“Canadian homes up 7% at $420,000 from just last month according to CREA press release,” the snippy little blog poster wrote. “How does make you feel Garth T?”
Well, whaddya think? I feel bad. I expected a better quality of criticism. For example, CREA this week announced the average house price increased 0.2%, or $10,900, in October from September, which was lower than the previous month. The year/year gain is in fact 7%, while the Frankenumber increase is 5.5%.
In comparison, inflation is 2.03% and the TSX is ahead 13.57% since this day a year ago. The Dow has added 13.1% and the S&P has swollen 15.86%. So, you can clearly see what low rates and lots of liquidity are doing to asset prices. The big difference is people usually buy stocks (or bonds, or EFTs, or preferreds, or REITs) with available funds. They buy houses with massive gobs of leverage.
I also feel bad for all of the people who think a CREA number is somehow different from the suspect stats thrown out monthly by real estate boards with a penchant for secretly altering sales and price figures. In fact all CREA does is aggregate data from the boards. You know what programmers say. Garbage in, garbage out.
I feel bad for those who think an increase in the average house price means all houses just got more valuable. It ain’t so. As house prices in some markets creep higher, stats are skewed upwards, especially as sales in other, cheaper markets dwindle. The average price comes to be a meaningless barometer of market health.
Never has this been more evident than now. The Canadian housing bubble is a three-city story (soon to be two, if $75 oil hangs around). Higher values in Toronto, Calgary and Vancouver have totally masked what is happening in a majority of cities across the country. For example, sales are falling in Montreal and Halifax while prices are lower in Regina and Ottawa. Detached home sales last month tanked 12% in Edmonton while in tony Oakville the number of deals fell 2.5% while listings rose more than 8%.
I feel bad for those victims of recency, who believe what just happened sets a pattern for what’s to come. While real estate has performed since 2009 (less than financial markets, of course, but still strongly) this isn’t sustainable. Prices cannot increase on the back of swelling debt alone. Without rising incomes and strong economic growth, this will inevitably end in a painful correction.
So I feel bad for those who have been lured in by the no-money-down brokers, the voracious bankers and the unethical condo floggers whose voodoo math promises stellar returns. The over-leveraged will learn it’s just not possible to buy an apartment with $6,500 in cash and then expect 19% annual performance. But right now, nobody’s listening.
I feel bad for the kids getting Hoovered into this stuff, and the wrinklies who will surely watch much of their equity circle the drain. A modest 15% house price correction will thrust a lot of virgins underwater, and turn Boomer houses illiquid. A one-asset strategy is drenched with risk in a world where monetary rules have been turned on their head.
Some argue that financial assets are equally swollen, with the returns pumped up with central bank stimulus and engineered low rates. They’re right. The Canadian economy is a beater right now, and yet the TSX has gained over 11% since January, trouncing real estate, despite a dive in the price of oil. Without a doubt, oceans of money have been flowing into assets looking for decent returns now that safe stuff – like government bonds – pay next to nothing.
The difference between financial assets and real assets, though, is stark. As noted, people buy ETFs with cash. They buy houses with credit. You can exit a falling fund in one second. It can take months, or years, to be rid of a falling property. And in comparison with the huge entry and exit costs for real estate, liquid assets trade virtually free.
So I feel bad for people who don’t get diversification. Sure, you need a place to live. Real estate is fine. I own some. You also need income your whole life, including the decades after your job ends. All of these assets will rise and fall during your lifetime, often enough to alarm. If you have all of your assets in one basket – whether that’s a bungalow or a bond portfolio – the ride will be that much scarier. You can’t control the markets. If they tank just when you need to sell, then risk on.
Too many people come to this pathetic blog to pick a fight because they think I’m anti-house, or to gloat when the realtors have news. What a waste. Every month real estate prices rise is one more month of reprieve for the dearly indebted, yet one month nearer to a greater event.
156 comments ↓
CREA mentioned you in a news release?
Does anybody know any good rental management companies that specialize in managing downtown houses, not condos?
Yeah, people are scared of the markets! Investing is so risky! Watch out for those ETFs, they could be the death of so many.
Found this old video from October 2008, some old guy.
https://www.youtube.com/watch?v=yfknQvVkDUU
its cold out there now so as long as your indoor and not out in the cold like 100000 other canadians including 6000 in Hamilton, where i was born and raised your doing fine.
the out of the cold program is in full steam. and the rich talk about diversification, a one asset strategy, well when you only have one asset, no not a house but a simple winter coat, the term diversification doesnt mean anything. who cares about having a spring jacket today when it only will get colder going forward.
Garth, I am afraid you are missing the story. You are too focused on CREA and not whats happening on the ground.
When the US crashed did just 3 cities keep rising? Nope, so why in Canada.
Lets look closer. It appears to be a combination of HAM offshoring (vancouver), Foreign speculation (Toronto), and oil prices (calgary).
On top of that, there could be a layer of capital gains recycling going on too. This is a common strategy for business owners who sell their business. They have a period of time to invest all that money into another asset class in order to avoid taxation.
So you sell your business in china, offshore the funds through macau to vancouver, buy a house and then sell it capital gains exempt. Or you sell your canadian business and buy a house with the money and then sell it capital gains exempt. Or you sell your business or cash in your stock options and buy farmland, pretend to be a farmer for a few years and then extract out 1.6 mill tax free.
This is whats going on, not people in love with houses or being tricked by the lady at the bank. Its capital recycling, offshore to onshore and then into a capital gains exempt asset.
Most people will look at the CREA-reported increase, few will have much idea how “dangerous” equities have done. Yet you know, quite accurately, how much you’ll get after selling your ETFs (a transaction that takes seconds.) You can only speculate what you’ll get after selling your home (timeline not guaranteed, but certainly longer than a few seconds, potentially years.) But RE (and leverage) are the investment language of the masses, for good or ill. I mean, hey, you can live in it!
I feel bad that we have a MSM that thinks regurgitating stats from CREA constitutes journalism.
“So if someone, for instance, sells a paid-off $700k house, they could, by way of a CMHC-insured subprime loan, buy a $1.7M property.”
The CMHC site says:
“For CMHC-insured mortgage loans, the maximum purchase price or as-improved property value must be below $1,000,000.”
Does this not mean that max price should be 1M?
Another question from your example. given that 700K house doesn’t move. how are you selling it?
Another issue is that usually the original 700K house is not paid off (sure it may have a good equity in it), unless you are close to retirement (so you won’t be in a market for upgrade anyway). The question is can you actually secure a new CMHC insured mortgage, while carrying previous debt?
Is this “people buying stocks’ or the big banks flush with cash and NOT lending doing the buying??If we are to believe that the middle class is strapped with consumer debt wheres all this investor cash comeing from, is it just the top 1 % and pension funds buying all these stocks and pushing them up into the nose bleed territory,or are your friendly bankers pushing it up ?
Some where some how there is a huge disconnect…. Main street struggles and the top 1 % continue on the gravey train..
Month to month data do not give an accurate picture of what has happened during the last 1-2 years in Edmonton.
http://edmontonrealestateblog.com/2014/11/weekly-market-update-1414.html
The market will unravel eventually, one hopes, but it sure isn’t happening yet.
Okay, I understand that Calgary could be in trouble with oil price in the dumpster but Van and Tor……..
Are you suggesting our immigration is about to stop….?
So inflation is at 2%, unemployment is at 6.5%, the TSX is up 11% and the Canadian economy “is a beater right now”? Why don’t you talk about the real reason the BoC is talking down interest rates?
Ps..like the pic garth,was personally @ many of those biker shindigs in my day going back to the late 70’s..lots of mamories/I mean memories!
How can inflation be 2% when housing went up 7%? Housing is often the largest expense people are paying!
Of course, the reason is because of how they calculate inflation. If you omit housing, fuel costs, and similar foodstuffs to last year, among many other things, you can get 2%.
We are being lied to by government statistics.
It’s not some big conspiracy. It’s rational. They don’t have to increase payments for social benefits by adjusting for inflation if they downplay how much it is.
You forgot one big one Garth. When houses go illiquid, you are stuck. No moving for love or money. The portfolio goes with me everywhere. I have moved three times for work in as many years, my portfolio moves with me as easily as my phone. The RE, not so much…
[…] Source: http://www.greaterfool.ca/2014/11/17/i-feel-bad/ […]
Well said!
TSX might be up 12% this year or whatever the number is, but still down from levels of 2008. And most of the gains appear to be very narrowly concentrated in the bank stocks. Hard to believe, isn’t it, that coming out of an alleged “financial crisis”, where the bank stocks weren’t even hit the hardest, that the banks would prove to be some of the top performers, now closing in on 40% of the TSX60 index.
Since past outperformance is usually a predictor of future under-performance when it comes to the stock market and sectors generally, could the implication be that the younger bankers currently blowing their brains out on debt in the GTA market, to make old shacks “worth” over a million, are walking into landmines?
Seems to me that the answer to such is “very likely”. The number of employees the banks need to merely lend Canada’s leading large-cap companies, under a shelf prospectus, a bunch of money, is miniscule compared to operating the current huge mortgage origination and servicing enterprises.
How can inflation be 2% when housing went up 7%? Housing is often the largest expense people are paying!
Housing isn’t going up by 7%. Only the narrow sample of houses that the Realtors happen to be selling went up. And that’s if we actually believe the Realtors’ numbers, which tend to be increasingly narrow (ie: “Toronto” instead of “GTA”, for instance). And inflation is based on the concept of owners imputed rent, which is what an owner would pay to rent an equivalent accommodation in the marketplace, or what an owner could get if they attempted to rent a place out.
If anything, 2% is overstating inflation, and bad policy choices are being made upon the belief of such overstated inflation.
The TSX surpassed 2008 levels earlier this year. You are wrong. — Garth
we must finally acknowledge that concentrated immigration and foreign money are driving house prices in Vancouver. We were all so wrong in this last decade pointing the finger at low rates and CMHC. If that were the case, then these cities should have gone down as well.
I’ve never seen a house pay a dividend. More of a money-pit in my experience. But a Coffeehouse (portfolio) is quite nice to own.
Real companies, real profits, real dividends.
Best of all.. no Realtor required.
All in all, a great Monday.
First up, as per Garth’s post, we have the CREA spouting their own bias as fact and the MSM lapping it up. Nothing new there really. Expect more of the same as we head into the quiet winter months.
Secondly – as a perfect example of the above – why not circle back to the meme that parents should be helping their kids get on the RE ladder?
http://business.financialpost.com/2014/11/17/is-helping-children-buy-their-first-home-becoming-the-next-parental-responsibility/
One quick call from the cartel to their NP advertising account exec and there you go: fresh propaganda for the masses.
Finally, here in Ontario we’re half a bil off our revenue targets. Surprise! Wynne either failing to understand the concept of the Laffer Curve, or she flat-out lied when riding on her budget. Either one wouldn’t surprise me.
Charles Sousa’s solution? Throw good money after bad chasing down black market smokes. Face>palm. You couldn’t make this up. He’s proving to be well worth the $1.1bn we spent buying votes for him.
