencies for example).

In Ireland with smaller bubble (price to rent, income etc, lower debt) the decline was over 50 %

#43 Sheane Wallace on 09.24.14 at 7:28 pm

33 Smoking Man

gold to the moon?

#44 Linda on 09.24.14 at 7:37 pm

#23 – million dollar homes don’t have the looks they used to have when a million dollars meant something. The homes selling for a million plus today are often what used to be referred to as nice middle class – so no marble floors, fancy chandeliers & gold plated taps to be seen unless the homeowner did some very expensive upgrades over the years! If you are lucky the house is structurally sound & has been maintained – fresh paint, new carpet, upgraded kitchen/bath etc. Often though the homes need major work like new furnace, plumbing, roof etc. because the seller only did surface glitz & nothing really expensive to sell the place.

#45 Simplyput7 on 09.24.14 at 7:38 pm

#1 Mr. Nihilist:

You are dead on. I have started to meet a lot of people who had well paid jobs, lose their jobs due to restructuring. Luckily, all of them rent or have paid of their homes years ago and have saved for rainy days.

I have met many young people who were too young to remember the last crash and don’t believe me when I tell them what banks would do to them if they started to miss mortgage payments.

Should be interesting to watch how it unfolds.

#46 NostyVlad the Snugglebombed on 09.24.14 at 7:40 pm

#114 So Why The Temp Immigration Programs? on 09.24.14 at 12:13 am — “Biggest scam out there. (TFW, IMP, and Intra-Company transfer programs that have well over 200,000 entries per year?)”,
#1 Mr. Nihilist on 09.24.14 at 4:59 pm — “The only nibble I’ve had since winter are part time or temporary positions.”
— and —
#32 Flawed on 09.24.14 at 6:50 pm — “(plus the phony US recovery continues as I just witnessed first hand in NY)”

Don’t be too deflated. The US is #1 in low-paying jobs, which has led to the New American Dream. The main reason for the upswing in wars is the petro-dollar, or lack of it. However, change is one of the many constants. Quatar “TRANSLATION: Qatar has just been added to the Special High Interest Targets list for refusing to help Europe’s sanctions-created oil shortage, and ISIS will be the excuse for the invasion.” wrh.com and don’t forget Merkel, who is a tad pissed with the warring west is exploring all options, such as switching alliances.

#47 JSS on 09.24.14 at 7:45 pm

It’s’different here in Canada

#48 Another Albertan on 09.24.14 at 7:48 pm

I swilled many a beverage at Hilliard’s family-in-law’s and their neighbours’ lake cabins back in the 90s. He was always well-informed in matters pertaining to markets.

While I do not believe there will be any new, revolutionary information in the forthcoming book, it will be interesting to see if there are any twists on ideas that individuals like Mssrs. Turner, Rabidoux, et al. have written about previously.

Everyone else’s mileage may vary.

#49 Roman on 09.24.14 at 7:51 pm

#20 Shawn

If you’re in Toronto, you have to go out and see yourself how ridiculous situation is. 80% of Toronto real estate consist of depressing ugly old doghouses.

It’s not even about the price differentiation with US, it’s about perception of reality.

I was looking recently for a house to rent in Toronto, they offer their hundred years old shacks for a minimum of 20-30 hundreds and way up.

And there is rarely air conditioning, forget about dishwasher, no renovation, nothing.

And I’m thinking how much does it cost to buy and install dishwasher, 1/5 of monthly rent? It’s like nothing, pocket money and yet nobody cares.

Sometimes its almost feels like 90-ths in the ex-USSR republics where people were selling herbalife crap to each other with some sort of maniac persistence and didn’t really care how shitty things were around.

Sometimes it feels the same in Toronto: obsession with real estate, lots of hopes, deteriorating 100 years old shacks on ugly streets and perception that it’s ok to leave in a doghouse without air conditioning or anything else. I really doubt americans will drag themselves into another RE obsession again. Sure they’re growing and normalizing after the bust, but it’s a normal prices and sales growth nothing like in Canada.

This obsession will be fixed. Even on a 40k car it makes quite a difference to lease for 0.9% compare with 2.5%.
Can’t imagine how painful its going to be for house owners to discover this math with 10 or 20x multipliers.

#50 Realties.ca » A valuable lesson on 09.24.14 at 7:54 pm

[…] Source: http://www.greaterfool.ca/2014/09/24/a-valuable-lesson/ […]

#51 OttawaMike on 09.24.14 at 7:55 pm

Dean Del Maestro doth protest too much, me thinks.

Peterborough’s own representative has one promise he has pledged to fulfill since being re-elected and that is to reinstate the train to his constituency.

Meanwhile he attends court appointments, legal discovery sessions and other diversions while Peterborough continues to hold the dubious record of having the highest unemployment record of any metro area in Canada.

So who is ultimately the Shakespearean fool?

#52 Obvious Truth on 09.24.14 at 8:10 pm

Housing has been on a downslope for a while. Garth’s right. Housing doesn’t typically crash. It slides for some years. But the collateral damage is huge for many sectors in the economy.

This always happens. Most are all in on houses and will never be able to take advantage of rising equities. It’s clear the fed won’t let this go. It feels to me as if they want US and for that matter global equities a lot higher.

Houses always cost money.

#53 Happy Renting on 09.24.14 at 8:11 pm

Garth, I read tonight’s post out loud to my baby daughter, then helped her raise her hand at the end (the balanced portfolio part.) Amazing how much you can do with ETFs in a small RESP (we’re going to put in just enough to max out the government matching, and any other money she has can go into a non-registered account.)

We were already over our house-horniness by the time we found your blog, but the logical, big-picture, fact-based, and data-backed arguments you present help keep us on track, and prompt us to optimize our investments and tax planning. Thank you for everything, you can count us among the souls you’ve saved.

#54 TEMPORARY® Foreign Prime Minister on 09.24.14 at 8:12 pm

#23 Shawn on 09.24.14 at 6:29 pm
P.S Any advice what kind of hot car looks good parked outside of $million house?
=========================

For the pretentious and self-indulgent, I always recommend either a Jaguar or Land Rover.

Based upon their notorious unreliability, they are guaranteed to become a permanent lawn fixture inside your pull-through driveway, and look magnificent alongside those little faux-marble lantern boys that welcome your equally pretentious and self-indulgent friends to your gated estate. Just ask Lord Balk of Cross-Dresser.

Then again, a million dollars is really only a starter-castle in some ‘hoods. A used ’72 Datsun might be a better choice.

#55 seeing it from both sides on 09.24.14 at 8:13 pm

#38 @604 guy

Did you notice that article is from 2012??

#56 Rainclouds on 09.24.14 at 8:16 pm

“…Harper dismisses reports of a Canadian housing bubble……”

Yea, Like HE will be around for the carnage. Tubby be gone soon.

#57 Italians love real estate on 09.24.14 at 8:21 pm

With a name like” dal mastro ” and it’s ethnic origin, I would assume that he would mock anything remotely negative to housing , RE or any related promotional entity toward it.

Delete if you have too Garth but please don’t ban

#58 Tony on 09.24.14 at 8:24 pm

Re: #4 Shane on 09.24.14 at 5:05 pm

Stouffville is much more overvalued than Markham. If you don’t live in the east end you’re basically landlocked and can only go north to work. Brampton could lead the country in terms of percentage decline. In fact I’d bet very heavily it will.

#59 Cici on 09.24.14 at 8:26 pm

#23 Shawn

Of course there’s always another, more realistic scenario: The $1 million dollar house only goes down to $850, whereas the $500,000 drops to $200,000 and you can’t offload it (whoops, no buyers). This will be the case for many condo owners, who will be underwater on their mortgages and unable to move up anyways.

And then there’s always structural unemployment to worry about. You may have your bases covered (mortgage paid off, home as opposed to condo), but most don’t so this won’t be a win-win scenario for a lot of people.

Regardless, I’d say it’s probably best to hold off on the luxury car purchase, at least for now.

#60 Smoking Man on 09.24.14 at 8:27 pm

#43 Sheane Wallace on 09.24.14 at 7:28 pm

Gold to moon, let’s see what happens after China opens it physical gold exchange.. Two markets, paper gold, real gold…

#61 Italians love real estate on 09.24.14 at 8:32 pm

#4 Shane on 09.24.14 at 5:05 pm
Garth, I could see 50 percent in some places like Markham parts of Toronto.

I am totally on the other side if your viewpoint Shane for both Markham and Richmond hill.

I also think that the near, central 905 could increase at a greater % rate than even some of the toniest area of T.O

#62 Daisy Mae on 09.24.14 at 8:56 pm

#7 Mike: “This is exactly what I worry about now. Why won’t lose 20% 30% or more of the equity? After all they are overvalued by that much and more.”

