The bottom

GOOD modified

As forecast, the Bank of Canada didn’t drop its key rate this week. In fact, I’d be surprised if it went down in April, or any other month this year. This is it. The bottom. That will be confirmed with the Fed moves higher – looks like June.

The impact of six years of historic low rates is everywhere. Savings and investments are down. Real estate is bloated. Debt’s off the chart. And people are getting truly weird.

In the last week or so have you noticed the number of people here who actually believe making mortgage payments is giving them a return on their investment? They justify not investing in anything else, because shelling out for their home loan is ‘a guaranteed return’ whereas all other assets are riddled with risk.

There is no guarantee you will earn 8%+ on your investments this year but you are guaranteed an after tax return of 3%+ by paying down your mortgage. — Blog comment

Yikes. Where do they learn such things? Brad Lamb U?

Repeat after me: paying interest costs money. Investing makes money. You can’t suck and blow at the same time. And even in an era of ridiculously-cheap loans, these rules don’t change.

For example a $300,000 mortgage at 3% will nick you about $1,400 a month. Over 25 years – assuming interest rates never rise (and they will), the cost of the mortgage (interest) is $126,000. By the time your house is paid off, you’ve shelled out $426,000 to repay something worth $300,000. So, the premium is 41%. That’s a loss, not a gain.

Of course, inflation will diminish the impact of payments over time, but so will interest rates rise with virtually every five-year renewal. And the cost of the house could rise. Or it could fall. You have absolutely no control over rates or the market. But the fact remains that paying the mortgage is not making you anything, only gradually decreasing your liability. Worse, residential mortgage interest isn’t tax-deductible, so it must be paid in wages which have already been reduced by a third to a half.

Compare that with an investment loan. You can get one at prime (if you’re good, or it’s secured by home equity), which is 2.85%. Typically this is set up as a line of credit with interest-only payments – on a $300,000 borrowing that would be $712 a month. But in this case all interest is deductible from income for tax purposes. So if you’re paying 35% tax, for example, you’d get $250 of that back. That makes the actual loan cost a little over $460 a month. If your investments rise 7%, you’ve earned $21,000 in a year and the cost was a deductible $8,550.

What happens if you lose money after borrowing? Well, losses on your house aren’t deductible. You have to eat them. Investment losses can be deducted from gains, and carried forward indefinitely. As for growing net worth, the track record for financial markets – like a balanced, middle-of-the-road, no-stocks, no-mutuals, no-cowboy portfolio – has exceeded that of real estate over the past decade, even in YVR or GTA, and even taking the 2008 crash into account.

Anyway, this won’t convince your mom. She still thinks people go through puberty just so they can buy a condo. The cult of property is unassailable.

But look at where it’s taken us.

In 1982, when rates were high and houses cheap, Canadians saved 19.2% of their incomes. Today, with low rates and inflated homes, we’re saving just 3.6% of what we make. The savings rate, says StatsCan, has been going down for a year, concurrent with the slide in mortgage costs. In fact, debt’s increasing again now by a whopping 7% annually, and households already have an average debt-to-income ratio of 162%. If anything goes wrong (like job loss) the technical term for this is ‘screwed.’

Most worrisome is that we’re saving less at a time when mortgages have never been cheaper to carry, and after gas prices fell by half. Yet people are dipping into their savings just to get by. In other words, it doesn’t get any better than now. Only worse. If people can’t save when home loans are 2.6%, imagine what happens when they return to 5%. The housing debt people take on now will be lingering for decades, and poses a long-term structural negative for the entire economy.

But, as I said, most folks could care less. This email from the mortgage department at Vancity is of way more interest:

From: William Fu <[email protected]>
Date: 3 March 2015 at 13:38
Subject: Vancity Spring Mortgage Promotions – Effective March 3, 2015

I just wanted to let you know that Vancity now has the following mortgage promotions below that would be of value to you or someone you may know. Feel free to forward this email to your friends or family as I would be more than happy to discuss mortgage options with them.

1)      Vancity will provide up to 2.5% (as a 0.01% low interest rate loan) of the 5% downpayment for any purchase price up to $500,000 (some exceptions can be made up to $1 million purchase price).
2)      Save up to $250 in appraisal fees and receive up to $750 for you to put towards your closing costs in obtaining a mortgage

Yep, buy a house in Vancouver up to $1 million and you need only $25,000. The rest – 97.5% – is debt. Now do you understand why the Bank of Canada held the line on rates today? And why the reduction in January was an amateur mistake?

In a nation where people lack discipline, where loans are considered assets, where banks dish out downpayments, where savings plunge and average house prices in two cities top a million, this is death by debt. Assisted by stupidity.

309 comments ↓

#1 Yevgeny Yoboliklovistan on 03.04.15 at 6:57 pm

Jeeeesus Canadians are stupid when it comes to this stuff.

#2 Godth on 03.04.15 at 7:02 pm

The Case to “Reinstate” the Bank of Canada
http://www.globalresearch.ca/the-case-to-reinstate-the-bank-of-canada/5430132

“On the 26th of January, 2015, the latest appeal on behalf of the Crown to have the case dismissed was rejected by three judges in Federal Court in Toronto. The Federal government now has 60 days to appeal the decision to the Supreme Court.”

#3 Corban on 03.04.15 at 7:02 pm

How is Calgary doing these days?

#4 CPG on 03.04.15 at 7:05 pm

OTTAWA — The cheques appear to be pouring in for disabled people who have spent years trying to get Canada Pension Plan disability benefits as the Conservative government’s so-called spike unit even settles some “questionable” cases.

With a federal election in the offing, advocates for the disabled say the unit’s doctors, lawyers and medical adjudicators are plowing through outstanding files and seem to be giving applicants the benefit of the doubt even in iffy cases.

After waiting years, Canadians now getting their CPP disability cheques

http://www.ctvnews.ca/politics/after-waiting-years-canadians-now-getting-their-cpp-disability-cheques-1.2264015

#5 Mark on 03.04.15 at 7:07 pm

I strenuously disagree with the premise that rates don’t need to fall more, especially in Canada (the US is a different ball of wax, but there’s no pressure to raise rates there either!). But its an argument which I’ve made too many times to remember so I’ll refrain from making it again, at least for today.

However, that email brings up a very good point about the risk management practices within credit unions, particularly VanCity in that one example, but also, anecdotally, at many Credit Unions throughout the country. Such a product could not be offered with the benefit of CMHC subprime mortgage insurance, so the credit unions must be carrying an enormous amount of risk on their balance sheet. Effectively institutions that generally cater to the sort of ‘widow and orphans’-type depositors, and GIC aficionados, are, it would appear, in reality extremely risky subprime lenders.

The aftermath of this could be quite shocking. This is one of the reasons I’m afraid of being overly invested in Canadian banks — because it seems that a somewhat plausible scenario is that the Big-5 banks will be strong-armed by the government into acquiring these likely-to-fail institutions, at a substantial short-term hit to their balance sheets.

#6 For those about to flop... on 03.04.15 at 7:17 pm

No bad decisions today by Poloz.
Hey what do ya know , the guy’s suddenly batting 500!

#7 greyhound on 03.04.15 at 7:18 pm

Interesting that a generalist like Mike Shedlock
has posted a blog entry
http://globaleconomicanalysis.blogspot.com/2015/03/torontos-self-serving-hypocritical-real.html
on the “You set our MLS® listing fee” folks,
http://www.selectplan.ca

#8 Catalyst on 03.04.15 at 7:19 pm

Welcome to globalization. This isn’t 1982 anymore. The world today does not resemble that of 1982 and neither does the monetary policy.

In Feb, sales were up 16.9% and prices up 11% to over $1MM on detached GTA slums. The inhabitants of such, just “made” over 100k by occupying their decaying detached. Compound that further that someone with a $25K deposit could have purchased and they made 400% on their investment last year.

I’m not saying its right, but we are not going back to 10-20% interest rates, not for decades anyway. Rates are typically raised to temper inflation, and as you have pointed out – we are closer to deflation.

#9 MSM-free Zone on 03.04.15 at 7:22 pm

“…..You can’t suck and blow at the same time…….”
_________________________

Not according to a certain floor-crossing princess.

#10 ILoveCharts on 03.04.15 at 7:22 pm

DELETED

#11 Babblemaster on 03.04.15 at 7:23 pm

“If people can’t save when home loans are 2.6%, imagine what happens when they return to 5%.” – Garth

———————————————

This can’t happen Garth. And for the very reasons you’ve stated. People can’t handle more debt, but they can’t handle higher payments either.

#12 LH on 03.04.15 at 7:23 pm

Aw shucks no mortgage rate reduction till April.
Good thing all my loans are floating. Only fools and the overextended reach for fixed.

#13 nonplused on 03.04.15 at 7:25 pm

Well, loans are an asset…. if you are the bank.

I still think the calculation on home ownership has to account for rent. You have to live somewhere. But I guess as has been pointed out many time renting is often cheaper. Still, people often pay extra for “intangibles”, like owning a BMW or a Harley when there are similar products available at lower prices, often much lower (as in the case of Harley’s).

So for example we bought a house because it offset the rent I was paying, but also for intangibles like being able to put a hot tub where I wanted one. It’s nice. Yes it costs a lot of money to run but hey. YOLO.

But I’m not really arguing with Garth’s over all advice. If you can rent cheaper than owning and don’t want the intangibles, rent. If you can afford a Harley and that’s your thing, buy one. If you can earn more on your investments than the interest on you mortgage/line of credit then invest. I guess the rule is always maximize but you have to live too. You can’t ride a balanced portfolio and at one time I did own a Harley.

(PS the “myth” that Harley’s retain their value better than other brands is just that, a myth. It only applies to certain models and years. I found that out the hard way.)

I don’t know what gas prices are doing in Ontario but here in Alberta they are back up to a buck a litre, so if they did ever fall by half they didn’t stay that low for long. Oil prices are still in the crapper though so the refiners must be making out like bandits.

#14 For those about to flop... on 03.04.15 at 7:27 pm

Garth ,could have used ” In the ditch” for today’s title.

#15 MSM-free Zone on 03.04.15 at 7:29 pm

“……By the time your house is paid off, you’ve shelled out $426,000 to repay something worth $300,000. So, the premium is 41%. That’s a loss, not a gain……..”
_________________________

Nicely said, but, unfortunately, something you won’t read on any BoC, CMHC, CREA, Big 6, nor MSM website.

#16 nonplused on 03.04.15 at 7:30 pm

I forgot to mention, my wife’s single friends like to come over for hot-tubs. This is another nice intangible. There is something deeply rewarding about sitting in a hot tub with 2 drunk women in bikinis (or not wink wink) that makes the week’s long labors seem worth while. How do you put a price on that? YOLO. Now if I could only get them to make breakfast in the morning….

#17 Obvious Truth on 03.04.15 at 7:34 pm

Are you saying forget the recessive yeild curve. We have even bigger problems?

This is crazy stuff.

#18 Obvious Truth on 03.04.15 at 7:34 pm

The shirt is awesome. Bet brad has one.

#19 Lisa on 03.04.15 at 7:35 pm

You mean most folks couldn’t care less. If they could care less, that means they care.

It’s an expression. — Garth

#20 Debt on 03.04.15 at 7:38 pm

I do agree with paying down the mortgage. I’m a massive saver – 48% of my net income is saved every month. I invest in ETF’s, and some good divy stocks (and yes, 5% in PMs) BUT have paid large amounts into my mortgage as well. In 2016 upon my first 5 year renewal, my bi-weekly mortgage payment will be $75. At that point I’ll be 100% into the market as there is no point paying down more. To your point Garth, if I had invested all in stocks, my mortgage would likely be paid by 2016, but I also like the fact that rates can go to 8% and it does not affect me any more, and the markets can plummet and I won’t sweat it; I sleep very well.

#21 nonplused on 03.04.15 at 7:40 pm

PPS…

If you want a motorcycle that retains it’s value well get a dual sport, 250-500 cc. They don’t cost much to begin with but for some reason they seem to bottom out at around 40-50% of the original purchase price unless they’ve been wrecked.

#22 Darryl on 03.04.15 at 7:43 pm

After I paid off my mortgage I never slept better . Well , until my daughters realized they were adults and could stay out as late as they wanted.

I must be one of those dummies but I agree that if you do already have a mortgage and you want to keep your house. Then if you are making a large payment on the mortgage it is an investment. And zero risk.

I would also say that now is not the time to buy a home. Way better off to invest .

#23 seeing it from both sides on 03.04.15 at 7:44 pm

….and after gas prices fell by half.”

Not in Van. The lowest it got to in Van (for about 12 hours) was .99/l. It’s now back up at $1.30/l….. .19c/l less than the all time high when oil was at $149!

#24 Keith in Calgary on 03.04.15 at 7:45 pm

So maybe rates go up a quarter point, and maybe 6 months later another quarter point, and then they stay that way for a year, and then go down a quarter point, and 6 months later go down another quarter point…..etc…..etc……etc…….

Rates will not go up significantly back to where they were (pre 2008) for a minimum of at least two decades. The government of Canada and the US cannot afford to pay the price when the bond market and the economy blows up, which is what would happen if this did.

“I’m turning Japanese, oh yes I’m turning Japanese…..I really think so…….”

Abenomics right here on the prairies.

As for paying down a mortgage being an investment that is dead wrong.

But paying cash for a modest piece of shelter can be quantified with a percentile return since shelter costs money……and if you own the shelter debt free and clear you don’t have to pay a monthly stipend to sleep there. That is free cash flow you can use for other things (like investing). And right now, as it will be moreso in the future, being debt free and having cash flow will be king.

#25 bdy sktrn on 03.04.15 at 7:48 pm

Free things that make you happy? What a concept.
————————————-
it truly is. the best thing ever.

#26 Mr. Frugal on 03.04.15 at 7:49 pm

Most people see a home as an “investment” because they can live rent free, once it’s paid off. But, this is only half of the story. You really need to consider the opportunity cost of having so much money tied up in a house. If you have a $500K house mortgage free, it’s still costing you 5% to 8% per year in lost opportunity costs.

#27 D on 03.04.15 at 7:49 pm

Re: sucking and blowing at the same time

You’re right, and someone should consider your point for how much their mortgage is or how big of a place to get into if they were to buy. Money tied up in a house is still dead money.

That said, it’s ” true” at the margin you are eliminating an after tax 3% cost, which is equivalent to an after tax gain… Assuming you couldn’t get rid of this cost all together by selling and living in a smaller/cheaper place that still was enough for you to live in.

#28 seeing it from both sides on 03.04.15 at 7:49 pm

“…paying interest costs money”

So does paying rent. One has to pay for accommodation either way.

#29 Happy Renting on 03.04.15 at 7:49 pm

In other words, it doesn’t get any better than now. Only worse.

A chilling and depressing thought, especially because a lot of people’s “now” doesn’t look so hot.

#30 Pre-Retiree on 03.04.15 at 7:52 pm

All you need is to look at this article to know trouble is brewing.
Bought for $279,000 (1983), sold for $1,875,000. My dog would refuse to live in that house. But then again, he is quite pampered.

http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/modest-vancouver-home-a-sellers-dream-as-bidding-wars-return/article23276211/

#31 Piano Man on 03.04.15 at 7:52 pm

Buying a house in Canada only guarantees one thing.. you’ll have to shovel!

#32 Smoking Man on 03.04.15 at 7:53 pm

In all due respect Gartho, I’m not convinced rates are going no where but down, less of course you live in Ukraine.

Welcome to the IMF Uks.

USA is picking up strong, no doubt. But with every nation fighting for exports, killing their currencies by dropping rates is not good.

In Canada the indicators for a hike or a drop are the trade balance number. Then Jobs.

CPI not even considered.

Dr. Smoking Man
PhD in Herd-o-nomics.

#33 DR. WAYNE on 03.04.15 at 8:00 pm

‘a guaranteed return’ … Clint Eastwood said … “If you want a guarantee … buy a toaster”.

#34 Kris on 03.04.15 at 8:01 pm

Many of my friends own rental homes. I wonder how prevalent landlord-ship is, and if that makes Canada’s the debt-to-income numbers much worse than it really is. I mean, a person with 200K family income could own 7 homes, 6 of which they rent out, and show an insane debt on paper. They’re not necessarily in trouble if they lose their job. Am I missing something, Garth?

#35 Bobs ur uncle on 03.04.15 at 8:01 pm

Not sur why I haven’t heard of anyone asking for this before – removing the mandatory withdrawals from RRSP/RRIFs:

http://www.theglobeandmail.com/globe-debate/editorials/reforming-retirement-2-getting-ottawas-mitts-off-your-rrif/article23295040/

Seems like a sane option.

#36 zedgt87 on 03.04.15 at 8:03 pm

Someone who has already taken on a large amount of mortgage debt is correct when they state paying off the loan early guarantees them to save xxx percentage. If they invest their cash flow instead of paying off debt their returns are not guaranteed. Both are valid strategies if you’ve already pickled yourself with debt, your appetite for risk will determine which one you should take.

#37 R on 03.04.15 at 8:04 pm

“You can’t suck and blow at the same time..”

– Unless you’re Target Canada.

#38 nonplused on 03.04.15 at 8:07 pm

21 Kris

Oh yes they are in trouble, if… one of their tenants also looses his job.

#39 saskatoon on 03.04.15 at 8:08 pm

“amateur mistake”

you kiddin’ me???!?

obviously, this was no mistake.

it has been highly successful (like you yourself have noted) in keeping the moist millenials rolling in.

rates weren’t dropped today because it WAS

#40 Cato the Elder on 03.04.15 at 8:12 pm

The lowering of rates wasn’t a mistake. All the central banks around the world are co-ordinating rate drops one after another. They’re passing the baton and wreaking havoc on their domestic economies with inflation a few weeks apart. They’re criminals, and are destroying the purchasing power of their own populations to serve banking interests.

Soon, the US will unleash the largest QE in history. The demented philosophy of Keynesian thought is alive and well in the upper echelons of power, and they’re determined all the past failures are because ‘it just wasn’t enough’. Like a small infantile child that can not grasp their imaginary friend doesn’t exist, so too do Phd economists defend central planning dogma.

Get ready folks. All the world is passing the baton, and the final domino is the US. The destruction of the dollar will follow, and you better be prepared for it. They’re not going to want to let the empire go without a fight, and this time, it’s nuclear.