Ontario “enjoys” a $12.5bn deficit, and our illustrious Finance Minister thinks the key to the solution is to go after contraband tobacco for a couple of hundred million, probably a lot less once cost of recovery is taken into account.
Apparently they’re still on track to balance the books by 2017. Yeah, I believe that. Although the timing is curious – that’s when the ORPP taxgrab is scheduled to start vacuuming private-sector wallets.
Any news on that downgrade? We need something akin to a strong laxative to kick-start the cleaning out measures needed.
Warned you about this around 24 months ago because I’ve seen it in the UK. As volumes fall only more expensive homes sell. Total cap goes down but the average goes up.
Certainly agree on Montreal. Lots coming on the market, not much going off.
“Lets look closer. It appears to be a combination of HAM offshoring (vancouver), Foreign speculation (Toronto), and oil prices (calgary). “
Or just the presence of overly-optimistic Canadians in all three cities (I’d add Edmonton, Winnipeg, Saskatoon and Regina to your list as well), with ample access to CMHC insured subprime loans and a very poor grasp of economics and history.
Another classic for Garth and the dawgs today. Not good at links, but it is Guelph Mercury on new Metalworks development; overnight line-ups,starting at $210 000, put your immediate $5000 down now, 10% due in 90 days.
600 units over 5 phases. Nice locale, and GO service, but where is the 25 year old quoted going to find $21000 by Feb 17? I assume the $5000 down will be down (the drain)?
Garth-
Nowhere in your posts, or in the comments area does the concept of “personal responsibility” come up.
Certainly, Bankers who want to lend money take no personal responsibility. CHMC who guarantees the loans up to a Mil on the Taxpayer’s promise have no “personal responsibility.”
What buyer, who might find themselves suddenly underwater, has a sense of “personal responsibility?”
I see the RENTER, who is watching their income, debt level, and future, the only ones here who by their actions, are showing any “personal responsibility”?
Who bails out this shit storm when the RITZ Hits the fan?
Oh, CATO will he pin the blame for bad decision making on government policies that allow one to be financially terminally stupid?
Yeah, yeah, the game isn’t over quite yet, but the fat lady is tuning up her vocals.
Inflationary pricing: Dollarama’s cheapest toilet paper went from $1 to $1.25. 25% increase.
Gel was $2, now 2.50. 25% hike.
Dollarama’s stock price made record highs today.
Down with the bourgeois. Million dollar slanted semis and the Five and Dime is back (…way before my time).
DollarStoreNation.
#5
Or you sell your canadian business and buy a house with the money and then sell it capital gains exempt.
——
Don’t know where you are getting your tax advice from. The idea that you can sell a Canadian business and invest the money in another asset class tax free would be news to the CRA I am sure….
You know the tide is turning when…..
2 years ago i would have conversations about owning realestate that turned into arguments with people telling me its the best investment there is, i’m throwing my money away in rent blah blah blah
Now i talk about real estate and how inflated markets (where i live) have more downside risk than upside potential. They don’t argue anymore, they listen.
People are slowly waking up. If only they understood the math……
Mr. R.
CREA is scared to death of our host, and with good reason.
This “pathetic” Blog (*Mr. Turner’s words, not mine) gets a TON of traffic and only a small portion of us post. We are getting the real story and CREA look like gerbils. Greedy gerbils, at that.
Mr. Turner has no dog in this fight, as far as I can see – it’s truly altruistic to help us money schmendricks through the gathering storm.
Full Disclosure – Mr. Turner and his partners take care of our Families Finances. It’s a comforting feeling having EXPERTS help, because it is the MOST important game of our lives.
We like to eat and have a warm place to live. Sadly – many of my boomer cohort are doing the ‘one asset mambo’ and expect to sell and take the million and live it up. (*SEE ABOVE).
I try and warn my friends. I send them this blog’s URL, and still they think a $4,000 kitchen counter is a better investment than a TFSA.
Hokay, well – good luck with that!
we should all feel bad for what this nation is up to when the correction starts to happen – it’s difficult to convince the younger generation or the new immigrants that a similar correction has took place here in Canada in the past and will happen again (soon) – the system will re-balance it self !
It can take months, or years, to be rid of a falling property.
or never
if your mortgage is worth more than your house, then you have to write a cheque to sell your house. Mark Hanson writing about the housing situation in the US, says half the people with mortgages are effectively underwater.
Mike S : The CMHC site says:
“For CMHC-insured mortgage loans, the maximum purchase price or as-improved property value must be below $1,000,000.”
that’s what I thought but Mark said it was the amount of the mortgage. So if Mike is right, bidding becomes like Blackjack – that is CMHC will guarantee the mortgage if the final price is $1 million but if you go over by a dollar CMHC will not guarantee the mortgage. You’re busted! Like in Blackjack.
This is just me speculating. Real estate agents must see this happening?
I know someone who put her house on t he market this summer. Three lookers. No offers. Good neighbourhood. Decent bungalow. Dropped her price. Made no difference. This present case may be the future for many. At one time, in the distant past, I had a cottage for sale. No buyers. Finally, a carpenter bought it to tear down and build a new cottage. But I had to provide the financing until he built and sold. At 6% it was okay. When Garth says illiquid, I don’t think a lot of people understand. A house that sits on the market, not for days, not for weeks, not for months but for years is an anchor. A property whose cash flow comes in substantially below cost will eventually sink you. People who are thinking of buying need to play the what-if game. Run all the possible scenarios, not just the one they want to happen.
More like a one asset in two city story.
Condos and town homes in Vancouver and immediate surroundings are trading at 2007-2008 levels. Don’t believe me, try and sell into the market to get what you paid for it in the last 4-7 years.
I guess it’s hold for the long term season already.
Only market that is still slightly above water is the SFH. But for how long?
Economist says it’s all she wrote:
“That’s creating conditions for a nasty price correction down the road according to housing market bears such as Madani.
“It is hard to see how the Toronto and Vancouver markets can now avoid sharp price declines at some point in the future,” the economist said.
http://globalnews.ca/news/1675973/are-vancouver-calgary-toronto-homes-headed-for-sharp-correction/
“we must finally acknowledge that concentrated immigration and foreign money are driving house prices in Vancouver.”
Where is the evidence for this? All the evidence points to enormous amounts of leverage driving up the Canadian RE market. True “foreign money” would actually have a de-leveraging effect, would it not?
And for every house buyer, there must be a seller. So what’s happening to the sellers’ money, other than being recycled into GICs which are used to further fund the credit bubble?
The whole ‘foreign buyer’ theory usually originates from a relatively small group of Canadians that haven’t grasped that just because someone isn’t white/European, doesn’t mean that they’re not Canadian. Every time reputable researchers have gone looking for numbers of non-Canadians buying property in Canada, the numbers have come back incredibly small as it to be expected. And if new Canadians had significant offshore income from businesses (ie: the stereotypical mainland Chinese factory owner who allegedly commutes to/from China leaving the kids to grow up in Canada), this would show up in the income tax statistics. It would show up in balance of payments. Some would even show up in the inbound currency seizure statistics at YVR airport (outbound currency smuggling is actually more of an issue in fact!). It would show up in so many sources independent of just GVR/GTA RE prices.
“that’s what I thought but Mark said it was the amount of the mortgage. So if Mike is right, bidding becomes like Blackjack – that is CMHC will guarantee the mortgage if the final price is $1 million but if you go over by a dollar CMHC will not guarantee the mortgage. You’re busted! Like in Blackjack.”
Upon further research, now I’m not completely sure if the actual rule is house price, or just the total value of the loan. However, the point is, evidence is ample that there has been significant leveraging of equity that was, in and of itself, created with previous leverage. In other words, families “doubling down” on RE by moving up to even more pricy RE after cashing in on previous RE gains.
Works great when the leverage cycle is moving in the borrower’s favour. After all, who would turn down living in a million dollar house? But absolutely brutal when the leverage starts moving against you.
Anyways, this $million+ market is such a small portion of the overall Canadian housing stock that spending a lot of time talking about it probably isn’t very relevant. There’s always going to be a quantum of people who are rich for whatever reasons, who can buy such high-end properties in cash. But the real “meat and potatoes” of the Canadian housing market more clearly lies closer to the median, and in this category, a reduction in subprime credit availability has caused, at the very least, a minor deterioration in the marketplace in the major cities, and an increasingly significant deterioration in the secondary cities.
I laugh at the people who think Immigration is the cause of Toronto’s boom. Uhm, no. I lived in Los Angeles for five years. There are 10M immigrants in California, most of those in the greater LA area. That means roughly the *entire* population of the GTA would be immigrants. And oh yeah, LA was spared – their real estate only went down ~ 40%. What happened, did the immigrants stop coming?!?
Nope, over 1M a year like clockwork still pouring into the US. About 20 percent of all international migrants reside in the United States, which accounts for less than 5 percent of the world’s population. Think about that, 1 in 5 legal immigrants from everywhere in the world wind up in USA. Canada is nothing, not even a blip on the scale of global immigration.
As long as the government gives away free money, prices are sustained. Stop giving away free money, prices correct. Nothing else matters….
#11 Kris
Are you suggesting immigration has ever stopped, and that house prices in To and Van have never declined for 10+ year periods?
While it is true one has to live somewhere, which in Canada means more than a grass or mud hut open to the elements if one wants to live at all – it is also true that the house as an investment/retirement fund strategy is not the safest thing to do. If you can’t sell or if you can’t sell at a profit when you need to, then eek. Plus you still need to live somewhere & if you are not immigrating to warmer climes, that shelter is going to cost more than a buck or two.
Now, if you own your home – no mortgage – & were able to buy it when prices were not insanely high, plus you have some $ in other investment vehicles – cash, RRSP, TFSA, stocks etc. then yea you. The holy grail being also the possession of a work related pension of any kind that is solvent & therefore might actually exist to pay you some kind of income when & if you do actually retire.
#14 Cato the Elder
Housing IS included in CPI. It’s called “rent”. CPI has never tracked asset prices, never will, nor should it.
Love building homes in Ontario
http://www.lakewoodcustomhomes.ca
Re: #18 Mark
Inflation is way higher than 2%. It’s running at 10%. How do I know this? Just use the governments EXACT SAME CALCULATIONS that they used to use in 1980, and apply them to today!
They engage in all kinds of accounting trickery to get the number down. They substitute foodstuff like groundbeef for steak, and omit vital components of people’s expenses like housing.
How anyone can believe the 2% number is beyond me. People have a remarkable ability to believe what they hear and ignore everything around them that the world is showing them. Go grocery shopping and tell me it’s 2%. If prices aren’t rising, package sizes are getting smaller. Both are an indication that people are paying MORE for LESS.
Here is a website where a professional economist applies older formulas to the present day. He is a reputable, well respected source in the finance industry. He’s reporting 25% unemployment, and 10% inflation. That’s in the US, but I’m sure Canada is pretty close, given the fact that we wag our tail everytime the US says so:
http://www.shadowstats.com/alternate_data/inflation-charts
http://www.shadowstats.com/alternate_data/unemployment-charts
Oh, and before you assert that this is some kid of conspiracy, it isn’t. It’s very rationally based in the fact that CPI adjustment related increases don’t have to be passed onto pensioners. The US gov saved over 150 BILLION dollars in the past 10 years alone by understating inflation! The same thing is happening here too :
http://www.zerohedge.com/news/2014-11-14/manipulation-cpi-saved-federal-government-over-150-billion-1998-2012
#37
I have to agree with you. Clueless Canadians think that the USA has no immigrants, that places like Miami can grow land at will.