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

So? Values will drop to the ‘mean’ — where they should be. What’s the problem? Sellers have been greedy, buyers have been stupid. It’ll all come full circle.

#63 JuliaS on 09.24.14 at 8:56 pm

#1 Mr. Nihilist

Most people at my work are house-horny. We have kids straight out of college go out browsing during lunch breaks. We have family men upgrading boxes in the skies to semi-detached starters. I scream at all of them. I keep quoting Garth and Mish to them. No effect whatsoever.

A long gone employee bought a house in Vancouver in 2009. Been holding onto it seeing no appreciation whatsoever.

The last guy whom I tried talk out of a mortgage was in his 40’s, with virtually no savings and enough salary to cover nothing but a mortgage. I told him with our kind of job security signing a multi-year debt contract made zero sense. He became a homeowner anyway.

Less than 2 months later he got laid off along with a dozen other people.

I watch people come and go, making exact same mistakes over and over, seeing nothing and hearing nothing. End up reading this blog out loud to them and all I hear back is “la-la-la-la”.

#64 Kenchie on 09.24.14 at 8:56 pm

“Real estate became a cult, then a mania and finally a religion. As a result, risk has elevated exponentially”

And it doesn’t help the common cause when REALTOR.CA actually advertised the “need” to use a realtor when buying a house. What a waste of their dwindling association money.

#65 Son of Ponzi on 09.24.14 at 9:02 pm

It’s official: Canada has a housing bubble!
Harper just officially denied it.

#66 FormerSaskie on 09.24.14 at 9:06 pm

#56 Rainclouds

Your words; God’s ear :)

#67 Kenchie on 09.24.14 at 9:14 pm

#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!”

Aww only third place =(

Gotta double my efforts!

#68 bigtown on 09.24.14 at 9:33 pm

Spa day in Burlington; got hair and nails done for half the Toronto price and parked in front of the door. No walk ten blocks on the wild streets of Toronto and run back to your car full of fear and anxiety about a parking ticket. Then parked at the Chapters (again front door) and got a Starbucks coffee and sat in the bright sun which was not blocked by GIANT CONDO TOWERS. Good thing I am the only one in the GTA who loves Burlington/Hamilton. People were smiling; said Hello; this is what real Canada is about. So yeah I am a patriot. My only beef …how do we locate a Garth like candidate for the next federal election? Nothing in life is perfect.

#69 Smoking Man on 09.24.14 at 9:36 pm

#64 Kenchie on 09.24.14 at 8:56 pm“Real estate became a cult, then a mania and finally a religion. As a result, risk has elevated exponentially”

And it doesn’t help the common cause when REALTOR.CA actually advertised the “need” to use a realtor when buying a house. What a waste of their dwindling association money.
……….

From the get go, check the archives, I’ve called real estate appreciation for the last five years accurately and consistently.. The bond market, the stock market and Forex.

I study people. Charts are merely a reflection of human emotion. Batman, Camel toe.. Is an indicator of fear and
greed.

Stick Fibinachi, Boulanger bands, standard devotion up your ass.

Study people grasshoppers void if your wishful bias and you will win every time…

By the way, I’m still number one on here. Even though I’ve been light on my posts as I have a mastet piece to finish.

Can’t wait to get it out, then I can focus 100% of my time entertaining and taunting you bastards.

#70 Uh Oh Canada on 09.24.14 at 9:37 pm

Wow. I’ve been seeing a lot of advertisements from new companies in my field (three, so far). I also see new trucks on the road with shiny new equipment. There must be a lot of folks laid off and opting to try their hand at self-employment. The only thing is that we are already in an oversaturated market. This year is our best year so far, but who knows what the future will bring with this new competition?

#71 Smoking Man on 09.24.14 at 9:42 pm

Ps a bit of a RE write.. I’ve introduced a new character, a fellow alien, his name

Shlong Zoomunga, AK a fellow alien that crash landed in 1803 in Croatia, he was the lover of Georgia Jduka. Mom.

Google her, see who her son was…..

#72 Kenchie on 09.24.14 at 9:47 pm

From Yesterday:

#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….”

A tip of the hat to Mr. Casual Observer for a very well researched response.

Mark, you’re off the hook for failing to provide evidence of the $900bn in responses since Casual took care of it.

However, the multi-family portion of the insured portfolio would likely improve in creditworthiness as homeowners move into purpose-built rentals after defaulting on their “THO”.

#73 Shawn on 09.24.14 at 9:47 pm

I win…

I win today’s round because I had the most people responding to me.

That how it works, one point for each response, no points for your posts, just responses to. (Sorry, Mark)

3 points if Garth responds.

10 points if Garth calls you a Dick or some other good insult.

Automatic win for the day if Garth bans you.

Okay, actually today’s round is not over yet but I think I am in the lead.

#74 Cow Man on 09.24.14 at 9:49 pm

Sir Garth:
Would it be correct to say that with the CDN dropping from $1.02 last October to $.91 now that CDN homes have already lost 10% of their value?

#75 Shlong Zoomunga on 09.24.14 at 9:56 pm

Smokey, you know we from Nectonite live forever, I’m still here, you act as if I’m dead. I’ve reported you to the authorities back home. An assassination squad fully loaded with Element 115 with will guarantee a round trip back home without refuling is coming for you..

You’ve crossed the line…

Stop helping the humans.

#76 Ray Skunk on 09.24.14 at 9:59 pm

#73
Sure if you’re from the US, and/or get paid in USD.

If you’re Canadian, paid for the house in CAD, earn a salary and pay the mortgage in CAD, and will eventually sell the house in CAD, then what has it lost its value relative to?

#77 45north on 09.24.14 at 10:02 pm

Tony: Brampton could lead the country in terms of percentage decline. In fact I’d bet very heavily it will.

this is the same Tony?

Tony: Mississagua and Brampton will be the last two cities in the country to tank.

you wish

http://www.greaterfool.ca/2010/09/23/road-kill/#comment-56707

Tony I pretty sure we played soccer at Birchmount Stadium.

#78 economictsunami on 09.24.14 at 10:10 pm

Karma will take care of Roscoe “Fatty” Arbuckle.

Meanwhile the frail statistical recovery from the GFC continues to wobble along…

Developing a Narrative: The Great Recession and Its Aftermath:

http://libertystreeteconomics.newyorkfed.org/2014/09/developing-a-narrative-the-great-recession-and-its-aftermath.html#.VCN2VX8e2Ci

#79 Shawn on 09.24.14 at 10:11 pm

Currency impact on House prices

Sir Garth:
Would it be correct to say that with the CDN dropping from $1.02 last October to $.91 now that CDN homes have already lost 10% of their value?

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

That’s correct, as long you are an American investor or otherwise count your wealth in American dollars because you intend to retire there or whatever.

For most Canadians, no the currency impact means basically nothing. For example it has very little impact on inflation, i.e. very little impact on the purchasing power of the Canadian dollar in Canada.

#80 Shawn on 09.24.14 at 10:12 pm

Ray Skunk at 73 is obviously highly intelligent.

#81 Inglorious Investor on 09.24.14 at 10:25 pm

From what I am seeing, the real estate market in Toronto may be starting to return to normal. Maybe.

High quality properties are still being snatched up at insane prices, but homes of lesser appeal in the same neighborhoods (even in the hot middle of the market) are having a much harder time finding love. No longer are average detached homes being swarmed by would-be property speculators in carefully staged open houses. ‘For Sale’ signs slowly rot on weed-infested lawns, waiting, begging, for the ‘Sold’ sticker.

I can imagine what the stunned owners of these houses must be thinking: What happened? Why aren’t bidders breaking down the doors to get in and make me an offer at 50 G’s above asking?

Is the party almost over? I don’t know. But something ain’t quite right––that is if you consider the mania of the last several years to be normal. Perhaps it’s the asking prices?

#82 Mark on 09.24.14 at 10:32 pm

“Still, I wonder if we’re doing the wrong thing by leveraging up and buying real estate instead of doing the simple thing and buying paper assets.”

Real estate is just as much of a ‘paper asset’ as a stock. If you’re taking on debt to buy investment RE, chances are, the rest of your portfolio isn’t very diversified.

#83 a prairie dog on 09.24.14 at 10:33 pm

#Don’t drop the soap Del.

Oh right, it’s a white collar crime. Just a small fine. lol

But with Captain Harper trying to keep the sinking ship ‘Economy’ afloat until after the Oct 2015 election, they’ll dump old Del like rotten cargo.

