Subprimal

BIKER modified

Last April the realtors’ cartel in Toronto reported that the average detached house in 416, the best place in the galaxy, ever, hit $1,012,172. This happened on the back of the latest mortgage wars, punctuated by the first 1.99% home loan offered in Canada.

After that, prices fell. In fact, they dipped about 12%, perfectly understandable in a city where average incomes remain stagnant and citizens have become nicely pickled in world-class debt. This changed in January, when the Bank of Canada panicked over oil and dropped its key rate a quarter point. Mortgages didn’t change much, but that’s not what people thought.

So this week the cartel announced the average 416 house had regained the level of almost a year ago, to $1,040,018. It issued a media release claiming this constituted “an increase of 8.9%”. The Globe and Mail, easily duped, reported that for the first time ever, “houses in Toronto cost $1 million.” The Financial Post said, “Housing sales across the Greater Toronto Area climbed 11.3% in February from a year ago, helping to push the average sale price of detached homes in the city past the $1 million mark for the first time.” The TV anchorettes piled on, and this week viewers were breathlessly marched through beater houses with slanty walls and pink toilets, told that they are all now worth seven figures.

Meanwhile most families still make about $72,000.

It’s hard to know who to be the most disappointed with. The real estate board for its duplicitous Frankenumbers, including its misleading annual gain stat. Or the big-city reporters who have the investigative talents of foot stools.

In any case, it’s more evidence of a perfect negative correlation between house prices and interest rates. When the cost of money falls, people borrow more and real estate goes up. Without 2.6% five-year mortgages, houses in 416 would not cost $1 million. In any case, this is not what the reporters told us. Instead the news was of a milestone, the start of a new era in property insanity, so you’d better buy now. In reality, it’s the end of a cycle – a perfect head-and-shoulders formation as the million-dollar mark is tested yet again, and will inevitably decline in a similar fashion. This time the chart is rife with danger.

Huh?

Well, first, houses costing a mill don’t qualify for CMHC insurance. That requires a buyer to cough up a 20% downpayment in order to deal with a major lender. It also means the government will no longer insure financing on the average home, which is interesting. So on a property changing hands for $1.04 million, the down is $208,000. Land transfer tax in Toronto adds $33,800, so with normal closing costs, the buyer needs about $245,000 in real money, plus a mortgage of about $810,000. (Renovating comes extra.)

Most buyers don’t have $245,000, of course. So as prices creep above the level of CMHC insurable-mortgaging, many are being driven into the subprime market. If that sounds scary, good. It is.

Without CMHC backing, loans cost more since the lender is shouldering all the risk. If you don’t have the 20%, you must borrow enough elsewhere to make up the difference, in order to qualify for a decent rate. That’s called a second mortgage, and you’re lucky if you find one today for less than 12%. Of course, this is typically for a smaller amount of money (maybe a hundred grand), while the main (or ‘first’) mortgage can be had to today’s current cost.

Subprime lenders are typically not regulated by the federal government, charge rates determined by competition, not the Bank of Canada, and can decide capriciously not to renew your borrowing when the term expires. The subprime lending market is estimated to have grown by a quarter over the past year.

You read that right. The 12-month growth in Canadian subprime lending is 25%, and while it amounts to less than 3% of outstanding mortgages, expect that to change. Benny Tal, big economist at CIBC, was saying this week that the million-dollar CMHC cutoff limit is leading to a surge in subprime lenders entering the market which, of course, is what happened in the US prior to the crash there. Tal also says he sees more and more families forced to borrow downpayments to buy million-dollar-plus homes, because (a) they don’t have the money and (b) that’s what houses cost.

Weird stuff for an economist to utter. But it gets worse. The banker openly wonders why the feds brought in the rule three years ago removing million-dollar properties from the public insurance gig.

“It’s a legitimate question. Why was $1 million chosen anyway?,” says Benny. “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.”

F modified  Did you hear that noise? F just rolled.

264 comments ↓

#1 zedgt87 on 03.05.15 at 7:20 pm

FIRST

Everything is Awesome!!

#2 mitzerboy aka queencity kid on 03.05.15 at 7:26 pm

poro jimmie ….rip

#3 Yogi Bear on 03.05.15 at 7:27 pm

Someone with more motivation than my pot-smoking, Doritos eating, slacker self should totally start a movement to return CMHC to its original mission – helping lower income folks (including the flood of demobilized soldiers) get into affordable homes.

#4 TRT on 03.05.15 at 7:29 pm

If everything crashes, let the public take care of it.

Privatize profits.

If you’re young, buy the bubbles.

#5 CPG on 03.05.15 at 7:31 pm

QE Inventor: It’s EASY to Create a Full-Blown Recovery, But Central Banks Chose to Make Banksters Rich Instead …

http://www.zerohedge.com/news/2015-03-05/qe-inventor-it%E2%80%99s-easy-create-full-blown-recovery-central-banks-chose-make-banksters-

#6 ultro on 03.05.15 at 7:32 pm

That’s is the reason why I sold my house and now renting other house. Bought condo with cash and now making profits ..I even outsourced my tenants and problems usinghttp://www.delrentals.com and soon I will be able to stay more on sunny beach during cold in Canada. Thanks for this great blog.. I learned a lot from you!

#7 mark on 03.05.15 at 7:33 pm

Borrowing your downpayment – you’re richer than you think!

#8 Catalyst on 03.05.15 at 7:34 pm

Why was $1 Million chosen indeed. The number should be $400,000. To me, if you need government backed insurance to afford a half mil, or worse, a million dollar house, then you haven’t saved enough. It’s shocking and scary that Benny along with a multitude of realtor and banking lobbiests will be in there lobbying for $1.5MM CMHC limit so ‘regular’ people can afford an average home.

@ #189 Maurice (from yesterday’s posting)
RE: “where does the money really go to when the general public buys stocks”
I’m not sure if someone already answered your question Maurice, but I can offer some input here. If you buy a share of AAPL for $100 you are not giving Apple $100, you are purchasing the equity stake (the share) from another individual/institution. If that price is higher or lower than that person purchased the share for, it is not for Apples gain or loss but rather the equity owner’s capital gain or loss. I think you are confusing purchasing shares to “raising capital” which is when Apple will issue net NEW shares which will dilute the value of other shares which is determined by the board of directors. Conversely, Apple and many other major companies do the opposite and buy back existing shares at the market price because they believe the price (of future cash flows ie. The valuation of the business) is below the true value of the company.
If you are interested in understanding how companies raise capital through stock markets, read up on Bombardier. They recently (in the last month or so) suspended trading of their stock (it was available for purchase for something like $2.50/share. The company announced they were going to raise an additional billion or so (don’t hold me to the number, I’m just going from memory) at $2.25 a share. This type of purchase would net Bombardier new capital to invest in R&D or capital expenditures.

#9 crowdedelevatorfartz on 03.05.15 at 7:35 pm

canadian subprime mortgages…….will we ever learn…..

#10 Mark on 03.05.15 at 7:39 pm

This fall, the political candidates will be at the doors begging for your vote. Ask them if they are committed to gradually phasing the CMHC’s operations in the mortgage marketplace out. And vote accordingly.

#11 GsAmazon on 03.05.15 at 7:39 pm

I miss the elfin deity. The pursed lips of disapproval…;)

#12 Rome on 03.05.15 at 7:42 pm

Crazy Crazy world- and to think- people still believe all those digital ones and zero’s sloshing around represent something valuable. Black Swan events coming. One in April and the big one end of Sept. Shouldn’t be warning people at this stage in the game- I a humanitarian.
ONE of the good guys-
http://seekingalpha.com/instablog/29482055-gregory-mannarino/3797546-the-global-economy-is-headed-for-an-epic-crash-and-it-cannot-be-stopped

#13 Happy Renting on 03.05.15 at 7:43 pm

Wow, if you have to borrow at 12%, you REALLY can’t afford that house!

Re: head and shoulders formation – are we on the second shoulder or the head, at the moment?

#14 Lillooet, BC on 03.05.15 at 7:44 pm

The solution to the Toronto housing crunch: just build 200,000 new condo units a year for the next 25 years.

Not even -40 C windchills for a month will deter the Toronto home buyer.

By the way Garth, just for kicks, can you talk about real estate other than the GTA, Vancity and Cowtown?

#15 Millenial-falcon on 03.05.15 at 7:44 pm

Ya don’t need cmhc in van when your paying cash and houses are a bargain for you!

#16 Alan Brewski on 03.05.15 at 7:44 pm

It is goddamn well time that legislation got passed that provided for the creation and maintenance of an easily-accessible database of real estate sales and price data so that people can make informed decisions about real estate purchases and sales. Just like we have with stocks.

Is anybody championing something like this? Anyone?

#17 thirtysomethingsense on 03.05.15 at 7:44 pm

I was listening to a popular talk radio station yesterday. One of their guests on the show is from a mortgage broker company who advertises with them (and I’m many other places).

This guest’s feedback was that with home prices now averaging 1 mil, a typical family would need a househhold income of 100K to carry the mortgage on that house for a typical purchase.

That’s insane. The law really needs to change so that people can go to jail for saying things like that.

#18 WpgMB on 03.05.15 at 7:45 pm

You should write about ‘Peg city again one of these days. Last post was on 13/06/2012 … it’s been a while!

#19 joe on 03.05.15 at 7:45 pm

“CMHC is to make housing affordable for young people.”

Hahahahahahahahahah!!!!!!!

#20 Calgary Real Estate Update on 03.05.15 at 7:46 pm

Alberta’s economy has a history of boom-bust cycles. The same can be said about Calgary’s housing market.

It seems apparent that house prices in Calgary have once again peaked and reversed to begin the inevitable bust portion of the current real estate cycle.

Let’s take a closer look at Calgary’s most recent housing bust (September 2007 to June 2009).

. . . . . . . . . . . . .Calgary House Prices. . . . . . . . . . . .
. . . . . . . . . (September 2007 to June 2009). . . . . . . . .
. . . . .(Percent Below September 2007 Price Level). . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . 0%. . . *. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 0.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 1.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 1.5% . . . . . *. . . . . . . . . . . . . . . . . . . . . . . . . . .
– 2.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 2.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 3.0% . . . . . . . . . . . . . . *. . . . . . . . . . . . . . . . . . .
– 3.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 4.0%. . . . . . . . . *. . . . . . . . . . . . . . . . . . . . . . . .
– 4.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 5.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 5.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 6.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 6.5%. . . . . . . . . . . . . . . . . . .*. . . . . . . . . . . . . . .
– 7.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 7.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 8.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 8.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 9.0%. . . . . . . . . . . . . . . . . . . . . . .*. . . . . . . . . .
– 9.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-10.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-10.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-11.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-11.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-12.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-12.5%. . . . . . . . . . . . . . . . . . . . . . . . . . .*. . . . . . .
-13.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-13.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-14.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-14.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-15.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *. .
——————————————————————————————-
. . . . . . . .Sep. .Dec. .Mar. .Jun. .Sep. .Dec. .Mar. .Jun. .
. . . . . . . . 07. . .07. . 08. . .08. . .08. . 08. . .09. . .09. .

(Source: Teranet’s index)

Based on Teranet’s stats, house prices in Calgary fell over 15% from September 2007 to June 2009 (21 months), losing about 9% per year.

The average price of single family homes (detached houses) in Calgary fell 18.4% from July 2007 to January 2009, losing about 12% per year.

Similar to other Calgary housing busts, it didn’t take long for prices to move significantly downward. It will be no different this time.

The sequence of events that turns a housing market around is very predictable: buyers lose confidence, sales plunge and the remaining small number of sales brings prices down across the entire market. Calgary’s housing market is no stranger to this inevitable sequence of events – the same events that transpired in almost every US city as the 2006 US housing bubble deflated.

Prices in Calgary would have continued to fall (after 2009) and Calgary’s housing bubble would have completely deflated if it wasn’t for the major housing market intervention (unprecedented in magnitude) that was put into place in early 2009.

This intervention was massive and dramatic. Among other things, interest rates were slashed from near-normal to emergency levels to encourage borrowing. The intended outcome was higher house prices across Canada and that’s exactly what happened. Interest rates in Canada have remained at emergency levels since that time.

Unlike in 2009, this time Calgary’s price correction will not be stopped by a major drop in interest rates (from near-normal to emergency levels), since rates are already at emergency levels.

(continued below)

#21 Apostle on 03.05.15 at 7:46 pm

Second !

Agreed…

#22 Garth's proofreader on 03.05.15 at 7:47 pm

“helping to push the average sale price of detached homes in the city pass the $1 million mark for the first time.”

past the $1 million mark

Oops. Sorry. I see the FP made that mistake, not you.

#23 mark on 03.05.15 at 7:48 pm

Btw I can’t believe Peyton Manning showed up at a Re/Max conference. At most they deserve Ryan Leaf.

#24 Craigster on 03.05.15 at 7:49 pm

Spot on tonight Garth. This is the beginning of the end for housing in 416. And 604? http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11450691/Liquidity-evaporates-in-China-as-fiscal-cliff-nears.html

#25 Calgary Real Estate Update on 03.05.15 at 7:49 pm

Interesting things to note about Calgary’s (2007 – 2009) price correction:

* It began when the price of oil was near $100. In fact, the price of oil was above $100 for a big chunk of Calgary’s price correction.

* Alberta’s major housing markets (Calgary and Edmonton) began to correct in late 2007, about a year before other Canadian markets.

* It didn’t take rising interest rates to precipitate Calgary’s price correction. In fact, 5-year fixed mortgage rates fell from 5.69% in September 2007, down to 4.24% in June 2009(second chart).

* Calgary’s price correction wasn’t precipitated by any tightening of mortgage lending standards. In fact, standards had recently been loosened (again) months prior to the beginning of Calgary’s price decline.

* The reason house prices began to fall in Calgary was simple – prices had shot deep in bubble territory and the average Calgary family could no longer afford the average Calgary home (despite lax lending standards).

Prices in Calgary recently peaked at only 8.25% above the previous (2007) peak, making it easy to argue that Calgary’s housing market has underperformed since reaching bottom in 2009, especially considering that emergency level interest rates have been around for 6 years.

(continued below)

#26 Paul on 03.05.15 at 7:49 pm

So the only thing to stop sub prime is to increase the C M H C to 1,500,000.00 maximum . Boy that’s a big number!

#27 Obvious Truth on 03.05.15 at 7:50 pm

Good view of garths living room. Itching to ride.

If those are the reported subprime numbers then I would guess its at least twice as high.

And the market watch homepage looks like an obituary to oil. Release the machines.

#28 Victoria Real Estate Update on 03.05.15 at 7:51 pm

. . . . . . . . . . . . . . House Prices. . . . . . . . . . . . . . .
. . (Percent Above/Below November 2013 Price Level). .
. . . . . . . . . . . .Victoria and Hamilton. . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+14.5%. . . . . . . . . . . . . . . . . . . . . . .x. .x. . . . . . .
+14.0%. . . . . . . . . . . . . . . . . . . . .x . . . . . . . . . . .
+13.5% . . . . . . . . . . . . . . . . . . x. . . . . . . . . . . . .
+13.0%. . . . . . . . . . . . . . . . . x . . . . . . . . . . . . . .
+12.5%. . . . . . . . . . . . . . . x. . . . . . . . . . . . . . . . .
+12.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+11.5%. . . . . . . . . . . . . x . . . . . . . . . . . . . . . . . .
+11.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+10.5%. . . . . . . . . . . .x . . . . . . . . . . . . . . . . . . . .
+10.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 9.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 9.0%. . . . . . . . . . x. . . . . . . . . . . . . . . . . . . . . . .
+ 8.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 8.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 7.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 7.0%. . . . . . . . .x. . . . . . . . . . . . . . . . . . . . . . . .
+ 6.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 6.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 5.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 5.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 4.5%. . . . . . . .x. . . . . . . . . . . . . . . . . . . . . . . . . .
+ 4.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 3.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 3.0%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 2.5%. . . . . . .x . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 2.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 1.5%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 1.0%. . . . . x. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+ 0.5%. . . x. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . 0%. .x* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 0.5%. . . .*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– 1.0%. . . . . . . . . . . . . . . .*. *. *. . . . . . . . . . . . . . .
– 1.5% . . . . . *. . . . . . . *. . . . . . . . . . . . . . . . . . . . .
– 2.0%. . . . . . . .*. . . .*. . . . . . . . .*. . . . . . . . . . . . .
– 2.5%. . . . . . . . . .* . . . . . . . . . . . . *. *. . . . . . . . . .
– 3.0% . . . . . . . . . . . . . . . . . . . . . . . . . . .*. * . . . . .
———————————————————————————————
. . . . . . . N. D. J. F. M. A. M. J. .J. A. S. O..N. D. J. . . . . .
. . . . . 2013. ./. . . . . . . . .2014. . . . . . . . . . ./. 2015. . .