No, all those markets crashed. A lack of land and mass immigration did nothing to forestall the day of reckoning.
I wouldn’t say Canada doesn’t experience immigration. I think immigration in Canada is at unsustainable and suicidal levels. Toronto’s power grids, highways, public transit (etc) are all heavily overburdened, and we are wiping out productive farmland to make room for housing. That is NOT a good trade, and should be considered a national security concern.
“The TSX surpassed 2008 levels earlier this year. You are wrong. — Garth”
And now its dropped beneath such. Probably temporarily. But 6 years of 2% inflation implies a drop in real terms. Yes, dividends have kept it relatively flat, but most investors fail to, for whatever reasons, even keep up with the indices.
There’s no denying that housing has been a much better investment in the 2008-2013 time frame than stocks. However, in the past year, the tide has been turning significantly back to in favour of stocks.
Wrong again. Stocks have provided superior returns to real estate since 2008. — Garth
#35 Mark
No official or credible stats on foreign ownership exist therefore there’s no official or credible stats on the effect.
The average Canadian made salary does not support the average Vancouver or Toronto house even with CMHC and low interest rates.
Garth has been wrong on the housing bubble for many years because he like every other bean counter are missing a key piece of data that officially does not exist in any credible form to add to the formula of calculating the bubble.
I have published data on the residency of BC property buyers. Guess what? The locals did it. — Garth
Garth,
Isn’t it a bit misleading to compare average home prices in some markets with sales volumes in others….why not do an apple-apple comparison of all the key numbers across all key markets in a simple chart?
Also, it is not strictly correct that ETFs can only be bought with cash…they can be bought on margin.
Regarding ETFs in general, it would be remiss not to mention some of the risk factors. There have been quite a few articles on this regarding tracking errors, counterparty risk, forex risk, and others….this is not to say they are bad, but you should also touch on the risks whenever you discuss them in order to be fair and balanced…otherwise keep up the good work.
“Every month real estate prices rise is one more month of reprieve for the dearly indebted, yet one month nearer to a greater event.”
****************
It’s such a shame most can’t see this. *sigh* I guess we all have to learn the hard way. But it’s such an expensive lesson…
Great Post Garth.
Yes, it is and always has been the 1 asset that Warren Buffett said has caused more financial loss, bankruptcy, insolvency, and heartache for families than everything else combined, and by a country mile. He said it is their buying over-leveraged RE.
And Garth, over the years has painstakingly been teaching us why this is true, and also, in every area of our financial lives, how to avoid self induced financial castration, by handling our finances sanely.
Still waiting for this predicted correction in Vancouver. How many years has this been in the making? Did San Fran experience fallout from the 2008 US correction? (Also a HAM hot spot)
#FeelingBad,SmokingMan?… #ItTakesTimeToHeal…
http://youtu.be/5kAIiL9gGqE
[NoteToSmokingMan: That was written for CoryMonteith… the circumstances of his tragic, self-inflicted, if unintended death at Vancouver’s FairmontPacificRim doubtless have far more to do with his apprenticeship as a Roofer in Nanaimo… Than as a ‘Hoofer’ in 90210… Time, SM… Time. StayClose. FriendsAreWatching…]
oh man what a night – Mighty Mark told off by EL Gartho himself…. twice
bring on the popcorn this about to get nasty… in bold..
:D
Re: #45 TnT
You’re only wrong until you’re right.
Long term trends haven’t changed. Canadians have less disposable income and more debt than ever before. Our low rates are the result of the good graces of creditor nations like China. Eventually this MUST end. Will it be near term or long term? I do not know – but it certainly will. Canadians are having trouble and are spending most of their after tax income on their houses – common sense would dictate this can’t continue.
Now, who knows how this will manifest itself – the Canadian gov will most likely continue to inflate the currency at ever expanding rates. This means that in REAL terms housing will collapse, but the prices may continue to increase nominally. That’s what has led to the price increases thus far, and it may continue. Or there could be a total collapse, even in nominal terms. Not sure, but something has to happen. It just isn’t sustainable.
Not too long ago, belonging to the middle class was something to be celebrated.
Today, under the current Canadian government, belonging to the middle class is now part of the problem; clearly an ungrateful, overly entitled segment of society to be eradicated out as ‘too unaffordable’ for the ‘fragile economic recovery’.
Re: #2 LH on 11.17.14 at 7:27 pm
The only “honest” property management I’ve ever come across is Libertas Property Management Inc.
Here in PEI it is very common that some houses and cottages will easily take between six months and two years to sell, sometimes more. There are commercial properties up in Anne’s land that have been on sale for a decade. Gives you a whole different sense of what to expect from a market.
It sounds like our reality is coming to everyone else’s neighborhood pretty soon. You will survive but your crazy prices won’t, that’s all. We have never had a real bubble here though some of the come from away types think their huge seafront homes should sell in a week so they can go back to Toronto with a wad of cash and they just never seem to get it that they have overbuilt and overvalued our market.
Garbage in, garbage out, indeed:
http://business.financialpost.com/2014/11/17/is-helping-children-buy-their-first-home-becoming-the-next-parental-responsibility/
“…study from the Canadian Association of Accredited Mortgage Professionals due to be released on Tuesday, a portion of which was released in advance to the Financial Post, shows that on average first-time buyers are putting down 21% of the purchase price and that on average about 13% of that money comes from family.”
21% average down payment by first-timers? Really? Perhaps taken out of context by the media? Or manipulated data? Probably doesn’t reconcile with CMHC or bank data, which likely suggests a down payment far closer to the minimum 5%.
#52 Cato the Elder
Long term trends have changed. Watch flying solo: http://www.cbc.ca/doczone/episodes/flying-solo
Traditional family units have changed from kids leaving out to forge on their own after school to multi-generational families.
Immigration into GTA will always be highest in Canada for our lifetime.
The financial literacy of Canadians is hopeless to defend against the billion dollar industry that dictates their Real Estate decisions.
We have a very long way to go before the average Canadian can’t make that monthly mortgage payment. The financial tools and tricks used by the Banks to keep the home owner engaged are endless.
This whole mess will be digested and passed along causing an unseen “shift” in our way of life. By the time the average Canadian realizes this “shift” a new TV show or macabre event will preoccupy them like jingling keys at a baby.
Speaking of Voodoo math, Garth what do you think of buying a condo to lease to an insurance company? I know of 2 people (soon 3 but NOT ME!!) that do this and my friend seems to believe that this will make him some easy money…..
All I think of is that YOU are taking all the risk, and all the insurance company does is sign a 6-12 month lease which it can fully choose to NOT renew as it wishes. Plus, you have to keep it in a certain condition that the insurance company dictates (newer appliances, Tv, furniture, dinnerware, etc..)
So, who’s right, my friend or me?
I will tell you when to be afraid… in best 416 areas, in 2016-2017
in 905 areas – it’s now.
as for the condo forest (no copyright!) all GTA except 2 singular areas (both in 416 and 10-15 km apart) – are at risks since 2012….as I’ve said it
so, act on it
I’m looking at a number of homes to buy here in Victoria. Many are empty and have been sitting on the market for months and months. The prices are being dropped
$10-20k periodically but still no takers. The Victoria Real Estate Board updates talk of a rising and vibrant market, but talk to a realtor and you will get a totally different perspective.
It’s like anything, don’t believe everything you hear.
“Are you suggesting our immigration is about to stop….?”
– Immigration is actually not big enough to replace the ageing boomers
– Immigrants need (good paying) work, and usually do not buy right away
– Government actively tries to redefine immigration, so that more settle down outside BC/Ontario. One way of doing it is to give residence to people who already study/work in other provinces
Why does CBC always write the same old message that house prices are up again ?? %. Its the same old spin from CREA and everyone thinks that the numbers are written in stone. They are the holy grail of RE spinners ….. Humbug! Yup….. its that time of the year.
“How can inflation be 2% when housing went up 7%? Housing is often the largest expense people are paying!”
more income and debt (future income) is dedicated towards housing. This is why future growth is going to suffer
Super efficient Japan economy is officially in the trench.
Imagine economy that produces magnetic levitating trains moving 500km/h while its currency depreciates 25% over last few years with Central bank printing now like mad. And yet it’s in the recession?!
So where Canada should be with its diesel suburb trains and central station in Toronto that looks like after Germans WWII aviation bombed it for couple of months? With subway system that still accepts metal tokens.
Probably not where it is right now with million dollar houses located right in the middle of nowhere.
So is the magic mix 60 %fixed income 40% equity or is the other way around?
“Any news on that downgrade? We need something akin to a strong laxative to kick-start the cleaning out measures needed”
The Big O was just blaming Ontario liberals today. feds increased the transfer payments and Ontario just went into more debt he said
Between slowing economy, less transfer payments, and maturing debt in 2015-2016, I expect the downgrade to hit soon.
Then they can start the cleaning measures, by increasing more taxes …
“Now i talk about real estate and how inflated markets (where i live) have more downside risk than upside potential. They don’t argue anymore, they listen.
People are slowly waking up. If only they understood the math……“
Not happening yet on my end…
Did you catch this mornings article in the NP about supplying the down payment for kids being the ‘new parental responsibility’…….waaaahhhhhooooooooo !!!!!!!! the ad department at BS U is sniffing coke and cooking meth…..they’re just making this stuff up as they fly.
$800,0000 = spiritual poverty and a crappy life….forever. Now pay up…you morons…..enslave yourselves …it’s yer duty.
Now we know you’re a bad parent if you don’t step up…you failure…you losers…pay up.
BTW…funny story about news feed…..I recently asked a nephew what he wanted to do with his life…..expecting to hear doctor, lawyer, Indian Chief, civil servant…fireman….astronaut…the usual…. you know kids….instead he squares up and says ” I wanna be a ‘real estater’…..so is the depth of degeneration in our society.
“In other words, families “doubling down” on RE by moving up to even more pricy RE after cashing in on previous RE gains“
If selling of the cheaper property does not materialize (when market becomes illiquid) and the buyer is not able to finance both properties. Who is left holding the bag. Is it the bank or the taxpayer via CMHC?
@#55PEI Reader
“We have never had a real bubble here though some of the come from away types think their huge seafront homes should sell in a week so they can go back to Toronto with a wad of cash and they just never seem to get it that they have overbuilt and overvalued our market….”
++++++++++++++++++++++++++++++++++++
Ahhhhhhh yes.
The condescending PEI attitude to all the stupid “come from away types”.
I believe I had the same conversation with my late uncle about 6 years ago when he was bitching about all the people “from away” who had driven real estate prices sky high.
I asked him what his property taxes were for his 3000sq ft, 5 bedroom, 3 bathroom house sitting on 5 acres. $750 year.