#41 Mark on 03.04.15 at 8:12 pm

“I mean, a person with 200K family income could own 7 homes, 6 of which they rent out, and show an insane debt on paper. They’re not necessarily in trouble if they lose their job. “

A lot of that depends upon the equity they have in the properties. If they’re paid off or nearly so, then, no, there’s little ill that can really come to them except for high opportunity costs of having such a large amount of capital tied up in one asset class. And of course the usual sort of operational issues, which hopefully would be covered either by insurance and/or proper cash reserves.

However, more at risk are the legions of amateur landlords who have bought over the past number of years, hoping that, over time, the tenants would pay off the mortgage. These people, with relatively weak equity positions, face the spectre of much higher financing costs on account of risk premia being incorporated into the cost of financing (which they could not fix for anything more than a 5-year term economically in Canada due to the nature of the [I]Canada Interest Act[/I]). They also face falling prices, and most likely poor overall diversification in their portfolios (after all, if they bought RE at such elevated prices, chances are, they aren’t using any sort of meaningful framework of rebalancing, value investing, or balanced portfolio management!).

High opportunity costs also will hurt the latter group — ie: their balanced portfolio-investing peers getting ahead and enjoying nice annual practically effort-free returns while they’re stuck unclogging toilets at 3am in the morning and fretting about where they’re going to come up with the $$$ to fix the leaking roof that the tenants have been complaining about for the past 6 months!

#42 Waterloo Resident on 03.04.15 at 8:13 pm

Oh darn it, my timing system sold everything yesterday, at around the S&P value of 2100.

Didn’t find out until this morning when I checked things out on the computer. That’s the problem when you set the automatic pilot and forget you set the automatic pilot.

Hope it wasn’t a mistake.

#43 saskatoon on 03.04.15 at 8:13 pm

(continued from above)

successful.

if the dewy millenials cramp up…rates will be dropped again.

this is the new normal, garth…especially before a pending election.

in other words, NOT a mistake…and certainly not amateurish.

politicians do this again and again: it is the very reason why george bush wore a cowboy hat when he grew up in maine:

THEY WANT YOU TO THINK THAT THEY ARE STUPID.

#44 Mark on 03.04.15 at 8:16 pm

“Many of my friends own rental homes. I wonder how prevalent landlord-ship is, and if that makes Canada’s the debt-to-income numbers much worse than it really is”

No impact on debt to income numbers. Renters will have an abnormally low debt to income number, and landlords will have an abnormally high debt to income number. It all averages out, and recently, to quite an abnormally high ratio as a reflection of the consumer debt bubble that exists in Canada.

Canada’s population is aging, which makes the numbers even worse than they appear when comparing to prior periods.

#45 Get back Loretta on 03.04.15 at 8:19 pm

I realize banks are competing with each other for the mortgage dollar – but I’ve always been appalled at Vancity’s approach to mortgage lending. Worst is the “Springboard program” they have where they will now lend low income individuals the whole down payment as well! Completely irresponsible in my opinion. In their effort to appease the masses and crush the competition, it’s no money down folks. Here’s the highlights of this insane program :

Purchase a home worth up to $300,000 without having to raise the down payment
No previous home ownership necessary
You receive guidance and support from a mentor, plus a financial literacy course
If you make all your payments within the first 10 years, you’ll have paid off your down payment
You can sell your property at any time (financial penalties may apply)

https://www.vancity.com/Mortgages/TypesOfMortgages/SpringboardProgram/

#46 Adrian on 03.04.15 at 8:20 pm

Great post. You’ve essentially outlined how to become wealthy by using tax breaks, favourable lending, and risk taking to one’s favour. If I develop the required cojones, I may follow your advice.

#47 Adrian on 03.04.15 at 8:22 pm

Oh, and I have an appointment tomorrow to reduce the mortgage payments. #learning

#48 JuliaS on 03.04.15 at 8:23 pm

2 more countries lowered since Canada did. India will likely be dropping its rate 3rd time in a row at the next meeting.

If you think that Canadian rates have anywhere to go but towards zero, you’re delusional, just like the last time.

Pretty soon the question will be not which way to move the rates, but how far down the left to slide the decimal point.

#49 Ditchmonder on 03.04.15 at 8:23 pm

RE: Picture
Welcome to Ditchmond!

#50 lawboy on 03.04.15 at 8:24 pm

Well, that commenter who wrote that paying down a 3% interest rate mortgage is a guaranteed 3% return is right, finance-wise.

Assuming you already are mortgaged up, if you have a 3% mortgage, and you are deciding where to put some extra money, the option of ‘making extra mortgage payment’ would have a rate of return of 3%. And that option should be compared to the alternatives. And the mortgage prepayment option is indeed a “guaranteed” rate of return. No sense ignoring these realities.

It’s precisely because (as you say) mortgages cost money that this is so. Paying it off faster provides a return.

#51 bob on 03.04.15 at 8:24 pm

To all the people reading the comments and don’t know the difference between an asset and a liability
read: Rich Dad, Poor Dad.

#52 A Girl Who Invests on 03.04.15 at 8:27 pm

http://www.leaderpost.com/business/Buyer+market+boon+some/10858613/story.html

#53 Goldie on 03.04.15 at 8:27 pm

Gas prices in the lower mainland are currently about $.20 less than their historical high. We just can’t win.

#54 JustMe on 03.04.15 at 8:28 pm

#15 Lisa on 03.04.15 at 7:35 pm
You mean most folks couldn’t care less. If they could care less, that means they care.

It’s an expression. — Garth

———————————————————————–

http://grammarist.com/usage/could-care-less/

When people say I could care less, they usually mean they actually could not care less, or, more precisely, that they don’t care. Considered logically, being able to care less means one does care to some degree, while being unable to care less means one cares very little if at all.

http://www.connectingsingles.com/article13/5-sayings-most-people-get-wrong.htm

5 Sayings Most People Get Wrong

The first saying on the list is “I could care less.” While there are probably a million things you could care less about, the actual saying goes “I couldn’t care less.” Though the difference in structure is minute, the difference in meaning is vast. There is the possibility of a miscommunication with this one, but more importantly the first just doesn’t make sense in the context it’s said. You say “I couldn’t care less” to imply that the situation is something to which you are thoroughly indifferent. The misquotation intimates quite the opposite.

#55 liquidincalgary on 03.04.15 at 8:30 pm

at 22 Darryl says:

Then if you are making a large payment on the mortgage it is an investment. And zero risk.

I would also say that now is not the time to buy a home. Way better off to invest .

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

sounds like someone is actually trying to suck and blow

#56 S. Bby on 03.04.15 at 8:32 pm

You make money in the stock market. You spend money in the real estate market. There ya go.

#57 Oh Boy! on 03.04.15 at 8:34 pm

@#1 Yevgeny Yoboliklovistan

“Jeeeesus Canadians are stupid when it comes to this stuff.”

Australians beat Canadians to a far second. This describes here best;

http://i.imgur.com/iLoDJ9I.gifv

Should be titled Australians hit property at record low rates.

#58 NotAgreaterfool on 03.04.15 at 8:35 pm

Garth,

last year year I recall reading on this blog Harper and RIP Flaherty were against SFHs in Toronto and Vancouver costing on average 1,000,000. According to reports, this is now the case. It’s election year. what will Harper and Oliver do now?

#59 dave on 03.04.15 at 8:36 pm

It should be noted that investment loans are only tax deductible for non-registered ac counts. Loans for RRSP and TFSA are non deductible.

#60 Mark on 03.04.15 at 8:36 pm

“Yep, buy a house in Vancouver up to $1 million and you need only $25,000. The rest – 97.5% – is debt.”

Underwater before the ink is even dry on the papers. As when you pay a typical 5% Realtor commission the value of the house is immediately 5% less than paid for it.

#61 louise on 03.04.15 at 8:37 pm

Garth,

In the United States, Americans can deduct the interest on their mortgage and their property taxes on their homes. Do you think home ownership makes more sense when offered these deductions?

In Canada without these deductions not really getting the “value” of home ownership right now. Although renting and having to move every few years gets old.

#62 Pre-Retiree on 03.04.15 at 8:37 pm

#25 Free things that make you happy? What a concept.
————————————-
it truly is. the best thing ever

______________
Without thinking too long about it, I could list at least 20 free things that make me happy. Let me start by: reading this blog. (Well, most of the time)

#63 wallflower on 03.04.15 at 8:37 pm

Mark may have a point wrt credit unions. Don’t know that I see it playing out as he proposes but I do know a number of them were deep in the doo of asset-backed commercial paper, that went haywire.

#64 Mike in the Okanagan on 03.04.15 at 8:37 pm

I guess I wasn’t very clear the other day. When I said if you paid down your mortgage I should have said you will save a guaranteed 3%+ after tax (whatever your mortgage rate is) if you pay it down. I know this isn’t a return on investment.

The point I was also trying to make is that it is easier to hang in there with your investments when they go down if you don’t have debt hanging over your head or worse borrowed to make the investment in the first place (margin call anyone?).

I’m debt free and I will stay that way now forever. It works for me.

#65 Freedom First on 03.04.15 at 8:39 pm

Debt and the thing about debt. When people lose jobs is at the exact same time when the amount of debt they are carrying is a higher $ figure than the $ figure of everything they own. This brings into focus the technical terms: “screwed”, “underwater”, “broke”, “death by debt”, “stupidity”, and “financially denutted”.

I prefer: cash, cash flow, income streams, liquidity, balance, diversity, and always putting my freedom first, which is, of course, for me, priceless.

#66 EPR on 03.04.15 at 8:42 pm

Hello Garth, how long as it been since you profiled the old Pictou government building, still for sale for even less than when profiled, seller willing to finance at a loss!
http://www.realtor.ca/propertyDetails.aspx?PropertyId=14698147

Here is another amazing value Pictou County property, a triplex for $10,000.

http://www.realtor.ca/propertyDetails.aspx?PropertyId=14382504

#67 H on 03.04.15 at 8:43 pm

“As forecast, the Bank of Canada didn’t drop its key rate this week. In fact, I’d be surprised if it went down in April, or any other month this year. This is it. The bottom. That will be confirmed with the Fed moves higher – looks like June.”

Its official now. Rates will be heading down again.

#68 Retired Boomer - WI on 03.04.15 at 8:44 pm

I am getting very tired of seeing people taking out 60 and 72 month car loans at cheap rates.

Hey, Ms. Treasury Secretary get rates moving upward already!!

Savers have paid enough for this foolishness. Get PRIME to 3% and charge there Sheeple according to their credit scores.

No, my view is not going to be popular, because it might deflate socks, and surely bonds. I just like peeving the undeserving so much!! You’re broke? Pay MORE…become a ‘broker’

#69 Mark on 03.04.15 at 8:46 pm

“In the United States, Americans can deduct the interest on their mortgage and their property taxes on their homes. Do you think home ownership makes more sense when offered these deductions?”

Absolutely, although with a few caveats. Although the mortgage interest deduction exists, it is somewhat nullified by the effects of AMT, and taxation on capital gains arising from gains in a principal residence.

Additionally, government subsidies are eliminated on loans greater than roughly $417k for single family housing (the “conforming” Fannie Mae limit). Therefore, in the US, one is not competing with government subsidized subprime loans in purchasing property substantially over $417k.

The US system, although it produced the disaster in 2008/2009, is a relative thing of beauty compared to the mess that now exists in Canada.

#70 For those about to flop... on 03.04.15 at 8:48 pm

45 get back Loretta .
I don’t understand why someone would want to take on a 300,000 mortgage with 100% risk just to say ” I own it”. You can only get a modest condo for this amount in Vancouver and as Garth’s sums up you will pay around 430,000 in the end assuming nothing crazy happens .The only area I have heard of in Vancouver that people have made good money on a condo is Coal harbour .
I don’t understand how people think condos in general are good investments,you can’t knock them down and start again every 30 years like you can with a house ,you don’t own the land and people now are spending crazy money on something they haven’t seen that most likely will be poorly built .
I wouldn’t spend anymore than 250,000 on a condo and most likely at least 50% down payment .
I always thought rent was dead money ,but now I see owning a condo as dead money .

#71 Nosty, etc. on 03.04.15 at 8:51 pm

#2 Godth on 03.04.15 at 7:02 pm — Good line. A couple more here and here.

For Linda and others, who can’t see the forest for the trees — this. Govts. routinely use false flags on their citizens, mainly to scare the hell out of them.

#72 Mark on 03.04.15 at 8:55 pm

“Get PRIME to 3% and charge there Sheeple according to their credit scores.”

Most legitimately at-risk borrowers have already seen an escalation in their risk premia. Prime HELOCs aren’t really part of the landscape any more, and even “Prime” itself now 215bp above the BoC policy target.

I agree, more to come. A lot more, especially with respect to the borrowers who are deeply in denial of their credit quality. Poor or no equity automatically means poor credit quality, a fact that seems to be lost on a lot of people out there who posit an entitlement to cheap credit merely on account of their signature.

#73 deaner on 03.04.15 at 8:56 pm

William Fu’s LinkedIn page advertises 35 year mortgages too. I thought that was illegal. Doesn’t anyone enforce that stuff?

#74 The Patient on 03.04.15 at 9:04 pm

DELETED

#75 Mark on 03.04.15 at 9:08 pm

“William Fu’s LinkedIn page advertises 35 year mortgages too. I thought that was illegal.”

Not illegal. Just not eligible for CMHC subprime mortgage insurance. Unfortunately provincially regulated banks (of which VanCity is an example) seem to fall under a much weaker regulatory regime. Increasing dramatically the risk of failure.

#76 not 1st on 03.04.15 at 9:10 pm

Garth is just using hyperbole when he says people are horny and moist for real estate.

This forum is filled with people who get strangely aroused by new buildings, especially the phallic ones. Weird..

http://forum.skyscraperpage.com/

#77 TRT on 03.04.15 at 9:11 pm

http://www.bloomberg.com/news/articles/2015-03-05/new-york-s-luxury-homes-soared-by-world-best-19-in-2014

Damn the locals, Fannie/Freddie, and the S&P

#78 meslippery on 03.04.15 at 9:11 pm

In 1982, when rates were high and houses cheap, Canadians saved 19.2% of their incomes. Today, with low rates and inflated homes, we’re saving just 3.6% of what we make.
——————————————————

The average pay for an Automotive Service Technician / Mechanic is C$20.51 per hour.

About the same as 1982 not adjusted for inflation.
House,s up300% or so.

http://www.payscale.com/research/CA/Job=Automotive_Service_Technician_%2F_Mechanic/Hourly_Rate

#79 H on 03.04.15 at 9:13 pm

Vancouver Bidding War:

$279,000 in 1983. Last month, Mr. Farrow decided to cash in, agreeing to sell the property for $1,875,000

Looks like a crappy investment to me. Cough

An investment that puts a roof over head. $1.57 million minus expenses tax free.

#80 Godth on 03.04.15 at 9:14 pm

The Neoconservative Threat to International Order
http://www.counterpunch.org/2015/03/04/the-neoconservative-threat-to-international-order/

#81 Darryl on 03.04.15 at 9:17 pm

#55 liquidincalgary on 03.04.15 at 8:30 pm
at 22 Darryl says:

Then if you are making a large payment on the mortgage it is an investment. And zero risk.

I would also say that now is not the time to buy a home. Way better off to invest .

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

sounds like someone is actually trying to suck and blow
——————————————————————Sure , if you cherry pick half of my statement I guess you could say that . If you read the whole thing and have a level of comprehension then you too could understand.

I’m holding out hope for you .

Glad you had something interesting to say . How is it under that bridge btw.

#82 CalgaryRocks on 03.04.15 at 9:18 pm

#70 For those about to flop… on 03.04.15 at 8:48 pm
45 get back Loretta .

I don’t understand how people think condos in general are good investments,you can’t knock them down and start again every 30 years like you can with a house

Governments do not like Single Family Homes. They are inefficient taxation vehicles. So, they’re not about to encourage SFH development and/or affordability.

Much better to build condos (now, mini condos), stack the tax slaves 40 floors high and tax them in bulk.

I expect that this trend will continue and SFHs will be out of the reach of the middle class in a majority of urban centers.

#83 TRT on 03.04.15 at 9:22 pm

This me even inflate bubbles even more.

http://www.scmp.com/business/banking-finance/article/1551510/how-elude-chinese-foreign-exchange-laws-take-your-pick-ways

#84 Mark on 03.04.15 at 9:23 pm

“$279,000 in 1983. Last month, Mr. Farrow decided to cash in, agreeing to sell the property for $1,875,000”

What was the TSE index back then? 2500? Today its 15,000. So roughly the same price return. Except that today the TSX is priced very cheap, while such a house was only sellable at $1.8M at the peak of a bubble market.

#85 Plungemeister on 03.04.15 at 9:26 pm

Garth

There are only 2 ways this ends, a huge drop in the loonie to the 40 range, a massive housing plunge or some combo of these(hey I know that’s 3 ways but who’s counting anyway?)

#86 lala on 03.04.15 at 9:31 pm

You guys don’t get it, housing will not go down because people don’t have anything else to hold on, they will kill for their house. They have 2 options, first to spent the money on fun things and enjoy the life, second spent anything they have in cement and wood and watch 6 month winter from the window.

#87 ShawnG in TO on 03.04.15 at 9:37 pm

there are a lot of william fu’s out there. i want to keep an eye out for these, but i don’t know under what categories are their loans? does it show up in stat can’s numbers? home equity loan? can’t be.

#88 Fan #42 on 03.04.15 at 9:38 pm

#77 TRT on 03.04.15 at 9:11 pm
“Damn the locals, Fannie/Freddie, and the S&P”

Heard today it is actually Phony and Fraudy!

#89 JSS on 03.04.15 at 9:38 pm

I’d rather we discuss this, instead of mortgages vs. ETF portfolios.

—-

#16 nonplused on 03.04.15 at 7:30 pm
I forgot to mention, my wife’s single friends like to come over for hot-tubs. This is another nice intangible. There is something deeply rewarding about sitting in a hot tub with 2 drunk women in bikinis (or not wink wink) that makes the week’s long labors seem worth while. How do you put a price on that? YOLO. Now if I could only get them to make breakfast in the morning….