(Source: Brookfield’s index)

Hamilton = x
Victoria = *

Monthly price levels for Victoria and Hamilton have been plotted on this chart, dating back to November of 2013 (based on Brookfield’s stats).

This chart shows us that:

* House prices across Greater Victoria were lower in January compared to December.
* Prices have fallen in 5 consecutive months.
* Prices were 1.74% lower than a year earlier.
* Prices in January had fallen 11.4% from Victoria’s peak month (June 2010).

In contrast:

* House prices in Hamilton were stable in January compared to December.
* Prices have increased in 12 consecutive months.
* Prices were 13.2% higher than a year earlier.
* Prices in January were at an all-time high for Hamilton.

Hamilton’s housing market is responding in the expected, positive way to Canada’s highly stimulated housing market (with lax lending standards and historically-low, emergency level interest rates).

Victoria’s housing market is continuing to go through a significant price decline, despite being subjected to the exact same highly stimulated environment as Hamilton.

(continued below)

#29 Freedom First on 03.05.15 at 7:56 pm

Fear and greed can both fuel taking on debt. Fear and greed fueled by debt is brought on by fever. Fever is followed by panic. Canadians are following each other to the slaughterhouse the same way the Americans the Japanese and the Europeans followed each other to their own RE fever induced financial ruin. We are screwed.

#30 sideline sitter on 03.05.15 at 8:03 pm

Close CHMC and let the real market determine interest rates… let banks charge according to the borrowers risk profile.

There. That should do it.

#31 MSM-free Zone on 03.05.15 at 8:04 pm

…..“It’s a legitimate question. Why was $1 million chosen anyway?,” says Benny……
_________________________

Actually, a more legitimate question, Benny, is why are taxpayers backstopping your bank’s record profits at all?

You’re a free market, supply/demand kind of guy aren’t you Benny? Why not disband the bubble-pumping CMHC altogether, let home prices fall where they may, and let your bank suck up its own lender risk?

After all, given the uncertainty-fueled delay in the next federal budget, I’m certain taxpayers have more important concerns than your next quarterly results.

#32 TS on 03.05.15 at 8:06 pm

Benny Tal is a complete Moron.

I trust the opinion of Smoking Man more

And that’s saying a lot……

#33 gladiator on 03.05.15 at 8:08 pm

Garth,
if 3% of the mortgage loans are subprime, we can easily ignore them for now and look at the bigger chunk – the 97%.
If the average home price is now over a million, that means that 50% of the houses are changing hands without CMHC insurance. Let’s subtract those 3% from these 50% to get the worst case scenario and we can assume that 47% of house buyers have the cash for a 20% downpayment, if not buying the house outright (the foreign buyers you don’t believe in)
Hence, people are flush with cash. We are doing great! What’s to worry about?

#34 nonplused on 03.05.15 at 8:09 pm

Wait, you can get a sub-prime loan to qualify for a prime loan? This is madness. If you have a sub-prime loan you are a sub-prime borrower.

I still remember the days where CMHC would only lend on $175,000 houses, and it didn’t seem that long ago. I bought a house listed for $185,000 for $175,000 because that’s as high as I could go given I needed CMHC at that time. My how things have changed. And this was 1998! The same house trades for $500,000 plus now. And it’s 19 years closer to being a tear-down. It had a great lot though.

#35 james on 03.05.15 at 8:09 pm

#29 MSM-free Zone

Indeed, it is sad to see alleged ‘free market’ advocates gratefully using their leverage on government to siphon money from taxpayers. The 80+ billion subsidy by the feds to purchase mortgage securities, taking money from TARP, taking money from the US Federal Reserve’s emergency loan program, and then making sure US banks cannot compete in the Canadian market (while Canadian banks compete in the USA).

Most banks wouldn’t last a second without the ability to loot the taxpayer. They would have to actually take some care with decisions in such a case.

#36 Calgary Real Estate Update on 03.05.15 at 8:10 pm

Everyone knows that the oil and gas industry is a major part of Alberta’s economy. History has shown us that when this important part of Alberta’s economy slows significantly (as it has now), house prices in Calgary are negatively impacted.

The current explosion in the number of job losses and layoffs in the oil and gas industry (due to $50 oil) is a significant source of downward pressure on Calgary house prices. Many experts are predicting that the price of oil will remain low for a significant period of time.

Looking at the big picture, oil isn’t the reason that house prices in Calgary are as high as they are today. This is a myth that is used by the housing industry to justify Calgary’s bubble house prices.

Oil simply can’t be used to justify the fact that house prices in Calgary have (at least) doubled since 2000. The reason: house prices in all major Canadian cities (including those without oil in Ontario, Quebec and BC, for example) shot higher by a similar amount over the same period of time.

The housing market stimulating policies of emergency level interest rates and lax mortgage lending standards are the reasons behind Calgary’s sky-high house prices. Indeed these same reasons have made housing bubbles a Canada-wide phenomenon.

If it was possible to use oil to justify Calgary’s sky-high house prices, then house prices in oil-rich Texas (Houston and Dallas) would likely be a lot closer to prices in Calgary (at least close enough to make it look like Houston and Dallas are on the same planet as Calgary).

These houses in Houston and Dallas would probably cost at least $400 K in Calgary or Edmonton:

Houston:

$123 K, Houston, TX (4 beds, 3 baths, 2,487 sq. ft., built in 2006, attached double garage)
$120 K, Houston, TX (3 beds, 3 baths, 1,985 sq. ft., built in 2006, attached double garage)

Dallas:

$104 K, Venus, TX (Dallas) (3 beds, 3 baths, 1,895 sq. ft., built in 2005, attached double garage)
$125 K, Terrell, TX (Dallas) (4 beds, 3 baths, 2,296 sq. ft., built in 2005, attached double garage)

We know from Calgary’s history that house prices can fall fast and deep in that city.

Calgary will see much lower house prices in the future.

I will be posting more Calgary Real Estate Updates in the future.

Cheers!

#37 nonplused on 03.05.15 at 8:10 pm

Or that might be 17 years. My math’s good if it’s in x’s and y’s.

#38 Entrepreneur on 03.05.15 at 8:10 pm

“Globe and Mail” and “Financial Post” probably sold all over the world. “The world is a stage” and Canada is act 1.

Most of our working, Canadian youth cannot afford million dollar homes and reporting has gone down the drain for the truth. So what is the truth? “is what happened in the US prior to the crash there” so are we heading for a crash like the States?

#39 Millenial-falcon on 03.05.15 at 8:12 pm

Brutal

#40 Daisy Mae on 03.05.15 at 8:14 pm

“Did you hear that noise? F just rolled.”

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

Nice choice of pics. LOL

#41 Rob on 03.05.15 at 8:15 pm

So folks, with the latest $1M 416 detached home average price announcement, what’s your take on the latest trend – micro condos (225-400 sq.ft.)? Talk about yer claustrophobia complex! Oh well China, Japan and Manhattan already have them so why should we not join in on the insanity, right?

#42 #PrenticeBlamesAlbertans on 03.05.15 at 8:16 pm

Bunch of wankers.

#43 Porsche on 03.05.15 at 8:17 pm

and when you finally have it paid off your either dead or shitting in a bag attached to your waist.

#44 Nosty, etc. on 03.05.15 at 8:17 pm

#281 Holy Crap Wheres The Tylenol on 03.05.15 at 5:08 pm — “Lets not forget Red Herrings . . . or a Failure to Elucidate . . .”

Latin is too complicated for me, so believe what you will but your sentence at #237 Holy Crap Wheres The Tylenol on 03.05.15 at 12:36 pm — “A war is coming!” appears to be spot on.

#156 Spectacle, #249 SWL1976 and #264 Blacksheep — Thx, y’all. A couple of tidbits to go with afternoon tea and crumpets:

Remember how JFK was taken out? Obama (one way or the other), may well be following him, Mark Carney and the BoE appear in an engaging whoopsie moment, Fraud Western style, Iran + Others.

#296 palebird — Mark is right about toe rhetoric (hot air), but you are right as well [“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.”] Check this out.

#4 TRT on 03.05.15 at 7:29 pm — “Privatize profits.” Agreed. Bankers love socialism.

#45 Fed-up on 03.05.15 at 8:17 pm

This is well written:

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/patience-will-pay-off-for-first-time-home-buyers/article23295965/

#46 BS on 03.05.15 at 8:22 pm

Most buyers don’t have $245,000, of course. So as prices creep above the level of CMHC insurable-mortgaging, many are being driven into the subprime market. If that sounds scary, good. It is.

When you factor in the subprime interest of say 12%, an $800K plus mortgage and other housing expenses that is a pretty hefty amount of money going towards housing. If they were unable save the 20% down I do not know how these people will end up keeping up with payments, etc. Especially considering your average $1 million house in Vancouver or Toronto is a POS which will require some serious maintenance.

I over heard a conversation of a guy talking to his buddy about buying a SFH in Vancouver. He was factoring in a 5% to 10% annual appreciation in the house going forward to justify the price he was about to pay. Good luck with that. I guess it is this belief prices will continue to the moon that draws people in to making such stupid decisions. Some people buy the realtor and media spin.

This will not end well.

#47 For those about to flop... on 03.05.15 at 8:22 pm

Or the big-city reporters who have the investigative talents of foot stools-Garth.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

At least foot stools are useful!

#48 Linda on 03.05.15 at 8:25 pm

Homes costing a million plus. If they are brand new, built to last (think solid stone exterior, steel frame, 50 year warrantee on roof, solid wood flooring etc) then maybe yes, worth a million. Otherwise, are you nuts? Those beater places being shown as selling for a million plus are not worth the land they are sitting on. Seriously, no one ‘needs’ to acquire a million plus debt unless they absolutely know they are going to have a million plus windfall or earn north of $500K per year.

#49 MTVmademedoit on 03.05.15 at 8:27 pm

#14 Lillooet, BC
Let it go man. No one cares about Lillooet.

#50 Marc in Montréal on 03.05.15 at 8:29 pm

514 Condo News

– Current MTL avail. condo/buyer ratio is 20 to 1.

– Inventory has never been this high since 2006.

– Buyer’s market in all but 1 (balanced) borough (Rosemont, for some reason).

– Takes 120 days to sell on avg., 2 full weeks more than in 2013.

– 2010 : 1142 newly constructed unsold units. 2014: 2851, with 10 000 units under construction as we speak.

– Always a risk that your neighbour’s condo will be leased to a pimp during the F1 Grand Prix, the Jazz Fest, the Francofolie, etc. I guess that’s what the realtor meant by “urban lifestyle.” (OK that one is actually not in the article… but it is well documented anyway!)

http://ici.radio-canada.ca/regions/montreal/2015/03/05/002-coproprietes-region-montreal-choix.shtml

#51 Victoria Real Estate Update on 03.05.15 at 8:37 pm

Victoria’s housing market is waving a huge red flag that reads: “Do not buy a house in Victoria’s weak, underperforming and declining housing market. Doing so now at these bubble prices will guarantee that you will be facing a position of negative equity (beginning in the near future) that will last many years and will ruin your family‘s financial future.”

How bubbly is Victoria’s housing market? Compare to prices in these US cities that have year-round summer-like weather.

Arizona:

$106 K, Coolidge, AZ (Phoenix) (4, beds, 2 baths, 1,903 sq. ft., built in 2006, attached double garage)
$110 K, Maricopa, AZ (Phoenix) (4 beds, 3 baths, 2,012 sq. ft., built in 2006, attached double garage)

Florida:

$119 K, Fort Pierce, FL (3 beds, 2 baths, 2,374 sq. ft., built in 2007, attached double garage)
$125 K, Palm Bay, FL (3 beds, 2 baths, 1,803 sq. ft., built in 2007, attached double garage)

Girls and guys, continue to rent your granite and stainless (risk-free and worry-free) for less than the cost of the payments on a dangerous mortgage on a bubble-priced Victoria property.

Don’t drink the housing industry’s (buy now!) Kool-Aid. Don’t be reckless and irresponsible. Wait for lower prices.

Until next time – Cheers!

#52 Mark on 03.05.15 at 8:37 pm

“If the average home price is now over a million, that means that 50% of the houses are changing hands without CMHC insurance. “

Just a minor point here — the word ‘average’ does not imply that at all. If the word ‘median’ was used then your comment would be correct, but the word used was ‘average’.

Even then, its pretty obvious that most of the buyers in Toronto are move-up buyers. ie: sold a house for $800k, buying one for $1.5M, with a resulting $700k loan which doesn’t strictly require CMHC subprime insurance. True first-time, minimal downpayment activity in Toronto proper isn’t all that significant these days I’m told. The suburbs, where pricing puts nearly all of it under CMHC subprime eligibility and more FTB activity takes place, of course, has dropped off significantly in activity on account of CMHC tightening over the past few years

#53 Daisy Mae on 03.05.15 at 8:40 pm

#7 mark: “Borrowing your downpayment – you’re richer than you think!”

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

Canadians are treated as the idiots they are.

#54 Alberta is AWESOME on 03.05.15 at 8:44 pm

Best bit about Lillooet is it’s on the way to whistler for skiing!

#55 Daisy Mae on 03.05.15 at 8:46 pm

#9 crowdedelevatorfartz: “canadian subprime mortgages…….will we ever learn…..”

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

The realturds are targeting the young and naïve who must — always do! — learn the hard way.

#56 Washed Up Lawyer on 03.05.15 at 8:58 pm

Garth:

For tonight, just a short single comment. Your blog and the comments of the dogs are a bright spot in my day and improve my quality of life in Fort McMurray. (How much does that say about life in Fort McMurray?)

The IT guys at the Ft. McM Real Estate Board have not figured out the problem with the link to monthly statistics. They should go back to turning wrenches or practicing law.

#57 crowdedelevatorfartz on 03.05.15 at 8:58 pm

@ Smoking Man

I do believe the gauntlet hath been thrown at yon feet.

#31 TS
“Benny Tal is a complete Moron.

I trust the opinion of Smoking Man more

And that’s saying a lot……”

#58 Babblemaster on 03.05.15 at 9:01 pm

Benny Tal sounds like a moron. He isn’t, of course. He just has an agenda to promote housing. He wants to keep house prices escalating upwards. If they don’t and reverse to follow a downward trajectory, then Canadian banks could be in trouble.

#59 crowdedelevatorfartz on 03.05.15 at 9:01 pm

@#53 Alberta is Whatever
“Best bit about Lillooet is it’s on the way to whistler for skiing!”
++++++++++++++++++++++++++++++++++++

Not if the Duffy Lake road is closed due to avalanches.
But that only happens when Whistler has snow…..

Stick to Big White and or Golden

Whistler has enough nuts, we dont need truck nuts.

#60 Oceanside on 03.05.15 at 9:03 pm

#26 Obvious Truth on 03.05.15 at 7:50 pm
Good view of garths living room. Itching to ride.

Waking up on weekends here on the Island to the incessant roar of 44 year old contractors with their Vance Hines shaking the neighbourhood…..Hoping quiet pipes are the next mega craze…I like my quiet stock pipes….But I’m old.