Hey, maybe Del can sell real estate?

#84 Mark on 09.24.14 at 10:34 pm

“Would it be correct to say that with the CDN dropping from $1.02 last October to $.91 now that CDN homes have already lost 10% of their value?”

Its even worse than that because there have been broad-based price declines in Canada. Only temporarily masked by a shifting sales mix.

But when people say, “Canadian houses have lost 10%”, they usually aren’t thinking in terms of foreign currencies. After all, foreigners buying Canadian RE is relatively rare.

#85 45north on 09.24.14 at 10:35 pm

Shane : I could see 50 percent in some places like Markham parts of Toronto.

which would be a big surprise to the guy who calls himself “Italians love real estate” It’s one thing to take a 50% hit on a house you own free-and-clear and another when you have a mortgage which is 95% of the value of the house.

Roman : 50 percent too much?.

Victoria Real Estate constantly gives examples of US houses that cost 1/3 of Canadian houses.

Retired Boomer : What took 5 or 6 years to build up might come down astonishingly fast-and disorderly.

Not a wish, or a prediction. Just remember when on a slippery road you gotta worry about everyone else and yourself, too.

that got my attention

Bill Gable : from yesterday : Time to get the heck out of Vancouver for good.

and as a renter you can move pretty fast. Wonder where you’ll go?

to_be_frank : If houses are as overpriced in Canada as they were in the US at their peak, and if their prices fell 32% on average, then it seems reasonable to anticipate a similar outcome here.

that’s what I’ve told my children which means that any kind of real estate investment which depends on the price going up is just about impossible

seeing it from both sides : Did you notice that article is from 2012??

I didn’t.

JuliaS : The last guy was in his 40’s, with virtually no savings and enough salary to cover nothing but a mortgage. I told him with our kind of job security signing a multi-year debt contract made zero sense. He became a homeowner anyway.

Less than 2 months later he got laid off along with a dozen other people.

thanks for the story

#86 Inglorious Investor on 09.24.14 at 10:46 pm

How low can house prices go? How much time have you got?

Can real estate collapse by 50%? Why the hell not? All you need is the right conditions and enough time. Anyone who thinks this won’t happen in Canada (or at least in major centres like Toronto and Vancouver) can certainly make a case. But anyone who thinks this CAN’T happen should look back into history.

Problem is, predicting the future of markets like real estate is hard enough when things are calm and stable. When things are going nuts all over the place, like now, it’s like counting bees in a swarm.

There are just so many variables in play right now (debt, energy, technology, disease, war, terrorism, corruption, civil unrest, stupid climate change panic, distorted markets, crap currencies, etc.) that any one of them could blow up and cause a major disruption, to say the least.

I’m not saying one should live in fear. But these days one should be prepared. For ANYTHING. Wait, I don’t think that’s even possible. Hey, did you see the last episode of Modern Family?

#87 Inglorious Investor on 09.24.14 at 11:08 pm

#79 Shawn on 09.24.14 at 10:11 pm

“For most Canadians, no the currency impact means basically nothing. For example it has very little impact on inflation, i.e. very little impact on the purchasing power of the Canadian dollar in Canada.”

Shawn, you must know that a lower Canadian dollar does make imports more expensive. Especially since most imports are priced in American dollars? And how about gasoline and other fossil fuel derivatives? So I would suggest you look into how much of what Canadians purchase on a day-to-day basis come from outside our borders.

No offense, but your comment reminds me of Nixon’s televised speech to Americans in August 1971 when he announced to the world that the United States was defaulting on its international obligations and throwing the dollar to the winds (all to ‘save’ the dollar from the so-called “international speculators”––you know: people like you who do nasty things like invest in the markets.

He also told his fellow citizens that a debauched dollar would have no impact on the lives of ordinary Americans who bought American goods. Maybe he was right, except, that is, for two crippling oil spikes, perhaps the greatest peacetime inflation in modern times, and, eventually, a bond market collapse that forced the Fed to raise rates to almost 20% and kill the economy. And the US dollar was the so-called ‘gold standard’.

What exactly would protect Canadians from a falling looney? And don’t tell me you buy that propaganda crap about a lower looney being good for the economy. All a lower looney indicates is that we can’t compete on a level playing field.

#88 NotAGreaterFool on 09.24.14 at 11:15 pm

Stephen Harper pushed back against fears of a Canadian housing crisis while in New York this week, saying that only a minority of Canadian families could be hurt by a fall in prices or a rise in interest rates, CBC News reported.

http://www.huffingtonpost.ca/2014/09/24/canada-housing-bubble-hilliard-macbeth_n_5878784.html?utm_hp_ref=canada-politics&ir=Canada+Politics

#89 UVZ on 09.24.14 at 11:16 pm

#7 Mike S on 09.24.14 at 5:20 pm

“But nobody should get too excited about houses losing half their value, since it won’t happen. If it did, with 25% of the GDP at stake, you’d have more consequential things to worry about”

This is exactly what I worry about now. Why won’t lose 20% 30% or more of the equity? After all they are overvalued by that much and more.

Over a few years, it could happen. Over a few months, not a chance. — Garth

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

Once panic sets in and prices begin to slide, anything can happen on an individual deal basis.

I think that buyers who have been patiently waiting to make a move can try very low offers. If you’ve been waiting that long despite all the cultural, social and horny pressures of this strangely super-emotional Canadian subject (RE), you probably have the backbone and thickness of skin to stick your guns when making offers — even it they are less than what the “market” at the time is — and your offer conditions to the seller are minimal.

#90 screwed on 09.24.14 at 11:17 pm

Fact of the matter is that we did have a 40 yr amortization and subprime interest which distorted the markets. Now the banks are scared to make loans and the homegrown RE buyers are not able to move up.

They should reintroduce the 40 yr or at least a 35 yr product and make it comfortable with a low interest rate over a long period of time.

Any wonder Canadians are freaked out about their debt levels when they’ve been told over 5 friggin’ years that rates could go up again any day now?

At least the buyers South of the border can lock in for up to 30 years if they want. Now that is some comfort and solid approach to allow planning family finances.

Canada is a mess.

#91 Cato the Elder on 09.24.14 at 11:46 pm

Garth, I fear what is happening in the West. All our wealth has been transferred to the East, where they are engaged in real, productive work through manufacturing.

The West is devolving into a totalitarian society, always looking for some foreign war to compel people to give up their God given, natural rights. Meanwhile, the East, having lived under totalitarian rule, is moving towards greater freedom in all areas.

When this all comes crashing down, don’t think that we are going to make the right decisions. The government will be compelled to cater to the mob, which will demand ever increasing interference in our personal and financial lives.

The productive, honest and hard working will continue to shrink and be plundered from until they are no more. Beware what happens when the state begins to target the truth tellers – truth is treason in an empire of lies. The general public has been conditioned to view truth tellers as threats as it undermines their worldview. They are going to instinctively be angry with anyone that points out the real problems in our economy, even though they should be embracing them as the real leaders.

I have come to believe that people want sociopaths as their leaders. Sociopaths often exhibit large degrees of confidence, despite the fact that their confidence is misplaced because they are so often proven wrong. But they certainly don’t let that deter them – they continue to clamor for power and the general populace LOVE THEM FOR IT.

Well intentioned, humble, thoughtful leaders that accept their own shortcomings are not appreciated enough. Introverts make much better leaders than extroverts because they’re not trying to impress everyone all the time – they are more concerned with factual truths than popularity. Einstein was an introvert. I would trust his judgement more than I would trust fellow Nobel Laureate Obama.

Say farewell to the West. It is so tragic because we had a 200 year industrial lead on the East, and we wasted it. It certainly didn’t take long for socialism to destroy all that wealth. Only 1 or 2 generations – that’s all it took. Social programs, inflationary monetary policies, deficit spending and economic interference by do-gooders.

See how far we’ve come. We have now fulfilled all 10 planks of the communist manifesto as written by Karl Marx:

https://en.wikipedia.org/wiki/The_Communist_Manifesto#II._Proletarians_and_Communists

I hope I am wrong. However, trends are certainly not indicating to me that the right decisions will be made. The greatest mistake we can make is to say ‘a totalitarian state can never happen here’. Ironically, when we let our guard down, that’s when it is most likely to happen.

#92 Steve French on 09.25.14 at 12:14 am

…. Camel toes are an indicator of fear and greed ?