#90 Obvious Truth on 03.04.15 at 9:40 pm

#79

People with this mindset will never get it. That much invested minus the real cost of that property is not even close.

Back of the envelope its barely 7% compounded assuming no costs.

However the s and p was around 100 ish then. Let’s see you calculate a return on that.

Houses just aren’t investments. They cost money. And sometimes future money. Like now.

#91 bdy sktrn on 03.04.15 at 9:41 pm

30 Pre-Retiree on 03.04.15 at 7:52 pm
All you need is to look at this article to know trouble is brewing.
Bought for $279,000 (1983), sold for $1,875,000.
—————————-

the house must be worthless. 1.9m for a std lot in kits is a steal.

#92 Last One Out - Turn Off the Lights on 03.04.15 at 9:43 pm

Here is how the bubble could burst – every one owning/ living in an over-priced Canadian market suddenly realizes they can own a lot more houses with a lot more chance of appreciation for each of them in select cities south of the 49th. Always watch the money – especially as it continues to drop in value against the US dollar.

#93 devore on 03.04.15 at 9:44 pm

#24 Keith in Calgary

But paying cash for a modest piece of shelter can be quantified with a percentile return since shelter costs money……and if you own the shelter debt free and clear you don’t have to pay a monthly stipend to sleep there.

Residential rental returns in most places in Canada are on the order of long government bonds. Your house is “earning” you 2%… yay? The difference between that and a market return is opportunity cost; that’s the “stipend” you pay to sleep in a house you own. Nothing is free.

A house will never be a competitive investment as long as it’s cheaper to rent it. How can you possibly make money?

#94 Bobs ur uncle on 03.04.15 at 9:55 pm

#16 nonplused on 03.04.15 at 7:30 pm

Couldn’t help but think of Bubbles:

http://cdn.memegenerator.net/instances/500x/43985726.jpg

#95 Millencolly Millenial on 03.04.15 at 9:58 pm

You nailed it Gartho! Another great read. The insanity is getting crazier by the day! All my friends are convinced they’re making tons of money off their debt! It’s so crazy I’m actually thinking of becomming a real estate agent! If you can’t beat’em join’em and tell them every stupid thing they want to hear!

#96 Time is #1 on 03.04.15 at 9:58 pm

#31 Piano man

Mowed and edged my lawn today in Ocean Park BC after walking to the beach for a coffee:) Washed both cars in the driveway yesterday. No mowing this year.

#97 Time is #1 on 03.04.15 at 9:59 pm

no shovelling this year I meant:)

#98 MTVmademedoit on 03.04.15 at 10:01 pm

Sill waiting for cracks to show in the yvr market, coming up on 8 years of consistent gains despite the crash in the south. It’s getting pretty demoralizing. Do crazy people know they’re crazy?

#99 Mark on 03.04.15 at 10:04 pm

“You guys don’t get it, housing will not go down because people don’t have anything else to hold on, they will kill for their house. ”

Even if people, en masse, decide not to sell (which is a sheer impossibility especially with high amounts of leverage and job losses), there’s still an enormous amount of supply coming to market each year. Supply far in excess of demand, with the industry demonstrating an ability to bring even more supply to market until prices fall dramatically.

Yes, its true that prices have been a bit more ‘sticky’ than most anticipated. Price drops across Canada have been quite minor over the past 2 years. But that’s not to say that people will forever be fearful of alternatives to housing investment at the margin. The TSX, in comparison, is looking awfully cheap. I’m buying lots of investments at far less than book value these days.

There are only 2 ways this ends, a huge drop in the loonie to the 40 range, a massive housing plunge or some combo of these(hey I know that’s 3 ways but who’s counting anyway?)

What about a very high loonie because Canadians stop borrowing and enter a very strong savings mode in an attempt to repay all that housing debt that’s rapidly becoming more expensive due to poor credit-worthiness?

That’s the scenario I’m looking for as the current crop of speculators against the CAD$ are cleaned out of their rather irrational positions.

#100 Rebecca on 03.04.15 at 10:05 pm

Investment loan! Wow, why didn’t I think of this before? Gotta talk to a financial advisor asap. This sounds great.

Actually most people should never do this. — Garth

#101 vangrl on 03.04.15 at 10:09 pm

#79
That Globe and Mail article is just another puff piece of real estate advertising. Those guys bought the house in 1983, basically right after the worst correction we’ve ever seen, and at insanely high mortgage rates.

If we’re going to pick and choose dates and talk about investments….

If someone borrowed $279,000 to buy Enbridge in 1995, sold half the position in 1997 to fully pay back the borrowed money, and kept the remaining shares until today they’d be worth 2.3 million.

And I’m not even factoring in 20 years of dividends that they could have reinvested. Dividends that Enbridge has increased every single year for the last 20 years!

#102 liquidincalgary on 03.04.15 at 10:11 pm

Darryl

Glad you had something interesting to say . How is it under that bridge btw

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

your house…you tell me

#103 Rexx Rock on 03.04.15 at 10:11 pm

Gas by half,not in Victoria $1.22 .The high was $1.42.I guess the carbon tax went up.
As for BOC Governor Poloz,he will get more respect dressed up as clown telling jokes and performing a juggling act during his lame speeches.I hear there will be a new Canadian reality show next year called who wants to be the next BOC Governor.All contestants must own a new suit,at least have a high school diploma and able to speak and read english .Grand prize $500 cash and dinner for 4 at Swiss Chalet.

#104 Brian Ripley on 03.04.15 at 10:13 pm

“average house prices in two cities top a million” Garth

I have updated my chart comparing Vancouver and Toronto Housing:

http://www.chpc.biz/compare-toronto–vancouver.html

Among other comparisons:

Higher Average Prices in Vancouver than GTA:
31% more for a SFD
7% more for a Town House
9% more for a Condo

More Listings & Sales in GTA than Vancouver:
1.1 x more Listings & 2.1 x more Sales
Monthly Absorption Rate GTA:VAN = 1.9:1

Ratio of SFD to Strata
1 VAN SFD = 2.1 VAN Town Houses
1 GTA SFD = 1.7 GTA Town Houses
1 VAN SFD = 2.7 VAN Condos
1 GTA SFD = 2.2 GTA Condos

Earners needed to buy an average SFD:
VAN = 3.6 and GTA = 2.7 earners

#105 Washed Up Lawyer on 03.04.15 at 10:15 pm

#3 Corban

How is Calgary doing these days?

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

You ask about my hometown.

Springsteen

“… the jobs are gone … and they ain’t coming back”

https://www.youtube.com/watch?v=77gKSp8WoRg

#106 Marco on 03.04.15 at 10:16 pm

Yikes:

http://business.financialpost.com/2015/03/04/the-real-cost-of-a-1-million-home-toronto-buyers-resort-to-sub-prime-loans-as-prices-soar/

“It’s a legitimate question. Why was $1 million chosen anyway?,” said Mr. Tal. “This is probably not consistent with the spirit of what they want to do, because the spirit of CMHC is to make housing affordable for young people.”

Really?

#107 Mark on 03.04.15 at 10:18 pm

“If someone borrowed $279,000 to buy Enbridge in 1995, sold half the position in 1997 to fully pay back the borrowed money, and kept the remaining shares until today they’d be worth 2.3 million.”

Using averages/indices is a far better strategy in debate, than citing individual stocks. After all, if you cite Enbridge, someone could easily come back with an example of another individual stock (lets say, Nortel) which did not perform nearly quite as well.

Of course, it wasn’t particularly easy buying the entire index back then, as an ETF or even as the “TIPS”, but a commissioned broker could have constructed, with 20-40 stocks, a portfolio that was reasonably representative of the TSE index.

#108 Smoking Man on 03.04.15 at 10:19 pm

Gartho your a moody bugger, some times you let the link to my stories slide, other times you don’t.

As a Dr in Herdonomics, your one tough cookie to crack..

I’ll figure you out one day.

Hey Linda, sincerely, I didn’t mean to get you so angry, I like reading you.

I got me some Serb, Spartan, and a tinny ting of Jew blood in my veins.

But that’s the shit of tribesmen. I renounce it all..

Im an individual now , with a free mind. Screw the Serbs, the Spartans and the Jews.

I’m now a Nectonite… A one man Alien army.

Who wants to fight.. Yes, JD is kicking in hard.

#109 RayofLight on 03.04.15 at 10:19 pm

I do not believe this is a bottom. Oil storage capacity in the US is almost full, and the US oil industry is still producing about a million barrels extra per day. I believe the price of oil could capitulate into the $30s within months. If so, the $CDN will decline further. On top of this, the US economy currently seems to be out performing Canada in almost every matrix. Its productivity is higher and their longer term demographics are better. (thanks in part to higher immigration, legal or not). The lower price of oil is a tail wind to the US economy where as it’s a head wind to the Canadian economy. Mexico is now the chosen out -source supply chain manufacturer, and Ontario will be dehydrating on the vine, regardless of what the $CDN does. The Canadian Consumer is, or will be, overwhelmed with debt, in large part from over priced housing, and the US consumer is just hitting their stride. On top of this, the FED will most likely increase interest rates, and at best the BOC will have to fight not to. I still think a high sixties dollar is more probable than a high eighties dollar within a year. But then, differences of opinion a market doth makes.

#110 young & foolish on 03.04.15 at 10:20 pm

I come here to get educated …. so please indulge me

“……By the time your house is paid off, you’ve shelled out $426,000 to repay something worth $300,000. So, the premium is 41%. That’s a loss, not a gain……..”

I believe many people make the following calculation:
Yes, you’ve paid maybe up to 200K (including inflation) more by the time the mortgage is retired. Say 500K after 25 years. What will the house likely be worth then? Less than 500K?

#111 RayofLight on 03.04.15 at 10:22 pm

Revised sentence :
On top of this, the FED will most likely increase interest rates, and at best the BOC will have to fight not to reduce them.

#112 torontorocks on 03.04.15 at 10:24 pm

prices are up yet again. a 10 year run driven by debt. price wars again. no real data on the market, or at least data manipulated by those who are served by it.

there’s no rationale, no logic and the fundamentals are gone out the window.

but could it maybe just be that it is different here and toronto and vancouver are the centres of the global universe and if you took the leap in 2004 you’re laughing and if you sat by and invested, which most didn’t, you’re now priced out. and for what? a 5 – 15% decline? great. 2010 prices.

#113 YVR report on 03.04.15 at 10:29 pm

Interesting article in Vancouver Province today pointing to annoyance with HAM (real or perceived)….

http://www.theprovince.com/business/mortgages/Chinese+money+making+Vancouver+more+more+unaffordable/10858619/story.html

There are no easy solutions despite what folks think.

#114 Washed Up Lawyer on 03.04.15 at 10:30 pm

#3 Corban

How is Calgary doing these days?

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

Even better.

“Let’s go to Moose Jaw in the meantime, Baby.”

John Hiatt and the Goners

https://www.youtube.com/watch?v=LDdkwwiV-is

#115 OttawaMike on 03.04.15 at 10:31 pm

Read here to find out how I got expelled from Brad Lamb U. In fairness to Professor Lamb, it did take 3 strikes before I was blocked:

http://s1381.photobucket.com/user/midcenturymike/library/?view=recent&page=1

#116 pinstripe on 03.04.15 at 10:36 pm

http://www.edmontonjournal.com/news/vancouver/Chinese+police+secret+operations+hunt+allegedly+corrupt/10861987/story.html

#117 slo mo on 03.04.15 at 10:39 pm

Central banks ARE the problem. Go back to a gold backed currency. Problem solved.

#118 Dinner with Groucho on 03.04.15 at 10:41 pm

If anyone wants a good impression of what the “moist millennials” are thinking, check out this Reddit Toronto thread.

They simply have no clue how economies work and treat high prices pridefully like the Leafs winning the cup. Anyone that throws cold water on the endless riches gets downvoted.

http://www.reddit.com/r/toronto/comments/2xwnpt/average_price_of_toronto_detached_home_shoots/

#119 Smoking Man on 03.04.15 at 10:42 pm

You bastards ever think of this. All our fears, our loves, the ones we hate. The ones we adore.

In 100 years we will all be decomposed or decomposing bones.

Sha la, LA, la, live for today.

#120 Premium is 42%, not 41. on 03.04.15 at 10:45 pm

300,000$ + 42% premium is 426,000$ (not 41%).

The actual number was 41.6%, but I kept it simple. You don’t really have enough to do, right? — Garth

#121 omg the original on 03.04.15 at 10:46 pm

IN MY VIEW……..

The only catalyst that counts for the Canadian housing market will be interest rates.

Yes Fort McM will crater and Calgary may go through some shrinking pains.

But…….unless we see meaningful increases in interest rates Canada will muddle on with ridiculously overpriced houses for the foreseeable future.

It is now firmly entrenched within our culture that a house in a a major market in Canada will be a seriously lifestyle curbing purchase. Forget the pilgrimages to Tibet, French $7/100gr cheese, and single malt scotch. Instead figure on lots of Costco.

Yep, people in these markets will just have to adjust their lifestyles accordingly if they really need to have a house.

Of course all bets are off if US interest rates move up smartly (and I am not talking 2% over two years).

#122 The bottom | Realties.ca on 03.04.15 at 10:48 pm

[…] Source: http://www.greaterfool.ca/2015/03/04/the-bottom/ […]

#123 CalgaryRocks on 03.04.15 at 10:49 pm

#101 vangrl on 03.04.15 at 10:09 pm
#79
That Globe and Mail article is just another puff piece of real estate advertising. Those guys bought the house in 1983, basically right after the worst correction we’ve ever seen, and at insanely high mortgage rates.

If we’re going to pick and choose dates and talk about investments….

If someone borrowed $279,000 to buy Enbridge in 1995, sold half the position in 1997 to fully pay back the borrowed money, and kept the remaining shares until today they’d be worth 2.3 million.

Yeah but the probability of your scenario happening is quasi 0% whereas all the old timers in Van, and now TO are sitting on gold.

I don’t know who pays 25x average income on a POS tear down. I certainly would not want to speculate. I know it’s not an average Joe that works for a living, pays 50% income taxes on his average income and the rest in rent, food, kids, gas etc…

#124 Banjopete on 03.04.15 at 10:49 pm

I can’t wait for the MSM to flip completely and start telling us we should have seen this coming. But will they if they lose whole sections of the papers in the process?

#125 Ret on 03.04.15 at 10:50 pm

People living in $1M homes in T.O. carrying sub prime mortgages.
That can’t be good. Lottsa luck for the suckers holding those second mortgages.

A US style housing correction has to be close.

By the time you see it, it’s too late to get to the exit.

#126 omg the original on 03.04.15 at 10:53 pm

THE COWTOWN EXPERIMENT

We have/will see major job loos in Calgary with oil prices in the toilet.

Will that translate into a precipitous fall in house prices?

Perhaps, but I think not.

Canadians would rather die than sell their house at a loss, of for that matter for less than what its market value was 6 month prior.

Only those forced to sell will reduce their price and I think in the short run that will be a fairly small number.

Just anecdotal but many of the people I know in the oil industry have spouses in completely different sectors, or for that matter in ultra-secure government positions.

So couples will have some time to ride it out.

Also prices in Calgary are high for a city in the middle of no where with no land constraints, but not so ridiculous as TO and YVR. So there may be a lot of fat that can be cut in lifestyles before people are forced into price reductions.

Just my 2 cents…….time will tell.

#127 MSM-free Zone on 03.04.15 at 10:56 pm

Breaking (biased) MSM news at 07:03 pm……..

[b]”Toronto housing market gets richer as it hits record $1-million price tag”[/b] – Globe & Mail

“….February’s hot housing market was driven by the combination of a rush of buyers coupled with a dearth of listings by sellers who were put off by record cold temperatures, according to realtors….”

“….Everybody sits around the Christmas table, the Hanukkah table and decides, ‘We’re buying a house this year,’” said Lauren Haw, an agent with Keller Williams Realty…….”

“….Bidding wars also causing headaches for realtors who are competing feverishly to get their buyers into the few available homes and earn their commissions…..”

…..At today’s mortgage rates, many dual-income couples with decent jobs can afford the roughly $3,000 to $4,000 monthly payment it takes to buy a detached home in the city, said broker Mr. Laird. “It just means that many households can afford the carrying costs of a million-dollar property…….”

Read more (stupidity)….

http://www.theglobeandmail.com/report-on-business/economy/housing/toronto-home-buyers-struggling-to-afford-the-1-million-price-tag/article23298392/

#128 young & foolish on 03.04.15 at 10:56 pm

“If someone borrowed $279,000 to buy Enbridge in 1995, sold half the position in 1997 to fully pay back the borrowed money, and kept the remaining shares until today they’d be worth 2.3 million.”

That’s why my mum says never sell (unless business is not viable any more), and instead re-direct new money to diversify.

#129 BlackDog on 03.04.15 at 10:57 pm

Bummer, my internet connection F’d up when I hit send, so I’ve no idea whether I am repeating myself or not. Anyway, here goes…Garth you are a testosterone filled A-Hole much of the time (how does Dorothy deal with you?) hung up on a subjective immigrant non-prejudice , and although you irritate the hell out of me, I still come back….sigh…did I mention I like older men..but NOT you?

#130 BS on 03.04.15 at 11:04 pm

#106

“It’s a legitimate question. Why was $1 million chosen anyway?,” said Mr. Tal. “This is probably not consistent with the spirit of what they want to do, because the spirit of CMHC is to make housing affordable for young people.”

Mr. Tai lets look at this reasonably. If someone wants to take out a $1 million plus mortgage with only 5% down they probably cannot afford the mortgage. For $1 million you will have a payment of over $61K per year plus property taxes and other housing expenses (thats at 3% interest, you must qualify for a higher interest rate). If you can ‘afford’ to put lets say $70K per year in after tax dollars into a house how is it you can only save $50K for a down payment? Makes no sense. With the income necessary to qualify you should easily be able to save a downpayment of 20%. If you can’t you clearly can’t afford the payments plus other expenses on the $1 million plus mortgage. And Mr. Tai wants to increase that level? Me thinks he is more concerned about the bank holding the bag for mortgages over $1 million than helping sub prime buyers.

#131 Mark on 03.04.15 at 11:05 pm

“But will they if they lose whole sections of the papers in the process?”