I then informed him my property taxes for my 800sq ft, 2 bedroom, 1 bathroom cottage on 1/2 an acre was $1500 a year. Which I used 1 month a year.
I then said, “So, next winter when the plows are pushing the 5th snowstorm of the year’s crap off the roads and the garbage is collected and school buses are picking up all the little children……Thank the people “from away”.
Dont be too smug PEI Reader.
Not all them folks “from away” will put up with ever increasing property taxes on the bright red mud.
But then again the Provincial govt seems to excel at giving money to the families that really need a cash break, you know…….the McCains, the Irvings, etc.
#52 Cato the Elder on 11.17.14 at 9:58 pm
—————————————————————————–
Careful Cato, TnT might send you a link leading you to the City of Toronto’s website to support his argument that all will be just fine in regards to real estate and our infrastructure, leaving you without the ability to retort.
I was left speechless.
:p
Cato # 52,
“Not sure, but something has to happen. It just isn’t sustainable.”
——————————————
Things, are not what they seem. Have you researched MMT? I’m guessing not, based on your above statement. Watch this and accept it as truth, because it is.
Garth please intervene if I’m leading Cato astray.
Here are some short videos from Stephanie Kelton. She’s an economist and professor currently chairing the Department of Economics at the University of Missouri.
https://www.youtube.com/watch?v=XBP7ROp2s4o
https://www.youtube.com/watch?v=rsjwpNyiSHQ
https://www.youtube.com/watch?v=nIYpdoKKsKc
Garth, considering the stock market has had a crazy run up, arent we overdue for a pull back? I’m trying to find an attractive price to get in at but everything is at nosebleed levels except for good which u say not to buy.
Where were you in October? — Garth
That’s it dogs, I’ve booked Vegas for next weekend, not this one coming up. Tired of this shit.
Going to area 51 to find me an alien, set the clock back a bit, then zoom to Zurich… Try to save some one.
It might work… Got to try..
If it works, cool, if not, it’s book…
Ah. By the way, looking like a hockey stick.. Real estate that is. If teranet comes out on top next report. Cash out property in April, the peek…
#33 suede
Agree
Checked BC assessment for the 870 sq ft downtown van 2008 condo I’m renting
Last year 555,000
This year 517,000
I wouldn’t pay 300,000 but the rent is 2k…..
>>Pardon the second post >>
More and more Americans are outside the labor force entirely. Who are they?
According to the October jobs report, more than 92 million Americans — 37% of the civilian population aged 16 and over — are neither employed nor unemployed, but fall in the category of “not in the labor force.” That means they aren’t working now but haven’t looked for work recently enough to be counted as unemployed. While that’s not quite a record — figures have been a bit higher earlier this year — the share of folks not in the labor force remains near all-time highs.
>>In Economics, I was told 25% Unemployed was the ‘jump the shark threshold’.
WOW>>
LINK> http://tinyurl.com/qg9ezmh
#72 Blacksheep on 11.17.14 at 11:32 pm wrote
Here are some short videos from Stephanie Kelton. She’s an economist and professor currently chairing the Department of Economics at the University of Missouri.
Got to recommend these. She talks sense.
#9.
You are exactly right.
I read recently that pension funds have shifted their balance to levels not seen in a long time.
Japan is buying everything not denominated in yen.
The wealthy are likely borrowing to invest.
Fund manager of all stripes could be using leverage.
If you want to make money you have to follow the money.
But some people think this is dangerous. And it might be.
Garth has continually written about how to deal with this fright.
#42 Cato
I must take issue with your reference to John Williams and ShadowStats. You are being duped.
Shadowstats does NOT use any 1980’s government methodology at all! All that is being done at shadowstats is the addition of an arbitrary constant to the governments own CPI data! John Williams has as much as admitted the same! See for yourself here!
http://azizonomics.com/2013/06/01/the-trouble-with-shadowstats/
I have no problem with a serious, critical assessment of government stats! Not by a long shot!
Shadowstats is interesting for providing that “service” if the shoe fits, and an honest skepticism is always welcome in my company.
But where does shadowstats go with their questionable data?
2005: see “No Way Out”: the beginning of 9 years of looming, immediate Hyperinflation just around the corner.
2007: John Williams correctly predicts recession. But the recession he predicted was to be a hyperinfltionre recession. Dead wrong!
2008: the “Special Hyperinfltionary Repost”. This time it really was coming!
None of Williams’ dire predictions have come to pass. Perhaps his timing is just off; this a real possibility. But it could also be that he either has a problem with the complexities of modern monetary theory, or that there just might be a flaw in his methodology.
I suspect a combination of the latter two, as he has also been wrong about QE.
He has implied that the Fed has been adding “new money” into the system when we know this is not true.
He also implies that QE equals debt monetization, and this is also incorrect. There is no debt monetization nor is there any “money printing” because it is very clear that we are NOT seeing the predicted hyperinflation!
Adding to banking reserves in exchange for bonds is a non-inflationary asset swap. That is clear.
As for zerohedge, I had several exchanges with “Tyler Durden” via our involvement on “Seeking Alpha” years ago. I have no idea if has made anybody a dime since then.
Again; honest skepticism is a great asset, and prudence dictates that it should always be at the table.
But skepticism is a tool, and some folks seem determined to make it an end in itself, rather than a pathway to greater understanding and truth. Be honestly skeptical… Even of those skeptics who want your following!
In my opinion, “Price is the Only Thing That Pays”. ShadowStats and zerohedge haven’t made me a plugged nickel. In fact, I have done spectacularly well by betting againt them.
As a final dig, it has been noted that the subscription for ShadowStats is still $175! This is as it was years ago! One would think that if inflation was as rampant as they suggest, they would have more than sufficient rational for bumping up the price, as to stay at $175 for 6-7 years strikes me as being somewhat deflationary!
This is of course just as silly as you suggesting (without a hint of skepticism) that a 7% rise in house prices is proof that 2% inflation is a joke. (My gasoline price has fallen from $3.75 a year or so ago down to $2.70… Proof of recession, I assume, by your logic!
She’s back…
http://www.huffingtonpost.ca/atrina-kouroshnia/part-2-seriously-why-are-you-still-renting-in-vancouver_b_6142496.html
Some improvements to her analysis, but still some holes…
Rent for the place she shows in her article wouldn’t be close to $1,800 a month in that area of Vancouver. If someone is paying $1,800 in that area or for that building, they are getting ripped off.
No opportunity cost on the lost income on the downpayment…
This was a gem too… “at the end of the five years the principal to be re-mortgaged will be less — so even if interest rates are higher, your payments shouldn’t be that much more. Five years from now, though, you’d certainly be paying more in monthly rent!”… maybe she should run some sensitivities if rates normalize to 5%+ in 5 years… not to mention the potential negative impact this would have on home prices…
Wow! When I see stuff like this from a ‘mortgage professional’, it makes me think that the common person with no or limited financial knowledge doesn’t stand a chance understanding the true numbers.
If anything, 2% is overstating inflation, and bad policy choices are being made upon the belief of such overstated inflation.
+++++++++++++++++++++++++++++++
Overstated? Mark what are you a machine? You don’t eat? Or buy $1.25/L gas? Or pay taxes, fees, levies, surcharges or any other “tax vehicle” in out of control tax me I’m Canadian…….Canada?
Here….even the Globe and Mail did a piece:
“The problem is it’s hard to accept the official figures. So-called core inflation strips out volatile food and energy prices. Economists get mocked for being the only people who don’t need to eat or fill up their gas tanks. I have no doubt the statisticians in Ottawa or Bank of Canada staffers do their jobs diligently. After all, the former group surveys the prices of 600 goods and services, assigning weightings of importance within the basket. Who am I to argue with more than 950,000 price checks each year?”
http://www.theglobeandmail.com/report-on-business/inflation-data-detached-from-the-real-world/article20288296/
Are you buying a $7 dress at H&M every day? No…but yer eating and using gasoline and using Fortis natural gas (which bill KEEPS GOING UP even though natural gas is at record lows). lies lies lies lies lies
Inflation has gone up WAY over 2% in the last 5 years.
Check out what happened in Romania to the corrupt PM there. And Greece. And Thailand. And Spain. Think it can’t happen here? Think again.
I echo one of the posts. It is a country where people are fans of dollar stores and Walmart. Dining out is more of a luxury than leisure. Yet, people pay million dollars for homes. I am comfortably above median income and don’t have much left over at the end of the day after RRSP. And I am only renting. So how average families are managing to get buy with their much higher mortgage payment puzzles me. We don’t all work for hydro one or belong to some uNion after all.
Feel bad all you want Garth, you can’t help until the student is ready.
All around the world the student isn’t ready. Did you see the Bill Nye – Ken Ham debate? It wasn’t a debate, Bill was just being polite. Science wins. Dog did not make your iPhone or your internet connection. Dinosaurs were real but they lived a very long time before Adam and Eve. These are established facts. They aren’t like beliefs, where you can believe whatever makes you happy so long as you don’t show up at my kids funeral saying “God hates America”.
So, rant over. My parents are biblical truthers. My mom to justify why she never worked, my dad to justify why he never thought for himself. I don’t have any inclination to argue with my mom, if I did it would bring her whole behaviour and that of her daughters into great question and the results would be virulent. But I also don’t bother to challenge my dad. What good would it do at this point to change his mind? Could he even adjust? If I told him his fairy tales of people riding t-rex with a saddle were preposterous what good would it do for him? I’ve decided to let him live out his years believing as he will as you might let a young sick child believe in Santa.
So what’s my point? Garth, this blog is for those who want to be saved. You can help them, and you’ve helped me. But you can’t save the believers. You are like the Atheist of the housing market. Only those who already suspect something is amiss will be able to be your students.
Will the others come? Maybe, but only when they are ready. Your congregation is those that have already left the Westborough congregation. Great watching for those of you who want to youtube it. Human nature at it’s finest. Yuck. And Yikes.
Damn. Thanks for that great idea ( not first ) Why didn’t i think of that. U just saved me a lot of $$$$$, beers on me sell my business , buy mansion, sell it tax free. And YES it would be my primary residence… EVEN Any corrections. Is gonna be less than the fact hit I would take …..
when housing bubble pops, stocks will crash with it. There will be no escape.
They are not correlated. Silly comment. — Garth
Real estate prices continue to rise across the board.
The latest Stats Can Survey Financial Security clearly showed that Canadians, in aggregate, carry very little mortgage debt. And whatever mortgage debt that they carry, is equally offset by cash.
The data would support a wealth transfer from the wrinklies to millennials moreso than over-mortgaged youths.
Gold and gold miners are worthless and the price of oil will continue to falter.
That’s just reality. Deal with it.
Actually that survey has been roundly debunked. Easy to see why. Transitory real estate ‘wealth’ on one side of the ledger and hard, repayable debt on the other. Americans felt just as wealthy in 2005, and for the same reasons. — Garth
#33 Suede
+1
So true, am seeing this regularly, and it is not being reported in the local media. Have been hearing, or know personally, of more than a few condo/townhome owners in the already underwater, yet they keep trying to sell each spring, hoping to get more that what they paid for their unit 2-3-5-7 years ago, then they reduce the price again, accepting they have to sell at a loss, then… crickets. No buyers. Maybe a “low-ball” bid comes, they get insulted they aren’t getting “their price” de-list, and repeat with the same ping-pong pricing “next spring, when the market improves”.