#93 Grantmi on 09.25.14 at 12:16 am

“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said west-side realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents. Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy. This year, it’s less than a tenth of that. “We’re now seeing a 50-per-cent collapse rate in deals, when it’s usually more like 5 per cent,” he said.

http://bit.ly/1uqFGci

http://www.youtube.com/watch?v=E1-6qSGAIyk

#94 Son of Ponzi on 09.25.14 at 12:17 am

The empty house movement in Vancouver is gaining speed.
Sharpen the pitchforks.
http://beautifulemptyhomes.tumblr.com/

#95 Kenchie on 09.25.14 at 12:24 am

#189 Sheane Wallace on 09.24.14 at 4:03 pm

“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?”

Fair point. But…

“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.”

I NEVER ONCE said that there is “no risk” in the CMHC! What I did say though, is that Total “Insured” does not equal Total “Risk”. There are differences between the two. Mark and yourself parade around saying that the gov’t is on the hook for $900bn and that we’re going “bankrupt” because of it. This is simply not true. Increase in deficit upon worst case scenario is a possibility, but nothing the fed gov’t can’t absorb relatively easily.

Going back to Casual Observer’s fine research, $551bn of mortgages are “insured” by the CMHC and then there is another $402bn of “guarantees”. In order for the CMHC to be forced to pay out all of this money in one year, or over several years, there would need to be something significantly drastic to require all of these contracts to be triggered. A 20% decline in house prices is not drastic enough. It won’t automatically set off enough defaults on home insurance to destroy the capital reserves of CMHC. Even 30% won’t. Yes, there will definitely be an increase in defaults as house prices fall and people can’t renew mortgages without extra equity investment. But considering in the aftermath of the GFC, the CMHC paid out ONLY $678m in 2010, which was the highest shown in the Annual Report 2013 (pg. 137), there’s no likely realistic scenario in which $16bn or so of claims will need to be paid out.

So please use some reality in your analysis.

And

“There is no risk from LCBO, OLG to the taxpayer. None, just revenue.”

Hardly the point. The point is there is a long history of crown corporations providing profits to gov’ts across the land (which I don’t politically agree with in many of the examples I mentioned, but that’s just my preference). The reason I brought this up is because you said:
“If there was profit in their model it would have been privatized and private entities would be doing it.”

So I pointed out the obvious crown corps that are owned by gov’ts that have for-profit models and haven’t been privatized. There is no golden (or legislated) rule that said gov’ts are barred from owning profitable companies.

#96 Freedom First on 09.25.14 at 12:40 am

#65 Son of Ponzi

Good Post. Made me smile, and then I thought, if we were going to have a RE crash we would have had it by now. Denial is powerful, but it never stops the inevitable $$$$$ $hit consequences from happening when TSHTF as a result of any insane behavior by people. RE mania included. Just look around the world at the hundreds of millions of people who financially abused themselves into poverty recently. Proof that leverage is deadly and can be quite similar to performing a vasectomy on yourself using two bricks.

#97 Kenchie on 09.25.14 at 12:41 am

Sheane Wallace,

Since you’re such a superstar in the insurance industry (although you never mentioned what type of insurance or your role), you must have plenty of bright ideas on how the CMHC can get out of, or minimize, the “risks” to taxpayers.

So please enlighten us blog dogs on your solutions to the problem at hand, rather than continuing the doomer talk.

#98 Casual Observer on 09.25.14 at 12:52 am

Looks like Vancouver politicians are not alone…

New York City, Singapore, Hong Kong, and the U.K. have all recently passed or proposed additional taxes and fees on foreign buyers.

http://www.cnbc.com/id/102029444

“Such taxes have become common around the world as governments seek to cash in on the rush of rich foreigners buying real estate. Voters are also frustrated by wealthy buyers from overseas bidding up local property values.”

Sound familiar ?

#99 AngryMan127 on 09.25.14 at 12:55 am

6 yrs…”constant, tedious, boring, repetitive, deadening, irritating endless repetition of lessons on diversifying out of real estate to mitigate risk…”

lol…we do love you Garth!

#100 Casual Observer on 09.25.14 at 12:56 am

A tip of the hat to Mr. Casual Observer for a very well researched response.

Thanks for the compliment, but “Google” deserves all the credit. Cheers.

#101 Setting the Record Straight on 09.25.14 at 1:02 am

Housing Prices Real interest Rates and the Real CPI

http://globaleconomicanalysis.blogspot.com/2014/09/housing-prices-real-interest-rates-and.html

Contains an interesting discussion of OER Owners Equivalent Rent, its significance for the US CPI and the way the data for this category is assembled.

#102 Kenchie on 09.25.14 at 1:22 am

Interesting maps!

http://www.vox.com/2014/9/23/6829399/23-maps-and-charts-that-will-surprise-you

#103 West Coast on 09.25.14 at 1:38 am

Hey – Italians love real estate – don’t worry – I’m sure Garth was only kidding about giving you the boot. Let’s face it – he must have a pretty thick skin – the only thing that really pisses him off is when we pick on our fellow citizens.
BTW – just overheard colleague talking about the problems she’s having trying to sell her condo in 604. She has just dropped the price for the 3rd time. Let’s hope it was overpriced the first time and she sells soon. (I kept my mouth shut).
Job losses looming where I work – seems that if an algorithm exists for what you do – you will be replaced. Think it can’t happen to you – read this:
http://fortune.com/2012/12/04/technology-will-replace-80-of-what-doctors-do/

#104 Mark on 09.25.14 at 3:05 am

“And it doesn’t help the common cause when REALTOR.CA actually advertised the “need” to use a realtor when buying a house. What a waste of their dwindling association money.”

The advertising is profoundly bad because of the overtone that police forces are so unprofessional that they would raid a house without doing basic research on the actual occupants/tenants of the house.

It also appeals to recent immigrants from more totalitarian nations with diminished human rights where the police act quite unprofessionally. So as to imply that using a Realtor will shield them from the actions of a totalitarian regime that may employ paramilitary forces against its enemies.

If I were the police, I would be complaining to the Broadcast Standards Council that the Realtors have, without justification, used the public airwaves to insinuate that police officers act unprofessionally.

#105 BillyBob on 09.25.14 at 4:20 am

Well, this is one Canadian who gets paid in USD (or rather, a currency fixed to the USD, in UAE dirham – AED). The CAD decline 10% (and still falling) and housing in my markets of interest going flat or negative has been quite an eye-opener. Suddenly my buying power has increased immensely. Is there an acronym for NON-Asian hot foreign money? Is money foreign if it’s earned by a born-and-bred Canadian who happens to have been displaced from Canada by economic circumstance?

Patiently biding my time. All overall economic trends in Canada have been negative for a couple years now and I see no reversal in the near future. In fact if anything the outlook only grows more grim for employment prospects, taxation, demographics and the like. I have said in the past and will continue to say – it’s far easier to see a speculative bubble when you’re not living in it.

It’s also instructive to have lived through one, as I have in Dubai. The earlier poster mentioning Shanghai was also spot-on. The flipping manias in these two examples put Toronto and Vancouver to shame. And crash hard, they did, and will. These frenzies are simply tulip-bulb mania repeating over and over. Different commodities, same mentally, same behaviour, same motivators.

Let’s just say I don’t exactly subscribe to the “buy now or be priced out forever” mantra. There are already bargains to be had, and no amount of wishful thinking about Italians/Asians/immigration/It’s Different Here/crowd psychology is gonna change the outcome.

#106 Not an economist on 09.25.14 at 5:36 am

Garth, I know you claim not to hold grudges, but I will say this: if you’re enjoying even a little bit the karma Mr. del Mastro is reaping, you’re in for a treat next year. Your former political Sithlord (google it, it’s Star Wars) is about to put all conservatives back in the political fringe for at least a couple of decades, while the son of someone he despised will lead Canada with a majority government. The guy with the book is right, by next spring the bubble goes pop for good. Between that, the Duffster’s rushed trial, the Trudeaumania, and the conservative fatigue our population is experiencing, you can hardly doubt what’s coming. As you know from experience, Cons are like sharks, they have no problem turning on each other at the first sign of blood in the water.

And btw, you pointed out some interesting things like the public and private debt being at levels that were unthinkable when you wrote Greater Fool. I’m sure there are a few other changes in circumstance since then. Perhaps time for a new book? Say yes…

#107 Londoner on 09.25.14 at 6:21 am

“After five years of artificially cheap money, Canadians have decided there is only one asset they can trust – their homes, regardless of the cost.

If it wasn’t for these people going out and taking on mortgages and car loans then Canada wouldn’t have done as well following the GFC as it did. Real estate and consumer spending filled the gap in GDP that was left by other sectors.