Of course not. They’ll be replaced with ads for the next bubble du jour. Perhaps reviews of gold mining companies for example and the Brad Lambs of the world reincarnated as cheerleaders of the next bubble.

If you remember the 1990s the bubble at the time was the tech sector, and print publications such as the “Toronto Computer Paper” were freely available in those free curbside newspaper boxes downtown, much like we now see RE-oriented publications in the same. A few years from now, who knows, something else will grace those boxes.

#132 Smoking Man on 03.04.15 at 11:07 pm

Oh my God, everyone posting their fears, there love and hate.

All in the quest for I was right God damn it..

Shit, we’re all in a convertible, a red one, heading toward the cliff that separates nothingness from consciousness , you hit a point where you realize the breaks don’t work.

Some worry, Me, I perfer to enjoy the ride.

Smoke a bit to much, and defiantly drink to much…

Carry on dogs, when you see the cliff, and there was something you wanted to do.. It’s to late.

Remember my wisdom. Bastards all of you.

I’m so God damn drunk, delete after this one. Sir Garthon.

Dr word Smith is going to bed.

#133 not me on 03.04.15 at 11:15 pm

I’m amazed how stupid people can get, though, living in the society where everything is bought on some type of credit and where teenagers are given credit cards as their b-day presents I can’t say I’m surprised. But I digress…

As much as I share the opinion of many that the RE is GROSSELY overpriced and contrary to what I think should happen and what a common sense dictates there are simply too many parties involved, none of which have any interest in seeing the bubble burst. The government – all they care is about the taxes they collect, higher prices = more revenue, PTT etc.. Assessments keep going up without rhyme or reason but again that means more taxes collected while the government can claim “we didn’t raise the taxes, your assessment went up” lol The used car salesmen, I mean realtors – higher price = higher commissions. Bank – no reason to raise rates as we have perfect examples that lower rates = more borrowing, regardless whether people can afford or not. The banks won’t cut off the hand that feeds them. The RE owners, as some say now at 70%, enjoy the paper gain and even though they may bitch from time to time about higher p-ty taxes, they don’t really want to see the decline, especially not those with equity equal to the cost of their front door.

There is so much propaganda beings spewed day in and day out with only one purpose – to get you “in”. Oddly I don’t feel sorry for anyone that can’t see through it.

#134 hurly on 03.04.15 at 11:17 pm

A little advice from the blog dogs please.
Should I fill my TFSA full this year or leave some room to
rebalance by buying? And thoughts on leaving room to buy efts on sale when the market has its next correction? Any thoughts are appreciated. Cheers

#135 Keith in Calgary on 03.04.15 at 11:18 pm

#93 Devore………..

I am suggesting modest shelter to be an expenditure of $250K amortized over 25 years at 3.95%, which is $1300 a month………condo fees and taxes brings that up to $1,800 total (which happens to be the math on the condo I rent for $1,700 a month right now).

If I owned it outright that would be $1,300 a month I would not have to pay…….so, that’s $15,600 per annum in my pocket, or a 6.24 % cap rate when expressed as a percentage. Now, since that is AFTER TAX DOLLARS we are talking about, as you pay a mortgage with after tax dollars, in my case (and tax bracket) it’s more like a 13.00 % return before taxes…….

Then, the $15,600 per annum I save by not paying a mortgage gets invested at what………another 5-6-7 % per annum pretax return ?

Owning a “modest” piece of real estate that is “paid for” can be very beneficial and financially rewarding…….*****if you don’t care what happens in the RE market to property values, because it is your shelter, and not a leveraged asset to be held for speculative gain*****………which unfortunately is the major problem with Canadians, they think RE only goes up and is for flipping, and have forgotten that it is the place where you are for 12 hours a day, of which about 8 of them are sleeping.

#136 disecting the house on 03.04.15 at 11:19 pm

I wonder if there is any statistical breakdown over the past 15 years on the components of a house cost and how it correlates with the total price of the house:
a) land
b) material
c) labor

Which of the 3 components moved how much and represent how many percentage of the total price?

#137 CJ on 03.04.15 at 11:19 pm

I’m mortgage free, house paid off, I’m slightly north of 40 and living on the East Coast. Assuming I can acquire a $300K investment loan at sub 3% rates using my home as collateral, isn’t the interest only deductible if the gains are purely interest or dividends? Capital gains aren’t included from a CRA point of view.

So what does that $300K portfolio look like that generates 100% interest and dividend gains at something close to 7% over the long haul? This seems like a no-brainer, the interest would be ~$750/month and easily serviceable given my current income and liabilities.

Of course capital gains-producing loans are deductible. — Garth

#138 Godth on 03.04.15 at 11:19 pm

Netanyahu’s False Narrative of Self-Defense
http://www.counterpunch.org/2015/03/04/netanyahus-false-narrative-of-self-defense/

#139 For those about to flop... on 03.04.15 at 11:21 pm

#110 young & foolish on 03.04.15 at 10:20 pm
I come here to get educated …. so please indulge me

“……By the time your house is paid off, you’ve shelled out $426,000 to repay something worth $300,000. So, the premium is 41%. That’s a loss, not a gain……..”

I believe many people make the following calculation:
Yes, you’ve paid maybe up to 200K (including inflation) more by the time the mortgage is retired. Say 500K after 25 years. What will the house likely be worth then? Less than 500K?
~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Hey young and foolish ,that was kinda what I was getting at my post 70 .
I can see how you can come out in front if you buy a detached house and the markets hot for as long as it’s been , but how do you come out ahead with a condo?
Condos should depreciate over time ,not appreciate .

#140 ETF FAN on 03.04.15 at 11:21 pm

Hi Garth,

Though I agree with you that investing in a balanced and diversified portfolio today is more effective than paying down a low interest rate mortgage, there was a time not so long ago that this wasn’t the case.

As a 22-year-old in 2002 who had just bought a modest 3 bedroom home, I asked for – and received – for Christmas that year your book “The Little Book of Real Estate Wisdom”. In your writing, you encouraged paying down the mortgage faster with accelerated payments, payment increases and even lump sum payments.

Back then, granted, my 5 year fixed rate was 5.45%. However, thanks to your advice my wife and I paid off that nice home in 5 years. Today we have a larger home with a very small mortgage that we purchased with all that equity from home #1.

Thanks for the advice 13 years ago and your continued dedication to your blog. It is very much appreciated.

#141 grammar police on 03.04.15 at 11:23 pm

I believe most folks “couldn’t care less”, if they could care less, that means they do care :p

https://www.youtube.com/watch?v=om7O0MFkmpw

#142 BlackDog on 03.04.15 at 11:23 pm

I cannot believe I did not get deleted for a change. hehehe.

#143 To repeat on 03.04.15 at 11:24 pm

The rich make money in the markets by selling their company’s stock in IPO’s, not by buying stock in a balanced BS. 95% of public buying stocks lose their money. Stop the lies.

Untrue, of course. But don’t buy stocks. — Garth

#144 Mark on 03.04.15 at 11:25 pm

“If you can ‘afford’ to put lets say $70K per year in after tax dollars into a house how is it you can only save $50K for a down payment? Makes no sense. With the income necessary to qualify you should easily be able to save a downpayment of 20%.”

I probably spent hundreds of posts explaining and arguing along the same lines at RFD. It was all lost upon the zealots who insisted that people who could only put 5% down were perfectly creditworthy and were somehow not subprime and highly risky credit prospects.

Sometimes I wonder if the people on the other side of the debate really believe a word they say or if they’re just so stupid that they’ve actually bought into the nonsense for which they speak.

#145 not me on 03.04.15 at 11:26 pm

grossly not grossely

#146 Joe Schmoe on 03.04.15 at 11:29 pm

Garth,

I am saddened and enlightened that now when things are coming as you have been predicting (ranting(?)) you are actually a bit put off about it. You, I believe, understand what angst a lot of people are going to go through

Your advice has been sound and your efforts honest.

Don’t beat yourself up. You can’t save them all.

#147 Joe Schmoe on 03.04.15 at 11:37 pm

I am loving NonPlussed comments above….

but what you can earn with a balanced portfolio can likely pay for a few upscale floaties in a hot tub…

No one needs to know you are renting…shhhhh…

#148 Marco on 03.04.15 at 11:39 pm

@MSM free zone

Another beauty from that Globe article:

“So come New Year’s Eve, every one of the buyers starts looking at MLS morning, noon and night trying to find new listings and there isn’t anything. By February they feel they’re ready to blow it out of the water because they’re getting nervous and desperate.”

Jonesing for housing, is there a med for that?

#149 Joe Schmoe on 03.04.15 at 11:45 pm

#133 Hurly

If you have the moola get it in now and quit worrying about it…$5500 over a medium to long term isn’t really time sensitive…if you are in a longer term position the market will go up/come down many times…tough to guess exactly when.

You can wait and the market(s) go up while you are eating for a correction…so you never get in.

I think I am becoming more of a fan of horizon than immediate valuation. Don’t worry about a couple years.

if you need the money in a couple of years, don’t invest it.

#150 BlackDog on 03.04.15 at 11:46 pm

@Joe Schmoe,

WTF?

#151 aL pacino on 03.04.15 at 11:46 pm

In a nation where people lack discipline, where loans are considered assets, where banks dish out downpayments, where savings plunge and average house prices in two cities top a million, this is death by debt. Assisted by stupidity.

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

True enough.
I truly feel that part of the reason canadians are jumping in at these insane valuations is because they TRULY believe that since everybody on the planet wants to live here, they must do it now or be priced out forever, as the realtors would so put.
Until RE industry is regulated this will undoubtedly continue.

#152 Former Fool on 03.04.15 at 11:46 pm

Nice post Garth! I couldn’t, even in my most foolish of days, ever imagine taking on nearly a million dollars of debt with only $25k down! Insanity.

Mark, I’m enjoying reading your posts. Not sure I agree with everything you say but they are thought provoking. I actually have started to search for your name to read your replies. Keep it up. If you’re in YYC, I’d happily buy you a beer and listen to your views on economics and investing.

Thought I’d post my portfolio distributions for Garth, Mark, and the rest of the blog dogs to critique.

TFSA:
XIU = 20%
XSP = 20%
XPF = 20%
XSB = 15%
XEF = 10%
XEC = 10%
XRE = 5%

RRSP:
XSP = 20%
XIC = 20%
XSH = 15%
XQB = 15%
XEF = 10%
XPF = 10%
XEC = 5%
CGR = 5%
(added CGR to my portfolio at the suggestion of a CFA friend, getting some international REIT exposure.)

Also have $20k in cash in my RRSP that I’m debating what to do with.

Any and all constructive feedback is very much appreciated. Cheers!

#153 Joe Schmoe on 03.04.15 at 11:51 pm

#148 Haha…I wrote eating instead of waiting…damn auto correct….

#147…I have been internet stalking rec property in Ivermere BC…some guy this week just listed for half the value of his neighbour in the same hood…neighbour has his place listed for the past 5 months. Exact same house.

Jonesing can pay off!

I still am not buying…still needs to drop 50% to be interesting…

#154 jadegraham on 03.04.15 at 11:59 pm

That will be confirmed with the Fed moves higher – looks like June. https://www.focusfinancialcorp.com/

#155 CJ on 03.04.15 at 11:59 pm

I guess I’m confused by this:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/221/menu-eng.html

…most interest you pay on money you borrow for investment purposes, but generally only if you use it to try to earn investment income, including interest and dividends. However, if the only earnings your investment can produce are capital gains, you cannot claim the interest you paid. For more information, contact us;

#156 Mukadi on 03.05.15 at 12:05 am

Garth,

–Assisted by stupidity.—

And that’s called assisted suicide but

you’re preaching in the wilderness.

The media brainwashing power is 1000 times greater than the Power of Reason and this is by design.

Flooding the sheeple with subliminal messages 24×7 is designed for that purpose… It’s their subconscious minds driving them instead of their minds.

You can count on not more than 10% of the sheeple and that’s not too bad.

BTW, the oncologists have less than 5% chances of success for 5 year period after administering toxic chemotherapy and radiation to a patient and people still visit them for cancer “treatment”.

#157 Roy on 03.05.15 at 12:06 am

Metro Van hallucinates over RE in February
http://www.vancouversun.com/business/Average+price+home+Metro+Vancouver+cracks+seven+figures/10857618/story.html

Sales up 60% over the previous month due to the BOC rate cut Jan 21 and loonie tumbling to 80c.

Andrey Pavlov, a professor of finance at Simon Fraser University’s Beedie School of Business, sounded a cautionary note, describing the boom as “of great concern.”

“People are clearly using the (tiny) drop in interest rates to over-extend themselves even more,” adding that he saw the drop in interest rates and sharp decline of the dollar as “symptoms of a very weak Canadian economy.”

#158 Spectacle on 03.05.15 at 12:06 am

:: Nosty ::

You rock in your comment tonight. Great insight and saves me so much time researching, again.

There is hope we’re collectively putting together the pieces. And that provides a pleasant hope for the future.

Ps: thanks Garth, as always.

#159 4 AM Sunrise on 03.05.15 at 12:06 am

A commentator on BNN today referred to Poloz as a “random number generator”. He might well be playing the same “What Would You Do If You Were a Central Banker?” game as every other country: http://sffed-education.org/chairman/

#160 harden on 03.05.15 at 12:14 am

“If anything goes wrong (like job loss) the technical term for this is ‘screwed.’”

#161 vangrl on 03.05.15 at 12:24 am

#107
“Using averages/indices is a far better strategy in debate, than citing individual stocks. After all, if you cite Enbridge, someone could easily come back with an example of another individual stock (lets say, Nortel) which did not perform nearly quite as well.”

totally understood, but they also picked best case scenario. The area in Vancouver that has appreciated the most, and they purchased in probably the best year possible in the last 35 years.

Hence me choosing that formula…

#162 FleetwoodBoy on 03.05.15 at 12:35 am

Properties selling well in the Fleetwood area of Surrey, reflecting what we’re seeing in the stats, but prices not really moved in the last five years that I’ve watching the area….and waiting.
Have noticed with the stats package from Fraser Valley Real Estate Board that the last two months now include 10yr % change….use to end at 5yr % change.
Not surprised given how bad the 5yr growth has been: condos up 2.0%, townhouses up 0.7% and detached up 21.5%. Glad I waited, and invested!

#163 FleetwoodBoy on 03.05.15 at 12:38 am

Correction to earlier post – Townhouses up 3.9% for the lower mainland in last 5 yrs….the 0.7% was for Langley.

#164 Carousel on 03.05.15 at 12:51 am

If you want to buy into RE, Reits are the way to go. No headaches, no fuss. ETF (Exchange Trade Funds) are a safe vehicle.

It seems their is a lot of misinformation, or properganda in regards to RE housing market from the government, to which they are deliciously behind these high, absurd prices .. They are raking in the $’s. Albeit to the poor saps who are sucked in to buying beyond their means. Common sense prevails.

With the world affairs in such turmoil, the problems here in Canada are like a bug on pigs nose. RE will correct eventually, and life will go on.

Look at the BIG picture … Not your back yard ..

#165 mid on 03.05.15 at 1:11 am

But Garth. After 25 years that 300K house would be worth 600K. Not so bad for doing nothing but living.

On another note. Friend of mine bought 800 ft condo in King West area of Toronto 10 years ago for 100k. Just sold this week for 350K. That’s also not so bad.

I was a bit surprised since the layout is terrible. And there are so many condos coming on line. I never liked it. Very little storage space. Dishwasher was never used. It had to be used to store kitchenware.

#166 mid on 03.05.15 at 1:14 am

Also. She is using the profits to buy 500K condo in the east end. Guess it will be 800K in ten years. Seems like it will never end badly.

#167 rentin on 03.05.15 at 1:23 am

Garth, you forgot to deduct rent for shelter from the 21,000 investment loan gain per year and then again you would need to add maintenance and taxes to the house scenario.

But point of exposure and risk is not lost,

In the meantime a brain teaser:

3 guys go for lunch. They each get the lunch special. It comes to $25 for the group. Each drops $10 for lunch. Waitress come back with 5 ones. Each takes $1 dollar back, and they leave a $2 tip behind.

3 guys lunch @ $9 each = $27 +$2 tip = $29.

Where did the last dollar go?

#168 Mark on 03.05.15 at 1:24 am

“The inhabitants of such, just “made” over 100k by occupying their decaying detached. Compound that further that someone with a $25K deposit could have purchased and they made 400% on their investment last year.”

Very few if any houses that could actually be purchased with CMHC subprime mortgage insurance (ie: <$1M) actually appreciated over the past 2 years. What you're seeing, the claimed price increases, is almost entirely on account of a shifted sales mix, and not appreciation in any average individual property. So no, the newcomers who took their life savings and threw it into the housing market with 5% down didn't make $100k.

Of course the TREB has suppressed release of the statistics, so its becoming increasingly difficult for the public to do in-depth analysis on such. Geez, I wonder why???

#169 Fiendish thingy on 03.05.15 at 1:32 am

@Mark #69-
There is no capital gains tax on the sale of your principal residence in the US, as long as you have owned your home for 2 years.

#170 Leo Trollstoy on 03.05.15 at 1:32 am

Sometimes I wonder if the people on the other side of the debate really believe a word they say or if they’re just so stupid that they’ve actually bought into the nonsense for which they speak.

Hi pot meet kettle! ;)

#171 Leo Trollstoy on 03.05.15 at 1:35 am

Carry on dogs, when you see the cliff, and there was something you wanted to do.. It’s to late.

Amen.

#172 Leo Trollstoy on 03.05.15 at 1:40 am

There are only 2 ways this ends, a huge drop in the loonie to the 40 range, a massive housing plunge or some combo of these(hey I know that’s 3 ways but who’s counting anyway?

I dunno about the 40 cents bit, but at least the direction is right.

#173 kommykim on 03.05.15 at 1:42 am

RE: #133 hurly on 03.04.15 at 11:17 pm
A little advice from the blog dogs please.
Should I fill my TFSA full this year or leave some room to
rebalance by buying?

If you are intending on leaving it in cash outside the TFSA, you may as well keep it in “cash” inside your TFSA if you have no need for it otherwise. Most discount brokerages have so called “high interest” CDIC insured funds you can buy/sell with no commission:
http://www.canadiancapitalist.com/high-interest-savings-accounts-at-discount-brokers/
1% is better than nothing, but not by much.