These people are losing money even if they can actually get what they originally paid, (very unlikely in most areas unless perhaps if you’re in a very “HAM-my” pocket- at least until Jan. when the CRA rules change) as this doesn’t even account for inflation. In the rest of this region that truly rely on local incomes to support RE pricing we are already years (yes, years!) into this cycle, yet no msm reports on this… at least yet. If you can sell today for the same price you paid, you’ve already lost more than 2%/year to inflation, plus fees, commissions, taxes, and that’s before the lost opportunity costs are even factored in! That means that home was NOT a smart “investment” whether bought as a speculative investment, or a home to live in. Sorry for sounding like a broken record, but I totally agree that is what is really happening in many parts of the Lower Mainland. I keep hoping a real journalist might actually stumble across this blog, take note and do some fact-checking, data-wrangling, unbiased reporting…*heavy sigh*.
You’re also correct in that I also see the suburban SFH’s stubbornly, inexplicably sticky on pricing until fairly recently, but these too are now drifting down steadily, slowly but surely in many (most?) outlying areas. It’s a later start than the condo/townhome correction, but a correction nonetheless that is gathering speed by the week out here. Also hearing similar anecdotes out of Maple Ridge as well. South of the Fraser we have just re-elected a civic govn’t. hell-bent on 4 more years of taxpayer-subsidized, pro-development-at-all-costs overbuilding into the teeth of one of the largest housing bubbles in history, and we presently appear overbuilt RIGHT NOW across all property types, although attached/townhomes/rowhomes definitely off the charts with 1000’s more in the pipe. I would expect extraordinary downward price pressure especially in condo/townhome pricing going forward for a long time, both resales and especially new builds. It would be great if we could access real, un-bastardized data in this regard to get an accurate picture of what’s really going on, as this is all anecdotal observation, but I do believe unadulterated data would support these conclusions.
Let’s face the facts. In the end, and yes, in the end, all bubbles bursts. Longer this will continue, more people will jump in and buy overpriced houses, the bigger future bust will become.
I don’t care how long all this housing fiasco will continue, I don’t care how long TSX OR DOW will continue to ignore reality on the ground. All I know is this, EVERYTHING that is NOT backed by fundamentals will end in tears.
History will guarantee future outcome. That is all I know, and not interested in the media happy talk. As I have said to my kids many times; ” in order to get ahead in the long run, first you must sit at the back of the bus alone.
Good night.
#39 Linda on 11.17.14 at 9:08 pm
While it is true one has to live somewhere, which in Canada means more than a grass or mud hut open to the elements if one wants to live at all – it is also true that the house as an investment/retirement fund strategy is not the safest thing to do. If you can’t sell or if you can’t sell at a profit when you need to, then eek. Plus you still need to live somewhere & if you are not immigrating to warmer climes, that shelter is going to cost more than a buck or two.
Now, if you own your home – no mortgage – & were able to buy it when prices were not insanely high, plus you have some $ in other investment vehicles – cash, RRSP, TFSA, stocks etc. then yea you. The holy grail being also the possession of a work related pension of any kind that is solvent & therefore might actually exist to pay you some kind of income when & if you do actually retire.
…………..
Totally agree Linda. My heart aches for a sis & her daughter & partner who bought into the idea that RE only goes up, according to my sister’s husband. Both couples are so in debt. My sis was ‘forbidden’ to discuss financial matters in the presence of anyone. Many years ago, we gave my sis money because they were in finanial throuble. We later found out they put it towards a beautiful bedroom set. My hubby will never forget that.
L.O.L.
But what about the hard replacement costs of housing?
Try build for cheaper.
You can say that housing is inflated but the fact is to buy a resale home today is merely a reflection of the value by a replacement cost standard. Sure the two fluctuate against one another to a degree from time to time. This year it may be marginally cheaper to build, next year marginally cheaper to buy a resale, but overall in the long run they are essentially in lockstep harmony.
The value of gold is somewhat illogical extrinsic social add. Home values, on the other hand, are established intrinsically through the input of the labour and materials from which they are created.
Are you saying the hard working trades are price gouging Garth? And if they are then are not wages, to a degree thereby, maintaining parity with the cost of housing?
It costs more to produce the product in Canada than it does in the States. Maybe what we need to do is roll back wages so that we are more on par and can compete in that regard ? sarcasm off
“A one-asset strategy is drenched with risk in a world where monetary rules have been turned on their head.”
All the rules have been turned on their head. I can’t control the criminal organizations on Wall St. or Bay St. Nor can I control the criminal governments around the world including Ottawa and Washington but I am far more likely to control what is going on in my own back yard and I will and that is why people here like real estate.
I’ll just keep the house thank-you.
Explain ‘criminal.’ You’ve been losing moral altitude since you came off the crane. — Garth
I think b> meofios is more right than you are giving him/her credit for.
On an speculative investment side I have seen speculators shift from one to the other (housing to stocks and back again), most recently after the DOTCOM crash. That is to a large degree where the term “bricks and mortar” came from as speculators returned then to it.
On another note, the stock markets tend to do well when the economy is on a roll. So too does investment in real estate kick into a higher gear when the economy is doing well and consumer confidence builds pun intended.
It ALL comes down to consumer confidence. What governments most try to achieve through monetary and fiscal policy is a manipulation in consumer confidence in one direction or another, either to promote it or curtail it.
Without consumers there is NOTHING. Buyers control the market. In real estate bidding wars are the consequence of rampant run away consumer confidence. Why they are so confident is as real as an architects plans to build a museum. They are both the backstory to what will be. It’s all by design.
Seven of ten Canadians own houses. One of ten own stocks. Your theory is bunk. — Garth
#83 reality check
wait a sec here…is this actually possible to do?
#82 nonplused
incidentally, science is philosophy.
Mark on 11.17.14 at 8:08 pm
TSX might be up 12% this year or whatever the number is, but still down from levels of 2008. And most of the gains appear to be very narrowly concentrated in the bank stocks. Hard to believe, isn’t it, that coming out of an alleged “financial crisis”, where the bank stocks weren’t even hit the hardest, that the banks would prove to be some of the top performers, now closing in on 40% of the TSX60 index.
Since past outperformance is usually a predictor of future under-performance when it comes to the stock market and sectors generally, could the implication be that the younger bankers currently blowing their brains out on debt in the GTA market, to make old shacks “worth” over a million, are walking into landmines?
Seems to me that the answer to such is “very likely”. The number of employees the banks need to merely lend Canada’s leading large-cap companies, under a shelf prospectus, a bunch of money, is miniscule compared to operating the current huge mortgage origination and servicing enterprises.
How can inflation be 2% when housing went up 7%? Housing is often the largest expense people are paying!
Housing isn’t going up by 7%. Only the narrow sample of houses that the Realtors happen to be selling went up. And that’s if we actually believe the Realtors’ numbers, which tend to be increasingly narrow (ie: “Toronto” instead of “GTA”, for instance). And inflation is based on the concept of owners imputed rent, which is what an owner would pay to rent an equivalent accommodation in the marketplace, or what an owner could get if they attempted to rent a place out.
If anything, 2% is overstating inflation, and bad policy choices are being made upon the belief of such overstated inflation.
The TSX surpassed 2008 levels earlier this year. You are wrong. — Garth
——————————————-
The TSX surpassed 2008 levels this year but has returned virtually nothing to holders since the last peak and subsequent meltdown back in 2000-2002.
I see this as a positive, as market will probably return generously to holders for the next ten to fifteen years but please don’t cherry pick points in time Garth.
Balanced portfolio gains since the GFC: 2009 – 23%, 2010 – 14.8%, 2011 – (.65%), 2012 – 10.7%, 2013 – 11.3%. Post again when you know what you’re talking about. — Garth
Howsitgoing Garth :) :)
I’m just an ordinary blog type person dropping by to chat. Nothing special.
Whazzuuuuuuuup!
You know I was thinking while listening to some alt/rap/indie/progressive on the CBC that pipelines and bitumen have not been getting a fair shake. We really should build a new pipeline to Quebec (love poutine!!) and New Brunswick (hmm, lobster!!).
Doncha think, bro?
I can’t help but notice Garth that you seem less than optimistic towards Alberta’s tar sands and real estate economy. Downer :( :(
Having done a little ‘opposition research’ on you (in my free time when I am not volunteering at the animal shelter or working at my social justice non-profit job) I have discovered some puzzling news about you, Garth.
One instance, there was this recent photo of you apparently in some form of post-conjugal bliss with your dog Bandit.
http://www.greaterfool.ca/2014/10/29/50-shades/
Is that really appropriate for a public figure such as yourself? I’d hate to accidently blog about that too much as it might undermine your support for your views.
Anyhoo, I am off to Starbucks before heading out to make the world just a little bit better once again today.
Please keep in mind what I’ve said, won’t you?
We’re all friends here on the blogosphere :)
Tweet ya later!
http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/greenpeace-sees-dirty-tricks-in-pr-firms-transcanada-plan/article21630761/
Wow the comments tonight show a lot of people grasping at just about anything – except realty!!!
BEST POST of the day #82 NONPLUSED
Most truth, best understanding of the ‘reality’ surrounding themselves, and best advice.
Whether Real Estate or religious dogma, “Those convinced against their will, are of the same opinion still”
Thanks, Garth for explaining the Risks, and Dangers. Some will understand, others claim quackery. I will just continue to cash those checks, and smile. thanks!!
Seven of ten Canadians own houses. One of ten own stocks. Your theory is bunk. — Garth
But of course. We ALL NEED a roof over our head and 70% of Canadians choose to OWN it. None of us NEED to own stocks as 90% of Canadians agree.
Now I know you would like to change that and capitalize on a shift to your wares but really… too many are struggling to keep a roof over their heads (rented or owned) to be thinking about investing in financials. This blog, really, intentionally or otherwise, is targeted at something further up the ladder, so to speak, than the average Canadian who is more preoccupied with life today with more concern over meeting todays obligations than saving for a future that might never come.
What I was saying is that; of those who do invest in financials (more so in the speculative arenas) many shift between real estate and financials from time to time and that both real estate and financials benefit from an increased consumer confidence as the economy cranks and all sectors see growth. 10% of the 70%… NOT EVERYBODY Garth
Try not to be so compartmentalized and blinded by your personal agenda. Think about the bottom 50% from time to time. Glitz, glamor and celebrity… stainless granite and hardwood. Get real. As has been said… life is what happens when you are making plans for the future.
I said your theory that houses and stocks move in tandem is wrong. More words will not change that. — Garth
real estate and stock markets are correlated although it is weak…think about it both are sensitive to liquidity fluctuations and interest rates.