When I see someone buy a new house with a big mortgage I tell them they have a beautiful home. If someone comes to work in a newly financed car I tell them it looks great. They’re carrying the risk that others are not willing to take. They’re keeping unemployment from rising and GDP from crashing by taking on significant debt. Hopefully they’ll be the ones benefiting from higher wages when we finally get the inflation that the central banks are engineering. That way it will make servicing their debt manageable.

That was the plan all along.

#108 earthboundmisfit on 09.25.14 at 6:26 am

@68 bigtown
Burlington – definitely. The Hammer, not so much so. Downtown is still a s***hole full of druggies and loonies.

#109 Sheane Wallace on 09.25.14 at 6:36 am

#97 Kenchie

I never said I was a magician.

#110 pr on 09.25.14 at 6:51 am

But nobody … losing half their value, since it won’t happen.

Not every one, but some will lose half, depending of the interest rate.

#111 I'm stupid on 09.25.14 at 7:08 am

Don’t be fooled by your own observations, they often tell you what you want to hear. I read lots of comments here saying I see sold signs everywhere so the market must be doing fine. That’s the same as when you buy a car and see the same car everywhere. Your mind is actively looking for that car since it has meaning to you. With housing when you’re in the market you actively look for signs and naturally your mind will point out the sold signs since it represents a missed opportunity.

I’ve been trading equities since I was 18 and in the beginning I let my attachment and greed get the better of me. It resulted in losses everytime. By the time I was in my mid 20s I detached myself from my investments and looked at things in a purely analytical way. The results are amazing, by doing this I’ve avoided getting caught up in bubbles and getting creamed.

Your minds ability to give meaning to things is exactly why psychic’s can scam people. You don’t notice things you don’t care about. When I began skiing for example I would notice all the ski shops. When I didn’t ski I didn’t even know one existed around the corner of my house.

#112 economictsunami on 09.25.14 at 7:43 am

Agree with his perspective or not, John Hussman makes some good points.

From September 21,2014: The Ponzi Economy…

http://www.advisoranalyst.com/glablog/2014/09/21/john-hussman-the-ponzi-economy.html

#113 Sharing on 09.25.14 at 8:16 am

My friend just had a house deal fall through due to financing. Anecdotal evidence but I see it more and more. So it’s happening already in most places accept as you suggest the 416 & 604, although in the 416 price drops for houses over 1 million are common place. I think what people are not realizing is that it will get worse once rates start to rise in two ways. It’s not just the refinancing concerns, it’s the buyers. Their pool of money will be reduced causing more downward pressure on housing prices. A person making 60K a year with no debt, according to RBC calculator, can afford about 1,600 payment a month. That’s $240K house with 5% down and 3% interest, at 3.5% $230K, and at 4% $220K. Something to think about.

#114 Sharing on 09.25.14 at 8:18 am

@Not an economist
Look for an early election call, spring 2015 likely. Before things get too negative.

#115 LuckyRenter on 09.25.14 at 8:40 am

CIA Insider Warns: “25-Year Great Depression is About to Strike America”

You will want to remember this date March 25, 2015.

According to one of the top minds in the U.S. Intelligence Community, that is when the United States will enter the darkest economic period in our nation’s history.

http://moneymorning.com/ext/articles/rickards/25-year-great-depression.php?iris=252778

Could this be true ??

#116 Financial Freedom at 40 on 09.25.14 at 8:41 am

Would welcome a review, or anyone’s direct experience, with corporate class mutual funds. Considering options for tax efficient expertly managed long term growth of non-registered amount.

That’s an oxymoron. — Garth

#117 Ripped on 09.25.14 at 9:05 am

Get ready for rising interest rates — and stocks

http://www.marketwatch.com/story/get-ready-for-rising-interest-rates-and-stocks-2014-09-25?siteid=yhoof2

#118 economictsunami on 09.25.14 at 9:30 am

Nova Scotia’s RE industry one ups the rest of the country?

Smoke, Mirrors And Home Sales: Why Some Experts Don’t Trust Canada’s Housing Numbers:

http://www.huffingtonpost.ca/2014/09/25/canada-housing-data-unreliable_n_5877886.html?utm_hp_ref=canada-business

Nice to see the MSM taking up the torch. Viewpoint has been featured here a few times as Canada’s great example of real estate transparency. — Garth

#119 Kenchie on 09.25.14 at 9:34 am

Everyone’s favourite real estate reporter and Hilliard MacBeth in a video:

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

#120 swes on 09.25.14 at 9:48 am

You want HAM with that?

Excerpt from GandM article on Vancouver Westside RE.

“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said west-side realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents. Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy. This year, it’s less than a tenth of that. “We’re now seeing a 50-per-cent collapse rate in deals, when it’s usually more like 5 per cent,” he said.

#121 Stumpy on 09.25.14 at 10:03 am

During the crash in the late 80’s / early 90’s, the hardest hit area was actually downtown Toronto.

Between 1989 and 1996 average price of a house in GTA have declined by 40% adjusted for inflation or $182,625 in today’s money. Downtown of Toronto was hit the worst with over 50% decline in value of a home.

Source: http://www.torontocondobubble.com/2013/02/toronto-housing-bubble-in-1980s.html?m=1

#122 rosie "moving forward" in the knowledge that, "this won't end well" on 09.25.14 at 10:13 am

I wonder if this kind of device could be installed on other things, like T.V.’s or houses. Debt slaves take heed.

http://dealbook.nytimes.com/2014/09/24/miss-a-payment-good-luck-moving-that-car/?_php=true&_type=blogs&_r=0

#123 Incubus on 09.25.14 at 10:18 am

50% drop for condo is a given.

It is easy to prove it.

For example, in Montreal the selling price for an apartment building is around 12 times the annual gross revenue.

Then you check how much a condo is rented and you multiply by 12, it gives you an estimation of the real price of the condo.

When you do that, you rapidly realise that a 50% drop in prices are real.

#124 Inglorious Investor on 09.25.14 at 10:27 am

Apparently Mr. MacBeth is not just a dead Scottish king, but perhaps a pretty smart guy as well.

In a recent interview with the G&M (thanks for the link, Kenchie) he said this:

“Now, there is one aspect of housing that actually does rise in value over time at the rate of inflation, and that’s the land. Which you don’t get with a condo.”

[Note: I disagree with his use of the term “value” in this instance. He should really have said “price.”]

But that’s just what I’ve been saying, to the chagrin of all those condo humpers on this blog. Those who have made money buying and selling condos. Could for you. Congrats. But that’s speculation, not investment. You can speculate with any asset.

Just before that, he says vis-a-vis single family homes in a downturn:

“You might not like the price, but you could sell. But condos, literally, I could see a situation where you just can’t find a buyer.”

That’s right. With so much supply on or coming on stream, if things go south deeply enough, many of those concrete boxes in the sky could literally go “no bid.” And given that so many of the recent buildings in TO are poised to become multi-level slums of the future, like some 1970’s dystopian, Brittish sci-fi nightmare, that only adds to the likelihood of this happening.

You want RE? Think ‘dirt’ first. Then think about the structures that float on that dirt.

#125 liquidincalgary on 09.25.14 at 10:29 am

Shawn says:

Charlie Munger (SEE I don’t ALWAYS invoke Buffett) says: Invert, Always Invert

==========================================

Munger is Buffet’s partner, non?

tax consumption, not income

#126 liquidincalgary on 09.25.14 at 10:33 am

Shawn also says:

P.S Any advice what kind of hot car looks good parked outside of $million house?

============================================

try finding something that is pitch-fork proof

#127 Mark on 09.25.14 at 10:42 am

“Going back to Casual Observer’s fine research, $551bn of mortgages are “insured” by the CMHC and then there is another $402bn of “guarantees”. In order for the CMHC to be forced to pay out all of this money in one year, or over several years, there would need to be something significantly drastic to require all of these contracts to be triggered.”

Exercise of literally all of the guarantees is an impossible scenario, as there are assets backing the guarantees, and those assets, even in a severe RE down market, will still have at least some liquidation value. Okay, there’s a lot of crap in CMHC’s portfolio of guarantees (like almost-condemned houses in Winnipeg that a decade prior would barely catch a $20k bid, being insured for $100k+), but its not that bad.

However, this doesn’t preclude a scenario where a substantial amount of the portfolio of guarantees experiences distress. The estimate I gave of CMHC’s capitalization requirement was around $180B, given that only 5X leverage is prudent into the sort of subprime loans that CMHC insures, and the elevated metrics of Canadian house prices. CMHC currently has on the order of $20B of capital available to pay claims, so its conceivable that they may need $160B of taxpayer resources to square things up.