#61 BS on 03.05.15 at 9:05 pm

Best bit about Lillooet is it’s on the way to whistler for skiing!

On the way from where? Lillooet is the last outpost over 1 hour drive in summer conditions PAST Whistler.

#62 crowdedelevatorfartz on 03.05.15 at 9:07 pm

@#42 Porsche
“and when you finally have it paid off your either dead or shitting in a bag attached to your waist…..”
++++++++++++++++++++++++++++++++++

Oh the visual.
Thanks for that depressing slap in the face from Mr Reality himself.
I think I’ll crack a 40 of Rum and listen to Bruce Springsteen. THAT should really get me in an optimistic frame of mind……yeesh.
Smoking Man ? You in?

#63 april on 03.05.15 at 9:07 pm

Global is at it again…” houses going way over asking” in the Lowermainland BC………really!!!

#64 Poutchli on 03.05.15 at 9:14 pm

I encourage fellow programmers and engineers to move to the US. Houston, the Calgary of the US, has beautiful 4 bedroom homes for 450k.

Finding a good job isn’t easy, but it’s not easy here either. The difference if you manage it:

1- half the mortgage
2- salary paid in a currency that’s 20% stronger

Join me in a brain drain away from this housing orgy.

#65 Suede on 03.05.15 at 9:15 pm

Look, I dislike lillooet as much as the next guy. There’s only 1 restaurant open after 7pm. I mean come on… Are they still giving away land there through the homestead act?

#66 devore on 03.05.15 at 9:16 pm

Without 2.6% five-year mortgages, houses in 416 would not cost $1 million. In any case, this is not what the reporters told us. Instead the news was of a milestone, the start of a new era in property insanity, so you’d better buy now.

A new permanently high plateau?

Where have we heard this before? Oh, yeah…

“Fisher was perhaps the first celebrity economist, but his reputation during his lifetime was irreparably harmed by his public statements, just prior to the Wall Street Crash of 1929, claiming that the stock market had reached “a permanently high plateau”.

In reality, it’s the end of a cycle – a perfect head-and-shoulders formation as the million-dollar mark is tested yet again, and will inevitably decline in a similar fashion. This time the chart is rife with danger.

What’s that they say about history? Doesn’t repeat, just rhymes.

#67 carl on 03.05.15 at 9:19 pm

To correct you Garth, prices were down about 23% in my area of Toronto last month. Another 23% and I’ll buy. Nice donuts. I assume those are yours?

#68 ronh on 03.05.15 at 9:21 pm

Closer…we are getting closer. After peak debt is when the fun really begins. Might take a Moses generation to fix.

#69 Enthalpy on 03.05.15 at 9:22 pm

Are there any stocks linked to the housing market?
short soon?

Just thinking outloud

#70 Bobby on 03.05.15 at 9:34 pm

Had a good chuckle the other day reading about Calgary real estate. The member of the Calgary Board said Calgary was in a balanced market and house prices would rise this year in the single digits. Sure. Was speaking to a colleague in Calgary yesterday who said there were four homes for sale on his street, but no takers. Apparently a couple have to sell.

#71 ANON on 03.05.15 at 9:35 pm

Are they still giving away land there through the homestead act?

This gives quite a new perspective on possible burst undershoot.

#72 Vanecdotal on 03.05.15 at 9:36 pm

GT, where’d you get that pic of my high school hangout? Ahhh my misspent youth.

Guarantee that house is a RENTAL… ;)

#73 Alberta is AWESOME on 03.05.15 at 9:36 pm

The Houston-Calgary comparison is a good one. Crazy house price difference. But ya better love AC. Our AC is natural.

#74 devore on 03.05.15 at 9:44 pm

#190 Maurice (and further to #8 Catalyst)

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.

All very good questions.

Most people don’t know how capital markets work.

Companies raise money by issuing new shares in their company, including the initial offering, or IPO. (There are also private shares, they work similarly.) Investors buy those shares, but the money from even the first sale of the share does not actually go to the company. Investor money is raised by an underwriter (an investment bank, typically), who handles the issuance of shares, and also agrees on the initial price of the shares and any other conditions.

This is often a point raised by people when arguing about “capitalism”: the stock market is a casino, only the primary stock offerings matter.

But this is not true. The “resale” share on the stock market today was someone’s initial purchase yesterday. At some point, the original investors want to cash out, because they need the money, or want to fund other opportunities. They must find someone to sell their share to. This is what the stock market does.

1. There must be a way for investors to exit their position.

2. There must be a way for investors to receive compensation for risking and tying up their capital.

This is any companies care about their stock price. Because a stock is actually a share of the company, the value (present and future) of the company determines the value of the share. The share is backed by the value of the company, in other words. As the company does well and grows, so does its value, and so does the price of its shares.

This is one way of rewarding the investor.

The other is through regular payments, such as dividends. Part of the profits a company makes gets reinvested into the company. What is left over, gets paid out to investors. The company _could_ retain those profits and reinvest everything, but sometimes the opportunities for growth and investment are slim, or potential returns not worth it. Also, regular payouts make the company’s stock attractive to investors, AND, even more importantly, more attractive to hold long term, instead of flipping them over all the time to capture gains.

This still doesn’t tell us why the company itself cares about its stock price. Well, they do, because that determines how much and how easily they can raise additional funds through issuing more stock. Apple can raise a billion dollars from investors much more easily than a penny junior miner. If the stock price is high, they need to issue fewer shares, which will have a smaller dilution effect on existing share holders.

Therefore, a company wants to do well, and be profitable, so that it will be highly valued and its stock will have a high price as a result.

And yes, a well run company will also be popular with investors, so there will be a high demand for its stock, which will often result in a premium investors are willing to pay over and above its true value. They are counting on the company continuing to do well in the future and growing its value. This is also why a quarterly result surprising on the downside will drop the stock price, as some of the more hopeful or less informed investors panic and push the sell button. This is almost always a temporary buying opportunity, provided the news is not actually bad or indicative of fundamental problems.

#75 Smoking Man on 03.05.15 at 9:48 pm

Dogs, sorry I’m late, been busy. Working on an anti gravity device. If I can just get this mixture just right.

Unfortunately I won’t be contributing any meaning insite this evening, sorry. But when I’m on a roll, I roll.

For those of you who care, My kid was in a (-35k) death trade, I didn’t help him, balls to wall, he recovers and tops his P&L by 10k today. It could have been +30 he bailed to early, rookie. The evidence is up.

Now if this thing works, and I can actually fly, I will share the recipe.

Nosti, great links.. Keep em coming.

#76 young & foolish on 03.05.15 at 9:49 pm

Why are people going all out to get RE? Are they all stupid, or is it a case or perceived value. People can see large cities growing, new people coming in, neighbourhoods being revitalized, activity everywhere. They believe that their financial participation in such an environment stands a better chance at success than the abstraction of “financial assets”. Most people rightly or wrongly have come to see the markets as rigged, where the smart money is always 2 steps ahead and they would end up being the losers (sort of like getting in at the bottom of a pyramid scheme). They’ve been around long enough to witness at least one market melt down. And, even like Warren Buffett says, they “buy what they understand”.

Please don’t shoot me, I’m just the messenger ….

That’s why most people have property, and no money. Young and foolish. — Garth

#77 Ole Doberman on 03.05.15 at 9:56 pm

Gartho – it’s not that the media doesn’t investigate RE news it’s that they’re in bed with the cartel.

Little wink wink nudge nudge action. Corruption is everywhere.

#78 lilyflor on 03.05.15 at 9:59 pm

What monetary/fiscal policy tools can make people spend even more money they don’t have or credit they have already used up?

#79 Millencolly Millenial on 03.05.15 at 10:03 pm

I wanna take a loan to qualify for a loan so I can make tax and interest payments on the money I had to borrow because I didnt have the money to buy something I couldnt afford. The end.

#80 mortgagebrokeron on 03.05.15 at 10:06 pm

I used to do only prime mortgages. Now am doing more subprime 12% stuff.

This isn’t going to end well for some people.

#81 Jeff on 03.05.15 at 10:07 pm

I was at the local TD branch in Stoney Creek earlier today…next to me a lady was requesting a bank draft for 50k for her son so he could buy a “lovely” $670,000 bungalow in Binbrook.
I am sure most people on this blog have never heard of this place.
I assure you it’s a dump…about 10-15 minutes drive south of Hamilton! If people are willing to spend over half a million for a bungalow in Binbrook…I believe…this country is in real s….!
Where and when is this madness going to end??

#82 Mark on 03.05.15 at 10:08 pm

“Why are people going all out to get RE? Are they all stupid, or is it a case or perceived value.”

I’d split contemporary buyers into 4, maybe 5 different categories:

1) The move-up buyer. Made pretty good gains in RE over the past decade, is sitting on a boat-load of equity that wasn’t quite anticipated in their life plan, and probably have a financial sector or government job that pays quite unusually well. These people believe that there’s little to no risk to their employment or pensions over the long term, have surplus cash, and have no problem taking on more mortgage debt. Of course they’re oblivious to the severe risk that really besets their employment, especially as the RE bubble is so correlated to the government and financial sector bubble by way of the CMHC, but they proceed anyways.

2) The plain out stupid or unsophisticated. Perhaps misled by the RE industry into thinking that prices perpetually increase 10%/year. ‘Nuff said, fools and their money are always separated.

3) The de facto non-recourse borrowers. These are typically (but not exclusively) relatively recent immigrants who take the view that if they buy a house for top dollar, and a collapse happens, the worst possible consequence would be returning to their origin and flying under the radar until the bank finally seizes the property and writes the whole mess off many years later. This tends to happen a lot in places which are more known for economic migrants, rather than refugees.

4) Those who hold a very deep distrust of money and the financial markets. Again, you see this in people from cultures in which monetary stability has been a historical exception, not the rule. Precious metals also appeal to this group.

5) The brow-beaten with decent income. Seen often in Alberta. Girlfriend gets pregnant and basically orders trades-person (or used car salesman) husband to buy a house because ostensibly a baby could not possibly be brought up appropriately with any exposure to a rental.

#83 RAINCOUVER on 03.05.15 at 10:09 pm

PLEASE READ THIS:

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

#84 Spam Fine on 03.05.15 at 10:11 pm

Quebec company compu finder fined 1.1 million for apparently flagrantly sending out spam… Wow what a deal i thought it was supposed to be 10 million. I wonder how this will turn out, small business can’t phone, can’t fax, can’t email but we can have trees cut down waste paper and ink and pay to support Canadian snail mail. Why isn’t equivalent paper junk mail fined at the same excessive amount. Oh i forgot someone has to support the old backward way of doing business through the mail to pay for the big wages of Canada Post!… And before you sneer with stupid comments like it serves them right for sending junk this applies to everyone even private citizens who send an unwanted email… Forget about the constitution and the right to free speech this law eliminates that!

#85 Smoking Man on 03.05.15 at 10:12 pm

#76 Ole Doberman on 03.05.15 at 9:56 pm
Gartho – it’s not that the media doesn’t investigate RE news it’s that they’re in bed with the cartel.

Little wink wink nudge nudge action. Corruption is everywhere.
…………

Couldn’t resist, Sept 11th 2001 was the crime of the century super tramp warned us about, by the way, they’re on the ear buds. Nice!!!!

MSM knows the truth, but will do nothing about it.. So if anyone expects truth from MSM going forward. Well just don’t bet $$$$ on what they suggest.

You will lose, and the only way things will ever be righted. It will be from within its armed forces. Hence NSA’s most targeted group for servalance.

#86 Paully on 03.05.15 at 10:12 pm

The CMHC limit should be nowhere near $1M. The high CMHC limit has the perverse effect of making housing LESS affordable for first-time buyers. CMHC coverage should be greatly reduced, or wound up entirely.

#87 BF on 03.05.15 at 10:15 pm

Guy on a forum today in Mtrl – has 10 properties all mortgaged. Variable rate. No idea what his yield is.

Lord preserve us. Ten Garth. Ten. Garth: Ten.

#88 Vanecdotal on 03.05.15 at 10:16 pm

Heard today on fave local radio station for Millenials and Late Gen Xrs, sneaky advertorial (dj’s banter back & forth between songs, live on air, appearing to be randomly chatting, but all based on scripted subject matter) for the Surrey Central City condo development. The very same development another poster pointed out they’re also flogging to foreign buyers in China a few weeks ago, and which some RealTrolls keep trying to flog here periodically…. apparently not much interest from local buyers?

The hook: “For just $5000 down, you can own your own (micro) home – for only $97 k!”

“Gee, wow, that’s like, cheaper than renting!”

“Yeah, my friend so & so lives in Coquitlam and has to drive 20 MINUTES to Skytrain!”

“WOW. That’s Crazy!”

“… and everything’s at your doorstep out there! Library! School! Cafe’s! Amenities! Skytrain!” etc.

I would add: Pawnshops! Violent Addicts! Gang Warfare! B & E Experts!… and not much more ’cause you’re still a 40 min skytrain ride to anything remotely interesting in Van. Oh, and you’ll probably want to be home before dark.

It was pretty disheartening how the whole paid commercial exchange was presented as legitimate one-off conversation between 2 dj’s. Incredibly deceptive and definitely pushing the “truth in advertising” rules. I get it’s Just Marketing, but they are really pushing the envelope of what is and isn’t permitted.

A good barometer of where the YVR condo market in particular is already heading. Caveat Emptor.

#89 Bo Xilai on 03.05.15 at 10:17 pm

Benjamin Tal is an idiot… The banks love the fact the government was bankrolling all the risk and the banks were racking up the risk-free profits. Following Tal’s line of thinking, why not just privatize all mortgage lending? I mean, if the government is assuming all the risks, shouldn’t it just take all the profit as well?

#90 Mister Obvious on 03.05.15 at 10:22 pm

#75 young & foolish

“Most people rightly or wrongly have come to see the markets as rigged”
————————

Wrongly for the most part. The financial services industry is highly regulated. There are many legislated safeguards in place protecting the investor. Good, honest advisors are available. You’ve got to try harder nowadays to get yourself ripped off.

What surprises me is why so few people have come to recognize the charlatanism that is the essence of Canadian residential real estate. It’s become the financial equivalent of the wild west.

It’s all sanctioned and encouraged by the Feds who would throw the book at a crooked advisor while strongly encouraging ‘Brad Lamb’ types to step up their “marketing” for the greater good of the economy.

#91 bob on 03.05.15 at 10:24 pm

Can you ban commenters like “Victoria Real Estate Update”… they’re not comments.

I mean, how would you like (and the rest of the readers like) I started copying and pasting stuff like, oh…

“Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam…

and went on, and on, and on…

#92 OttawaMike on 03.05.15 at 10:25 pm

About that picture today. Been there, done that but only one pass through–patio door to front door. Also set up a temporary living room shop for the dirt bikes in a Toronto apartment allowing us to rebuild in a nice warm place for the ice races.

Renting back in the early 80’s sure beat owning.

#93 Mark on 03.05.15 at 10:26 pm

“The CMHC limit should be nowhere near $1M. The high CMHC limit has the perverse effect of making housing LESS affordable for first-time buyers. CMHC coverage should be greatly reduced, or wound up entirely.”

The argument against CMHC applies almost equally across all levels of the overall income and house price spectra. So there is really no reason for the CMHC to exist as a mortgage insurer. The private sector in the 69 years since the CMHC was founded (January 1, 1946 to be precise) has developed relatively robust risk assessment and credit evaluation toolsets. No significant exogenous event (ie: WW2) has been present recently to significantly alter the participation of young people in the economy. And the CMHC itself represents not an entity of market inefficiency, but it is, itself, creates additional long-term drag on the market.

Ideally the CMHC, with a modest budget, would be re-cast strictly as an engineering R&D organization, generating publicly funded research into making home ownership more efficient . Whether it be in the areas of engineering, financial/geotechnical risk assessment, or urban planning. The rest of CMHC’s “assets” should be sold to satiate CMHC subprime mortgage insurance claims before additional government bailouts are sought.