More than weak. Inconsequential, until plunging housing markets affect consumer confidence, then spending, then corporate earnings. This is unlikely to happen in Canada. — Canada
Wow, looks like the ghetto-ification of Liberty Village is starting before even my best estimates:
http://news.nationalpost.com/2014/11/18/liberty-village-condo-that-exploded-suspected-of-being-drug-lab-police/
In a case like this, where do the repair monies come from? I can’t see the tenant’s insurance covering losses from illegal activities. Will the strata policy cover it?
The culprit we can assume won’t sufficient assets to cover the repairs out-of-pocket. If he’s a tenant, will a lien go against the landlord?
Or will the whole lot have to come out of the reserve fund.
Ah, condo living!
I said your theory that houses and stocks move in tandem is wrong. More words will not change that. — Garth
But as I also said;
One can benefit from a falling from favour of the other. But both do benefit from an increase in consumer confidence. How possibly can you debate that?
What meofios,, I think, is saying is that, he/she agrees with you that we are approaching a SHIFT in the housing market but that it will be due to an economic failing which will take down stocks as well.
Garth, what do you think of the “safer” stock exchange?
Will it impact what people think of the markets, or is it just another soon to be failed attempt like Pure trading was…
http://goo.gl/ylOm5q
#74 Smoking Man on 11.17.14 at 11:41 pm
That’s it dogs, I’ve booked Vegas for next weekend, not this one coming up. Tired of this shit.
Going to area 51 to find me an alien, set the clock back a bit, then zoom to Zurich… Try to save some one.
It might work… Got to try..
If it works, cool, if not, it’s book…
_____________________________________________
Listen my friend all of this grief is normal. We are born, we live and we die. It is part of the natural cycle of our journey. I surmise your nephew had a hell of a good journey albeit perhaps short. The quality of or journey is of the utmost importance. I have so many old friends that sit around shooting the breeze saying I wish I had done this, of traveled there, taken a chance on an experience. Some of my friends say to me you had experiences during the Vietnam War over there it must have been scary. Yep, dam right, shit my pants many times, saw things no person should see, saw things that were amazing, hated the time over there and cried often over good friends who never came home. You know what? The strange thing is Ive had those intense experiences and lived to remember them and I know this sounds strange but I don’t think I would do it different. It was a hell of a journey and that’s whats important. It sounds to me like you gave your nephew the insight to go after a great ride and he rode it well till the end. That’s the way to go my friend.
Don’t go to the bottle or pills, they only suppress the issue. It doesn’t go away.
Anyway, I read this book to see if it would help me once.
The Journey Through Grief:
The Mourner’s Six “Reconciliation Needs”
http://www.centerforloss.com/who-are-you/someone-i-love-has-died/
The latest Stats Can Survey Financial Security clearly showed that Canadians, in aggregate, carry very little mortgage debt. And whatever mortgage debt that they carry, is equally offset by cash.
As Garth correctly points out, “Cash” is actually the other side of the bank ledger when it comes to mortgage debt. 40% of Canada’s mortgage debt is funded directly with cash, the other 60% is funded with longer-term instruments up to and including 5-year GICs.
Additionally, house prices are sensitive to the financial position of the people who want to buy housing at the margin. And the financial condition of those people, as repeatedly pointed out, is horrible. Few good quality jobs. Miniscule savings (ie: practically nothing available for even a subprime down payment). Houses can only be priced at what marginal buyers will buy them at, and quite frankly, it looks pretty ugly out there. As CMHC subprime credit continues to recede, house prices are likely to continue their descent as has been the case for the past year and a half of CMHC subprime tightening.
Hi Garth…in addition to the numbers below, would you be able to post yearly figures for a balanced portfolio for the last 10 years? Thanks.
Balanced portfolio gains since the GFC: 2009 – 23%, 2010 – 14.8%, 2011 – (.65%), 2012 – 10.7%, 2013 – 11.3%. Post again when you know what you’re talking about. — Garth
2004 – 9.25%, 2005 – 11.4%, 2006 – 14.1%, 2007 – (1.3%), 2008, – (19%), 2009 – 23%, 2010 – 14.8%, 2011 – (.65%), 2012 – 10.7%, 2013 – 11.3%. Average – 7.31%, for a decade which included the worst market since the 1930s. — Garth
‘Going to area 51 to find me an alien’
I’ve heard anecdotally that the aliens are actually at Area 52 – I hope you find what you are looking for
“I don’t care how long all this housing fiasco will continue, I don’t care how long TSX OR DOW will continue to ignore reality on the ground. All I know is this, EVERYTHING that is NOT backed by fundamentals will end in tears. “
I agree with you that the TSX has ignored the ‘reality on the ground’, but probably is undervalued because of such. Commodity prices are still quite high, and profitability of most Canadian listed firms is at record levels. Yet the index has not advanced meaningfully since 2008. The cyclicals are priced at the bottom of their cyclical range, rather than the top. The banks continue to churn out profit like no tomorrow. That the TSX isn’t at 25k+ right now (ie: typical 10%/annum long-term growth) represents an excellent buying opportunity. The TSX60 index actually pays so much in terms of a cash dividend today that someone who borrows to invest in it is instantly and immediately cash-flow positive (and dividends are only 1/3rd of the earnings yield!). It seems that everyone over the past 5-6 years has been so obsessed/infatuated with houses that they’ve left other asset classes to wither on the vine.
The only “tears”, IMHO, that are going to occur is when, 2-3 years from now, we’re sitting at 30k on the TSX Composite, and the over-leveraged homeowners, facing significantly more expensive mortgage renewals on account of diminished equity and credit-worthiness, will be lamenting that they weren’t able to participate in outsized returns. If only they had taken the advice of people like Garth and been a bit more balanced investment-wise….
Re: #64 Roman
Currency depreciation is DETRIMENTAL to all economies. Especially in Japan, where they import almost ALL of their raw commodities.
A weaker currency means those raw commodities are MORE expensive.
A weaker currency only stimulates exports of EXISTING INVENTORY. Once that is sold off, and manufacturers have to import more, their costs have gone up. They then have to increase the prices of what they’re selling.
It’s a vicious circle THAT NEVER ENDS. The problem is, there is no longer an incentive to increase productivity/efficiency to extract larger margins on product sold.
When you have a strong dollar, the best way to make a larger profit is to invest in machinery and equipment that increases productivity.
This is why manufacturing has left the west. Other countries like China have allowed their currency to appreciate moderately over the years. This makes the Chinese consumers BETTER OFF.
This is a central banker fallacy that has be foisted on us. It’s severely harmful. Why would ANYONE want to pay more for things? That is what a weaker dollar does.
“Overstated? Mark what are you a machine? You don’t eat?”
Food prices have gone down, at least on the stuff I eat. The result of the industry becoming more competitive.
Or buy $1.25/L gas?
Gas = $1.29/L in 2006 here. Today, $1.08/L, 8 years later. Additionally, the average car today burns less of the stuff than the average car in 2006. Plus the cars themselves seem to be less expensive than ever to buy on a real basis.
Or pay taxes, fees, levies, surcharges or any other “tax vehicle” in out of control tax me I’m Canadian…….Canada? “
Again, down. Didn’t you notice the cut in the GST, and the various personal income taxes implemented by “F” over the years?
Condo living, its a blast:
http://www.cbc.ca/news/canada/toronto/liberty-village-condo-explosion-may-have-been-a-meth-lab-1.2838887?cmp=rss
“None of us NEED to own stocks as 90% of Canadians agree.”
Actually someone has to own the businesses that provide the jobs to Canadians and pay the taxes. We can’t be a nation entirely of public “servants” (they tried that in the USSR with disastrous results!). I don’t know if the stat of only 10% of Canadians owning stocks is true, but if it is, that implies that there is going to be a lot of wealth concentration in the future. The failure of the other 90% to own stocks means that they’re losing out on an incredible amount of opportunity.
“They buy houses with massive gobs of leverage.”
Quadrupling potential returns on 25% down, tax-free for primary residence, and HELOC-able at very favourable rates.
Nothing wrong with owning, the increases in the past 10 years have favoured the insane risk-taking. I can’t stomach it… been down the ownership road, made a little, but prices are so divorced from reality, I don’t know what to say anymore.
“reality” being that people get upset over a nickel of gas, but think nothing to throw down an extra $100k in a bidding war.
Going to ask my landlord about units on the upper floors, facing the lake. Maybe put out a barbeque and not have to answer to a condo board.
“Currency depreciation is DETRIMENTAL to all economies. Especially in Japan, where they import almost ALL of their raw commodities.”
Great post. Currency depreciation also implies a higher cost of capital and higher interest rates (and likewise, higher interest rates imply currency depreciation, something that most armchair ‘economists’ completely misunderstand!). Since manufacturing tends to be very capital intensive, a high cost of capital can be lethal to a competitive manufacturing economy.
The problem suffered by Canada and the United States, in the area of manufacturing, is one of manufacturing being ‘crowded out’ of the debt markets, in favour of excess government borrowing, and government-subsidized household borrowing (ie: Fannie Mae, Freddie Mac, CMHC, etc…). What a disaster for the long-term health of the economy indeed.
Garth,
Can you please post this article in full, so blog dogs can get a better appreciation of the Chinese non-performing loan situation?
“China Faces Debt Crunch As Property Values Fall”
(Sub-headline: Chinese property accounts for a third of Asian high yield issuance)
“One Hong Kong-based hedge fund has accumulated the prospectuses of no fewer than 250 of the trust companies that sit at the heart of the Chinese shadow banking system. These contain virtually no disclosure except on the value of the real estate that backs loans whether committed or proposed.
In some ways, China today resembles Japan in the early to mid-nineties or the US in 2007 to 2008 on the eve of their respective financial crises, both triggered by overvalued property. It is not only that property companies are huge borrowers (in the case of China both domestically and in the offshore US dollar high yield bond market), it is that many other borrowers in China can only take out loans if they have property to serve as collateral.
Now the combination of a weak property market and record leverage among Chinese corporates has become one of the major concerns of investors in both Chinese shares and debt. Rising leverage, much of it involuntary as sales and cash flows weaken across a host of sectors, will at some point lead to rising non-performing loans at both banks and non-banks, limiting their ability to provide credit in future. And in the context of China, nobody knows whether that is even a good or bad thing, given the excess capacity in sectors from cement and coal to ships and steel.
Chinese domestic bank loans were just under 100 per cent of gross domestic product in 2008 but by August of this year, they had swelled to 139 per cent of GDP, growing at a 6.7 per cent rate per year – by far the fastest pace of any emerging market, according to data from David Hensley, an economist with JPMorgan in New York.
By comparison, the figure for India is 1.2 per cent per year, or a mere 55.6 per cent of GDP. Add in the non-banks and the figure rises to about 200 per cent of GDP.
Moreover, the ability to repay that debt has deteriorated dramatically. The ratio of debt to operating cash flow for Chinese borrowers was 12 times at the end of 2013, according to boutique GMT Research in Hong Kong.
Meanwhile, interest rates are high. The average lending rate in September was 6.97 per cent, and the real, one-year interest rate is now 4.3 per cent – a five-year record.
Moreover, the real burden of debt is becoming heavier because of deflation. Upstream producer prices have been in deflationary territory for 32 months now.