Now, this assumes CMHC remains the way it is. There will be an awful temptation to place additional liability onto CMHC in the future, to ‘stabilize’ the housing market, much like has occurred in the USA with the FHA. These attempts at “stabilization” may impose additional costs, although they would come at a time when house prices have presumably declined substantially and hence lending comes at less actual risk.

#128 Inglorious Investor on 09.25.14 at 10:50 am

Here’s an interesting article about one way the gov manipulates inputs to make inflation seem lower than it really is:

http://globaleconomicanalysis.blogspot.ca/2014/09/housing-prices-real-interest-rates-and.html

Mish focuses on how the BLS in the US uses Owner’s Equivalent Rent instead of actual home prices as an input for their CPI calculation. And how using actual home prices, as per Black Knight Financial’s Home Price Index, would change the CPI print.

As an example, he calculates that “In mid-2004, the CPI was 3.27%, the HPI-CPI (the CPI using HPI instead of OER) was 5.93%.

Note, that’s not a 2.66% difference. That’s an 81% difference in the rate of aggregate price increases. It’s like saying that actual prices were rising almost twice as fast as what the gov claimed. At least in this case. I haven’t vetted the numbers, but is it hard to believe?

#129 Kenchie on 09.25.14 at 10:54 am

Light reading for the weekend on the Long-term Vacant Housing in the US:

http://www.federalreserve.gov/econresdata/feds/2014/files/201473pap.pdf

#130 dosouth on 09.25.14 at 11:00 am

Garth you are the greatest purveyor of the aphorism – “Revenge is a dish best served cold….” It does feel good though.

#131 Godth on 09.25.14 at 11:04 am

“Armaments, universal debt, and planned obsolescence – those are the three pillars of Western prosperity. If war, waste, and moneylenders were abolished, you’d collapse. And while you people are over-consuming the rest of the world sinks more and more deeply into chronic disaster.” – Aldous Huxley – Island

#132 Mark on 09.25.14 at 11:06 am

“So please enlighten us blog dogs on your solutions to the problem at hand, rather than continuing the doomer talk.”

CMHC’s potential liabilities are pretty much set in stone. Any meaningful tinkering with already written insurance, through the legislative process, or through harassment of the banks in the insurance claim process will simply precipitate a systemic crisis in the Canadian financial system which will create a lot of carnage.

The best way that governments can deal with the aftermath is simply to get the governments’ finances in order. Reduce public sector compensation to that of the private sector so that money will be available to pay CMHC insurance claims as they roll in. Increasingly limit CMHC insurance issuance (but not all at once, as it is clear that the market is highly dependant on CMHC subprime mortgage insurance and is now in decline because of the cutbacks).

Also, the entire CMHC board and management should be fired and replaced with people who know what they are doing. Too many individuals with former or implied housing industry ties “serving” the CMHC at the moment.

#133 Mark on 09.25.14 at 11:13 am

“Mish focuses on how the BLS in the US uses Owner’s Equivalent Rent instead of actual home prices as an input for their CPI calculation. And how using actual home prices, as per Black Knight Financial’s Home Price Index, would change the CPI print.”

Owners equivalent rent is the proper treatment. CPI shouldn’t be jacked up higher merely because people happen to speculate on the production of a particular good or service. In this case, shelter. If we can buy an iPhone for $600, we really shouldn’t care that Apple stock has gone up 10X over the past 10 years (or whatever the number is). CPI is a measurement of *consumer* prices, not returns on investment.

As we saw in the USA, and are starting to see in Canada, housing prices are cyclical, and are highly dependant on the availability of credit (which is also cyclical). To add housing prices to CPI would exaggerate CPI and subsequently understate CPI. This would be profoundly unfair to those individuals who receive payments indexed to CPI.

#134 Tony on 09.25.14 at 11:16 am

Re: #115 LuckyRenter on 09.25.14 at 8:40 am

Of course it’s true and in another 25 years from 2040 America will be in an even deeper depression. That’s not to say America won’t go on lying about everything for the next 25 years as their entire country goes down the drain.

#135 MP on 09.25.14 at 11:18 am

So price will correct over a few years. But over the long run it will bounce back. Look at Toronto in the 90’s. It took about 10 years after the crash to get back to the same level. This tome around it will be in a much shorter time frame. Much shorter than a 25 year mortgage.

#136 Mark on 09.25.14 at 11:28 am

“So price will correct over a few years. But over the long run it will bounce back. Look at Toronto in the 90’s. It took about 10 years after the crash to get back to the same level. This tome around it will be in a much shorter time frame. Much shorter than a 25 year mortgage.”

Actually this time around, there isn’t any room for long-term interest rates to go much lower, so a recovery is likely to take even longer as it will likely be against the headwind of higher long-term interest rates. Unlike the situation in the 1990s and the subsequent recovery in the 2000s which was driven by long-term interest rates.

Also, the issue for a practical investor is that, while it might take a decade for RE to recover back to last year’s peak levels — what are the opportunity costs going to be in the mean time?

In the 1990s, for instance, we saw the stock market more than triple. A mere 25% downpayment fund invested in an index fund in 1990, by the end of the decade, was enough to buy nearly 100% of a Toronto house.

#137 Son of Ponzi on 09.25.14 at 11:33 am

Black Friday coming up?
Or do we have to wait for Monday?

#138 Shawn on 09.25.14 at 11:54 am

Yes Virginia, Condo Values can so rise

Inglorious Investor at 124 quoted MacBeth (he of the houses will drop 50% prediction)

“Now, there is one aspect of housing that actually does rise in value over time at the rate of inflation, and that’s the land. Which you don’t get with a condo.”

[Note: I disagree with his use of the term “value” in this instance. He should really have said “price.”]

*****************************************
Why would land prices rise with inflation? Everything tends to rise with inflation. Does that apply to Condos? Yes, why wouldn’t it? But it applies differently since Condos also depreciate and wear out as do houses but unlike land.

Why does residential land value and price rise in a City? And rise more than inflation? Could it be due to the location getting more valuable as the City grows. Does this not apply to condos?

Could it be that all assets that produce an income or have a rental value rise as interest rates fall. Does that not apply to condos?

Are Condos different? Yes, certainty and I personally have never wanted to own one.

Can they rise in value? Yes and fall also, as can land and house values.

Were Condo price gains of the last ten years a windfall speculation gain? Yes the part of house, land and condo gains that was due to interest rates drops was just a lucky gain.

What has Mr. MacBeth’s personal returns been on his investments?

Does his book basically tell us that house prices rise in practice but not in (his) theory.

#139 Nemesis on 09.25.14 at 12:08 pm

“He’s on trial right now for electioneering fraud, and I hear it’s not going well.” – HonGT

Pity.

Perhaps, when it’s all over bar the sentencing hearing, Mr. delMastro’s briefs will allay his disappointment with a TwinPeaks or, better yet, a TiltedKilt luncheon?… where “The Big Arse” reigns supreme.

[BloomBerg] – Twin Peaks: ‘Hooters Just Wasn’t Racy Enough’

http://www.businessweek.com/articles/2014-09-25/inside-twin-peaks-americas-fastest-growing-restaurant-chain#r=hp-ls

#140 Inglorious Investor on 09.25.14 at 12:29 pm

133 Mark on 09.25.14 at 11:13 am

“Owners equivalent rent is the proper treatment. CPI shouldn’t be jacked up higher merely because people happen to speculate on the production of a particular good or service.”

Well, I for one think that CPI should be based on what we actually pay for something, not what you can rent it out for. And your comparison of housing to Apple stock is specious and irrelevant.

——————-

“As we saw in the USA, and are starting to see in Canada, housing prices are cyclical, and are highly dependant on the availability of credit (which is also cyclical). To add housing prices to CPI would exaggerate CPI and subsequently understate CPI. This would be profoundly unfair to those individuals who receive payments indexed to CPI.”

So… basically what you are saying is that prices are volatile and cyclical? Welcome to the economy where EVERYTHING is cyclical.

Housing prices would not exaggerate anything. They would simply help to elucidate how prices, in aggregate, are trending at that moment in time. And given how large an expenditure housing is for the average person, I think including the actual cost of housing is key to calculating CPI. Furthermore, you don’t just buy a house once and not have to worry about it after that, such that house prices are not relevant to individual home owners on an on-going basis. The price you pay for your home has a lasting impact, via your mortgage, which lasts, potentially, for decades.

You seem to be arguing for some kind of fundamental, true, steady-state rate of inflation, where market prices are somehow artificial and thus should be ignored. As if the market is wrong. The market is NEVER wrong. And it’s never RIGHT. It just IS. But that’s the reality. This fantasy ‘steady state’ you allude to does not exist.