#94 Obvious Truth on 03.05.15 at 10:28 pm

#69. Looks like Calgary might be in meltdown mode.

This kind of unravel is scary.

#95 FI Guy on 03.05.15 at 10:32 pm

Sub prime market in Canada is much, much larger than 3% of the market. Most of the loans are simply reported as uninsured to the regulators, and are part of normal course of business. Uninsured mortgages attract low capital requirements.

Just go to a broker and indicate that you have 5% down but have 60% tds. Right now in Canada, you can find a lender for any situation.

Lenders and investors now consider residential mortgages a ‘commodity’ business. No matter what the credit criteria in a portfolio, mortgages are viewed as a ‘commodity’. Zero risk.

#96 FI Guy on 03.05.15 at 10:40 pm

We are about to have our own subprime crisis.

Delinquencies and credit losses haven’t shown up yet with insurers, but they soon will. Right now insurer strategies with Genworth are to get way ahead of eventual default and forgive interest or a small principal portion of a loan. When they do this, a delinquent loan that is 60 days overdue all of a sudden is no longer delinquent.

The predicted write off incorporated into Genworth’s financial statements is not increased as a result of this activity, even though arguably a write off in the future is likely.

That’s just one example of the ways that credit default management is being applied to reduce current, but not necessarily future, write offs.

#97 jrochest on 03.05.15 at 10:44 pm

I’ll join with Lillooet and WpgMB — even though I’m talking about Saskatoon rather than Lillooet (or Montreal or Victoria). We’ve been hit by the oil bust too: back in 2006 to 08 when the supposed boom started Albertan ‘investors’ came and bought up a fair portion of the condo conversion apartments and little bungalows on builders lots. Rents went through the roof (they tripled) house prices followed (they tripled or quadrupled) and builders started putting up new subdivisions like mad. We’ve been slow for the last two years (high inventory, low sales, flat prices) but the oil collapse has dropped a huge inventory of condos (mostly former rental apartments in walk-up 3 story buildings that were redecorated and sold as ‘condos) and little crappy bungalows on the market. There’s 1594 units on MLS as of this morning: the same level as last August, which was itself a five year high, and it’s MARCH. Inventory is up 31% year over year, with condos being 37% up over last year and houses 22% — as per one of the local realtor blogs. I won’t link. He’s a decent sort and doesn’t deserve the descent of the blog dogs.

Prices are falling, of course: I’m watching the MLS and the same properties keep getting re-listed, with consistently dropping prices. And most sales are 10K under asking. This morning the first house listed for under 100K appeared: a horrible 2 bed bungalow in the worst neighborhood in town, but it’s still a house on a lot for less than what most bachelor apartments are listing for (and sitting at).

I think vacancies are up, too: there’s lots of rentals on Kijiji with offers of discounts (50% off your first three months!) or flat screens or 300 dollar grocery cards if you sign a lease. And friends who pay their mortgages by renting out their basements have been waiting longer for tenants. Part of the problem is that even with the price reductions and even at this stupidly low interest rate, for most of the apartments mortgage + condo fees + insurance + taxes equals more than you can rent the unit for. And there’s hundreds of new build condos coming on the market in the subdivisions on the outskirts of town. This will *not* end well.

This doesn’t make me gleeful — I bought in 2013, for cash and in an old house I really love, but I’m still getting dinged, probably to the tune of at least 50K. But it’s a necessary correction and it’s been a fucking hell of a time coming.

#98 Last of the Baby Boomers on 03.05.15 at 10:46 pm

If there are rules to tighten up and prevent the purchase of homes over $1,000,000 by average Canadians, why are there not similar rules to tighten up and counteract the effects of the purchase of real estate with money from outside Canada?

Consider the implications of a real estate market crash under current rules. If most Canadians have a one asset savings plan (real estate), when their homes are devalued during the crash and many are forced to sell, who will be left to purchase other than a few on this blog and foreign capital. Prior to THE BIG BANG, should politicians not tighten up rules for purchase of real estate? Other countries have taken the initiative to do so. Why not Canada?

There is no rule preventing anyone from buying property over a million dollars. — Garth

#99 Subprimal | Realties.ca on 03.05.15 at 10:47 pm

[…] Source: http://www.greaterfool.ca/2015/03/05/subprimal-2/ […]

#100 4 AM Sunrise on 03.05.15 at 10:48 pm

The CMHC reminds me of BC’s welfare system. Stay with me on this one. When BC welfare increased the shelter allowance (which, from what I understand, not all welfare recipients receive), landlords in Vancouver’s Downtown Eastside raised their rents accordingly. So people who were poor, but not poor enough to qualify for the shelter allowance, got gouged.

#101 Sharky's best on 03.05.15 at 10:59 pm

Will the sheeples be putting the downpayment on their credit cards soon…

#102 Mukadi on 03.05.15 at 11:00 pm

What’s the definition of insanity?

Why not quarantine these people in a psychiatric hospital.

If they apply for a $1million mortgage when they cannot afford 20% downpayment, doesn’t that mean that they’re insane?

#103 Mark on 03.05.15 at 11:07 pm

“why are there not similar rules to tighten up and counteract the effects of the purchase of real estate with money from outside Canada?”

If foreigners want to buy Canada’s most overpriced asset class possible, residential real estate, while Canadians use the proceeds of such sales to invest in undervalued asset classes, who are we to question such?

Let’s suppose Canada sold the entirety of Toronto’s RE to the Chinese. Well Canadians would have somewhere near $500B-$1T in our pockets to build a replacement city. Perhaps one on the north shore of Lake Superior with ultra-modern infrastructure, for instance. Or maybe sell Vancouver and build a metropolis at Prince Rupert — a one-time dream of the famous Charles Melville Hays in the 1900s before he perished in the Titanic and his dream of a railroad went bankrupt (the Grand Trunk Pacific!). There’s nothing wrong with this. It drives long-term economic growth to have foreign investment, especially if foreigners are willing to accept very little return on their money and invest in low-returning assets such as RE and debt, rather than equity.

#104 Alberta is AWESOME on 03.05.15 at 11:10 pm

#60 BS on 03.05.15 at 9:05 pm

Best bit about Lillooet is it’s on the way to whistler for skiing!

On the way from where? Lillooet is the last outpost over 1 hour drive in summer conditions PAST Whistler.
————————————————————-

On way from calgary to whistler … back route.

#105 Leo Trollstoy on 03.05.15 at 11:10 pm

Garth’s post today completely matches anecdotal experience. The horny got hornier this year. It must be something in the water. Whatever it is, I’m happy selling my rat infested 50 year old bung in a 3 day bidding war.

Now I gotta figure out what to do with this $600k burning a hole in my wallet.

I say I go for a minimum down payment on a fully detached McMansion in the big smoke and let it ride baby! Let it riiiiiide!

#106 Wildnutter on 03.05.15 at 11:11 pm

JD is a fine ant-gravity device… until it’s not and ya hit the deck hard.

#107 Smoking Man on 03.05.15 at 11:16 pm

DELETED

#108 Outsider Advisor on 03.05.15 at 11:17 pm

Kudos to Garth for his tireless efforts in trying to wash the unclean day after day. Hard times ahead will foster improvisation and creativity for those that have the ability to see opportunity in crisis. For those that don’t take themselves too seriously….enjoy this blast from the past
https://www.youtube.com/watch?v=MtsOQz2I09g

#109 45north on 03.05.15 at 11:24 pm

Why was $1 million chosen anyway?

as I said before, Harper cut the NDP off at the knees. Mulcair could not get up and beat his chest over $1 million houses – it would be so bourgeois.

http://en.wikipedia.org/wiki/Bourgeois_(disambiguation)

Trudeau saw Mulcair’s dilemma and didn’t want to make it his.

the obvious next step is to require 10% downpayment on properties between $900,000 and 1 million

The Financial Post said, “Housing sales across the Greater Toronto Area climbed 11.3% in February from a year ago, helping to push the average sale price of detached homes in the city past the $1 million mark for the first time.

as I have said before the law should be that if you want to publish any real estate data it must be compiled and distributed by an independent party. If you don’t publish anything then the law doesn’t apply but the instant you say “average sale price” or “housing sales climbed 11.3%” then your records are seized and officers are compelled to testify under oath. It would be like Glengarry Glen Ross but instead of Shelley Levene stealing the prospective buyers list the detective would just walk in and take it.

#110 For those about to flop... on 03.05.15 at 11:28 pm

#90 bob on 03.05.15 at 10:24 pm
Can you ban commenters like “Victoria Real Estate Update”… they’re not comments.

I mean, how would you like (and the rest of the readers like) I started copying and pasting stuff like, oh…

–~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Are you serious ?
I don’t give a crap about Victoria real estate but this person takes the time to show how overpriced real estate is here so even an idiot could understand it .
This person should take over from ” Vancouver price drop” because they obviously care a lot and have time to burn for a good cause .
Don’t shoot the messenger ,this person is just trying to help.

#111 Vanecdotal on 03.05.15 at 11:28 pm

A random quick google for Surrey Central City condo incentives:

http://www.waveliving.ca/

“It’s on us !
1 Year Strata Fees
1 Year City Taxes
1 Year Mortgage Payments”

Related BIV backgrounder (from 2012 but relevant) that also mentions the same development. Eye-opening compared to today’s state of unsold units almost 3 years later:

http://www.biv.com/article/2012/6/surrey-condo-marketers-feel-the-heat/

“Still, there are concerns about Surrey’s overall condo inventory, said Surrey realtor Brent Roberts, especially in Central City and Whalley, where a rush of new construction followed plans for a new city hall, library and RCMP headquarters. “People thought they could buy pre-sales and then flip them for a profit,” Roberts said. “I know one investor sitting with 14 of them.”

I thought RE only goes up in the BPOE? Then why all the buyer incentives? Seems kind of… desperate.

#112 Vanecdotal on 03.05.15 at 11:31 pm

From 2013 but corroborates what I’ve been seeing in my colleagues / peer groups anecdotally re: disappointment in YVR:”Investment” condo performance: http://www.theglobeandmail.com/life/home-and-garden/real-estate/vancouver-condo-buyers-take-a-second-look/article14162513/

Note: FVREB’s latest Home Price Index Fraser Valley Frankenumber price chart: http://www.fvreb.bc.ca/statistics/Package%20201502.pdf

Detached property bought since 2010 by their own (favourably-massaged) stats that has been a losing investment, before inflation adjustment, carrying costs, relentlessly increasing (+3 %/yr.) property taxes, and lost opportunity costs.

Interesting that the HPI is “designed” to strip out market volatility, yet look at the charts: Nothing but volatility indicated starting in 2010 and continuing today. Sure would like to see what kind of price swings are really happening in the markets in any given time frame. That would be GREAT.

Also noticed buzzbuzzhome.com (Developer project pumping site) recently, sometime in the last few months, appears to have ceased posting the official stats for current year’s, and next 5 years of projected condo / townhome completions. Used to post these on ALL their development details pages. Wtf? I always thought it was odd, being a marketing site, to post the 1000’s of competing condos coming online simultaneously with the one you’re “considering” buying, and the 1000’s more in the pipe, and now I guess they agree. Even less info for the plebes. Disinformation is complete, move along… and bring your chequebook!

#113 45north on 03.05.15 at 11:32 pm

I checked ( a little bit ) to see if anyone else had posted this. I got this from the Ottawa Citizen:

Canadian dollar will fall to record lows once Fed starts tightening, analysts warn

http://business.financialpost.com/2015/03/05/canadian-dollar-will-fall-to-record-lows-once-fed-starts-tightening-analysts-warn/

and also from the Ottawa Citizen:

Toronto’s million-dollar homes reveal risks of Bank of Canada’s flirtation with lower rates

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

first!

#114 Bottoms_Up on 03.05.15 at 11:32 pm

People buying million dollar homes are not 1st time buyers. They are move-up buyers, that bought a $400,000 shack in 2006 with 0 down and 40 yr amortization, now selling that shack for $700,000 and taking their $300,000+ equity as downpayment for their upscale McMansion.

#115 Vanecdotal on 03.05.15 at 11:35 pm

Oops my bad, “Detached property” should say ATTACHED property *puts down pipe*.

#116 Bottoms_Up on 03.05.15 at 11:40 pm

#80 Jeff on 03.05.15 at 10:07 pm
———————————————-
What’s sad about that is that one can have a decent house actually in Hamilton (‘mountain’) for about 1/3rd of that Binbrook house. Closer to schools, restaurants, shopping etc.

#117 Hardcore Fernandes on 03.05.15 at 11:41 pm

Check out these real estate pumpers Garth:

http://globalnews.ca/news/1854425/smart-money-do-you-have-questions-about-real-estate-ask-them-here/?hootPostID=ba967000ddf57ccc39beaf7003706f00

One even shouts out to Bald Lamb!

#118 45north on 03.05.15 at 11:43 pm

and something else

The cancellation of the Avro Canada CF-105 interceptor in February 1959 was a traumatic event for Canada’s emerging aerospace industry. When Aviation Week reported on the fighter’s rollout, in October 1957, the magazine called it “a serious contender for the top military aircraft of the next several years”.

http://aviationweek.com/blog/1957-broken-arrow

we could’ve been a contender!

I was a young boy and I remember hearing men who had been working on the Arrow telling of their disappointment and dismay.

#119 Mark on 03.05.15 at 11:46 pm

“Sub prime market in Canada is much, much larger than 3% of the market. Most of the loans are simply reported as uninsured to the regulators, and are part of normal course of business. Uninsured mortgages attract low capital requirements.”

Actually when a subprime loan is CMHC insured, there is a huge incentive to report such to the regulators (ie: OSFI). As the regulatory capital requirements are somewhat less (almost as low as government bonds, since CMHC mortgages are effectively backed by the full faith and credit of the Government of Canada) for insured mortgages versus mortgages with similar credit metrics without insurance.

It is well known that the CMHC and its re-insurance partners insure ~$900B out of roughly a $1.2-$1.3T residential mortgage market in Canada. That’s no secret to anyone, nevermind the banking regulators. As I suggested yesterday in response to an email Garth posted, where the real shenanigans may lie is with high-flying Credit Unions in the provincially regulated banking sector.

As for the size of the ‘subprime’ market in Canada, well the RE industry has largely succeeded at brainwashing the public and industry professionals into some bizarre definition of ‘subprime’. By their definition, which is overly rosy, there is little subprime in Canada. By a more reasonable definition, the more traditional definition, which is simply that a loan is subprime if its quality is less than “Prime”, the majority of Canada’s residential mortgage credit, at least at the time of issuance, is subprime. If someone wants to make meaningful comparisons to other jurisdictions, they need to take steps to ensure that the definition of “subprime” is statistically consistent between the two populations being sampled.

#120 Vanecdotal on 03.05.15 at 11:48 pm

#100 Sharky’s best

They already are, and have been for quite some time in the new condo market. Standard practice to the point of “tactfully” alluding to this approach in the marketing materials. I kid you not.

#121 Bottoms_Up on 03.05.15 at 11:51 pm

#73 devore on 03.05.15 at 9:44 pm
—————————————————–
And a couple other points, a stock becomes more valuable when a company buys back it’s shares (now there are less shares outstanding, making each more valuable). Also, large pension and hedge funds (as well as insiders) will own a large percentage of the stock and/or options, so there are vested interests in having the company, and thus stock price, perform well.

#122 CalgaryRocks on 03.05.15 at 11:51 pm

#63 Poutchli on 03.05.15 at 9:14 pm
I encourage fellow programmers and engineers to move to the US. Houston, the Calgary of the US, has beautiful 4 bedroom homes for 450k.

There are a lot of IT jobs in the US and Canadians can uniquely benefit through NAFTA. A TN is easy to obtain (if you have the qualifications), cheap and good for up to 3 years (just make sure that you have 3 years left on your passport).