#174 kommykim on 03.05.15 at 1:59 am

RE: #133 hurly on 03.04.15 at 11:17 pm
And thoughts on leaving room to buy efts on sale when the market has its next correction?

That’s what the bonds in your balanced portfolio are for. No one knows what the markets will do from here. So buy in the proper allocations of equities/bonds and rebalance when things get out of whack.

#175 misengineered housing on 03.05.15 at 2:09 am

As a renter of a concrete slab in Vancouver I have been wondering how the miami style condos in toronto have been dealing with the epic -30c weather for weeks on end. I know when it drops to -10 here in the best place on earth my baseboard heaters are on 24/7 keeping up with the heat loss through rebar and concrete as well as the floor to ceiling glass curtain. How can this work at -30c? Your nuclear power bill must be as ridiculous as the price you paid for your ledge.

Anyone? Buler?

#176 PeterfromCalgary on 03.05.15 at 2:18 am

The problem face by Stephen Poloz (the governor of the Bank of Canada) is that he has to somehow get the dollar a lot lower so Ontario can expand enough to make up for the shrinking energy industry in Alberta without further inflating the housing bubble.

An 80 cent dollar is not low enough to get manufacturing and exportable services in Ontario competitive with low wage, low housing cost, light regulation, right to work states.

Here is how he can get the dollar down without lowering interest rates. Create more Canadian dollars and use them to buy US securities. By increasing the supply of Lonnies without increasing demand for them he will get the price of Canadian dollars down. When this money finds it way to Canadian banks Mr. Poloz can increase reserve requirements for Canadian banks so they have less money to lend out.

It simple really if you want to get the price of something down like the Canadian dollar increase the supply. If you want to raise borrowing costs at the same time increase reserve requirements to lower the supply of money banks can lend out.

#177 screwed on 03.05.15 at 2:18 am

Personal example.

Over the course of 5 yrs, we paid off $60,000 on our $500,000 mortgage. The property value has increased $100,000 as well.

Tenant on the property paid $500 /month which reduces the interest on the mortgage to a measly $300. The rest is payment towards principal and building equity.

You do the math. It basically costs me $300 a month plus property tax to live in my own four walls and no landlord checking in on me.

That’s a deal in my book.

#178 Second Class on 03.05.15 at 2:24 am

Garth,

I’d love to get an investment loan for 300k. I have an annualincome that is 2/3 of that on a bad year and am approaching 300k in investments.

The bank laughed at me when I wanted 100k to invest because I don’t own a home and my investments could be worth nothing overnight according to them. Worse yet I couldnt consolidate my 52,000 from 2 LOC into one without a huge reduction in what I am approved fpr due to “tightened lending standards”.

My credit rating is over 750 last time it was checked.

Of course they would approve me for a massive mortgage because its a house and likely insured by the cmhc.

Where does one go for an investment loan when that’s the banks attitude?

#179 betamax on 03.05.15 at 2:32 am

#48 JuliaS: “Pretty soon the question will be not which way to move the rates, but how far down the left to slide the decimal point.”

To no effect.

#180 charles on 03.05.15 at 2:36 am

So to be clear you would advise someone who could swing it to borrow $300K, play it across a balanced assortment of promises priced at all time highs in a decade when central banks around the world have conjured up tens of trillions in less than 10 years with over 80% in those very investments.
The Fed has in the most recent Humphrey Hawkins testimony made it clear no rate hike is on the horizon. Garth, they are paying interest on $18 trillion and that number is not going down. Even at today’s ZIRP that is over $400 billion per year or 25% of their take.
The ECB is about to start buying 60 billion euros worth of bonds a month for the next 18 months. Negative interest rates are spreading across Europe and soon to come to a government near you. This NIRP is a surrender to deflation even in Germany.
How can you not at least consider the opinion of those who see calamity coming shortly, advise shunning debt and investing in hard assets?

#181 Lillooet, BC on 03.05.15 at 2:40 am

Thanks for not saying “moist Millennials” and “house-horny virgins” on today’s blog.

#182 Vanecdotal on 03.05.15 at 3:06 am

#106 Marco

Interesting (depressing, mind boggling) link.

Jee-zus. What could possibly go wrong, when a “starter home” is > $1 million, buyers are borrowing up to $200k of that @ 13.99% for the “down payment”, as a 2nd mortgage. Clearly the taxpayer better step up and raise that CMHC coverage limit so those poor financially illiterate folks can “get heir foot on the property ladder”. / sarcasm OFF. Our “leaders” have lost their freakin’ minds.

We are so far down the rabbit hole as a society now, we are dammed if we do stop this RE trainwreck, and dammed if we don’t. Either way every tax payer will be footing the bill for this failed monetary policy experiment… for several generations.

Likely a LOT more dammed if we don’t. Where’s Pitchfork Pete when you need him…?

#183 Poutchli on 03.05.15 at 3:12 am

“The CMHC memo also said the agency would
.. but the details of its proposals were censored.”

Source: Reuters
http://ca.reuters.com/article/businessNews/idCAKBN0M01LR20150304

Censored, why?

#184 Vanecdotal on 03.05.15 at 3:22 am

#122 CalgaryRocks

“I don’t know who pays 25x average income on a POS tear down. I certainly would not want to speculate”

S-p-e-c-u-l-a-t-o-r-s. Mostly local construction/development co.’s (often highly leveraged) and looking for the quick buck.

In the current local market, it is predominantly spec builders with the quick raze-raise-flip catering to a “future” luxury SFH buyer with deep pockets. This describes most of the (insane) lot value SFH buying in recent months citywide. Rampant speculation. Most locals are currently priced out of Van City SFH’s.

Builders are hoping that a wealthy buyer will magically materialize when the new build hits the market.
Caveat: “Past returns may not indicate future performance”.

#185 Vanecdotal on 03.05.15 at 3:33 am

#115 OttawaMike

Lolz. Funny sh*te!

#186 Vanecdotal on 03.05.15 at 3:41 am

#129 BS

“Me thinks he is more concerned about the bank holding the bag for mortgages over $1 million than helping sub prime buyers.”

+1

Nailed it. It’s not altruistic intent, that’s for sure. His suggestion has nothing to do with “helping the little guy”, it’s how the banks can keep the debt party going, while still assuming as little risk as possible.

That’s what taxpayers are for…

#187 TRT on 03.05.15 at 4:07 am

Wisdom after Bombay Saphire with lime and mint. On th rocks.

ETFs are yesterday’s way to make $. Smoking man knows the new way.

#188 Nobody on 03.05.15 at 5:59 am

Two comments on Garth’s post today. First, correlation doesn’t imply causation. The correlation between mortgage and saving rates doesn’t mean that one caused the other. There is a middle step which Garth continues to ignore which is the hollowing out of the middle class vis-a-vis lack of wage growth due to the outsourcing of labour to lower cost regions over the past decades. Lower mortgate and lending rates in general is the bandaid which maintains consumption rates in an era of a widening gap between the desire and actual ability to maintain living standards.

Secondly, Garth suggests that borrowing funds for investment is a decent way to make a return in today’s environment due to the current tax structure on borrowing for investment purposes. Aside from being a disgustingly parasitic concept, such rentier capitalism is neither risk free nor of any economic value to the country and the 99% of it’s citizens. It only adds to the disparity between the have and the have nots, and the tax burden of the latter.

‘Rentier capitalism.’ You sure picked the wrong blog. — Garth

#189 Ponzif on 03.05.15 at 6:24 am

Meanwhile in Vancouver:
“”There is a shortage of inventory, and also money is cheap right now – interest rates are fantastic,” said Charlie Real, a local real estate agent.”
———
Charlie Real, a Realtor, really.

#190 OttawaguyRenting Worried but not too worried still a worrier but look on the brightside on 03.05.15 at 6:49 am

I would love to get my hands on Ottawa raw sale numbers. Anyone in Ottawa feel like there is more signs going up every week?

I think Ottawa could crest over 10000 units up on the market in spring. Someone point me in that info direction please :)

#191 Londoner on 03.05.15 at 7:05 am

“Now do you understand why the Bank of Canada held the line on rates today? And why the reduction in January was an amateur mistake?”

Thanks for answering my question and explaining your views. I respectfully disagree that this was a mistake and I don’t believe the BoC will move rates to head off consumer debt.

Current account balance, employment, retail sales, GDP and their impact on economic productivity and inflation are the variables the central banks look at to set monetary policy. Consumer debt, albeit looked at, is not a variable the bank considers in making rate decisions. There are tools other then monetary policy that the bank can use to control this. On the other hand, Canada has been running consecutive trade deficits, full-time employment decreased and retail sales have been weaker than expected. The Q4 GDP was in line with the bank’s expectations which, in their view, means the bank’s policy decisions are working. We have yet to see the impact of the rate cut on economic data, which is the reason the bank stayed pat on the rate. To say that the previous cut was a mistake or to call a bottom, I think, is premature. The BoC, like the Fed, has said it’s policy decisions are data dependent. Until we see that data we don’t know which direction the bank will go. In the mean time FRAs are still pricing in a further rate cut. Cheers!

#192 Maurice on 03.05.15 at 8:38 am

hello Garth,

One thing that I find difficult to explain is the following:

When the public buys stocks from a public corporation, say, “Apple” stock, in the secondary market, which is where most people can buy stock, not a cent reaches Apple company itself. We call it investing but Apple is not getting a cent. We are just transferring an ownership title, i.e. the stocks, from one person to the other. When all the money of the public is chasing after Apple stock, its price can go up, but its not because Apple has invested that extra money and made a profit, but because there is demand for Apple stock.

Most people, the average layman, thinks that when they buy Apple stock, that their money reaches Apple. Apple is just one example. There are large cap companies with even more segregated ownership.

Why would Apple as a company, a group of people after all, care about returning on their investments, when the average stockholder is not present in their Board, not even represented well.

https://finance.yahoo.com/q/mh?s=AAPL+Major+Holders

This is the problem: Securities and Exchange Comission and the international equivalents is supposed to regulate these companies to maximize profits for owners, but the government, Board and top executives are a revolving door and they pay themselves exorbitant amounts of money. In other words, Wall Street and Washington are in bed together, putting on a face in public, but really are buddies in private. And so the financial system nearly collapsed in 2008/2009 and taxpayers had to bail many of them out !!!

Suppose that everyone with a stock investment has a bit of Apple stock in it, because its a popular company, but all this money is chasing a fixed number of common stocks, and Apple does not even access this money to grow.

I think its a common misconception that when we buy ETF and mutual funds and stocks, that the money is “invested”. Its just a title changing hands, and it can be also a big bubble, just like the same house changing hands over and over again, with no real investment in the real economy.

The investment bankers do get fees in every transaction, so who cares if the bubble is growing, they are making money. Just like realtors.

I guess my question is if top executives in a firm don´t even own 1 % of the company, why should they care about returning investment when they can just raise their own compensation to the sky, most of their wealth/status comes not from stock price increases but from their position, salary and benefits. I know there are stock options from the 90s to solve this governance problem, but clearly it was not enough. “Pay us more and we will behave, or else you get 2008”.

My main question is, where does the money really go to when the general public buys stocks for their pension funds, college funds, etc. Globally, most investors buy stocks from the fortune 500 companies. But these fortune 500 companies are not getting a cent, at least not directly. The general public cannot access IPOs. IPOs are available only to a private club of investors. Does the money really just go to previous stock holders? All these savings are not invested, they go to be a profit for someone else? These are enormous amounts of money coming in every day, every week, every month, I see many stocks of companies that are clearly by common sense very profitable staying basically flat for decades. But the top executives, their salaries/benefits stay up, their banks making money, why change any of this is not up to them.

Meanwhile volatility is rising, good for someone with lots of cash to speculate with.

I think there should be a financial transaction tax for short term trades.

Your thoughts appreciated, thanks in advance.

That levy exists. It’s called capital gains tax. — Garth

#193 Ralph Cramdown on 03.05.15 at 8:48 am

#109 RayofLight — “[US] productivity is higher and their longer term demographics are better. (thanks in part to higher immigration, legal or not).”

The UN estimates that net migration to the US is about 5x Canada’s, or 50% on a per-capita basis. The US has a higher birthrate.

Details here, if you poke around a bit:

https://www.google.ca/publicdata/

#194 Ray Skunk on 03.05.15 at 8:51 am

#151 Former Fool

You want Mark to lavish fiscal pearls of wisdom upon you for the price of one beer?
Get him shitfaced! Cheap at twice the price :)

#174 Screwed

Personal example

By not being indebted to RE, in 2014 I squirreled away $50k. My portfolio went up in value over $80k.

Extrapolate to five years and you get the picture.

All without having to share my “own four walls” with a dosser in the basement.

#195 Maurice on 03.05.15 at 8:54 am

Capital gains made by investments in an RRSP, Tax-Free Savings Account (TFSA) are not taxed.

The question remains: where does all this money put in the secondary stock market really go?

#196 Alberta is FINISHED on 03.05.15 at 8:57 am

People of Alberta the conservatives are going to throw you under the bus. They are coming for you wages as they bash you in the propaganda MSM. Alberta is FINISHED

http://www.cbc.ca/news/business/alberta-wages-almost-25-higher-than-canadian-average-1.2981768

#197 Victor V on 03.05.15 at 9:10 am

#175 Second Class

I borrow directly within my margin account against my holdings. Keeps everything well organized for reporting purposes and interest calculations while offering a competitive interest rate.

#198 TurnerNation on 03.05.15 at 9:12 am

Think of a house as another Obedience Certificate.
Glad handing and backslapping will abound from peers, family. You can rut then, and knock up.
A lifetime of work ensues.

#199 jess on 03.05.15 at 9:27 am

too much in “good” times

2006 – with foreign investment flowing in ,low tax and interest rate
george alogoskoufis greece minister of finance said,” we are in a position to achieve an economic miracle.”
=========
european structural funds
-provided 24 b. for infrastructure projects that the greek gov. matched the eu funds with heavy borrowing

cut corporate tax rates from 40 % in 2000 to 25% in 2007 in an effort to attract companies to set up business in greece.

#200 Ralph Cramdown on 03.05.15 at 9:27 am

#173 PeterfromCalgary — “The problem face by Stephen Poloz (the governor of the Bank of Canada) is that he has to somehow get the dollar a lot lower so Ontario can expand enough to make up for the shrinking energy industry in Alberta without further inflating the housing bubble.”

He doesn’t, and it’s not his problem.

It is a truism based in mathematics that if you’ve only got one independent variable you can control (short interest rates, in this case), then you can’t independently control more than one dependent variable. The BoC has a mandate to keep inflation between 1% and 3%. Can it do that AND put the dollar where it wants it AND control asset bubbles AND make its own gravy? Nope. Like Poloz said recently (and I’m paraphrasing because I don’t have the exact quote), the outcome might not be optimal. He can use his bully pulpit to plead with business to increase productivity and households to reduce debt, but he gets ignored, as did his predecessor.

There has been a disturbing trend since the bust in the Western hemisphere to put everything on the shoulders of central bankers, blaming them for everything from unemployment to halitosis, all in the complete absence of sensible fiscal policy from legislators. Harper’s working toward a balanced federal budget which, because of our trade deficit, puts pressure on households and the provinces. He exhorts Europe to do the same. The clown show in the US can’t even fund the DHS for more than a week at a time, nevermind their infrastructure deficit. The beatings will continue until morale improves.

#201 Maurice on 03.05.15 at 9:30 am

Capital gains made by investments in a Tax-Free Savings Account (TFSA) are not taxed. Capital gains tax = zero.

As for R.E.S.P. and R.R.S.P., if income is less than basic personal amount, capital gains are not taxed, capital gains tax = zero.

Anyway, the short term speculating transaction trades inside the registered investments are not taxed, tax rate is zero. I think there should be a financial transaction tax for short term trades, even inside registered accounts.

The root of the problem is this: people so detached from reality, expecting to make money without working, without doing a real service or producing something for society. People thinking that they can live on money working for them. This is just pure laziness and greed. There is a basic fundamental principle, you have to give to take, you cannot take without giving. Otherwise our society will collapse, one way or another.

The question remains: where does all this cash put in the secondary stock market really go, to the pocket of who?

#202 Leo Trollstoy on 03.05.15 at 9:44 am

Anybody have any source links on how ‘sales mix’ (whatever that’s supposed to mean) allegedly impacts price? Anybody?

My guess is no. But I just wanted to make sure.

#203 Kris on 03.05.15 at 10:07 am

#38 nonplused.
If one tenant loses (not “looses”) their job, that’s trouble? C’mon.. You just need to find another tenant in a month or two, which is usually possible.

I had a friend in high school who had 7 “income properties” to his name (Yes, his dad put those properties on the son’s name even before the boy hit age 18). Talk about debt-to-income ratio: The kid doesn’t even have an income.

So, I ask again – Does the 160% (or whatever) debt ratio number take into account such cases, i.e., landlords owning multiple properties. The landlord is not paying the mortgage of all his properties from his personal after-tax income.

If (as I suspect) the 160% number includes landlords, well then, the average person’s debt may be way less – making Cdn real-estate NOT such a house-of-cards, after all.

#204 Brandon on 03.05.15 at 10:09 am

Would you recommend getting a HELOC and stuffing it into a balanced portfolio? It seems like a no brainer to me but on comment #100 you said investment loans are not a good idea.

I said for most people. Leverage involves risk and borrowers should have guidance plus a long-term outlook. Most don’t. — Garth

#205 Ralph Cramdown on 03.05.15 at 10:12 am

#192 Maurice — “The question remains: where does all this money put in the secondary stock market really go?”

The same place as the money put into the secondary house market went: To people who wanted to sell, rather than to the builders of more houses.

Would you buy shares in a company if you knew that you’d be entitled to the dividends forever (and could pass that to your heirs) but could never sell?

I think you’ve answered many of your own questions. Some publicly traded companies are run for the benefit of their stockholders, e.g. public companies with big ownership by these people:
http://en.wikipedia.org/wiki/List_of_Canadians_by_net_worth

Others are run more for the benefit of employees (some US investment banks), others for the board (CP, whose board was totally fine with subpar performance until, in the face of an activist investor, they lost the confidence of our milquetoast pension funds).