As for CPI-indexed incomes. Given that CPI is routinely understated via these sorts of manipulations as described in the article, this effectively cheats those with indexed incomes on an on-going basis. But again, there is no right or wrong, fair or unfair. There is just reality. Given our inflationary monetary system, we rarely have to worry about real deflation causing a drop in CPI and thus negatively impacting indexed incomes.

HOWEVER, if CPI was a true and accurate reflection of real price trends, then whether indexed incomes go up or down would not matter, because the income would always be stable in real terms. You want to smooth out the volatility? Use averages over longer time frames.

If you really want to be fair to people, we don’t need fantasy numbers that ignore the reality. We need the real numbers.

#141 Nemesis on 09.25.14 at 12:38 pm

#SpeakingOfValuableLessons… #&’TwinPeaks’…

[Economist] – Action chart: For whom the jobs toll –
The new way of post-recession unemployment in America

http://www.economist.com/node/21620337

[CommonDreams] – Broken Dreams: Amidst Economic Insecurity, Americans Can’t Get Ahead: Survey finds lost faith in the American Dream

http://www.commondreams.org/news/2014/09/25/broken-dreams-amidst-economic-insecurity-americans-cant-get-ahead

#142 Kenchie on 09.25.14 at 12:58 pm

“The 10 Worst Financial Predictions of the Last 25 Years”:

http://www.dailyfinance.com/2014/09/24/the-10-worst-financial-predictions-of-the-last-25-years/#!fullscreen&slide=2959112

#143 jess on 09.25.14 at 1:47 pm

121 Stumpy

and remember those junk bonds!

Looting: The Economic Underworld of Bankruptcy for Profit …
ssrn.com/abstract=227162
by GA Akerlof – ‎1994 – ‎Cited by 720 – ‎Related articles
Jun 9, 2004 – During the 1980s, a number of unusual financial crises occurred

#144 A Yank in BC on 09.25.14 at 1:49 pm

#137 Son of Ponzi
Black Friday coming up?

A rational investor couldn’t care less. Rebalance once a year, ignore all the noise, and live your life.

#145 Bottoms_Up on 09.25.14 at 2:32 pm

#133 Mark on 09.25.14 at 11:13 am
————————————-
It is clear you are either a CON-BOT TROLL or someone being paid to post garbage to further a certain agenda.

Of course prices are higher today than they were 5 years ago.

And of course the cost of rent and housing should be factored into CPI, as this is ballpark 25% of household income.

It’s ridiculous not to include it in CPI, as wages are negotiated based on inflation. Not including housing in CPI keeps CPI artificially low, reduces wages, and makes housing that much more expensive.

Average Joe hasn’t and can’t keep up with the cost of housing, and this is partly due to lack of wage gains based on artificially low CPI numbers.

#146 NoName on 09.25.14 at 2:36 pm

here, me losing my job on sep 19, and market $#!++!ng a bed, coincidence?

http://i61.tinypic.com/v77h3d.jpg

#147 rosie "moving forward" in the knowledge that, "this won't end well" on 09.25.14 at 2:36 pm

#6 doesn’t apply in Canada. It’s different here, so I’ve heard.

http://www.salon.com/2014/09/25/7_things_you_think_you_know_about_money_—%C2%A0that_are_actually_completely_untrue_partner/

#148 bdy sktrn on 09.25.14 at 2:38 pm

Black Friday coming up?
Or do we have to wait for Monday?
—————————–
maybe thurs, friday and monday….let’s hope not.

low rates forever…blah.

meanwhile
..
Vancouver real estate breaks $2m mark

Vancouver’s East Side may no longer be the affordable, funky alternative to the tony, high-priced real estate west of Main Street.

At least if a recent sale is any indication.

A house at 846 E 27th Avenue, on a 33 ft. wide lot just east of Fraser Street has sold for the asking price of $2,150,000.
http://www.cbc.ca/news/canada/british-columbia/vancouver-real-estate-breaks-2m-mark-east-of-fraser-street-1.2776611
—–
in EAST VAN, where, back in the 80’s, the west side kids were forbidden to tread.
2.1m is record territory.

——
on a somewhat related note, for you easterners, ie everyone east of cranbrook, including our wise and gracious host, i would like to suggest a more accurate use of the term the ‘604’ .
the 416 and the 905 are quite different markets , as are the central vs suburban sections of metro vanc. however the 604 covers BOTH the ultra premium core areas and the distant suburbs.\

604urban=city of van, westvan, most of north van, bby west of metrotown, north richmond.

604suburban=coquitlam/tri cities/surry/new west/langley/delta/abbotsford/steveston/chillywacked etc

604 urban = intl money,no new land, highest relative gains, still going up.

604suburban = more closely tied to incomes , yet still pumped higher by the ‘spillover’ effect of sky high urban prices.


bottom line, people keep coming, more are here every day and they all need to live. aside from the empty-investor-condos there is no oversupply.

i also suspect there are enough others who , like me, if 604urban dirt went on sale for 30-40%off we would snatch up a couple triplexes real quick, keeping a floor on prices for anything with land.

carry on

#149 Mark on 09.25.14 at 2:49 pm

“If you really want to be fair to people, we don’t need fantasy numbers that ignore the reality. We need the real numbers.”

And CPI numbers reported *are* the real numbers. I’ve not seen any evidence to the contrary (and in fact, for my own personal consumption basket, they seem to overstate inflation).

It wouldn’t be fair to payers of CPI-indexed benefits, or bond market participants (ie: issuers and investors), to have fake numbers. Besides, investors and issuers are usually sophisticated enough to see right through any fakery. There’s a reason why bond yields are at all-time lows — investors see minimal inflation, and have invested accordingly.

#150 OMG on 09.25.14 at 3:04 pm

#75 Shlong Zoomunga on 09.24.14 at 9:56 pm

Smokey, you know we from Nectonite live forever, I’m still here, you act as if I’m dead. I’ve reported you to the authorities back home. An assassination squad fully loaded with Element 115 with will guarantee a round trip back home without refuling is coming for you..

You’ve crossed the line…

Stop helping the humans.

……………………………………………………………………..
He is not from Nectonite for sure. Just had to goggle it and Bam straight to a crazy ass story.
“He’s always been a bit of a pervert, back home the ladies on Nectonite can read men’s minds, he never gets action due to his depravity. He’s here surrounded by thong bikinis that have no idea what the deviant is thinking.”

It think hes from Ann Arbor.
http://www.necto.com/

#151 Italians love real estate on 09.25.14 at 3:37 pm

So glad to be a ” house humping” ” brick licker” today.

Yuk !

#152 Honey Dripper on 09.25.14 at 3:37 pm

It will include me, I’ve been here since the birthing and heard those first initial bleats. The book is better than the movie and I’m happy to hear you have company!

#153 NostyVlad the Snugglebombed on 09.25.14 at 3:49 pm

#91 Cato the Elder on 09.24.14 at 11:46 pm — “All our wealth has been transferred to the East, where they are engaged in real, productive work through manufacturing. The West is devolving into a totalitarian society, . . . people want sociopaths as their leaders. Say farewell to the West.”
— and —
#97 Kenchie on 09.25.14 at 12:41 am — “. . . rather than continuing the doomer talk.”

Unfortunately, it is not doomer talk, just realistic. See Cato’s post. Not only are the cycles changing (and we’re caught in the middle), so the workforce is changing, with a helluva lot of us being replaced with drones, super-computers and things none of us have ever heard of before.

Add this — Psycopaths running the west warmongers and money junkies running the show politically, such as here (Fast and Furious “That may be a good reason for Holder to skip town right about now!” wrh.com;

England’s debt mountain (pity the rest of the UK); French farmers burn crops; FBI says no one killed at Sandy Hook; Ugly Euro; Crimea for Dummies and US’s extinction level event.

#154 zeeman1 on 09.25.14 at 3:52 pm

Garth, US durable goods orders (major economic weather vane) just tanked big time for the quarter.

It’s a fact most of those new jobs you’re touting lately are part time.

How ’bout that recovery?

Jobless claims are at a 13-year low. The recovery is doing so well stock markets are afraid of early rate hikes. — Garth

#155 Mark on 09.25.14 at 4:07 pm

“Of course prices are higher today than they were 5 years ago.

But similar to levels 6-7 years ago, ie: 2007-2008. Why you picked essentially the depths of despair 5 years ago as your datum really brings your objectivity into question.


And of course the cost of rent and housing should be factored into CPI, as this is ballpark 25% of household income.

And that it is, in the form of owners equivalent rent. So what’s the problem? The poster I was responding to claimed that house prices themselves should be included in CPI, which is just as nonsensical as including the price of Apple stock in CPI just because most people buy iPhones.