Foreign borrowings are also problematic. Chinese companies have become the largest issuers in the US dollar high yield market, having raised over $180bn in US dollar-denominated debt, according to research from Morgan Stanley.
The position of lower rated Chinese borrowers in sectors including property, mining and materials is worse today than it was in 2008 as pricing power vanishes.
“Leverage is at an all-time high (7 times) while interest coverage is at an all-time low,” these analysts conclude. Indeed, many developers who are seeking funds today are proposing structures that involve repaying their debts with more securities since they lack the means to repay in cash.
Chinese property companies such as Greentown China Holdings or Xinyuan Real Estate account for more than one-third of total outstanding Asian high yield issuance.
Much of that leverage is involuntary, as earnings dwindle. Moreover, the burden of repaying foreign debt without foreign revenues is growing since few borrowers anticipated the relative strength of the dollar against the renminbi.
Dismayingly, defaults from Chinese corporates closely correspond to the profile of issuers in the market, these analysts add.
It is not clear how Beijing proposes to deal with this mess. It is possible that reforms liberalising the capital account have been put on hold because this is no time to expose corporate China to the volatility involved in opening up.
There is also disagreement between the People’s Bank of China and the Chinese Banking Regulatory Commission on the best path forward.
The uncertainty partly explains why China has not cut interest rates, as many economists suggest. Although such cuts would help bullish analysts with their buy recommendations on the introduction of the Shanghai-Hong Kong stock market connect.
At the moment wisdom suggests this is not the best time for bold investors any more than it is for bold bureaucrats.”
Re: #108 Mark
Food prices HAVE GONE DOWN? Where the hell do you eat?
We’re not talking about the processed crap where they add filler like wood pulp (cellulose). We’re talking about REAL vegetables, REAL beef, REAL chicken, REAL milk.
http://www.indexmundi.com/commodities/?commodity=beef&months=12
And in case you haven’t noticed, if the prices have remained the same or decreases, the PACKAGE SIZES HAVE GOTTEN SMALLER.
You’re either a liar or completely disconnected from reality. Your previous held beliefs are blinding you from the real world. Government published statistics have a very scary way of manipulating people into a false sense of security and I don’t understand why.
Maybe it’s because I’m a jedi and mind tricks don’t work on me.
I see you post things on here all the time where you over analyze everything. Of course, the basis of your analysis is WRONG because you use government published statistics which are proven lies. You need to be a little bit more skeptical and use independently published (NO BIAS) reports. You also need to assess the METHODS used in the data collection. Often times the ‘correlations’ these statistics purport to show have an inherent flaw in the methods used to begin with in order to skew the results to a PREDETERMINED outcome.
https://www.youtube.com/watch?v=If9EWDB_zK4
“Food prices HAVE GONE DOWN? Where the hell do you eat?”
A well balanced diet which is mostly real vegetables, real meat (chicken, in particular, has become much less expensive around here, as has lobster!), and not much in terms of the baked stuff. Too much diabetes in the bloodline, so I try and minimize carbohydrates as much as possible to pre-empt such.
Don’t know much about package sizes, as I tend to avoid the processed stuff. But overall, my grocery bill today is comparable to my grocery bills 6-8 years ago. If there’s really inflation in food, I’m just not seeing it. And there’s explicit deflation in lots of other stuff.
move the risk from CMHC (indirectly taxpayers) directly to the shareholders of the banks and let’s see what happens to RE prices.
you could die waiting for rates to rise. The govt works for the majority which happens to be debtors not savers. since they themselves are debtors, they want to inflate their way out of debt.
cato says :
wood pulp (cellulose)
==========================================
anything ending in “ose” is a sugar. as a matter of fact, cellulose is a bulking agent (helps you poop!)
where do you get your information from??
and after your latest diatribe (look it up), how can you so pompously accuse Mark of over analysing?
#109 Mark on 11.18.14 at 12:08 pm
“Overstated? Mark what are you a machine? You don’t eat?” Food prices have gone down, at least on the stuff I eat. The result of the industry becoming more competitive.
+++++++++++++++++
Are you eating cat food? Bacon is $13 pre tax a pound. Post tax 375 grams (0.83 of a pound) is 7 dollars. Which is 9 dollars a pound PRE tax and $13 a pound before taxes. boxes and portions are the size for 3 year olds not adult men and women.
Or buy $1.25/L gas?
Gas = $1.29/L in 2006 here. Today, $1.08/L, 8 years later. Additionally, the average car today burns less of the stuff than the average car in 2006. Plus the cars themselves seem to be less expensive than ever to buy on a real basis.
++++++++++++++++++++++++++++++
Well gas is $1.25 here today. And it was $1.50 not so long ago. Cars may be less expensive however…..you keep forgetting (like food and taxes) there are WAY MORE FEES to run your car. Tiniest part or fender bender? Thousands of dollars. Insurance UP. Licence fee UP. TOLL BRIDGES – meanwhile 6 billion available for two week party in whistler for rich people. Olympics did virtually NOTHING for the average BC person – except raise their taxes.
Or pay taxes, fees, levies, surcharges or any other “tax vehicle” in out of control tax me I’m Canadian…….Canada? “ Again, down. Didn’t you notice the cut in the GST, and the various personal income taxes implemented by “F” over the years?
+++++++++++
No….not down. Replaced with increased fees across the board. Gas taxes, MSP, licences, property tax, business property tax, ferry fares, bus fares and on and on and on. It’s everywhere. Ever hear of downloading?
Yes I forgot….Mark you use GOVERNMENT statistics. That right there shows most of the data you use is a lie/wrong or both (from the govt not you).
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/millenials-prepare-to-settle-down/article21506850/
Johanna and Jack have landed good jobs so they’re eager to pay off their student loans. They also want to buy a house and in time, get married and have children.
He is 29, she is 27. They live comfortably in a Toronto-area suburb and enjoy weekend getaways every couple of months. Together, they bring in nearly $140,000.
“Yes I forgot….Mark you use GOVERNMENT statistics. That right there shows most of the data you use is a lie/wrong or both (from the govt not you).”
In this case, my own anecdotal experiences. Which are effectively corroborated by the bond market, pricing in inflation in the range of 1-2%. Government statistics merely verify what I’m seeing in the real world. Not crackpot conspiracies of widespread runaway price inflation like a few certain people would claim.
Hey };-) aka Devil’s Advocate … wanna give that thesaurus a rest?
“you could die waiting for rates to rise. The govt works for the majority which happens to be debtors not savers. since they themselves are debtors, they want to inflate their way out of debt.”
The problem with short-term debt (which nearly 100% of the debt underlying the Canadian housing market is) is that inflation simply doesn’t work. The debt will reset at higher rates to more than compensate for an increase in inflation.
This is why Canada’s housing market is dead meat and inflation won’t save it. Inflation will help other Canadian industries, particularly the oil and gas sector, the railways, utilities, mines, etc., but RE will suffer enormously as we eventually move away from deflation and into an inflationary environment.
I believe housing price is related to comodities prices in Canada. Since 2000, comodities has been rising as well as house prices. It makes senses because high comodities price bring money in canada which has a lot of ressources. Now comodities prices are down and the downtrend of the supercycle is on, investments will fade in Canada. As investments fades, our economy will eventually tumble as well as housing price. Also, interest rates only has one way but up and easy money is gone, this is not gonna be pretty in some years.
Mark # 104,
“40% of Canada’s mortgage debt is funded directly with cash, the other 60% is funded with longer-term instruments up to and including 5-year GICs.”
——————————————–
Shawn…is that you?
Come on Mark your a smart guy, this has been beat to death on this blog. Mortgages via commercial banks are funded ONLY by newly created deposits which are triggered solely by the mortgagors signature.
“One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them.”
Here, explain why the bank of England has got it wrong:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
From: Question on 11.17.14 at 10:30 pm
Speaking of Voodoo math, Garth what do you think of buying a condo to lease to an insurance company? I know of 2 people (soon 3 but NOT ME!!) that do this and my friend seems to believe that this will make him some easy money…..
All I think of is that YOU are taking all the risk, and all the insurance company does is sign a 6-12 month lease……………. Plus, you have to keep it in a certain condition……….
So, who’s right, my friend or me?
****************************
Reply to Question :
Your friends need to live their own life and learn from the experience they bring on. Right/wrong etc.
Why not buy a property , and rent it as a temporary executive residence, fully furnished. You can find them online. The answer lies in the fact that it is a business, and by the fact that you ask this question means it’s not for you. No Easy Money in real estate!
Or, buy into a professional real estate investment trust (REIT ). There are much better, positive tax implications for individuals like yourself, than cap gains etc!
Read the last year or so of blog posts by Sir Turner on this blog, and you will gain a “Greater ” (TMark) understanding . Rather than be another “Greater Fool”. With all respects…..
******************
Kenchie……Biblical post! Hah. Good read re Japan/ Asia banking. Hence why Garth permitted it! : )
Well, I don’t!
I hope 75 buck oil does hang around..
so I can finally find some moorage for my BC boat, on the Alberta coast.
“Come on Mark your a smart guy, this has been beat to death on this blog. Mortgages via commercial banks are funded ONLY by newly created deposits which are triggered solely by the mortgagors signature. “
Nope. If the bank wants to lend, say, a million bucks to someone to buy a Toronto detached house — then they have to borrow a million bucks from various sources, or otherwise use some of their retained earnings to fund the mortgage.
Since we know that Canadian banks run duration-matched, if they want to write a 5-year mortgage for someone, this means that they have to, in the practical sense, sell a 5-year GIC or other sort of 5-year term deposit to someone.
“Assuming that the 90% would start buying stock; would that not drive up the price and lower the yield?”
Absolutely. Stock ownership last reached a record in the late 1990s amongst the public. Also coinciding with the top of the stock market and the tech bubble. Instead of “free” RE publications filling those boxes that you sometimes find on the streets in Toronto, there were “free” computer publications such as “TCP” (Toronto Computer Paper).
I think we know the aftermath of that bubble, and the aftermath of the current RE bubble will soon become apparently obvious. But for now, Canadian stocks are still relatively cheap precisely because there is so much pessimism and very little public enthusiasm towards them.
The numbers in this article don’t make sense to me:
http://business.financialpost.com/2014/11/17/is-helping-children-buy-their-first-home-becoming-the-next-parental-responsibility/
Garth, any insight here? Is it because the mortgage broker have awful data?
“The average down payment for a first time buyer was $88,137” ???? “on average first-time buyers are putting down 21% of the purchase price”????
That is totally at odds with anecdotal evidence and what Garth has reported here, never mind the CHMC’s $600bn limits being met.
There ya go.
https://ca.finance.yahoo.com/news/bank-canada-eyes-possible-higher-inflation-target-185231486–business.html
They want higher inflation while interest rates are zero, so we are getting negative interest rates for a loooooooooooong time.
Congratulation savers and people on fixed income.
What a delicious article !
My mind was hungry for something intelligent, thank you !
The price of WTI oil looks like it will be less than $75 US$ for a long time. That would surely wreck Alberta government finances, maybe even force a reduction in Albertan government expenditures which I think are far too high for the services the public receives.