Many investors think they want to get into companies earlier, and are sold on IPOs, private equity, venture capital, and all manner of other high fee junk. Did you know that there was a time not so long ago when, to be listed on a major stock exchange, a company had to show several years of profits? That changed. Investors wanted in on the next Microsoft, but many of them ended up buying the next pets.com instead.

P.S. If you want your money to go to work instead of to the other guy that wants out, call your broker… he may have some of that Silver Wheaton secondary offering available.

#206 Grantmi on 03.05.15 at 10:14 am

U.S. Weekly Jobless Claims Rise To 320K
By Kitco News
Thursday March 5, 2015 8:30 AM

(Kitco News) – First-time weekly jobless claims in the U.S. rose by 7,000 to a seasonally adjusted 320,000 during the week to Saturday, the Labor Department said Thursday.

The data was above economists’ expectations, which according to consensus forecasts were for claims to fall to roughly 293,000. Last week’s claims were unrevised at 313,000.

Meanwhile, the four-week moving average for new claims – often viewed as a more reliable measure of the labor market since it smoothens out week-to-week volatility – was up by 10,250 claims to 304,750.

Continuing jobless claims, the number of people already receiving benefits and reported with a one-week delay, rose by 17,000 to a seasonally adjusted 2.4 million during the week ending Feb. 21.The previous week’s level was revised up by 3,000 claims.

Ouch!

#207 Julia on 03.05.15 at 10:20 am

Micro condos = macro risk I would think
http://metronews.ca/voices/opinion/1303782/micro-condos-since-when-did-living-in-a-shoebox-become-the-property-owning-dream/

#208 Nagraj on 03.05.15 at 10:24 am

“In a nation where people lack discipline, where loans are considered assets, where banks dish out down payments, where savings plunge and average house prices in two cities top a million, this is death by debt. Assisted by stupidity.”

Teletubby Harper and friends ain’t the only folks responsible for turning Canada into an international embarrassment.

The obvious lack of ANY responsible political leadership wouldn’t, maybe, be the result of a SYSTEMIC political problem, would it? [Like gross electoral proportional misrepresentation, or an antiquated constitution.] Whatever the problem is – when jobs are plenty and incomes rising, everybody’s smart. When jobs are few and incomes falling, too many people are suddenly, as it were, unusually irresponsible and stupid?

There’s nothing to disagree with in Mr.Turner’s quote above. It’s just a description of symptoms only.

#209 Ralph Cramdown on 03.05.15 at 10:24 am

#199 Leo Trollstoy — “Anybody have any source links on how ‘sales mix’ (whatever that’s supposed to mean) allegedly impacts price? Anybody?”

I’m a car dealership. In January, I sell two Hyundai Accents for $12,000 each, and one Cadillac for $40,000. In February, I sell one Accent at $11,500 and two Cadillacs at $39,000 each. Average sale price in January, $21,333. In February, $29,833.

Now be a good boy and go through
http://www.torontorealestateboard.com/MARKET_NEWS/release_market_updates/news.htm
and notice the same effect at play.

#210 Spock on 03.05.15 at 10:28 am

This is whatbthe BOC is really worried about. Not a housing bubble or a falling Loonie.

http://www.cnbc.com/id/102479916

#211 cramar on 03.05.15 at 10:33 am

We’ve seen what you get for a $1M in Van & TO. Compare to what you can get for the same in Leamington.

– 1 acre on lake
– dead-end street
– 3 bedrooms & 4 bath
– 3 car garage
– indoor pool
– interior remodelled to your specs including in price

Sorry that it is not quite $1M, but only $920k.

http://www.realtor.ca/propertyDetails.aspx?PropertyId=15168607

#212 Ralph Cramdown on 03.05.15 at 10:53 am

#200 Kris — “So, I ask again – Does the 160% (or whatever) debt ratio number take into account such cases, i.e., landlords owning multiple properties. The landlord is not paying the mortgage of all his properties from his personal after-tax income.”

It includes all the landlord’s debt, but it includes all his tenants’ income as well.

#213 Mark on 03.05.15 at 10:58 am

“So, I ask again – Does the 160% (or whatever) debt ratio number take into account such cases, i.e., landlords owning multiple properties. The landlord is not paying the mortgage of all his properties from his personal after-tax income.”

I addressed that question (or one very similar to it) in an earlier post in the comments today. Leveraged landlords will typically carry more debt than average, but renters will carry less debt than average. Averaging everything out.

#214 Leo Trollstoy on 03.05.15 at 11:00 am

We’ve seen what you get for a $1M in Van & TO. Compare to what you can get for the same in Leamington

What’s a Leamington?

#215 Mike in Toronto on 03.05.15 at 11:03 am

#181 Vanecdotal

A couple friends of my GF are chronic students. They’re showered with wealth from worried parents overseas.

A kind and wise builder suggested they can flip their house and make $700k more on the house if they add a floor. After costs, this means $400k of pure profit on top of their $500k appreciation.

Their parents are so worried that their 30+ year old babies might not have a fair shake in the world that they’re going to “loan” them $300k to build another floor on their house (already mortgaged to the hilt with monthly payments coming from mom and dad).

My GF comes home and tells me about this and asks if they have a good idea and all I can say is “they’re rich. Even if they think they’re poor, they’ve never had to work a day in their life and probably never will.”

Of course the builders are just shifting the risk on to them and their parents and sealing a $300k contract.

It’s probably a good investment if their parents have $20M in assets. If their parents have less than that…. maybe it’s not such a good risk.

I really should have become an electrician. Tech pays well, but hanging out on websites and drinking coffee all day takes its toll on the body.

#216 bdy sktrn on 03.05.15 at 11:04 am

#206 Ralph Cramdown on 03.05.15 at 10:24 am
#199 Leo Trollstoy — “Anybody have any source links on how ‘sales mix’ (whatever that’s supposed to mean) allegedly impacts price? Anybody?”

I’m a car dealership. In January, I sell two Hyundai Accents for $12,000 each, and one Cadillac for $40,000. In February, I sell one Accent at $11,500 and two Cadillacs at $39,000 each. Average sale price in January, $21,333. In February, $29,833.
—————————————————-
sorry ralph *(and mark) this is BS

using this for a month or 2 has validity. claiming it year after year is flawed.

for feb. the CHEAPEST areas are up huge in price and volume (fraser valley) , that should bring the avg way down, but the opposite is true.

a much higher sales to listings in E van vs west should also be pulling it down city proper averages but again the opposite is the case.

watching a typical (roughly equal) house one can easily see prices swelling rather fast.

the SAME house that was 1.1m 4yrs ago will sell in 3 days for 1.45. no upgrades needed. it is a very simple fact, as much as mark wishes it weren’t

#217 Leo Trollstoy on 03.05.15 at 11:04 am

I’m a car dealership. In January, I sell two Hyundai Accents for $12,000 each, and one Cadillac for $40,000. In February, I sell one Accent at $11,500 and two Cadillacs at $39,000 each. Average sale price in January, $21,333. In February, $29,833.

So… What you’re saying is that the opinion is anecdotal and there’s no such trend in the real estate statistics that can be verified by any source.

Gotcha.

#218 Nemesis on 03.05.15 at 11:07 am

#BigTroubleInLittleChina?,Or… #WhySweatWangTaoWhen… #YouClanCollectWuTang?

[Telegraph] – Liquidity evaporates in China as ‘fiscal cliff’ nears: Unless China changes course, it is set to tighten fiscal policy by 5.5pc of GDP this year, five times Britain’s austerity dose annually since the Lehman crisis

…”Wang Tao, an economist at UBS, says the benchmark one-year borrowing cost for Chinese companies has jumped by 800 basis points in real terms since 2011 as inflation collapses. Business profits fell 9pc in the fourth quarter of last year. The latest cuts merely “mitigate massive tightening” already under way. “With industrial profit growth already mired in recession, risks are quickly building up in financial system,” she said.”…

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11450691/Liquidity-evaporates-in-China-as-fiscal-cliff-nears.html

[Guardian] – Wu-Tang Clan will let buyer of their one-off USD5M album release it – after 88 years: Once Upon a Time in Shaolin will also feature appearances by FC Barcelona players, naturally

http://www.theguardian.com/music/2015/mar/03/wu-tang-clan-will-let-buyer-of-their-one-off-album-release-it-after-88-years

#219 Tony Elliott on 03.05.15 at 11:08 am

ZPR is killing me – gee thanks Garth

I didn’t recommend that ETF. That was your choice. In any case, it pays a 4.66% yield, so suck it up. — Garth

#220 BigM on 03.05.15 at 11:10 am

http://business.financialpost.com/2015/03/04/the-real-cost-of-a-1-million-home-toronto-buyers-resort-to-sub-prime-loans-as-prices-soar/

Yes, this is going to end really well.

Best companies to invest in, the ones who do bankruptcy and debt consolidation.

Yeesh.

#221 CalgaryRocks on 03.05.15 at 11:10 am

#205 Nagraj on 03.05.15 at 10:24 am
The obvious lack of ANY responsible political leadership wouldn’t, maybe, be the result of a SYSTEMIC political problem, would it?

What is ‘leadership’ to you, is a dictatorship to others. I don’t need any politician to lead me.

People are sheep, they like to be led, told what to do. Most adults are children in adult clothes.

Listen to Smoking Man. You don’t need anyone to lead you. Make your own path. Tell everyone that gets in the way to f*ck off.

#222 Inspector Fuzz on 03.05.15 at 11:14 am

Well Smoking Man is right, interest rates will keep going down. That is, until this summer when Yellen increases them. When that happens, uh oh, shouldn’t have done that! We have a derivatives crisis oh my, no one saw it coming…

I like 0% interest rates, allows me to buy real estate with no skin in the game. I keep my real capital safe and well invested for the event I mentioned above.

It will all collapse at some point soon, but if you know how to invest you’ll make a fortune. Housing isn’t a bubble right now, interest rates are though. One leads to another I suppose.

Housing market is having an orgasm right now, people are pleading to buy, anything, as long as they can make the monthly. Renters, those with bad credit, will lick your boots for a cheap, clean rental unit.

If I owe you $2000 and cannot pay, I have a problem, if I owe you $2,000,000 and cannot pay, you have a problem. Well, looks like we will have many problems.

#223 Mark on 03.05.15 at 11:21 am

“using this for a month or 2 has validity. claiming it year after year is flawed.”

No, it can take a couple years for such to fully play out. Or at least it did in California, where the pricing peak of RE was, in hindsight, generally approximately 2005-2006 (corresponding to the subprime lenders cutting the taps off!), but the sales mix continued to shift so significantly towards the higher end that average transactional prices didn’t start dropping significantly until 2008.

In Canada, I would argue, the peak was reached with the subprime peak in 2013. Budget 2013 introduced policy that not only capped CMHC subprime loan guarantees at $600B direct and ~$300B of re-insurance, but tightened qualification requirements considerably. The RE economy has been weakening ever since on account of most individual /identical properties experiencing price flatlining and subtle price drops. In light of such, the BoC has mostly been unable to achieve its inflation policy targets on account of weakening consumer demand (ie: no more “wealth effect” arising from rising house prices, and tapped out mortgage credit!).

#224 bdy sktrn on 03.05.15 at 11:22 am

BTW, the oncologists have less than 5% chances of success for 5 year period after administering toxic chemotherapy and radiation to a patient and people still visit them for cancer “treatment”.
————————————————
so, are you going to see a hairdresser if you get cancer?

#225 Alberta is AWESOME on 03.05.15 at 11:36 am

http://www.calgaryherald.com/business/Canadian+Natural+Resources+triples+profit+billion/10863736/story.html

Proudly rat free and commie free since 1905.

#226 Ralph Cramdown on 03.05.15 at 11:40 am

#213 bdy sktrn — “sorry ralph *(and mark) this is BS
using this for a month or 2 has validity. claiming it year after year is flawed.”

I’m not signing up for Mark’s theory that we’ve already seen years of price declines. I’m just explaining basic math. When a sales mix change is detrimental to average prices, real estate boards are the first to point it out.

But it can work year after year, for local areas. Take an area with shabby housing stock that’s ripe for redevelopment. Over a ten year period most of the wartime houses get bought, knocked down and new houses built at maximum lot coverage. The sales go from being mostly lot value to mostly redeveloped houses over the decade, and the local board duly reports that the average price has gone up 7% a year. You wouldn’t get that 7% if you bought an old house and held it, or if you bought one of the first redeveloped houses and held for ten years, and you wouldn’t net it if you bought and redeveloped a house yourself and kept it for a decade. It’s purely a result of sales mix change and not subtracting redevelopment costs.

#227 cramar on 03.05.15 at 11:42 am

#211 Leo Trollstoy on 03.05.15 at 11:00 am
We’ve seen what you get for a $1M in Van & TO. Compare to what you can get for the same in Leamington

What’s a Leamington?

————

The southern-most location in Canada. A great place to retire.

#228 Toronto is MEGARICH on 03.05.15 at 11:43 am

Bald Lamb always appear as an ad on this stories.. buy now kiddies.

http://www.theglobeandmail.com/report-on-business/top-business-stories/toronto-among-cities-that-will-dominate-for-worlds-megarich-study-finds/article23304004/

#229 Godth on 03.05.15 at 11:45 am

None of the world’s top industries would be profitable if they paid for the natural capital they use
http://grist.org/business-technology/none-of-the-worlds-top-industries-would-be-profitable-if-they-paid-for-the-natural-capital-they-use/

Peak Meaninglessness
http://thearchdruidreport.blogspot.ca/2015/03/peak-meaninglessness.html

#230 Mark on 03.05.15 at 12:01 pm

“When a sales mix change is detrimental to average prices, real estate boards are the first to point it out.”

But they keep their mouths shut, suppress release of as much statistical data as possible, and shout “buy, buy, buy” when the sales mix exaggerates price changes upwards.

Curiously though, the Regina RE board had the scruples to come out last year and admit that prices had not risen (actually had fallen), but that the sales mix was responsible for the average sales price rising. Regina is interesting because, if you’ve ever (unfortunately) been there, you’ll notice that there is not a wide disparity in size of housing (ie: most units are SFH’s — condos and duplexes/triplexes are relatively few), nor is location that big of a deal due to the size of the city. So it became a matter of credibility for the Regina RE board, that they could not deny the truth of what was happening like we are seeing in the contemporary Vancouver/Toronto markets (or Calgary until quite recently as well).

It should be noted, additionally, that the sales mix can under-state price changes when prices are in rapid appreciation after a long-term bear market. So it does work both ways. Its not some sort of unilateral concept that housing bears use to just claim that prices are just going down.

#231 Ralph Cramdown on 03.05.15 at 12:07 pm

#222 Alberta is AWESOME — “Proudly rat free and commie free since 1905.”

But not idiot free, apparently. “[CNQ] said it was raising its dividend as the oil and natural gas producer ramped up production in the face of falling oil prices.” Classic misalignment of shareholder and management incentives. If you think oil is going back to $80, why not pump out the minimum to service your debt, cut the dividend to zero and wait?

P.S. Don’t forget to blame the Saudis.

#232 Stark raving mad on 03.05.15 at 12:09 pm

Prizes from the Kingdom to the truthers… the whole world is an inside job….

http://www.washingtonpost.com/blogs/worldviews/wp/2015/03/04/the-saudi-king-gave-a-prize-to-an-islamic-scholar-who-says-911-was-an-inside-job/?hpid=z5

#233 Sucks to be a tax farm slave on 03.05.15 at 12:12 pm

http://www.theglobeandmail.com/report-on-business/economy/job-quality-in-canada-sinks-to-all-time-low-cibc-index-shows/article23303996/

#234 Mister Obvious on 03.05.15 at 12:13 pm

#185 Nobody

“… Garth suggests that borrowing funds for investment is a decent way to make a return in today’s environment due to the current tax structure on borrowing for investment purposes.”
————————-

Garth also adds the caveat that borrowing to invest is a tricky business that should be handled with caution and certainly executed with professional help.

The more poignant message is that in today’s economic climate it is even possible to consider doing so, not that it’s a recommended path.

It’s only because interest rates are in the toilet and have been there for so long that we can realistically conceive of such actions having a positive outcome.

That’s not a testament to a healthy economy but rather an indictment of years of fiscal tomfoolery.

You could make a case that one who borrows to invest is doing more for the economy than one who borrows to help further inflate the housing bubble.

#235 FormerSaskie on 03.05.15 at 12:16 pm

Garth is carrying a mortgage into retirement a bad idea? Home meets rule of 90 and is in an area with few rentals.

#236 rosie "moving forward" in the knowledge that, "this won't end well" on 03.05.15 at 12:17 pm

One of the comments summed up the attitude. We’ve been warned for years and nothing has happened. A valid point.

http://news.nationalpost.com/2015/03/05/kelly-mcparland-canadians-dont-want-to-hear-about-debt-theyre-too-busy-spending/

#237 Eugene K on 03.05.15 at 12:26 pm

Hi Garth, been reading your blog for a few years now. I’m currently debt free and investing about $800/month in ETF’s. I currently have about $70k split between TFSA’s and RRSP. Live in Vancouver.

Can you please tell me a little bit more about the how the investment line of credit works? I’m really curious.

Thank you,
Eugene

#238 HD on 03.05.15 at 12:30 pm

@ #151 Former Fool on 03.04.15 at 11:46 pm

Allow me to offer my humble opinion on your portfolio if I may….

You are using too many funds. You can achieve a great balanced portfolio using only 5 ETFs. That’s it.

KISS (Keep It Simple Stupid)

You seem to like iShares so here is a good example:

http://www.canadianportfoliomanagerblog.com/wp-content/uploads/2015/01/CPM-Model-ETF-Portfolios-iShares-2014-12-31.pdf?850eac

Over the long run, your current portfolio won’t perform better than a ‘simple’ balanced portfolio but will cost you more to manage in terms of fee/time.

http://canadiancouchpotato.com/2015/01/09/couch-potato-portfolio-returns-for-2014/

Best,

HD

#239 Ralph Cramdown on 03.05.15 at 12:32 pm

#214 Leo Trollstoy — “So… What you’re saying is that the opinion is anecdotal and there’s no such trend in the real estate statistics that can be verified by any source.”

Actually, I linked to a data series that breaks down sales and prices for Detached/Semi/Townhouse/Condo/416/905 and goes back years, allowing you to verify for yourself. Would you really have been gullible enough to believe me if I’d just pointed you to a summary?