#156 Mark on 09.25.14 at 4:09 pm

“Jobless claims are at a 13-year low. The recovery is doing so well stock markets are afraid of early rate hikes.”

“recovery”? good one.

But on a more serious note, how reliable are ‘jobless claims’? After all, to claim that one’s jobless under the current system of unemployment insurance, one actually needed a job in the first place. With such low participation rates, of course “jobless claims” were bound to drop.

Learn the methodology. This is a basic gauge of labour market health. The numbers have been consistently encouraging and, yes, the US recovery is progressing despite the end of stimulus spending and with an eight-year-low deficit. I thought you were smart as well as obviously unemployed (judging by 82 posts a day). — Garth

#157 Son of Ponzi on 09.25.14 at 4:22 pm

#151 Italians love real estate on 09.25.14 at 3:37 pm
So glad to be a ” house humping” ” brick licker” today.

Yuk !
———————
today they came for the “stock humbers”, tomorrow they come for you.

#158 Inglorious Investor on 09.25.14 at 4:54 pm

#138 Shawn on 09.25.14 at 11:54 am

“Why would land prices rise with inflation? Everything tends to rise with inflation.”

It’s a side issue, and I know you already know this, but no, not everything rises with inflation. Remember, prices are determined by supply and demand. Inflation is simply one component of demand, and will have a different impact on different things. The upward price pressure from inflation can be overpowered by the deflationary price pressures caused by dropping real demand, higher supply, reduced production costs, etc.

In the case of land, which is very expensive to develop and the supply is not increasing (in fact it may be decreasing), inflation has a significant impact. And don’t forget, you have to look at real values not nominal prices.

As for condos, what MacBeth was talking about is the fact that condo supply has gotten extreme and is therefore more susceptible to extreme price declines than SFHs. I’ve been saying this all along on this blog myself. Because individual condos are not attached to land, builders can very easily and cheaply increase the supply (you just build up).

When the supply of a product can be easily increased, it’s value can drop dramatically if demand falls at the same time. Can houses go to zero? Sure they can. But condos are more vulnerable. A property with a SFH could have a a land to building ratio of 90% as the house depreciates, but I’ve seen such cases where the market value of the house is still fairly comparable with surrounding homes in better condition. Why? The land.

In honor of Rosh Hashanah, allow me to quote Duddy Kravitz’s saba: “A man without land is nothing.”

#159 Setting the Record Straight on 09.25.14 at 5:02 pm

@Mark
““Mish focuses on how the BLS in the US uses Owner’s Equivalent Rent instead of actual home prices as an input for their CPI calculation. And how using actual home prices, as per Black Knight Financial’s Home Price Index, would change the CPI print.”

Owners equivalent rent is the proper treatment. CPI shouldn’t be jacked up higher merely because people happen to speculate on the production of a particular good or service. In this case, shelter. If we can buy an iPhone for $600, we really shouldn’t care that Apple stock has gone up 10X over the past 10 years (or whatever the number is). CPI is a measurement of *consumer* prices, not returns on investment.

As we saw in the USA, and are starting to see in Canada, housing prices are cyclical, and are highly dependant on the availability of credit (which is also cyclical). To add housing prices to CPI would exaggerate CPI and subsequently understate CPI. This would be profoundly unfair to those individuals who receive payments indexed to CPI.”

Did you read how they determined OER?

What are we in fact trying to measure with a CPI.
It does not appear to be cost of living since they made hedonic adjustments for quality. But you cannot buy a Commodore 64 anymore, nor would it have any use.
So you have to pay for a contemporary computer.
That is in your cost of living.

My understanding is now the basket of consumer goods is not fixed but adjusted to reflect changes in consumer behaviour when one item rises and consumers substitute a cheaper item e.g. Hamburg for steak. I wonder if they calculate it the other way that is when the price of steak falls relative to say chicken and people buy more steak and less chicken does the CPI increase because of the upgrading of the basket?

The above is what I understand the US Bureaus are doing. Does the Canadian government use these methodologies?

So when it comes to housing, where 60 to 70 percent of the households consume owner occupied housing rather than rental housing, is it consistent to regard these two different products as the same thing? Consumers do not think so. They are substitutes but not perfect substitutes.

#160 EB on 09.25.14 at 5:13 pm

#121 Stumpy on 09.25.14 at 10:03 am
“Between 1989 and 1996 average price of a house in GTA have declined by 40% adjusted for inflation or $182,625 in today’s money. Downtown of Toronto was hit the worst with over 50% decline in value of a home.”

Pffft. Things that have happened before never happen.

#161 Inglorious Investor on 09.25.14 at 5:18 pm

#149 Mark on 09.25.14 at 2:49 pm

“And CPI numbers reported *are* the real numbers. I’ve not seen any evidence to the contrary (and in fact, for my own personal consumption basket, they seem to overstate inflation).”

How often do you consume houses?

—————–

“There’s a reason why bond yields are at all-time lows — investors see minimal inflation, and have invested accordingly.”

Uh huh… And the Fed, which basically manipulates interest rates for like, the world, with all its monetary machinations over the past 5 years, has had nothing to do with higher bond prices/lower yields, right?

If you knew that no matter how many marbles you purchased you always had a buyer waiting in the wings to take them off your hands at a higher price, wouldn’t you buy as many marbles as you could get?

Don’t confuse monetary debasement with the risk of holding the price-fixed debt of the world’s largest economy, with the deepest financial markets, backed by the most powerful military, using the world’s most held currency.

#162 Doug in London on 09.25.14 at 5:31 pm

@Son of Ponzi, post#137:
Is Black Friday or Monday coming? I sure hope so, I absolutely LOVE sales, especially when they are on stocks, ETFs, or other investments. Bring it on!!!!!!

#163 OttawaguyRenting Worried but not too worried still a worrier but look on the brightside on 09.25.14 at 5:32 pm

I thought you were smart as well as obviously unemployed (judging by 82 posts a day). — Garth
___________________________________________

LMAO I thought the same thing.. “does this guy have a job?”

Ottawa is dismal..

Retail numbers are not good. I hear rumbles that RONA will shut the doors on two stores here in Ottawa.

Home Depot is not renewing leases with “Harvey’s – Subway – Independents” inside store fronts for fear of being on the hook as contraction of stores is imminent.

McDs doesn’t look good and Timmy’s won’t fair well next Q Report either.

Oh Oh Oh this won’t go down well whatsoever…

#164 Mark on 09.25.14 at 6:21 pm

“How often do you consume houses?”

Every single day of the year as I am not homeless.

Uh huh… And the Fed, which basically manipulates interest rates for like, the world, with all its monetary machinations over the past 5 years, has had nothing to do with higher bond prices/lower yields, right?

You really think the Fed controls the universe of investors, foreign and domestic, who are disproportionately weighted to USD$ obligations?

#165 Herb on 09.25.14 at 6:30 pm

I’m in a world of hurt and don’t know which pain is the worst: the stock market taking back my gains, two and a half Fords running to govern Toronto, or Smoking Man not only carrying on with his fiction but replicating himself into the bargain.

#166 Home Sweet Home | Harderblog on 09.25.14 at 6:41 pm

[…] reported house resale prices are 66% higher than resale prices in the U.S., we’re told real estate now accounts for more of the economy than oil and gas and manufacturing combined. In a blog post this week, former MP Garth Turner confirms, “Canadians have decided there is […]

#167 Sunshine123 on 09.25.14 at 7:32 pm

Hi Garth
Just want to report on Son of Ponzi on this blog who has been race baiting at all the blogs across the country…can you ban him from GF ?

#168 Tony on 09.25.14 at 7:36 pm

Re: #162 Doug in London on 09.25.14 at 5:31 pm

I don’t think you’ve ever seen a real bear market. A true bear market is one that stocks fall at least 20 percent followed by a long drawn out sideways movement that can last decades. What you’ve seen the past 5 years and a few months has been nothing but a bear market suckers’ rally.

#169 Doug in London on 09.25.14 at 8:58 pm

@Tony, post #168:
If stocks drop 20% then the lower price means a higher yield, so those additional stocks I buy with dividends paid with stocks I already own will be cheaper. It wouldn’t affect my portfolio much, as what I already own was bought when it was on sale. Correct me if I’m wrong, but aren’t you supposed to buy low and only sell when high? As I said before, bring on the sales! Boxing Week in September works just fine for me. Where do you get the idea there will be a long term bear market?

#170 Stickler on 09.26.14 at 7:10 pm

…the ONLY reason houses are worth so much in the “hot” markets are because people think they will continue to increase in value.

Once that meme dissolves…Done.