You’re not stuck with an employer because you can just as easily get another TN or, if you work with a consulting firm they can send you to different clients.

I’m hoping to work with the Florida Mouse people on a project and it’s much easier to go through a 3rd party contractor. Especially since I don’t want to stick around forever.

Currently the H1B cap is low so competition from the usual suspects is low, who knows how long this will last. But for now, it’s awesome for Canadians.

#123 waiting on the westcoast on 03.05.15 at 11:56 pm

#90 bob on 03.05.15 at 10:24 pm
Can you ban commenters like “Victoria Real Estate Update”… they’re not comments.

While maybe they are a little long, I like getting them. And they are typically posted only once per week. My vote is to allow them!

#124 Vanecdotal on 03.05.15 at 11:56 pm

#97 Last of the Baby Boomers

Agree, before fiddling with policy (CMHC, Interest Rates, CRA) to attempt to engineer a bubble fizzle instead of a pop, govn’t needs to assess the foreign ownership data, and adjust policy accordingly if needed. Both need to happen at the same time imho, or we may risk further market skewing if in fact locals (making local incomes) get shaken out in the process, which is inevitable in the unwinding. Bit of a conundrum.

#125 Max on 03.06.15 at 12:01 am

The crazier all this gets, the more convinced I am that we are nearing the top. I’ve given up arguing with the believers because a bubble can only form if the participants are blinded by short-term gains and refuse to see reason. The only thing I’m concerned about now is what will the fallout be and how can I protect myself from it.

#126 Guy on 03.06.15 at 12:03 am

Of course the Realtors cartel is in the business of selling houses so manipulating statistics to make things look favorable is not beyond their ethics. What I am wondering is how much of those purchases are by speculators in other area codes of Canada?

More importantly, in the US, the sub-prime mortgages were bundled as mortgage backed securities, given a Weiss rating of A+ (Weiss is being sued by the department of justice for this), then sold on the international markets to such countries as Greece and teachers pension plans in Denmark. What is being done with the sub-prime mortgages here so trusting investors getting screwed?

#127 Mark on 03.06.15 at 12:05 am

“If most Canadians have a one asset savings plan (real estate), when their homes are devalued during the crash and many are forced to sell, who will be left to purchase other than a few on this blog and foreign capital.”

Since there isn’t exactly a chronic oversupply of houses in Canada (yet), the argument for malinvestment really can’t be made. Less than optimal investment, but not malinvestment on the same scale as seen in the US with literally millions of vacant houses.

Thus, I would suggest that the economy will, as RE prices continue to fall, allocate higher valuations to counter-cyclical sectors of the economy. For example, when the housing market performed very poorly in the 1990s, the stock market did incredibly well, and the employment market did very well for a certain subset of individuals not involved with finance/real estate.

There’s no reason to believe similar couldn’t, or wouldn’t repeat itself this time around. However, instead of the high tech sector being the deeply countercyclical sector that outperforms this time around, I believe Canada’s precious metals sector is a sleeping giant waiting awakening, and could, over the next decade or two, blossom into a bubble/mania on the same scale as the tech sector in the 1990s. If you study the nature of deflation and the global economy, the preconditions for such are stronger than ever, and Canada has unquestionable dominance in the sector.

In fact, that might be even an argument as to why people are so overly optimistic about Vancouver and Toronto’s RE future. Vancouver and Toronto host the administrative headquarters of much of the world’s precious metals production industry. If the industry explodes upwards in prominence, who knows, there might actually be an organic non-credit driven market for very expensive real estate in both cities. Much like Silicon Valley real estate saw quite a lift from people getting rich in the dot-com boom of the late 1990s.

#128 Paul on 03.06.15 at 12:05 am

Will the sheeples be putting the downpayment on their credit cards soon…
——————————————————————-They do now and have been!

#129 Cici on 03.06.15 at 12:06 am

OK, now I’m convinced. These idiots totally want to bankrupt the system and hand the tab over to tax payers.
Call me paranoid, but listening to that Benjamin Tal zombie is enough to make me firmly believe in the prospect of a bail-in, and want to get my a$$ out of Canada.
I mean seriously, they can only pump this so far before the money well runs dry and the whole thing implodes. With oil, miners and most of the general economy taking a mean dump, they are going to do everything possible to keep primping up this pig.
Anyone have any great ideas about the best and fastest way for a Canadian to get US residency or citizenship and safely transfer all wealth out of said nation?

#130 jane 24 on 03.06.15 at 12:08 am

Guys the reason that journalists no longer neutrally report or ask inquisitive questions are that there aren’t any actual journalists at most Canadian media!

Newspapers world wide buy in the same story from outside freelancers or central news gathers such as Reuters and then run it under their own bylines so the reader thinks that it originated with that specific media.

I read the UK press and the the Toronto Star and the Montreal Gazette most mornings and the stories are the same, word for word. You guys in Canada don’t realise this this as so few of you read UK or US papers. Many Canadians actually think that their Canadian papers have chosen and written the news coverage within.

Anyway just got back from two weeks in Vietnam. FAB. Safe, cheap, incredible beaches and countryside and trendy although polluted cities. Next year we plan to go for two months in the winter. Four star hotel room was $20 US a night and quite possible to eat well on $5 per supper. Lovely people too. Beats the hell off a Canadian winter, think of the all the heating you could save.

#131 kommykim on 03.06.15 at 12:10 am

RE: #83 Spam Fine on 03.05.15 at 10:11 pm
And before you sneer with stupid comments like it serves them right for sending junk this applies to everyone even private citizens who send an unwanted email… Forget about the constitution and the right to free speech this law eliminates that!

(Sneer)
You forget that the receiver of email PAYS their ISP for that service. I do agree with you that paper junk mail should be banned too because essentially the receiver has to pay to get rid of it via taxes or fees for recycling or garbage pickup.

#132 Christopher Lackey on 03.06.15 at 12:11 am

Re: subprime – if you get a mortgage from the big five and they see youre in hock for 100k to vito the subprime loan shark, wouldnt they decline
you accordingly based on your tdsr?

Or are these all at the “alternative” lenders like EQB, HCG, and MKAP. Tread carefully with those tickers!

#133 Mark on 03.06.15 at 12:16 am

“What monetary/fiscal policy tools can make people spend even more money they don’t have or credit they have already used up?”

Almost none. Which is why policy makers fear deflation and try to fight it at all costs.

I’d suggest that this is soon to be reality in Canada in light of falling RE prices. For that reason, I believe central bankers (ie: the BoC) are behind the curve in providing interest rate policy and stimulus to combat the onset of such.

#134 Drill Baby Drill on 03.06.15 at 12:29 am

Canadian subprime lending is 25%, and while it amounts to less than 3% of outstanding mortgages.

It would be interesting to know how high of a percentage did sub primes reach before USA housing tanked ?

#135 Blobby on 03.06.15 at 12:33 am

I’ve been thunking about this recently. This whole mess is going to blow up so hard, that the government will have to step in and do something when it does all go boom.

What are the options if this happens? Way I see it there are 2 valid options, maybe Garth can tell me if there are more, if i’m right,etc.

1. Lower rates. But.. We cant go lower, and if states are raising theirs, we’d have no choice without causing massive inflation. And besides, low rates caused this mess in first place. So I cant see this happening

2. Government bailing people out. This seems likely to me, other countries have done it. Basically the government pays off everyones mortgages/debt and we start again. But if that happens, it kinda screws over the sensible people who saved and didnt borrow.

Cant think of any other possibilities?

So if option 2 is the most likely, i may as well just blow my savings/investments – and put myself into debt? :D

#136 Ronaldo on 03.06.15 at 12:47 am

#101 Mukadi

”If they apply for a $1million mortgage when they cannot afford 20% downpayment, doesn’t that mean that they’re insane?”

No, but the PTB overseeing this Ponzi scheme and allowing this to happen could be slightly nuts in the head.

#137 The China Connection NYC, Canada on 03.06.15 at 12:48 am

http://www.businessinsider.com/chinese-investors-in-the-new-york-real-estate-market-2015-3

Heavy details about Chinese real estate investment in New York and some reference to Canada:

Some quotes from the long article:

“But increasingly, Chinese developers and investors are looking elsewhere to build. And a fast-growing number are setting their eyes on New York.

Chinese investors pumped more than $3 billion into the New York real estate market last year. That was nearly 43 percent more than they invested in 2013. And it appears to just be the tip of the iceberg.

With China’s economy cooling, investors are throwing their money into deals in New York. And it’s not just individual Chinese buyers snapping up condo units these days. Institutional players, investors and developers, who’ve made a splash buying trophy buildings over the past two years, are not only continuing to ramp up purchases, but also are accelerating their involvement in condo development and looking for developable New York land.

“There’s a whole lot of capital in Asia that wants to be invested [here],” said Kevin Swill, chief operating officer of the New York-based Carlton Group, a real estate investment banking firm. “They look to the U.S., even with ups and downs, and it’s still the most stable real estate market in the world.”

‘Unlimited’ demand

For the first time in 2014, wealthy Chinese buyers spent more on New York City real estate than Russian billionaires.

Chinese investors shelled out $3.35 billion on New York City real estate, both residential and commercial, in 2014, a roughly $1 billion jump from the year before, according to research firm Real Capital Analytics. As The Real Deal reported last month, the only country that invested more in the city was Canada, which spent $3.4 billion.”

#138 Derek R on 03.06.15 at 12:56 am

#95 4 AM Sunrise on 03.05.15 at 10:48 pm wrote
When BC welfare increased the shelter allowance (which, from what I understand, not all welfare recipients receive), landlords in Vancouver’s Downtown Eastside raised their rents accordingly. So people who were poor, but not poor enough to qualify for the shelter allowance, got gouged.

Yep that’s the crazy way it works. The taxpayer is paying taxes to drive up the rents the taxpayer has to pay.

The even crazier thing is that if that same shelter allowance budget was used to build low-cost rental housing instead, rents would be driven down by the increased supply of housing instead of being driven up the increased demand for it.

#139 Ronaldo on 03.06.15 at 1:00 am

#100 Sharky’s best on 03.05.15 at 10:59 pm

”Will the sheeples be putting the downpayment on their credit cards soon…”

Don’t have to. Seller will give them the down payment. Say I want 1 million for my house. You have no money. We write up the deal for 1.2 million. I spot you the down payment of .2 million. You give it back to me as the downpayment then you go get the million from the bank which I get. I got my million, you got the house. You’re happy, I’m happy, the bank’s happy. But the house just went up 20%.

#140 Don on 03.06.15 at 1:06 am

#90 bob on 03.05.15 at 10:24 pm
Can you ban commenters like “Victoria Real Estate Update”… they’re not comments.

I mean, how would you like (and the rest of the readers like) I started copying and pasting stuff like, oh…

and went on, and on, and on…
**********************************
Whadda yah mean!
But it is an update and an update can be a comment…and it is relevant to the subject matter – the greater fool. It is bang on also.

I drive by the same condo developement every day…couple weeks ago 4 of the 8 units had a SOLD Sign (yes in caps). The other day I drive by and all are for sale again, no one moved in at any point. Figure the realtor was trying to put the fear back into people. “Buy now or be priced out forever” LOL

Another realtor actually changed the original for sale sign that had been up for the past three months. The new sign has a background image of an explosion.

It seems the bandits are losing hope.

#141 Derek R on 03.06.15 at 1:10 am

#35 Calgary Real Estate Update on 03.05.15 at 8:10 pm wrote:
If it was possible to use oil to justify Calgary’s sky-high house prices, then house prices in oil-rich Texas (Houston and Dallas) would likely be a lot closer to prices in Calgary (at least close enough to make it look like Houston and Dallas are on the same planet as Calgary).

Agreed. Of course a big part of the reason for the difference in price between Calgary and Houston is the tax structure. Calgary has an income tax, lower property tax and no sales tax; Houston has no income tax, higher property tax and a sales tax.

The Alberta income tax basically has the same effect as the Texas sales tax since they both cut consumption. But the key to the difference in prices between the two cities lies in the property taxes. Those have the same effect on property prices as interest rates do. Higher property taxes lead to lower property prices.

So the high Texas property taxes are the cause of Houston’s lower property prices relative to Calgary.

#142 The China Connection NYC, Canada on 03.06.15 at 1:10 am

http://www.businessinsider.com/chinese-investors-in-the-new-york-real-estate-market-2015-3

Further about the previous comment, the numbers in the article is a big eye opener. They make it obvious that certain real estate markets can no longer be seen and understood as local markets.

Some cities around the world are clearly part of the global investment trends and strategies, not even individual, but institutional real estate investment level, both in commercial and residential properties.

#143 Henry Rearden on 03.06.15 at 1:31 am

In this new global economy, home ownership is for the weak and plain dumb. We live in an incredible time when we can move for money and make governments compete for our residency. Why squander this by buying an inflated asset in a single geographic area? Utterly insane. People like me do not go with the crowd and would never want to. Chained to a pile of bricks for 25+ years? No thanks. I prefer to own businesses that pay me first for no work. Free, flexible, mobile and liquid. This is the way of the future.

#144 EvilMagpie on 03.06.15 at 1:52 am

#63
Already there. Median house price in 84118 is just 170K. :)

#145 Willem on 03.06.15 at 2:13 am

This is my first post and I couldn’t resist tonight. I live in Coquitlam, B.C. And I have never seen our market on fire like now!! We are a suburb of Vancouver that is an easy non highway commute (20min.) into downtown. To be more specific, my area is the older original part of Coquitlam. There are lots of SFH (40 – 60 years) on 7000 – 12000 sq. Lots selling for $700,000 – $1,000,000. Right now everything under $1,000,000 is selling in less than a week and sometimes one day before the sign gets planted on the lawn. It is crazy; maybe it’s because we are one year away from completion of our new Skytrain, or the illusion of cheaper mortgages, or lack of reasonably priced product in Vancouver. A lot of these properties are quickly being grabbed by builders and re-marketed with monster homes built on them for 1.5 – 2.5 million but not selling very fast. Coquitlam is one place where dirt is a very liquid asset, but who knows where, when,and how this will end!!

#146 straight six on 03.06.15 at 2:13 am

predicting the big RE quake.
NOW.. ok, now.. I mean NOW! it can’t be much longer.. now!
I’m still waitin.. are we almost there?

#147 David Lee on 03.06.15 at 2:46 am

FYI, just heard Ian Young from SCMP will be on CBC’s “The Current” tomorrow morning.

He’s the only media type that can’t be labelled a xenophobe and/or racist (although it would be interesting to hear someone give it a try) addressing “that which can’t be named” in Vancouver’s real estate market.

I hope he keeps at it. He seems to be the only voice that can’t (yet) be silenced, bought, dismissed by Garth or accused of having an agenda.

#148 Dave on 03.06.15 at 2:59 am

This has been such a long and incredible time for Toronto real estate the past 10+ years

#149 Lillooet, BC on 03.06.15 at 4:13 am

“#48 MTVmademedoit
Let it go man. No one cares about Lillooet.”

Sorry, but I couldn’t help gloat a little. While most of the rest of the country was suffering -30 temps during
February, we were enjoying +12 C temps, all snow melted, grass starting to grow, people in shorts walking, riding their bike, enjoying the coffee shops on Main street. And yes, there are jobs here, believe it or not. And you can buy a 2 bedroom house for under $175k. I have been mortgage-free and debt-free for five years and enjoying Canada’s hotspot, so I don’t need to earn $90k/year. And yes, skiing in Whistler is an hour’s drive away. I’m just trying to help out my fellow countryman by telling them that there are alternatives out there – think outside the box, man.

#150 Calamity Jones on 03.06.15 at 4:23 am

I’ve waited a long time for the second mortgage market to return…and here it is. Last time I was funding seconds the T Bill rate was 14%. I was building million dollar mansions and borrowing at 16%.

The second from First Swiss Mortgages is now 13.2%. As a second mortgage lender I’m signing up…again.