If you look at the archive below, you get monthly data for each property type broken down into much smaller regions going back 20 years. Get out your spreadsheet and have at it. If you find anything useful, feel free to report back.

http://www.torontorealestateboard.com/market_news/market_watch/index.htm

Or if that’s too much work for you, you could always emulate Anna Karenina, who found an easier way out.

#240 Holy Crap Wheres The Tylenol on 03.05.15 at 12:36 pm

#109 RayofLight on 03.04.15 at 10:19 pm

I do not believe this is a bottom. Oil storage capacity in the US is almost full, and the US oil industry is still producing about a million barrels extra per day. I believe the price of oil could capitulate into the $30s within months. If so, the $CDN will decline further. On top of this, the US economy currently seems to be out performing Canada in almost every matrix. Its productivity is higher and their longer term demographics are better. (thanks in part to higher immigration, legal or not). The lower price of oil is a tail wind to the US economy where as it’s a head wind to the Canadian economy. Mexico is now the chosen out -source supply chain manufacturer, and Ontario will be dehydrating on the vine, regardless of what the $CDN does. The Canadian Consumer is, or will be, overwhelmed with debt, in large part from over priced housing, and the US consumer is just hitting their stride. On top of this, the FED will most likely increase interest rates, and at best the BOC will have to fight not to. I still think a high sixties dollar is more probable than a high eighties dollar within a year. But then, differences of opinion a market doth makes.
____________________________________________
Told you all this about three weeks ago. Have a friend in the oil bus down in Houston. At that time three weeks ago he said the US storage capacity was at 7-8 weeks max. That’s it after that he said they may start filling tankers and float them. 4-5 weeks to go until boom!!!!!!
I told you all the only rational exit out of this crisis is to start another crisis. A war is coming!

#241 Holy Crap Wheres The Tylenol on 03.05.15 at 12:40 pm

#224 cramar on 03.05.15 at 11:42 am

#211 Leo Trollstoy on 03.05.15 at 11:00 am
We’ve seen what you get for a $1M in Van & TO. Compare to what you can get for the same in Leamington

What’s a Leamington?

————

The southern-most location in Canada. A great place to retire.
_____________________________________________

Love the wineries down there! Great climate considering it snows and all. Took my sailboat along the Lake Erie coast for three weeks one year, absolutely stunning scenery, people very nice.

#242 Flamed out in Kitchener on 03.05.15 at 12:41 pm

Simple really; try as you may, you just can’t fix stupid (also recently tried to get a co-worker to understand that his net worth does not include debt as a credit !! – gave up.)

Keep up the great work and effort in trying to get people to think logical (tough road).

Here’s some great pics you could use in future writings.

http://list25.com/women-live-longer-men-25-photos-shows/1/

#243 HD on 03.05.15 at 12:47 pm

@ #197 Ralph Cramdown on 03.05.15 at 9:27 am

Good form as always.

Best,

HD

#244 TurnerNation on 03.05.15 at 1:05 pm

BBD.b at $2.33 this morning was a steal.

#245 Ralph Cramdown on 03.05.15 at 1:09 pm

#232 FormerSaskie — “Garth is carrying a mortgage into retirement a bad idea?”

If you can’t prove to your own satisfaction why it’s a good idea in your own situation, it’s a bad idea. IMHO

#246 Victor V on 03.05.15 at 1:10 pm

https://ca.finance.yahoo.com/blogs/insight/this-wont-be-a-surprise-to-many-canadians-toiling-161720676.html

This won’t be a surprise to many Canadians toiling away at work right now, but the quality of Canadian jobs is at its lowest level in more than two decades, a new report from CIBC shows.

The bank’s latest Canadian Employment Quality Index, has fallen across measures including part-time versus full-time work, paid versus self-employment and compensation trends.

What’s more, CIBC says the Bank of Canada’s move to lower interest rates, in an attempt to spur economic growth and in turn job creation, won’t cure the problem.

“The Bank of Canada continues to warn us that the headline unemployment rate is not as rosy as perceived and, in fact, according to the Bank’s new and improved measure of labour market activity, labour slack is still significant,” CIBC deputy chief economist Benjamin Tal said in releasing the report on Thursday.

“In many ways, the Bank has a point. Our measure of employment quality is now at a record low — suggesting that the composition of employment is sub-optimal.”

CIBC’s forecast for improvement is grim.

#247 Alberta if FRACKED on 03.05.15 at 1:15 pm

It’s the sheeple’s fault.

http://news.nationalpost.com/2015/03/05/prentice-tells-alberta-to-look-in-the-mirror-for-the-reason-bloody-drastic-cuts-are-needed-in-the-province/

#248 nobleton bill on 03.05.15 at 1:20 pm

Kevin o’Leary on interest rates and renting.
http://www.bnn.ca/Video/player.aspx?vid=563506
Garth is on the money. Confirmed!

#249 Mark on 03.05.15 at 1:31 pm

“On top of this, the US economy currently seems to be out performing Canada in almost every matrix.”

Have to strongly disagree here. The only ‘outperformance’ is in the amount of rhetoric coming from US policy makers. Even the big GDP number we saw that was the justification for all of the rumours of an impeding Fed rate hike has been revised downwards.

” Its productivity is higher “

Again, disagree. The alleged “productivity” improvement in the US is largely on account of the mix of activities they’re involved in. FIRE tends to have high apparent productivity per employee, but we know that the FIRE industry is basically one of paper shuffling. All this alleged “productivity” over the years hasn’t really helped their fiscal position either. Very productive countries tend not to be mired in the sort of debt or declining real wages as seen in the contemporary United States.

” The lower price of oil is a tail wind to the US economy where as it’s a head wind to the Canadian economy.”

True, but it appears that the cause of poor oil prices is the poor US and global economy. So the moment that the US actually attains a meaningful benefit from the low oil prices, oil prices will probably start their upwards resumption. Additionally, growth in the US economy in the post-collapse era, at the margin has been mostly in its O&G industry. So low prices will truncate such growth as well.

Yes, its not great for Canada, but we have the ability to ride it out. A major long-term countercyclical sector in Canada, our precious metals mining sector, is now in the process of ramping up nicely to provide Canada with at least some semblance of extraction from the deflationary abyss that would otherwise be facing us.

#250 Broke Dick on 03.05.15 at 1:34 pm

#206 Ralph Cramdown on 03.05.15 at 10:24 am
#199 Leo Trollstoy — “Anybody have any source links on how ‘sales mix’ (whatever that’s supposed to mean) allegedly impacts price? Anybody?”

I’m a car dealership. In January, I sell two Hyundai Accents for $12,000 each, and one Cadillac for $40,000. In February, I sell one Accent at $11,500 and two Cadillacs at $39,000 each. Average sale price in January, $21,333. In February, $29,833.

Now be a good boy and go through
http://www.torontorealestateboard.com/MARKET_NEWS/release_market_updates/news.htm
and notice the same effect at play.
++++++++++++++++++++++++++++
Ralph would you not concede that the rise in price for properties in generally accounts for some of this sales mix. I don’t downplay that renovated properties and infills account for some of the increase in prices but couldn’t the simple fact that land value is increasing be a part of it too.

#251 bdy sktrn on 03.05.15 at 1:38 pm

Over a ten year period most of the wartime houses get bought, knocked down and new houses built at maximum lot coverage. The sales go from being mostly lot value to mostly redeveloped houses over the decade
———————–
in richmond, yes? some on the west side too.

new SFH are not being built in east van. +95%? of new builds are duplex or tri(with laneway). (pushes up attached but does not impact detached)

price trends have skyrocketed and the sales mix is exactly what it has been for the past 20 years – mostly tear downs and slanty old timers showing their age.

there are no new sfh to skew data as you suggest.

in east van it’s purely a dirt market. the supply shrinks with every teardown, and there are hundreds /month.
‘good ole’ dirt’ – unlike condos they are not making any more. (and who wants to move to maple ridge?)

#252 SWL1976 on 03.05.15 at 1:38 pm

#156 Spectacle

:: Nosty ::

You rock in your comment tonight. Great insight and saves me so much time researching, again.

There is hope we’re collectively putting together the pieces. And that provides a pleasant hope for the future.

Ps: thanks Garth, as always.

—————————————–

Second that

#253 AfterTheHouseSold on 03.05.15 at 1:39 pm

#195 TurnerNation
“Think of a house as another Obedience Certificate.

Glad handing and backslapping will abound from peers, family.
You can rut then, and knock up.
A lifetime of work ensues.”

Very haiku like of you. lol thanks!

#254 Frank le skank on 03.05.15 at 1:50 pm

#163 mid on 03.05.15 at 1:11 am
On another note. Friend of mine bought 800 ft condo in King West area of Toronto 10 years ago for 100k. Just sold this week for 350K. That’s also not so bad.
====================================

The average price for a condo in the west end ranged from 140-300K (April 2005) depending on what zone he bought in.

#255 Mark on 03.05.15 at 1:55 pm

“there are no new sfh to skew data as you suggest.”

Its not just new SFH, its also renovations to existing units. If you take a million dollar older house, put $800k worth of renovations into it, and sell that for $1.8M, such a transaction will show 80% price growth. Yet the vendor may very well have not realized a dime of ‘appreciation’ attributable to the housing market itself, and certainly the un-improved $1M house down the street doesn’t go up in value merely because the reno/flippers came to town. And its pretty hard to deny that there has been a vigorous culture of renovation and flipping in those higher-priced older areas.

#256 Victor V on 03.05.15 at 2:06 pm

http://business.financialpost.com/2015/03/05/torontos-million-dollar-homes-reveal-risks-of-bank-of-canadas-flirtation-with-lower-rates/

“Interest-sensitive spending remains strong, after the Bank threw another log on the fire in January,” Doug Porter, chief economist at Bank of Montreal, said in a note. Chances of another rate cut in April have diminished after the bank’s announcement today, Porter said.

Megan Greene, chief economist at Manulife Asset Management, said the Bank of Canada will still likely cut the overnight lending rate two more times this year. The moves will continue supporting household borrowing and a “frothy” Canadian housing market, she said.

“Even if it is a property bubble, not all bubbles burst, some just fizzle,” Boston-based Greene said at Bloomberg’s Toronto office Wednesday.

#257 Mark on 03.05.15 at 2:11 pm

“This won’t be a surprise to many Canadians toiling away at work right now, but the quality of Canadian jobs is at its lowest level in more than two decades, a new report from CIBC shows.”

Most university grads over the past 13 years or so could have told you that. In the 1990s, firms couldn’t hire enough grads and were actually treating the pool of grads professionally and with the view that they were the future of the economy and certainly of their companies.

Then along came the 2001-2002 crash. Interviews in progress were abruptly terminated as even the interviewers themselves were being fired. Hiring freezes were instituted across the board. Top grads couldn’t even get the proverbial “time of day” from firms who just a few years earlier, were looking to hire as many as they could. Many grads from the era still haven’t recovered and still aren’t employed, even a decade later, as there was no meaningful recovery outside of the narrow FIRE and O&G sectors.

Practically an entire industry disappeared from Ontario, the high tech sector. A sector that, in the 1990s, a sector that created enough wealth and exports for Canada that the country was literally saved from defaulting on its foreign obligations. Now we’ve turned the former Nortel campus into a branch office of the DND, and the Nortel Calgary factory into a mere police station. Among other travesties.

#258 liquidincalgary on 03.05.15 at 2:12 pm

BTW, the oncologists have less than 5% chances of success for 5 year period after administering toxic chemotherapy and radiation to a patient and people still visit them for cancer “treatment”.

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

i have what is known as a ‘recurring glioma’ (low grade tumor). two surgeries, six years apart, and after the second, began radiation/chemo treatments. now continuing with just chemo. doctors have now said i may never need surgery again.

#259 Ponzif on 03.05.15 at 2:12 pm

Cramdown is just warming up.

#260 Ralph Cramdown on 03.05.15 at 2:14 pm

#247 Broke Dick — “Ralph would you not concede that the rise in price for properties in generally accounts for some of this sales mix. I don’t downplay that renovated properties and infills account for some of the increase in prices but couldn’t the simple fact that land value is increasing be a part of it too.”

What’s land value?

Out where crops are still grown on it, it’s the capitalized value of the rents you can charge to the farmer, which relates to the value of the crop that can be grown on it annually.

In the city, it is what a developer will pay. Which means it’s the market value of the biggest and best house that can be built on it, minus the cost to build and the developer’s profit margin and the cost to demolish and remove the current structure. So there’s no intrinsic land value that isn’t linked to the price of the end product.

#261 Ponzif on 03.05.15 at 2:19 pm

#248
who wants to move to Maple Ridge?
———–
That’s what they said about Surrey.
Now South Surrey (Sullivan Heights) is getting quite popular.

#262 just saying on 03.05.15 at 2:22 pm

Too Late – perhaps but want to be heard:
“There is no guarantee you will earn 8%+ on your investments this year but you are guaranteed an after tax return of 3%+ by paying down your mortgage. — Blog comment

Yikes. Where do they learn such things? Brad Lamb U?”

Nope – University of hark Knocks – investment when the big brother is printing paper-money like there is no tomorrow will lead to a Rude awakening – Sooner than the RE tumble this Blog has been predicting for last 10 years – signed: Definitely not a realtor (but a real estate investor)

#263 Mike in Toronto on 03.05.15 at 2:24 pm

#241 TurnerNation

Is it a ponzi scheme if they pay dividends using money from their most recent offering?

I couldn’t help but to pick up some BBD lottery tickets. the nepotism’s been shaken up and Quebec won’t let Ottawa let them fail.

Good entertainment value.

#264 haha on 03.05.15 at 2:26 pm

the sad thing is that when it all explodes, those who are not indebted will be the ones bailing out these f–kers who of course, do not have a clue as to what they have done to themselves and our economy….the new ‘canadian’ standard…

#265 Blacksheep on 03.05.15 at 2:44 pm

rentin # 165,

3 guys lunch @ $9 each = $27 +$2 tip = $29.
—————————————————
Nobody’s giving poor rentin, any love?

The 3 dude’s lunch cost them (sans tip) $ 8.33 each.

#266 Mister Obvious on 03.05.15 at 2:44 pm

#163 mid

“Friend of mine bought 800 ft condo in King West area of Toronto 10 years ago for 100k. Just sold this week for 350K. That’s also not so bad.”
——————————–

In January, 2000 I exercised a large number of employee share options I’d held for 4 years. They had an exercise price of $15. These I resold at the current fair market value of $55. I profited perhaps $100K. Taxable as capital gain, of course. But still, not bad.

A few months later the tech boom began its infamous collapse. Within a year those shares were back to their original exercise price.

The morale: When risk rises all around you, act accordingly.

#267 Blacksheep on 03.05.15 at 2:46 pm

Good info Nosty.

#268 Former Fool on 03.05.15 at 2:49 pm

@ #235 HD on 03.05.15 at 12:30 pm

Thanks HD! Good tip, I didn’t think that I had too many ETFs. The advice that I got from a CFA friend was more or less consistent with Garth’s, but he added that I should be look to build a portfolio that essentially models the world economy, so that led me into a few more ETFs than I would have liked. Probably will hold onto my mix for the time being and sell out of some in a year when I rebalance and recontribute.

Cheers blog dogs!

#269 CalgaryRocks on 03.05.15 at 3:04 pm

#258 Ponzif on 03.05.15 at 2:19 pm
#248
who wants to move to Maple Ridge?
———–
That’s what they said about Surrey.
Now South Surrey (Sullivan Heights) is getting quite popular.

For our first NY rental adventure our ‘agent’ took us to show us some prime Brooklyn rental for only 2400/month. The kind of building that they drag bodies out of on Law & Order.

He said not to worry if we see any drug deals or if someone gets shot. ‘They’ usually keep to themselves. LOL.

I could already see myself walking my dog at night interrupting drug deals because my dog chooses to pee right at that corner, at that moment, or worse, dodging stray bullets from deals gone bad.

My wife says I should have remained polite with the guy. It seems he hasn’t called back since that day. Oh well.

#270 4 AM Sunrise on 03.05.15 at 3:30 pm

#201 Brandon on 03.05.15 at 10:09 am

I went to an Investors Group seminar about estate planning (mmmm….sandwiches…and the novelty of being the only “kid” in the room) where they laid out a strategy involving a hypothetical wrinklie, a HELOC, a sizeable investment portfolio, and an aversion to taxes of all kinds. It was pretty convoluted, but they crunched the numbers to show us that the wrinklie can save on taxes now and reduce taxes upon death. Which is fine, except that this example is 100% hypothetical and makes no provisions for Murphy’s Law.

#271 ToughNuggies on 03.05.15 at 3:45 pm

Not related to this post, but interesting anyway – http://www.msn.com/en-ca/money/topstories/leave-the-tfsa-alone-retirement-expert/ar-BBieHvV

Care to comment?

TN

#272 Broke Dick on 03.05.15 at 3:49 pm

#257 Ralph Cramdown on 03.05.15 at 2:14 pm
In the city, it is what a developer will pay. Which means it’s the market value of the biggest and best house that can be built on it, minus the cost to build and the developer’s profit margin and the cost to demolish and remove the current structure. So there’s no intrinsic land value that isn’t linked to the price of the end product.
+++++++++++++++++++++++++++++++
Certainly you are not suggesting that the only factor changing YoY prices for houses in Toronto is a change in sales mix?

#273 Mark on 03.05.15 at 3:49 pm

“I went to an Investors Group seminar about estate planning (mmmm….sandwiches…and the novelty of being the only “kid” in the room) where they laid out a strategy involving a hypothetical wrinklie, a HELOC, a sizeable investment portfolio, and an aversion to taxes of all kinds.”

The unfortunate thing about leverage is that if you need an Investors Group representative to ‘sell’ it to you (and presumably sell mutual funds as well to you), there’s almost certain to be very serious suitability issues. That’s why licensed financial advisors using that particular business model are well “advised” to stay away from advocating leverage unless they don’t value their careers for the long term.

Now, if someone sits down with a professional CA who also has a CFA designation (or at least a good handle around long-term investing), is properly educated on the merits and the risks, and implements leverage conservatively, then there’s probably not a huge issue there. But unfortunately way too many people view it as an all-in proposition (its not!), go overboard and give the whole idea of leveraging (or the “Smith Manouevre” as it is often termed when home equity is involved) a really bad name.