My observation is that it takes about 6 months before a change in fiscal circumstances begets a change in behaviour. Everybody in this province is aware of how important the oil industry to government coffers so I expect Alberta real estate to go flat in the next 6 months as people try to get a read on the future pricing. As long as there are no major job losses, Calgary RE prices can hold. The Alberta oil industry will stagnate with oil prices so close to production costs. The summer of 2015 is going to be a very interesting time for many to decide on whether to stay with Alberta or move on.
I was musing to myself – what if Montana made an offer to buy Alberta. It would have to be an enormous offer to make me consider it but I am sure it would bring up some interesting discussions. I guess I am bored while I wait to see what the central bankers are going to do given the geopolitical changes that are underway. Personally, I think the US should back down on the Ukraine. What I am seeing over the issue is juvenile – reminds me of a book “Kindergarten taught me everything I need to know about life”. I never went to kindergarten.
#104 Holy CrapWheres The Tylenol on 11.18.14 at 11:35 am
Thanks for link and words of wisdom … Not hitting the bottle or pills. I usually only post when a bit looped. so lack of posts is more to do with sobriety than anything else.
Had a few last night…:)
That is totally at odds with anecdotal evidence and what Garth has reported here, never mind the CHMC’s $600bn limits being met.
Indeed, at odds, especially on the FTB stats. However, on the matter of CMHC, it is well known that the banks have been requiring and/or purchasing on their own account, CMHC subprime insurance against loans with more than a 20% downpayment on a fairly widespread basis. In other words, the banks’ own definition of subprime exceeds the Bank Act minimum of 20% by a substantial margin.
I’ve heard of, for instance, new buyers with as much as 50% down, finding CMHC credit checks against their
credit reports. With ~$900B of the $1.1-$1.4T mortgage market under some form of CMHC subprime mortgage insurance, having the functional threshold between prime and subprime set so high is to be completely expected.
Here is a simple easy to understand video explaining banking loan origination
http://www.youtube.com/watch?v=iFDe5kUUyT0
You believe this crap? — Garth
One in ten canadians own equities or one in ten own stocks specifically ? . I find that ratio hard to believe given company share plans and defined contribution pension plans .
Going to scoop up some Dream office REITs. Any warnings?
Never has this been more evident than now. The Canadian housing bubble is a three-city story (soon to be two, if $75 oil hangs around). Higher values in Toronto, Calgary and Vancouver have totally masked what is happening in a majority of cities across the country. For example, sales are falling in Montreal and Halifax while prices are lower in Regina and Ottawa. Detached home sales last month tanked 12% in Edmonton while in tony Oakville the number of deals fell 2.5% while listings rose more than 8%.
From the underlying rpt for the headline “1st-time homebuyers get more family help for down payment”
http://caamp.org/meloncms/media/Annual%20State%20Report%20Fall%202014.pdf
Page 11 has some inconvenient truths about our dirty little secrets – think ‘Only when the tide goes out do you discover who’s been swimming naked’
Never has this been more evident than now. The Canadian housing bubble is a three-city story (soon to be two, if $75 oil hangs around). Higher values in Toronto, Calgary and Vancouver have totally masked what is happening in a majority of cities across the country. For example, sales are falling in Montreal and Halifax while prices are lower in Regina and Ottawa. Detached home sales last month tanked 12% in Edmonton while in tony Oakville the number of deals fell 2.5% while listings rose more than 8%.
_____________________________________________
Dam it Garth I hit the enter button on my phone.
Any way what I intended to convey was even if the housing market crashes 25% it will still be a long way away from what the homes should be valued at. So 25% down blah…….. Sitting here in -2.5% Oakville by the lake. You are correct though lots of listings.
#79 JimH
Not clear enough, apparently. But! but! but! what happens when all that money finds its way into the system? Well, why would it? It’s just a liquidity exercise. An asset swap.
None of the actors in the system (the ones that matter anyways) are behaving according to rules that hyperinflationistas and doomers believe they should. If you want to predict outcomes, you have to model the system with its actual rules, not rules you believe it should follow. Economics, like psychology or climatology (yeah I went there) are what we call “soft science”. They’re not real science, because we cannot perform controlled experiments on the economy, just like we can’t experiment on people. All we have are a bunch of loosely held together theories, some of them partially field tested, maybe, kind of.
If your position is that central bankers and establishment economists don’t know what they’re doing, you have to also admit the critics do not either. Because that’s being fair and comparing apples to apples.
#119 liquidincalgary
cato says :
wood pulp (cellulose)
—————————–
anything ending in “ose” is a sugar. as a matter of fact, cellulose is a bulking agent (helps you poop!)
where do you get your information from??
——————————————————
I don’t know what they call it, but there is a specialty pulp mill on Vancouver Island that makes food grade pulp and bomb packing.
Go figure eh
@toronto_ca – the stats include online survey of 2000 Canadians.
Almost 50% of first time buyers use brokers, however this survey appears to have been conducted by an agency.
I suspect there was very little representation from New to Canada customers…. the ones that put down 35% and comprise ~20-25% of the purchases in the GTA/Vancouver. Banks would consider New Immigrants / Non-residents as “first time home-buyers”.
Considering the price of an entry level property in the GTA or Vancouver – first time home-buyers would not qualify for a mortgage without a substantial down-payment. The carrying cost (PIT principle + interest + tax and condo fees) would put the TDSR at an unfavorable level – thus no mortgage.
There are a LOT of families helping with down payments, and co-signing on the mortgage.
“Nope.
“if they want to write a 5-year mortgage for someone, this means that they have to, in the practical sense, sell a 5-year GIC or other sort of 5-year term deposit to someone.
———————————————
You sound confused, I’ll walk you through it.
Start here:
http://en.wikipedia.org/wiki/Bank_of_Canada
Link at bottom to here:
http://en.wikipedia.org/wiki/Money_creation
You will find:
“When a commercial bank loan is extended, new commercial bank money is created if the loan proceeds are issued in the form of an increase in a customer’s demand deposit”
“As a loan is paid back through reductions in the demand deposit liabilities the bank owes to a customer, that commercial bank money disappears from existence.”
See….It’s not that difficult.
There is to much, intentional deception on this blog.
Smokey:
A word of the wise.
The fact is… that pretending to be Keith Richards, or Hunter S. Thompson in Vegas is fun and all…
… but the unfortunate reality is, that if you keep up that schtick for too long, you end up somewhere like Johnny Depp.
A dull, drunk, embarrassing, loser.
http://www.theguardian.com/film/2014/nov/17/from-johnny-depp-to-hunter-s-thompson-no-such-thing-as-a-glamorous-drunk
Take the middle path.
The Buddha way.
The Dudes’ way.
“Everything in moderation, (including moderation)”.
“The duration of 5 year mortgage is closer to 4 years due to exelerated payments.
Therefore matching them with 5 year deposits or bonds would create a mismatch.”
Of course. But term deposits can also be withdrawn earlier, and they have a payment schedule associated with them. I think you understand, just as well as I do, that banks have overall portfolios and they do, at least on a temporary basis, aren’t precisely matched. However, they are always attempting to square up their assets to liabilities, and occasionally we even see, as retail bank customers, “special” rates on weird GIC terms, ie: 15-month or 37-month GICs. These “specials” are offered as a bank effort to correct for mismatch.
You sound confused, I’ll walk you through it.
Not confused at all. I think you’re confusing the operation of a central bank, which can create or destroy money willy-nilly, with that of the chartered/commercial banks which must borrow (from bond market, depositors, or shareholders) every last dime lent out.
This is why, for instance, every balance sheet of every bank in Canada (except the BoC) has Assets = Liabilities. Chartered banks do not create money, they are only intermediaries between the owners of money, and those who wish to borrow it.
As for the claim of deception….how rude!
“Going to scoop up some Dream office REITs. Any warnings?”
Sure, try to find me financials reconciled to GAAP. Good luck though, I’ve searched their website a few times and haven’t churned up anything other than non-GAAP “AFFO” claims which are quite problematic.
One thing I’ve learned in investing over the years is that firms that don’t reconcile their earnings to GAAP usually are trying to sugar coat something. REITs, as a rule, tend to be highly overvalued in Canada and worldwide which is to be expected after being outperformers for so long.
“One in ten canadians own equities or one in ten own stocks specifically ? . I find that ratio hard to believe given company share plans and defined contribution pension plans .”
Technically the CPP owns stocks as well, and most Canadians that have worked are at least nominally the owners of such. However, the stat being cited most likely refers to individual stocks directly held, not indirectly held by a trustee through a trust arrangement (ie: mutual fund, RRSP, TFSA, etc.).
Not that many Canadians actually work for publicly listed companies, but you’re right, some do participate in employee ownership schemes in private business.
As a general rule, I find that most public servants I’ve met have absolute faith that their employer will take care of them till the grave, so they don’t tend to invest much of their outsized compensation in publicly listed business. And public servants are a sizeable portion of the Canadian population with significant disposable/investible income.
“Going to scoop up some Dream office REITs. Any warnings?”
Sure, try to find me financials reconciled to GAAP. Good luck though, I’ve searched their website a few times and haven’t churned up anything other than non-GAAP “AFFO” claims which are quite problematic.
One thing I’ve learned in investing over the years is that firms that don’t reconcile their earnings to GAAP usually are trying to sugar coat something. REITs, as a rule, tend to be highly overvalued in Canada and worldwide which is to be expected after being outperformers for so long.
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On the contrary , since the last year’s blood bath of REITs, this one never rebounded. So it is an under performer in that sense. 15% NAV to val and as i see their portfolio, they have nice buildings in the core of cities with some solid companies that lease.
The only bad i currently see is their high allocation towards calgary and toronto. So in addition to having a high portion towards office space, they have less geographic diversification.
But hell, 8% divided , for now that yield looks stable.
BoC readies Canadians for inflation. You have been warned.
@JonChevreau: Bank of Canada eyes raising inflation 2% target, but says threshold for change is high http://t.co/lWR6mhhMdE
Interesting!
The cost of running the Canada Pension Plan for 2012/13
-External management fees went from $25 million six years ago to $782 million.
-Federal government administration costs $586 million.
-Transaction fee’s $127 million
-Operating costs $490 million
In the last seven years the cost of running your plan went from$0.6 Billion to over $2 billion.
Thought Bernie Madoff was in jail!!
Hello again, Mr. Turner. I just wanted to point out that someone has confused Greater Fool with Kijiji, and none of your normally-vigilant guard dogs noticed.
If you look at #41 Robin Kernohan, you’ll see a link to Lakewood Custom Homes. I went there to see the relevance to the topic of this post, but found none. Clicking the link under ‘Social Networks’ to ‘Blog’, I see that Robin Kernohan is actually a bigwig of Lakewood (he also became your twitter follower sometime in the last twenty-four hours).
I’m sure that Mr. Kernohan is a nice guy, and builds quality homes, but as a wise man once said, “Wrong blog, dude”.
Mortgage rates have been trending downwards.
Source: http://business.financialpost.com/2014/11/18/great-news-coming-if-youre-renewing-a-mortgage-youre-about-to-save-money/