This is easy money…like shooting fish in a barrel because we demand collateral up the hoopster. God I love being a shylock and having people banging on my door. Let the good times roll.

#151 Billybob on 03.06.15 at 5:04 am

Greetings from Dubai.

Interesting read today, as well as the online G&M, it appears that Canadians just can’t stop taking on more debt. It’s like watching a slow-motion train wreck, horrifying but you can’t tear your eyes away.

Been watching the RE in Canada a long time. Even with the 20% discount offered by my pay being in USD (and tax-free), I will not consider a property in Canada at this time. Perhaps never. It is not a question of amount – that is no barrier – it is one of VALUE. So the sig other and I (she’s Czech) have been looking around to see where we might settle after the expat adventure wears off.

One city logically under consideration is Prague. Arguably one of the nicest cities in the world. On one visit there was able to attend a Mozart string quartet in the afternoon, popped into a jazz club, and ended the night drinking at a hockey themed bar complete with life-size statue of Jaromir Jagr. Entire city jammed with beautiful architecture (and women!). Dinner and drinks for under 15EUR. Fantastic place. You get the picture. It’s not exactly a cultural wasteland.

This is just one apartment she found. Listed for 5.000,000CZK, which is about 250,000CAD.

http://www.sreality.cz/detail/prodej/byt/3+kk/praha-velka-chuchle-starochuchelska/2753413212#img=5&fullscreen=false

The site is in Czech, of course. But being an English speaker in Prague is no barrier, as most everyone speaks passable English. Point is, this is what 250K can get you. Compare that to some garbage condo in one of Canada’s two most expensive cities….(although, I would compare PRG more to YUL).

I love Vancouver, from the West Coast originally. But if anything helps illustrate the insanity of pricing in Canada, this was it for me. Just a snapshot of course, but there are many places equally or far more desirable than Canada’s cities for much less. The only ones who don’t believe that are…resident Canadians. I suppose when you have a vested interest in your RE never declining, you have no choice but to believe that. Ask the Americans how that worked out.

All these articles in G&M lately trying to proclaim the greatness and world-class status of Toronto to justify pricing? Really? Have the authors of this propaganda actually been anywhere else? Here’s a tip – when you constantly have to tell everyone how great you are, you probably aren’t…

Anyway, enough head-shaking. Off to the beach it’s 24C here today and of course, sunny. Till next time!

And thanks for all of your efforts, Mr. Turner.

#152 asach on 03.06.15 at 6:44 am

I am glad that Mark is back. Sorry for commenting late. I was busy during the last few days in Bangkok and Myanmar.

I am a Thai, a Canadian with Sikh ancestory having lived in Thailand, France , India , U.K and Canada. I never new what the term racism meant until I went to the U.K for education in the early 80’s and those were the good times. I think I can smell a racial remark when I read or hear one. But everyone deserves a second chance definitely. One thing I would like to say here is that during my 7 years in Canada I have not experienced any racism or been spat at. I felt most at home in Canada. I feel my kids are safe here than in most countries I have been and can to be who they want to be and achieve what they want to achieve. All in all Canada is a great country with all the pros and cons.

#153 Mork dead. Spock dead. Hans Solo critical. Kirk...? Kirk? on 03.06.15 at 6:55 am

It’s too late, he’s dead Jim. I mean, Garth.

The general population is heading over a debt cliff and into a real estate abyss – the Wile E Coyote moment lies ahead.

Last night on Toronto radio, I heard Dave Eddie, a sometimes Globe columnist and general third tier wannabe media hack, talking about how Toronto real estate will go up in price forever. His sidekick and callers all confirmed this with him. (He then went on to praise the “Wheat Belly” diet, even though it was thoroughly discredited on CBC television for an hour last week…nevermind the facts apparently, people only pick and choose media that confirm their biases these days)

This is the cohort of believers that are upping their debt and going full steam ahead.

It’s too late.

BREAKING NEWS: Kirk has been found; he’s having cocktails at a charity event.

Now where the hell is ALF?

Melmac, here I come…..

#154 Jim Matheson on 03.06.15 at 6:58 am

We are heading into very stormy waters. I work in debt consolidation, the files are expanding daily and credit card and mortgage debt are getting out of control for way too many.

#155 Incubus on 03.06.15 at 8:30 am

Actually the limit should be 3 or 4 times the family income.
$1000 0000 is absurd.

#156 Mr. Frugal on 03.06.15 at 9:32 am

#116 45north on 03.05.15 at 11:43 pm

and something else

The cancellation of the Avro Canada CF-105 interceptor in February 1959 was a traumatic event for Canada’s emerging aerospace industry. When Aviation Week reported on the fighter’s rollout, in October 1957, the magazine called it “a serious contender for the top military aircraft of the next several years”.

http://aviationweek.com/blog/1957-broken-arrow

we could’ve been a contender!

I was a young boy and I remember hearing men who had been working on the Arrow telling of their disappointment and dismay.

Thanks for the link! That was one hell of a good airplane. Too bad this country never seems to follow through with a good thing.

#157 Smoking Man on 03.06.15 at 9:44 am

Wow CAD trade balance, – 2.45 billion, a disaster.

USA unemployed rate down….

Get ready for a 0.25 cut by BOC next meeting.

#158 Ivan the Moderate on 03.06.15 at 9:46 am

With the ECB lowering the Euro, can the US Fed afford to increase the rates? It would mean a sub-par euro, even lower Yen, and a slowing of US exports

#159 Tonya on 03.06.15 at 9:46 am

Garth, I did a google search for last April and May because I wanted to see for myself that the major papers reported housing going past the $1 million mark a year ago. Unfortunately, I couldn’t corroborate your claim. I could only find the Huffington Post reporting that. The other major papers reported the the market “neared” 1 million. I haven’t found evidence yet that the papers were wrong by stating this is the first time we’ve crossed this bench mark.

http://www.huffingtonpost.ca/2014/04/18/house-prices-toronto_n_5174437.html

http://www.thestar.com/business/real_estate/2014/05/06/single_home_prices_in_toronto_shoot_up_13_to_965000.html

Look harder. Here’s the real estate board report. You would make a fine Globe investigative reporter. — Garth

#160 Nagraj on 03.06.15 at 10:12 am

#89 MisterObvious
“What surprises me is that so few people have come to recognize the charlatanism that is the essence of Canadian residential real estate.”

The most dramatic instance of the use of the word CHARLATAN happens in an old Bette Davis movie, “Juarez”. In the very last scene, the heroine, having gone completely bonkers, runs off into the distance screaming “Charlatan! Charlatan!”

GT: ” . . . investigative talents of footstools.”
Great metaphor. But substantively maybe too kind to the editorial boards, eh?

#161 Hot Albertan Money on 03.06.15 at 10:28 am

So who are these subprime lenders (private institutions? Arms of existing banks?)? And can the government crack down on them for circumventing CMHC’s policies?

#162 Rational Optimist on 03.06.15 at 10:28 am

80 Jeff on 03.05.15 at 10:07 pm

“I was at the local TD branch in Stoney Creek earlier today…next to me a lady was requesting a bank draft for 50k for her son so he could buy a “lovely” $670,000 bungalow in Binbrook.
I am sure most people on this blog have never heard of this place.”

If Hamilton weren’t so utterly asinine in its lacking of sensible planning, even Hamiltonians would have never heard of Binbrook, as it would have remained a corner with a couple of businesses serving the nearby farmers. Instead, all that useless farmland has been replaced with productive houses, filled with people who have to commute thirty or forty minutes to the only jobs accessible to them (you cannot commute from Binbrook to Mississauga, much less downtown). And all the other taxpayers in the region get to pay for this insane sprawl.

I have coworkers who spend part of their existence in Binbrook (you can’t say you “live” anywhere when it’s a place like that). Some of them managed to borrow half a million for the privilege. I’m not surprised to hear a Stoney Creek mother paying part of the down payment for her son- a lot of people in Hamilton would think that is just the nature of things.

#163 Tyler Durden on 03.06.15 at 10:37 am

The change in the CMHC insurance rules was exactly for the reason you say Garth. So that people wanting to buy a million dollar home would HAVE TO have that $245 000 in cash, and that the rest of us wouldn’t be a backstop for their speculation(stupidity). The secondary lending growth is just a side effect; most legislation has some. The intention was good and should be right up our alley in this blog.

http://www.thestar.com/business/2014/06/06/cmhc_to_stop_insuring_mortgages_on_milliondollar_homes_condo_construction.html

#164 Hot Albertan Money on 03.06.15 at 10:39 am

Forgot to add, saw this on Bloomberg today…

http://www.bloomberg.com/news/articles/2015-03-05/parents-risk-retirement-to-support-millennial-kids?hootPostID=d7351bd41287753aab8ba294719adf99

Baby boomers are putting their retirements at risk by spending too much on their adult children. With real wages stagnant and unemployment among those age 16 to 24 running above 12 percent, large numbers of households continue to dole out cash to children no longer in school, covering rent, cell phones, cars, and vacations.

Time for these kidults to grow up and for the parents to cut the cords

#165 fixie guy on 03.06.15 at 10:42 am

“It’s a legitimate question. Why was $1 million chosen anyway?”

Because the policies were designed to benefit the supply side – lenders, developers, real estate – and not borrowers. The latter will be in servitude to the former for decades.

#166 Mark on 03.06.15 at 10:56 am

“So who are these subprime lenders (private institutions? Arms of existing banks?)? And can the government crack down on them for circumventing CMHC’s policies?”

CMHC policy only applies to mortgages for which CMHC has written insurance against. And the Bank Act only regulates federally chartered banks. The OSFI only supervises federally regulated financial institutions.

As Garth’s email from yesterday that he posted, certain (and I would suggest many) Credit Unions are engaged in what clearly is uninsured subprime lending. These are generally provincially regulated institutions. A significant number of Credit Unions have, in my view, now grown into behemoths which are far beyond the ability of their relatively unsophisticated boards to supervise appropriately when it comes to risk management. And some governments are clearly asleep at the switch or inadequately sophisticated in their statutory authority to supervise and regulate.

Otherwise, you are looking at private, non-publicly traded companies (who are subject to the full discipline of their counterparties and financiers), or, in some cases, companies like Home Capital Group, for subprime mortgage lending in Canada. Arguably CMHC is also a subprime mortgage guarantor, but apparently the definition of ‘subprime’ has been perverted so much in Canada that many don’t even consider CMHC insurance to be ‘subprime’ mortgage insurance.

#167 Broke Dick on 03.06.15 at 10:58 am

Meanwhile most families still make about $72,000.- Garth
====================================

$72,000? That’s what my house made last year. I, on the other hand, have no income.

#168 Obvious Truth on 03.06.15 at 11:00 am

Just listening to this Quay Valley, solar powered hyper loop stuff.

Could this be duplicated in lillooet? Buy land now!

#169 Mark on 03.06.15 at 11:01 am

“Time for these kidults to grow up and for the parents to cut the cords”

With what jobs? You are aware that job creation in the economy particularly for the young, has been quite minimal over the past 15 years? There are barely more people working today than there was in 2000 in Canada, and the young have borne the brunt of such a relative reduction in the workplace.

Its easy to think of unemployed young people as bums, but when the jobs they apply for are receiving hundreds of resumes, and employers not even giving the proverbial “time of day” to even professional applicants with advanced degrees, just blaming the “kidults” as you would call them strikes me as ignorant.

#170 Nagraj on 03.06.15 at 11:01 am

#156 CORRECTION

The most dramatic use of CHARLATAN occurs at about 1:33 into “Juarez”. Not at the end of the film.

#171 4 AM Sunrise on 03.06.15 at 11:12 am

#87 Vanecdotal on 03.05.15 at 10:16 pm

Does that warrant a call to the CBSC? It’s one thing to make general remarks like, “but real estate always goes up! They’re not making any more land!” (which I have heard on similar stations) but it’s entirely another to shill for a specific development.

#172 Broke Dick on 03.06.15 at 11:16 am

#74 Smoking Man on 03.05.15 at 9:48 pm
Dogs, sorry I’m late, been busy. Working on an anti gravity device. If I can just get this mixture just right.
==============================

To SM. Being high is not the same as defying gravity.

BTW the mixture is two parts fresca and one part vodka

#173 fancy_pants on 03.06.15 at 11:18 am

Man, step back and look at these numbers floating around. This really has gotten ridiculous.

There is no way this can end well – just too much debt at all levels, federal, provincial, consumer, mortgages.

In the meantime, lets just keep shuffling the deck chairs around. A liberal staunch in the air but hey, the night is young and the music plays on.

#174 Bobby on 03.06.15 at 11:24 am

For # 90 Bob,

I say the Victoria Update posts are great because they are a reflection of the real estate market here in Victoria. Regardless of what the local cartel states, the market isn’t that great at all. And that is from a realtor on the ground here. I drive by a building on Mackenzie that was built in 2012 and there are still units for sale. Certainly not a sellout by any means.

#175 Renter's Revenge! on 03.06.15 at 11:25 am

“it’s the end of a cycle – a perfect head-and-shoulders formation” – Garth

aka Batman?

https://www.google.ca/finance?q=TSE:XLB&ei=TMX5VLnYFMaYrAHJx4GoBA

(zoom out to 3 months or longer on the timescale)

#176 fancy_pants on 03.06.15 at 11:25 am

.. and yes, I mean staunch. Stubborn godless Toronto liberal supporters. Hope you get what you voted for. For the rest, sorry, you go down with the ship

#177 bdy sktrn on 03.06.15 at 11:27 am

#121 waiting on the westcoast on 03.05.15 at 11:56 pm
#90 bob on 03.05.15 at 10:24 pm
Can you ban commenters like “Victoria Real Estate Update”… they’re not comments.
————————————-
I read her fine prose everytime as….

“blah blah blah, blah blah blah, blah blah blah, blah blah blah.
here’s a few shitty cheap homes in some FL swamp.
blah blah blah, blah blah blah, blah blah blah, blah blah blah.
golly gee whiz, boys and girls, don’t buy vic RE.

#178 Alberta Ed on 03.06.15 at 11:31 am

I’d send this column to the ‘business reporters’ at CBC and the Calgary Herald, but the one wouldn’t understand and the other wouldn’t print it.

#179 Noel D on 03.06.15 at 11:32 am

Hi Garth,

Your blog is a ‘must read’ for me everyday, just to keep me ‘sane’ from a ‘debt’ perspective i.e. not to be tempted to gorge on more…made my last mortgage payment last month.

Property prices are already moderating some (does not show up in TREB #’s) in the GTA, in particular condos. e.g. units near Sq. One are already going at or below assessed MPAC valuations !.

#180 Hot Albertan Money on 03.06.15 at 11:38 am

To Mark #165…

I agree that the market isn’t good for the younger people, but why do they think they are entitled to , quoting from the article, “rent, cell phones, cars, and vacations”

How many overworked, underpaid, barely making ends meet folks to you know that take vacations? Have the newest phones, the newest cars?

Again, why do the funemployed crowd think they deserve this?

#181 4 AM Sunrise on 03.06.15 at 11:41 am

#149 Billybob on 03.06.15 at 5:04 am

I hope for your sake that the housing bubble doesn’t come to Prague. I love Warsaw for the same reasons you love Prague, but I see signs of a run-up: condo developments springing up in the middle of nowhere, special assessments of CAD $20,000 (I didn’t understand the rest of the notice well enough, but that’s what it looked like) for what might be shoddy building…though I don’t know how unreasonable prices are compared to local incomes. When I account for the exchange rate, prices are maybe 25% lower than suburban Vancouver. Our Airbnb host, part of the rising consumer class, joked that the bank owns his place, not him. He looked like he was doing pretty well renting his second condo out to tourists. He even packed up his wife and kid to crash at his mom’s for one night so that we could rent his place. It was a Canadian virgin buyer’s dream – stainless steel appliances and granite countertops. His second place is utilitarian, tiny (though there are 2 bedrooms!), and depressing. I’m not even sure if it’s up to code.