#274 Iconoclast on 03.05.15 at 3:53 pm

Re: #180 Pouchki

> http://ca.reuters.com/article/businessNews/idCAKBN0M01LR20150304
> Censored, why?

Poloz did the right thing with the last rate cut, and was right to leave well enough alone this time.

But there are two levers to the real estate machine; interest rates
& CMHC. The rate cut should have been accompanied by a downward
adjustment to CMHC limits, or at least jawboning to that effect.

I’d bet your link indicates this is coming.

#275 Trading Naked on 03.05.15 at 3:56 pm

#254 Mark on 03.05.15 at 2:11 pm

As a member of the class of 2002, I can confirm that this was exactly my experience. When I graduated, I heard rumours that university degrees – especially in the wrong major – were starting their long-term decline in value (lucky us!). And it’s true, a university graduate in the 1990’s in most majors could go into an office building downtown and walk face-first into an entry-level job. Some of my peers in 2002 did get these coveted jobs, and even some mid-level jobs, but they hustled HARD. As for me, during the next 10 years following graduation, I ran into some life events that caused me to bounce around minimum-wage jobs before finally stumbling upwards into my first full-time(!) entry-level clerical position in 2010…only to be downsized shortly after. Today, I’m one of those dirty daytraders Garth always warns you about. It pays me more than any job my pitiful resume (no trades training whatsoever) can get me here in Vancouver. “Job quality” indeed.

#276 World Traveller on 03.05.15 at 4:05 pm

Shouldn’t this headline have gone with yesterdays photo

#277 Maurice on 03.05.15 at 4:18 pm

#202 Ralph Cramdown:

I am more interested in the general system, how it is deeply flawed.

0. big companies are financed by loans and owners (equity)

1. time goes by,…if they do well they grow with the general economy, opportunities for investment show up, and they need more capital. They either use their cash flow, borrow more or bring in additional new equity (owners) to raise cash.

2. most companies don´t want to borrow too much, and especially want to avoid to bring new additional owners to keep high profits for the few. if cash flow is not plentiful (because exec pay is excessive), where do they get the money from?

3. meanwhile, every investor wants to buy coca cola stock or apple stock or chevron or google, and their money does not go to these companies. it goes to someone that just hands in a title. any capital gains go to the title holder. this title holder can then waste her money, put it under the pillow or something. no productive investment. or they can buy some other title or real estate, a piece of land. no real investment. just speculation. it pays when volatility is high, you don´t have to wait long to buy low, sell high, if you are diversified.

4. there should be a mechanism to force companies to add equity at the rate of their market share growth or some other index in the markets where they operate. Public companies should be public, not run for the benefit of minorities. Where is democracy when it comes to the economy? why do we only ask for democracy in government, why not everywhere else too?

5. the main social contract in capitalism is that the owner takes the risk, but is entitled to reward. you cannot have one without the other, otherwise, the system is broken.

We have seen how the cash balance in many companies from 2008 is high, with dividends not distributed to shareholders, and under investment. we have seen that no one has looked for what really matters, real investment in the real economy. Wealth is created by real work, not speculators and certainly talk and words are cheap.

#278 Katieface on 03.05.15 at 4:19 pm

In November 2014:

Although the recent 25-per-cent dip in oil prices has made some developers nervous about proceeding with their projects, Lamb says he’s as bullish as ever about Alberta’s two big cities.

Lamb: “My opinion on oil is, this is a short-term blip on a much higher road and a much higher level of prosperity in Alberta,” he says. “If anyone thinks oil prices are going to drop to the price of finding the oil, they’re crazy.”

http://www.edmontonjournal.com/Lamphier+Condo+King+bullish+Alberta+cities/10363650/story.html

#279 Debt pigs to the end on 03.05.15 at 4:30 pm

Farck people.. give it a rest

http://www.theglobeandmail.com/report-on-business/economy/canadian-household-debt-growth-is-accelerating-says-rbc/article23311852/

#280 jess on 03.05.15 at 4:43 pm

226 Godth on 03.05.15 at 11:45 am

peak- when one has to wear a mask to breathe

“live under a dome ”
had been played more than 20 million times on Youku, a popular video-sharing site
Chinese middle class is losing its patience with the development-at-all-costs philosophy of its leaders.

========
05
Mar 15
Intuit Failed at ‘Know Your Customer’ Basics
http://krebsonsecurity.com/2015/03/intuit-failed-at-know-your-customer-basics/#more-30144

#281 Mark on 03.05.15 at 4:43 pm

“In the city, it is what a developer will pay. Which means it’s the market value of the biggest and best house that can be built on it, minus the cost to build and the developer’s profit margin and the cost to demolish and remove the current structure. So there’s no intrinsic land value that isn’t linked to the price of the end product.”

I agree with your logic, but with one minor exception. Not all houses in the marketplace can be the “biggest and best houses” possible. The population will always have varied needs, so land value should trend to being based on the average price, not the incremental price.

In a mania, people might be willing to pay an incremental price. But such probably will end in poor returns for the buyer as the mania eventually dissipates.

#282 Josh in Calgary on 03.05.15 at 4:45 pm

#151 Former Fool on 03.04.15 at 11:46 pm,

First of all it looks like you’ve done a great job of getting a balanced portfolio going. There were a few in there that I hadn’t seen before, but they look like good ones.

The one nit pick that I would have is on the tax structuring side of things. In general you would expect equities to gain more over the long run so you would want these in your TFSA and a non-registered account (if you run out of room in your TFSA) so you are not taxed on the gains.

On the flip side you will be taxed at 100% when you withdraw equities from your RRSP, so you are sacrificing the 50% captial gains credit by keeping equities in your RRSP.

Of course taxation is always unique to the individual so consult a professional, but I like to keep my fixed income assets in the RRSP and the growth / dividend assets in the TFSA and non-registered account.

#283 jess on 03.05.15 at 5:00 pm

how bout those upper level pres. that lack discipline

Son of Former Korean President Obtained Secret Offshore Company Amid Family’s Tax Evasion Scandal

… ‘Offshore Leaks’ records show oldest son of South Korea’s former president Chun Doo-hwan had British Virgin Islands company. The eldest son of South Korea’s former President Chun Doo-hwan obtained an offshore company in the …
…”
By Yoojung Lee
June 4, 2013, 4:30 pm

The eldest son of South Korea’s former President Chun Doo-hwan obtained an offshore company in the Caribbean in 2004 amid a tax evasion probe into his younger brother’s alleged involvement with their father’s bribery-fed slush fund.
kporteous – Jan 2 2014 – 12:23pm
http://www.icij.org/search/node/korea

=
convicted in Korea in 1997 the former president was ordered to repay 220 billion won of the ill-gotten gains he was found to have amassed while in office. He has paid only a quarter of the total. He still owes 167.2 billion won in outstanding fines

http://www.fbi.gov/losangeles/press-releases/2015/united-states-assists-korean-authorities-in-recovering-over-28.7-million-in-corruption-proceeds-of-former-president-of-the-republic-of-korea

“The U.S. will not idly standby and serve as a money laundering haven for foreign officials to hide corrupt activities,” said Assistant Director in Charge David Bowdich. “The FBI will continue to collaborate with our foreign partners by leveraging its resources in order to identify those engaged in foreign corruption and to recover their ill-gotten gains.”

According to court documents, President Chun was convicted in Korea in 1997 of receiving more than $200 million in bribes from Korean businesses and companies. President Chun and his relatives laundered some of these corruption proceeds through a web of nominees, trusts and shell companies in both Korea and the United States.

#284 Holy Crap Wheres The Tylenol on 03.05.15 at 5:08 pm

#71 Nosty, etc. on 03.04.15 at 8:51 pm

#2 Godth on 03.04.15 at 7:02 pm — Good line. A couple more here and here.

For Linda and others, who can’t see the forest for the trees — this. Govts. routinely use false flags on their citizens, mainly to scare the hell out of them.
_____________________________________________
Lets not forget Red Herrings (Ignoratio elenchi)
or a Failure to Elucidate (Obscurum per Obscurius)

#285 Checking arithmetic on 03.05.15 at 5:11 pm

quote:
[Investment loan] prime which is 2.85%, with [payments] of $712 a month. [I]nterest is deductible from income for tax purposes. So if you’re paying 35% tax, … you’d get $250 of that back. That makes the actual loan cost a little over $460 a month. If your investments rise 7%, you’ve earned $21,000 in a year and the cost was a deductible $8,550.
————–
The cost is only $5,520 after you get the income tax refund of $3000.

I’ve paid off my mortgage regularly, scared of the scenario where mortgage rates (or home secure LOC rates) exceed investment income and I lose my job for a year. Then I have to get rid of all my crap and rent. I like puttering around with my crap…

#286 Singarti on 03.05.15 at 5:15 pm

I’m a sucker for a logic problem and it looked lonely waiting to be solved. So here goes. The cashier was paid $25 out of the $30. The waiter got $5 back. He returned $3 and was tipped $2. The 3 friends paid $25 to the cashier and $2 to the waiter. $25+$2=$27=3x$9. Fun stuff. Thank you rentin.

#287 Shawn Allen channeling Ben Franklin on 03.05.15 at 5:38 pm

Repeat After Me:

A penny saved (of non-deductible mortgage interest) is a penny earned.

Ben Franklin

#288 export $ on 03.05.15 at 5:44 pm

#207 Spock on 03.05.15 at 10:28 am
This is what the BOC is really worried about. Not a housing bubble
or a falling Loonie.
http://www.cnbc.com/id/102479916

————-
The comments and the arrogance of Americans was refreshing. I foresee $$$ on ebay for creative bill traders…
” TFDHarley
4 hours ago
That is fantastic. I have some PM Maple Leafs, now I MUST have one of those.”

One defaced CAD 5 = 10 USD in ‘memorabilia’

#289 chapter 9 on 03.05.15 at 5:46 pm

Premier Prentice, I did what you asked and looked in the mirror and for the life of me I can’t remember what I did with the money, Honest! I can see why people are pissed, overspent by $49 billion in the last ten years. Oops, must be amnesia, sorry!!!

#290 Mike S on 03.05.15 at 5:47 pm

Wanted to leave this link here:

http://www.canadavisa.com/canada-immigration-discussion-board/please-help-non-resident-selling-t272459.0.html

Some time ago I mentioned that there is no need to cut the official number of immigrants (actually raised to 280K from 250K) to reduce the numbers of newcommers. This is just one example

Besides that in GTA I see a very worrisome trend of newcomers, which are just a few months in Canada “brainwashed” (sorry have no better word) by locals/RE agents to “buy now or newer” meme and going to the far reaches of GTA to buy whatever is still “affordable”

Don’t want to generalize, as not everybody are that way. But as a society we lost our way, and it will end badly

#291 Kenchie on 03.05.15 at 5:53 pm

Swine in China

“In response the party established the world’s first pork reserve, some of it in frozen form and some the live, snorting variety. This aims to keep pork affordable and reasonably priced: when pigs become too expensive, the government releases some of its stock onto the market; if they become too cheap, the reserve buys more porkers to keep farmers in profit. Other pro-pork policies include grants, tax incentives, cheap loans for farms and free animal immunisation—all intended to boost intensive pig farming and to keep plates loaded high with Chinese pork. According to Chatham House, a London-based think-tank, the Chinese government subsidised pork production by $22 billion in 2012. That is roughly $47 per pig.”

http://www.economist.com/news/christmas-specials/21636507-chinas-insatiable-appetite-pork-symbol-countrys-rise-it-also

#292 Mark on 03.05.15 at 6:00 pm

“Canadian Household debt accelerating

Farck people.. give it a rest”

Perfectly reasonable, as debtors can no longer earn enough to even make payments against the principal of their loans. This pretty much guarantees that risk premia is going to rise considerably in the next couple of years triggering even stronger deflation.

#293 Bald Lamb Chops on 03.05.15 at 6:03 pm

I wonder what the ladies of the evening of this … errr neighborhood Victoria park… think of the apples that inspire his BS!

http://www.theorchardcalgary.com/the-apples

#294 Bald Lamb Chops - Redux on 03.05.15 at 6:11 pm

66-tree sustainable apple orchard.. what an environment steward of the land.. he’s an angel

The stampeders and Johns of the area will scarf those apples mighty fast.. How do you like them apples?

1/4 million for a concrete box in the sky… what a slimeball

http://www.calgaryherald.com/homes/Apple+trees+complement+storey+downtown+residential+towers/10059903/story.html

#295 kilby on 03.05.15 at 6:12 pm

And after gas prices fell by half. Yet people are dipping into their savings.

Gas prices here fell from around $1.40 per litre to about $1.20 per.Not much affect on lifestyles out west……

#296 Mark on 03.05.15 at 6:13 pm

“Besides that in GTA I see a very worrisome trend of newcomers, which are just a few months in Canada “brainwashed” (sorry have no better word) by locals/RE agents to “buy now or newer” meme and going to the far reaches of GTA to buy whatever is still “affordable””

I was at an engineering conference in Toronto approximately 3 years ago and actually met with a couple of recent immigrant engineering students from Iran. The topic of discussion invariably turned to real estate, and one guy, a 4th year engineering student, with practically no assets, proudly told me he “made” $20k by co-signing a mortgage loan for a recent immigrant family in his ethnic community on the strength of his internship income the year prior.

I’ve heard other stories of immigrants being thus exploited by RE agents. Often within their own ethnic communities, where trust can be just as big of a selling point as the raw numbers involved in a transaction. Such a pity because these new Canadians, if they decide to stick with being Canadians over the long term, may be stuck with the brunt of the long-term consequences of buying RE at extremely elevated prices. And the impact on Canada’s reputation might be significantly negative.

#297 Fed-up on 03.05.15 at 6:30 pm

“now continuing with just chemo. doctors have now said i may never need surgery again.”

——————————————————————————-

Just chemo? The medicinal equivalent to Roto Rooter shot through your veins and vital organs? Chemo has failed millions upon millions of people. For the very few that it has “worked” for, it leaves devastation in its wake.

I pray that is successful for you and that you live a long and healthy life, from my heart.

#298 Vanecdotal on 03.05.15 at 6:32 pm

#160 FleetwoodBoy

+1

Agreed. Am also watching Surrey / Langley markets closely. Price gains have slowed substantially in most areas in last 5 years vs. preceding 5 year period. Am seeing outright market-wide declines both before AND after adjusting for inflation in many areas/housing categories now as well. You have been wise to wait, and invest your money elsewhere for better returns.

#299 palebird on 03.05.15 at 6:36 pm

#246 Mark,

Said it before, do not listen to the nonsense this guy spouts. Do you have any idea what would happen to the price of oil if Iran comes back on the market? Obama seems to think that they are not such bad guys. Complete game changer..that is but one simple example. Precious metals mining sector??? I live in the middle of it and it is dumping badly..what the hell are you talking about?

#300 Bald Lamb Stew on 03.05.15 at 6:44 pm

http://www.edmontonjournal.com/Lamphier+Condo+King+bullish+Alberta+cities/10363650/story.html

“There’s another factor at play that makes Lamb bullish on Alberta’s two big cities. Cities like Vancouver and Toronto have attracted a wave of wealthy foreign buyers who are looking for safe havens — sometimes called “hedge cities” — where they can stash their cash.

“In Toronto it’s Iranians, Pakistanis, Indians, a lot of Chinese, Russians, and a lot of Middle Eastern countries. A lot of Africans are buying in Toronto too, Nigerians and so on. Any place that’s a conflict zone.”

Now, Lamb figures the same trend is set to play out in Alberta’s big cities.”

#301 Leo Trollstoy on 03.05.15 at 6:49 pm

Or if that’s too much work for you, you could always emulate Anna Karenina, who found an easier way out.

No worries. There’s nothing to be found to support Mark’s GTA sales mix price decline opinion otherwise he would have clearly shown it with such readily available data.

You can’t show what doesn’t exist.

#302 Leo Trollstoy on 03.05.15 at 6:51 pm

Besides… It’s up to the individual who makes the claim to prove it. Not the other way around. That’s how it works. Just letting you know. ;)

#303 Blaine McGovern on 03.05.15 at 6:54 pm

Some people on here are disappointed with ZPR, the key is that if it goes down its on sale to buy more! If it went up then it costs MORE to add MORE, so there is always an upside to downside and downside to upside. Plus, it’s only a component of the portfolio. Not the ENTIRE portfolio!

#304 Mark on 03.05.15 at 7:16 pm

Cities like Vancouver and Toronto have attracted a wave of wealthy foreign buyers who are looking for safe havens — sometimes called “hedge cities” — where they can stash their cash.

Geez, and I thought the only well known fat guy in Toronto who smoked the crack cocaine was a certain former Mayor. Guess I’m wrong.

#305 crowdedelevatorfartz on 03.05.15 at 7:48 pm

@#222 Alberta is Awesome
“Proudly rat free and commie free since 1905….”
++++++++++++++++++++++++++++++++++

Have you looked in your Provincial Legislature lately?

#306 Alberta is AWESOME on 03.05.15 at 8:11 pm

@#222 Alberta is Awesome
“Proudly rat free and commie free since 1905….”
++++++++++++++++++++++++++++++++++

Have you looked in your Provincial Legislature lately?

————————————————

Indeed, indeed, bit of a bugger that…. First the REDFrauds…
and now apparently it’s all the peoples fault that 50 billion got pissed away

Well it’s still AWESOME.. we got cowboys and blue skies.

#307 Darryl on 03.05.15 at 8:28 pm

#211 Leo Trollstoy on 03.05.15 at 11:00 am
We’ve seen what you get for a $1M in Van & TO. Compare to what you can get for the same in Leamington

What’s a Leamington?

————

The southern-most location in Canada. A great place to retire.

Pelee Island which is below Leamington is the most southern actually.

#308 bassrage on 03.05.15 at 9:25 pm

“They could care less” is not the expression. It’s the butchered, illogical, misuse of the expression. You ought to know better, Garth.

I do. — Garth

#309 mid on 03.06.15 at 12:49 am

#252Frank
The average price for a condo in the west end ranged from 140-300K (April 2005) depending on what zone he bought in.
==========================

Thanks Frank. Could of been price was 140-ish. And mortgage amt was 100K. Know it was fairly cheap and off-plan at the time.