It will be interesting to see the effect of Airbnb on real estate in cities with high tourist traffic. Rental income? What rental income? I was just hosting friends from abroad who just happened to pay me a pittance for my troubles.

#182 Leo Trollstoy on 03.06.15 at 12:03 pm

With what jobs? You are aware that job creation in the economy particularly for the young, has been quite minimal over the past 15 years?

This is why the Canadian economy, going forward, will continue to weaken relative to the job-creation machine of the U.S.

As oil prices stagnate the Canadian trade deficit will widen sending the USD from strength to strength against the weakening CAD.

#183 Leo Trollstoy on 03.06.15 at 12:08 pm

The CAD is a proxy for the Canadian economy.

And the minimal job creation for recent graduates will ensure that the Canadian economy remains challenged for the future.

This, in combination with Fed’s rate hike this year will send the Canadian dollar lower.

#184 Leo Trollstoy on 03.06.15 at 12:13 pm

This has been such a long and incredible time for Toronto real estate the past 10+ years

More like 20 years…

#185 Holy Crap Wheres The Tylenol on 03.06.15 at 12:31 pm

#106 Smoking Man on 03.05.15 at 11:16 pm
It worked, my mixture worked, not only can I fly but I can type in French… Damn, .
Jésus-Christ , mon mélange travaille , incroyable, je vole , mais étant pourchassés par boggies , un escadron de viginas battant venir me manger .
___________________________________________
Traduire ne fonctionnera pas pour vous est que vous ne pouvez pas sort Smoking Man.

#186 Holy Crap Wheres The Tylenol on 03.06.15 at 12:39 pm

#160 Hot Albertan Money on 03.06.15 at 10:39 am

Forgot to add, saw this on Bloomberg today…

http://www.bloomberg.com/news/articles/2015-03-05/parents-risk-retirement-to-support-millennial-kids?hootPostID=d7351bd41287753aab8ba294719adf99
Baby boomers are putting their retirements at risk by spending too much on their adult children. With real wages stagnant and unemployment among those age 16 to 24 running above 12 percent, large numbers of households continue to dole out cash to children no longer in school, covering rent, cell phones, cars, and vacations.

Time for these kidults to grow up and for the parents to cut the cords
_____________________________________________

Have a neighbor that still has two of his four grown children living at home. Whats worst is they have no intention of leaving and the parents haven’t got the balls to punt them out. The wife is the worst offender, she still needs her children to feel as if she has a job as a mother. That ship has sailed, get over it. These kids are living large too. Spending all they make on nightlife and stuff, Galaxy 6’s, BMWs, trips to Caribbean, nothing in the bank! I blame the parents more than the grown children. The parents have done a shitty job of parenting. I believe the correct term nowadays is enablers.

#187 TurnerNation on 03.06.15 at 12:39 pm

Yes I was talking with a mortgage broker at a networking event he said doing lots of 2nd mortgages now. Higher rates.

#188 Mike S on 03.06.15 at 12:45 pm

“Well, first, houses costing a mill don’t qualify for CMHC insurance. That requires a buyer to cough up a 20% downpayment in order to deal with a major lender. It also means the government will no longer insure financing on the average home, which is interesting.”

Actually I am happy that more and more (outrageously overpriced) properties are not covered by CMHC

This mean that the taxpayer is less on the hook

I think it is good to lower the insurance to even less than 1M, and probably it is the plan of this government

—-

Whoever wants to go subprime to borrow should borrow without the taxpayers help …

#189 Holy Crap Wheres The Tylenol on 03.06.15 at 12:46 pm

You read that right. The 12-month growth in Canadian subprime lending is 25%, and while it amounts to less than 3% of outstanding mortgages, expect that to change. Benny Tal, big economist at CIBC, was saying this week that the million-dollar CMHC cutoff limit is leading to a surge in subprime lenders entering the market which, of course, is what happened in the US prior to the crash there.
________________________________________
So a short term investment in sub prime might be a quick cash grab?

#190 Ying Yang :):( on 03.06.15 at 12:52 pm

#74 Smoking Man on 03.05.15 at 9:48 pm
Dogs, sorry I’m late, been busy. Working on an anti gravity device. If I can just get this mixture just right.

Unfortunately I won’t be contributing any meaning insite this evening, sorry. But when I’m on a roll, I roll.

For those of you who care, My kid was in a (-35k) death trade, I didn’t help him, balls to wall, he recovers and tops his P&L by 10k today. It could have been +30 he bailed to early, rookie. The evidence is up.

Now if this thing works, and I can actually fly, I will share the recipe.

Nosti, great links.. Keep em coming.
…………………,.,,,,…….
Smoking man you must Finally be involved in some good project. I have not heard any of your casino crazy stuff lately. Seneca is calling! That’s what the gf says to me!

#191 Nemesis on 03.06.15 at 1:06 pm

#PrimalDimSum,Or… #”HorryF**k,Inspector!”… #”We’reGoingToNeedABiggerPlane.”…

“The money is staggering, quite honestly.” – Kirk Kuester, Executive Managing Director, Colliers International Vancouver

[TheProvince] – Chinese police run secret operations in B.C. to hunt allegedly corrupt officials and laundered money: Vancouver officials mum on links to foreign police working here

…”Chinese police agents have been conducting secret operations in Canada — a top destination for allegedly corrupt officials — seeking to “repatriate” suspects and money laundered in real estate.

Vancouver city officials will not comment on co-operation with Chinese agents in “Operation Fox Hunt,” or on suspects pointed to by Chinese news services.”…

http://www.theprovince.com/business/story.html?id=10861987

[NoteToGT: Told ya so. And now that it’s all in the public domain… I don’t mind telling you that the first meeting of the joint task force did not augur well for continued cooperation: http://youtu.be/znS3gXjGCiU ]

#192 Panhead on 03.06.15 at 1:16 pm

#87 Vanecdotal on 03.05.15 at 10:16 pm

“… and everything’s at your doorstep out there! Library! School! Cafe’s! Amenities! Skytrain!” etc.
———————————————————

Don’t leave out Gus’ shop …

#193 Holy Crap Wheres The Tylenol on 03.06.15 at 1:25 pm

#43 Nosty, etc. on 03.05.15 at 8:17 pm

#281 Holy Crap Wheres The Tylenol on 03.05.15 at 5:08 pm — “Lets not forget Red Herrings . . . or a Failure to Elucidate . . .”

Latin is too complicated for me, so believe what you will but your sentence at #237 Holy Crap Wheres The Tylenol on 03.05.15 at 12:36 pm – “A war is coming!” appears to be spot on.
___________________________________________
Ok sorry I grew up in the late fifties and sixties where we were force fed Latin. It still is in my freaking head. Anyway I’m old and have seen this same shit different day stuff. Ex military so I know how it works. Not really a church member but these words ring true.
Isaiah54:15 “If anyone fiercely assails you it will not be from Me. Whoever assails you will fall because of you. 54:16 “Behold, I Myself have created the smith who blows the fire of coals And brings out a weapon for its work; And I have created the destroyer to ruin.”
The future is here now. This shit is star wars type of weaponry. http://www.livescience.com/50064-laser-weapon-stops-truck.html

#194 long time lurker here on 03.06.15 at 1:29 pm

I wish there is a way we can stop this kind of practice (getting a 2nd mortgage).

I also heard stories from a friend about how one of his mortgage broker friend was getting people multiple mortgages on their house because the house was so expensive, 1 mortgage couldn’t cover it. I didn’t believe the story and none of my friends did. We just don’t believe this kind of practice exists in Canada.

Before we go complain about the RE price, the first thing we need is more regulations. There are 2 kinds of people we need to stop, 1. the speculators, 2. those who genuinely cannot afford a proper mortgage.

#195 Mike S on 03.06.15 at 1:37 pm

“I encourage fellow programmers and engineers to move to the US. Houston, the Calgary of the US, has beautiful 4 bedroom homes for 450k.

Finding a good job isn’t easy, but it’s not easy here either. The difference if you manage it:

1- half the mortgage
2- salary paid in a currency that’s 20% stronger

Join me in a brain drain away from this housing orgy.”

Many already moved in the past few years …

#196 MTVmademedoit on 03.06.15 at 1:50 pm

#147 Lillooet, BC
“And yes, there are jobs here, believe it or not”
Where? at the liquor store? That’s the only burgeoning commerce taking place there.

#197 we need is more regulations on 03.06.15 at 1:51 pm

“…we need is more regulations. There are 2 kinds of people we need to stop, 1. the speculators, 2. those who genuinely cannot afford a proper mortgage.”

========

Not really.

As long as speculators losses are not backstopped by CMHC, they should be allowed to take a risk and fail, losing their own money.

Which leads to the second group: “those who genuinely cannot afford a proper mortgage”.

Lenders should be able to make the assessment, at their own risk, that’s their job, that’s what being a lender means.

If lenders fail, they should lose their own money – just like speculators.

You can’t regulate to fail, just as you don’t regulate to make profit. They are the two sides of the same coin.

#198 Like risk on 03.06.15 at 1:57 pm

#74 Smoking Man

“Now if this thing works, and I can actually fly, I will share the recipe.”

=====

Can’t wait… How about sharing it now, Smoking Man, I would be happy to test drive it on practice account.

#199 Wildnutter on 03.06.15 at 2:01 pm

#190 Holy Crap Wheres The Tylenol on 03.06.15 at 1:25 pm

They’ll get those lasers onto a drone and there will lightening death bolts flung from the sky with the click of a mouse button miles away.. probably even automate them all. Welcome to the future.

#200 Smoking Man on 03.06.15 at 2:20 pm

#190 Holy Crap Wheres The Tylenol on 03.06.15 at 1:25 pm
.

More Roswell technology re engineered, to bad a mirror, with ceramic backing can shoot it back…

#201 Rational Optimist on 03.06.15 at 2:20 pm

193 MTVmademedoit on 03.06.15 at 1:50 pm

“Where? at the liquor store? That’s the only burgeoning commerce taking place there [in Lilliput].”

Self-employment: gold prospecting.

#202 4 AM Sunrise on 03.06.15 at 2:25 pm

#165 Mark on 03.06.15 at 11:01 am

Its easy to think of unemployed young people as bums, but when the jobs they apply for are receiving hundreds of resumes, and employers not even giving the proverbial “time of day” to even professional applicants with advanced degrees, just blaming the “kidults” as you would call them strikes me as ignorant.

So true. Mind you, the (part-time!) jobs are out there, such as:
* credit card shillers at the mall – high turnover
* bank tellers – high turnover and will hire anybody will a pulse
* English teaching is big business in the big cities (and abroad, with varying working conditions)

So I’m from a culture where adult children are encouraged to stay at home forever and ever. There are strings attached, and I think these parameters might work for these underemployed kidults:

* Parents will charge little to no rent and provide basic needs.

* Kidult must have job, even if it’s part-time, or 2 part-time jobs. When my parents immigrated, they marveled at how people quit their jobs on a whim to apply for EI and go fishing for the summer. In Hong Kong, they say, “if you no work, you lazy. Do anything – go be dishwasher.” The Canadian reality, of course, is that there are 100 applicants to a single dishwashing job that will eventually go to a TFW.

* Kidult must have money leftover from every paycheque for investments. Kidult must learn about investing and submit account statements as proof.

* Kidult must help with chores.

* Kidult must live modestly. This means the “Fun” line in the monthly budget should be near zero – there’s lots of free fun to be had if you look. Clubbing is too expensive and overrated anyway.

* Kidult should take steps to get better job, look into entrepreneurship, etc. though it is acknowledged that the job market is tough. Going back to school is only an option if the endgame is clear.

I know you Western people who are reading this can hear the helicopter parents whirring overhead, but I think it can work. And I know that it may be hard for some Boomer parents to implement the “must learn about investing rule” when they themselves don’t have a clue.

#203 Vancouverite on 03.06.15 at 2:29 pm

Someone at workplace just sold house in Coquitlam (suburb outside of Vancouver) for over $900,000 to a young couple (expecting child) with financing for a “huge mortgage” (didn’t say exact amount). The house does has a “mortgage helper” basement suite. Also, house is NOT near the new Evergreen Skytrain Line being built.

Garth, do these buyers represent the greater fool?
Buy now before being priced out forever!
Probably pressure from family to buy home to raise family.
Less mobility – young couple unlikely to take job promotion opportunities outside of lower mainland as transaction cost to sell (and if can find another buyer willing to pay more than the over $900,000 purchase price + property transfer tax + closing costs)

#204 bdy sktrn on 03.06.15 at 2:36 pm

They’ll get those lasers onto a drone and there will lightening death bolts flung from the sky with the click of a mouse button miles away.. probably even automate them all. Welcome to the future.
———————-
lasers take massive elec power, are slow to act, can be reflected, and require a precise hit on a seen target.

i bet on the guy with the javelin missle, easy portable and will take out a building, not just a car from 2.5k.

—–
see oil take it’s spanking today.

#205 TRT on 03.06.15 at 2:41 pm

The Problem:

USA Dollar going up up up. Problem is raising rates will cause it to shoot higher…leading to deflation. So what happens now?

One FED rate hike of 0.25% for all of this year. That’s it. Just to save face.

Canada will stay put for now. The 5 year bond yields have risen by 40% in the past week. Maybe one 0.25% cut just before election (to help the fascist friends).

Congrats to those people with GOLD. In USD, you are doing OK vs the TSX in USD.

Gold dropped hard today. Bad asset to own. US rates will start to rise in June and the increases will be frequent thereafter, depending on US growth. I told you this months ago. — Garth

#206 Ray Vasquez on 03.06.15 at 2:42 pm

To Turner Nation #184

I can count at least 7 times that mortgage brokers tried to sell syndicated mortgage investments at 8% to 12% for 12, 24 month terms.

I told again and again, they are high risk, bad quality loans that I will never invest in.

Now, I see why they are so desperate to push these things to the guy on the street.

#207 TRT on 03.06.15 at 2:44 pm

@192Mike S

Only the educated in certain fields can immigrate to the greener pastures in the states.

Expect to lose many health professionals in Canada. Brain Drain 2.0.

If your young, get out while you can.

#208 Nemesis on 03.06.15 at 2:57 pm

#HolyCrap,CaptainBillyBob… #PassTheTylenol,SMGone’sHyperSonic,Or… #”SubOptimalOutcomesAreNotAnOption”… #”GhostRidersAreGo”.

http://youtu.be/dhvYtHFxilg

#209 Holy Crap Wheres The Tylenol on 03.06.15 at 2:58 pm

#153 Mr. Frugal on 03.06.15 at 9:32 am
#116 45north on 03.05.15 at 11:43 pm
and something else
The cancellation of the Avro Canada CF-105 interceptor in February 1959 was a traumatic event for Canada’s emerging aerospace industry. When Aviation Week reported on the fighter’s rollout, in October 1957, the magazine called it “a serious contender for the top military aircraft of the next several years”.

http://aviationweek.com/blog/1957-broken-arrow
we could’ve been a contender!
I was a young boy and I remember hearing men who had been working on the Arrow telling of their disappointment and dismay.

Thanks for the link! That was one hell of a good airplane. Too bad this country never seems to follow through with a good thing.
___________________________________________
I remember this so well, my father worked at AV Row Avrow and recall the day he received his walking papers February 20 1959. Well technically he was kept on for another six months. This was a death knoll to the entire aviation industry in Canada and eventually lead to my family moving to the USA. My father and hundreds of aviation engineers, technicians and such all started working on American projects. A lot of Canadians contributed to the Apollo missions as well.

#210 Holy Crap Wheres The Tylenol on 03.06.15 at 3:00 pm

#188 Nemesis on 03.06.15 at 1:06 pm

#PrimalDimSum,Or… #”HorryF**k,Inspector!”… #”We’reGoingToNeedABiggerPlane.”…

http://www.theprovince.com/business/story.html?id=10861987

[NoteToGT: Told ya so. And now that it’s all in the public domain… I don’t mind telling you that the first meeting of the joint task force did not augur well for continued cooperation: http://youtu.be/znS3gXjGCiU ]
________________________________________\
Hilarious, Smoking Man would never make it out alive!

#211 cramar on 03.06.15 at 3:04 pm

Subprime mortgages? 2nd mortgages? I recall many, m-a-n-y decades ago of hearing that people had 3rd mortgages! They would quickly pay off the 3rd, then work on the second, etc. Wonder if that will come back before the bubble bursts? I suppose a downpayment on a credit card is like a 3rd mortgage.

#212 TurnerNation on 03.06.15 at 3:06 pm

It’s Shellac Friday. Infamous.

#213 Sue on 03.06.15 at 3:06 pm

#190 Holy Crap Wheres The Tylenol on 03.06.15 at 1:25 pm
#196 Wildnutter on 03.06.15 at 2:01 pm

Another nice series of DARPA projects here:

http://www.bostondynamics.com

I like the Big Dog, although it’s not exactly a stealth tech…

#214 Andy on 03.06.15 at 3:09 pm

Garth,

Isn’t this surprising ? Good Job numbers are indicative of good economy but stocks fall in US today

http://www.reuters.com/article/2015/03/06/us-markets-stocks-idUSKBN0M21AP20150306

Because the good job number reflects Fed increasing interest rates sooner? Why the anticipation of rates increase causing the stocks go south ? whats the catch… Can you touchbase on this on your today’s blog posting if possible. TIA

Stocks fall because the Fed will begin tightening monetary policy in June, making bond yields more attractive and posing competition for investors’ dollars. — Garth

#215 Mountain Man on 03.06.15 at 3:10 pm

RIP Flaherty.

#216 Smoking Man on 03.06.15 at 3:33 pm

Ying Yang, no Senica for me. Had an old client request an change on an app I built a few years ago.

I didn’t want to do it, so I through out a Rediculos quote , they cringed. And accepted.

Ah damn there goes the month.

So I called them up. Said, I under estimated the work, it’s double.

Fine they said, just get it done.

Crap, got to do real work, it’s been awhile.

#217 Waterloo Resident on 03.06.15 at 3:46 pm

Yesterday Harrison Ford (the actor) crashed his old airplane onto a golf course after the engine konked out.

( https://www.youtube.com/watch?v=W8OVnHnQKkg )

Lesson to be learned here: SH!T HAPPENS, plan for it, just in case it does happen.
Hope for the best, but plan for the worst.

Houses in Toronto are over priced and will probably crash, but just like Harrison Ford just crashed, but these Canadian house buyers are not planning on a crash, not preparing for the unlikely event to become a reality. When it happens they will be in just as much shock as Harrison Ford was shocked.

On a lighter note, with all that much money, he should have bought a plane with a BUILT-IN PARACHUTE, like this one
( http://cirrusaircraft.com/ )
so that if his engine did die he could have just floated safely down to Earth like this guy did:

‘Whole-Plane Parachute For Emergency Landing In Ocean’
( https://www.youtube.com/watch?v=SX3n2baYjys )

Life is hard, its even harder when your STUPID.

#218 Darryl on 03.06.15 at 3:50 pm

DELETED

#219 Victor V on 03.06.15 at 4:01 pm

http://www.bloomberg.com/news/articles/2015-03-06/u-s-stock-index-futures-little-changed-before-employment-report

(Bloomberg) — U.S. stocks fell, with benchmark indexes tumbling the most in six weeks, as better-than-forecast jobs data fueled speculation the Federal Reserve is moving closer to raising interest rates…

“Investors are looking and focusing entirely on what the Federal Reserve will do in the coming months,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $170 billion, said by telephone. “Effectively good news in this data point supports the notion that they will raise rates in the not-too-distant future. That scotches the speculative fervor within the equity market.”

Employers added more jobs than forecast in February and the unemployment rate dropped to 5.5 percent, the lowest in almost seven years, showing the labor market is sustaining progress after the best annual performance in 15 years.

As predicted. The Fed moves this summer. — Garth

#220 Ralph Cramdown on 03.06.15 at 4:03 pm

Let us pause for a moment to remember the poor boys on the institutional equity desk at Scotiabank who, if they haven’t yet sold out their US$200mm position in Silver Wheaton, are well and truly hooped. Dishonourable mention to BMO, CIBC and RBC.

http://www.financialpost.com/2015/03/03/silver-businesswheatons-train-wreck-800-million-bought-deal-is-getting-snubbed/

#221 palebird on 03.06.15 at 4:05 pm

#200 Avro

Oh no we are not going down that path again. What could have been and should have been..if only..I am so tired of hearing about it..now let’s all beat up on Diefenbaker, that is the next, oh so tiresome, trail to go down.Give it a well deserved break, it is and was all politics. Like a bunch of ptarmigans, we could have been a contender, if only..not.

#222 Ralph Cramdown on 03.06.15 at 4:05 pm

Oops, bad link, not that it matters much. Maybe the image of the baboon on FP’s 404 page is apropos.

http://business.financialpost.com/2015/03/03/silver-wheatons-train-wreck-800-million-bought-deal-is-getting-snubbed/

#223 Mike S on 03.06.15 at 4:08 pm

“@192Mike S

Only the educated in certain fields can immigrate to the greener pastures in the states.

Expect to lose many health professionals in Canada. Brain Drain 2.0.

If your young, get out while you can.”

I stay for family reasons, but the truth is that I totally can see the possibility in which I will be required to move in a few years

Young or not has nothing to do with it. Good specialist refuse to relocate to Toronto (from elsewhere in Canada or the US) because they know the cost of living here is much higher (higher house prices is higher monthly payments for instance)

#224 BillyBob on 03.06.15 at 4:10 pm

@#178 4 AM Sunrise on 03.06.15 at 11:41 am

——————————————————————

Thanks for your comments. Warsaw is another great city. Some problems with RE, like people getting burned with foreign currency mortgage. But so far, Prague has had modest price increases. The lending rules are tighter, not like Canada. Sensible so far. And wages are lower. So it’s attractive.

But as I said, it’s only a snapshot – one city in one country. Many others that could also be used as illustrations of the delusional pricing in Canada. We’re keeping our options open, looking in South/Central America and Asia as well.

I love Canada, but it has to get its act together and compete. It’s a global village now.

#225 Montellino on 03.06.15 at 4:15 pm

Garth whats up with S&P 500 ???

If the expectation is that the US rates will be going up, due to improving economy, why isnt there more joy in the markets? I thought with rising rates come rising stocks hence overweight US stocks prediction…

just confused. thanks

Because rising bond yields offer an alternative, improved, lower-risk asset to equity investors. Tighter monetary policy is designed to moderate growth. Looser policy (low rates) is designed to stimulate it. — Garth

#226 Montellino on 03.06.15 at 4:17 pm

sorry meant to say “just confused with what is happening today” – long term thats my play and its the only logical one…

#227 Victoria Real Estate Update on 03.06.15 at 4:25 pm

Garth, please explain again to everyone how the Fed’s upcoming upward rate move will push mortgage rates up in Canada.

Thanks.

#228 For those about to flop... on 03.06.15 at 4:29 pm

Take this info for what’s it’s worth .
I was watching a report this morning in which they reported that real estate in the U .S .is more valuable if it is located within a quarter of a mile of a Starbucks store.
The report noted that while most real estate had risen in the last few years it was the ” Starbucks factor” that they attributed to certain growth patterns.
Not necessarily because everyone likes to walk to get a coffee ,but because they believe Starbucks is good at identifying areas with growth potential .

#229 Leo Trollstoy on 03.06.15 at 4:31 pm

Not sure why blog dogs are surprised that US stocks are falling. What did they expect would happen with those blowout job numbers? The Fed is going to jack rates now. And equities have a negative correlation with interest rates.

The Canadian dollar is done.

Gold is toast too.

#230 Jim B on 03.06.15 at 4:37 pm

#47 Linda

No, Linda, it’s not the “beaters” that are “being shown as selling for a million-plus.” That figure is the average for detached houses in the city proper. You do know what “average” means, right? Like the old canard that when Bill Gates walks into the room, the average net worth rises by (insert ridiculously high figure)? I know Toronto “beaters” and believe me they do not command anything like seven figures.

#231 Vamanos Pest on 03.06.15 at 4:39 pm

When will we learn that if you let go of restoring affordability to the housing market by making borrowing money easier, prices will drop, which, voila, restores affordability.

This is called a “free market”. When left to function, they work pretty well. In a free market, all that’s needed to fix high prices is, well, high prices. It single handedly leads to increase both supply (as suppliers produce more, motivated by the high prices) and curbs demand (as people begin to buy less, deterred by the high prices), leading to a healthy and normal correction of both supply and demand dynamics, and prices.

Tal’s comments suggesting that the CMHC cap undermines affordability (rather than contributes to it) either shows a shocking lack of understanding of economics, given that he is an economist, or, more likely, are disingenuous, made with the clear assumption that his audience is stupid.

In fact, a fair assumption given current debt levels in Canada.

#232 Jim B on 03.06.15 at 4:45 pm

#94 FI Guy

“Sub prime market in Canada is much, much larger than 3% of the market.” Evidence, please? Otherwise stop shooting off your mouth/keyboard. You’re wasting all our time.

#233 Calgary Real Estate Update on 03.06.15 at 4:48 pm

# 139 Derek R

“So the high Texas property taxes are the cause of Houston’s lower property prices relative to Calgary.”

Incorrect in so many ways.

See comment #35. In it I posted descriptions (and links) for two Houston houses ($120 K and $123 K) that would probably cost upwards of $450 K in Calgary.

$123 K, Houston, TX (4 beds, 3 baths, 2,487 sq. ft., built in 2006, attached double garage)

$120 K, Houston, TX (3 beds, 3 baths, 1,985 sq. ft., built in 2006, attached double garage)

$120 K in Houston vs $450 K in Calgary for a similar house. It’s ridiculous that you think that property taxes could account for the difference in prices.

Assuming property taxes are higher in Houston (insignificant to the overall picture and not worth looking into), but assuming it is true, a lot of things are more expensive in Calgary than in Houston, which would easily make up for higher property taxes. Such things include: food, gas, clothing, airfare, vehicles… to name a few. Also, Americans can deduct mortgage interest from income, Canadians can’t. American can lock into cheap rates for 30 years, Canadians can’t…

As I said, house prices in Calgary are deep in bubble territory as a direct result of Canadian policy – continued lax lending standards and low interest rates.

#234 waiting on the westcoast on 03.06.15 at 4:51 pm

“#213 Smoking Man on 03.06.15 at 3:33 pm
So I called them up. Said, I under estimated the work, it’s double.

Fine they said, just get it done.

Crap, got to do real work, it’s been awhile.”

SM – given your background, I would have thought you were the master of outsourcing….

#235 Paulie on 03.06.15 at 4:55 pm

I know a few co-workers buying older 500k houses in Surrey with 2nd and 3rd mortgages, they are expecting prices to keep accelerating upwards. They have definitely drank the media’s kool aid all I hear is property only goes up and renting is a waste of money. They are going around proudly bragging about the size of their mortgages. When I mention diversification or the stock market I get looked at like I’m a complete idiot. I don’t know how this will end, but based on the sheer ignorance level I’m guessing there will be lots of blood on the streets.

#236 Smoking Man on 03.06.15 at 4:56 pm

#207 Holy Crap Wheres The Tylenol on 03.06.15 at 3:00 pm
…….
Speaking of aviation technology, do you know the Canadian Arm on the space shuttle. The catching mechanism.

It’s mine, sort of.

As kid I flew RC aircraft at the cottage, I had mounted a camera on a Sig Cadet trainer I built.. It was a bit heavy, camera a bit behind the CG. I trust you know what that is.

I took off, very hard to control, I eventually crashed it, so I get a box put all the pieces in it and head over to my uncles cottage, he had tons of repair mattieral, epoxy, fibre glass.

He was an engineer at Spar arrow space. He was entertaining other engineers from Spar.

They had drawing out and where talking about the capture design on the arm.

It was ugly, like a claw, I reached I to the box and pulled out the diaphragm from the camera, I said go with something like this…

Guess what’s on the canadarm..

I dident even remeber, about five years ago my uncle came up from Florida, and told me the story. He still has the camera diaphragm.

I only remeber crashing the plane, and gluing it back together.

#237 waiting on the westcoast on 03.06.15 at 4:56 pm

#223 Calgary Real Estate Update on 03.06.15 at 4:48 pm
# 139 Derek R

Re:US real estate prices

I concur with Calgary…

I think a lot of people do not understand how much more value exists in the US for real estate.

My sister left Oakville selling her nice 1M home on small lot. Buts a couple of acres, 3000′ house, 1500′ casita (guest house), pool, small house barn and corral. Price $450k. Luckily she bought it 3 years ago… Canadian dollar near par!

#238 Jim B on 03.06.15 at 4:57 pm

#120 CalgaryRocks

Sure, but you’d have to live in ****ing Texas, which, even for Albertans (cheap shot, I know), would be a virtual hell on earth. Search out Rick Perry links if you don’t believe me.

#239 Smoking Man on 03.06.15 at 4:59 pm

#231 waiting on the westcoast on 03.06.15 at 4:51 pm
“#213 Smoking Man on 03.06.15 at 3:33 pm
So I called them up. Said, I under estimated the work, it’s double.

Fine they said, just get it done.

Crap, got to do real work, it’s been awhile.”

SM – given your background, I would have thought you were the master of outsourcing….
……..

I would love to, no one is any good at this. In fact the company in question went threw 3 people last year to make the changes.. All failed.

Hence back on me.

#240 aL pacino on 03.06.15 at 5:03 pm

Crazy crazy crazy.\
Looks like Van is headed for 2 mill before 2020.
Ouch.madness continues.
This will be very hurtful to canada with its brain-drain coming our way.
Who would be crazy enough to want to live here and they could have lifestyle of the rich and famous in the US on the same coin.

#241 Nagraj on 03.06.15 at 5:05 pm

US jobs report: not all that happy. Labour force shrank. Lotsa McJobs. U6 (BLS comprehensive unemployment rate) reads 11%. [Credit to Mike Shedlock.] OF COURSE the headline 5.5% is enough reason for the Fed to hike. “Enough reason” encompasses all sorts of motivation to hike.

I was surprised that yields on US paper rose across the board. Indeed, what are the implications here for especially Ontario paper?

#242 Whitey on 03.06.15 at 5:28 pm

That $200k down payment plus transfer tax is more expensive than what we paid for our home 1 hour east of TO. People are insane to pay this much.

#243 Mark on 03.06.15 at 5:45 pm

“No, Linda, it’s not the “beaters” that are “being shown as selling for a million-plus.” That figure is the average for detached houses in the city proper.”

Its not even the average price of a house in Toronto, the million dollars. Its simply an average of the product that the Realtors happen to be selling at the time. The “sales mix” as it is often termed, basically a method of sampling market prices, is vital to understanding the direction of the market. Without a constant (or adjusted to be constant) sales mix, you cannot generalize movements in price across the entire population.

A poster yesterday gave a great example of a car salesman and how changes to the “sales mix” can paint a drastically different picture of average car prices than what is actually reality for a purchaser of an individual car.

#244 Mark on 03.06.15 at 5:50 pm

“Not sure why blog dogs are surprised that US stocks are falling. What did they expect would happen with those blowout job numbers? “

Usually stocks would go up with better job numbers. But in reality, the job numbers were horrible. The participation rate fell yet again. Quality of jobs “created” was in the toilet. And credit is decelerating rapidly.

Smells more depressionary, than the US being on the cusp of growth. Sell gold at one’s own peril in such an environment.

Funny, Americans think the job numbers were great. Stocks fell because this cements a rate increase by the Fed. Gold tanked, and will continue. You are blowing smoke again. — Garth

#245 TRT on 03.06.15 at 5:55 pm

#228 Vanomos pest

We cant have deflation. Its bad.

When deleveraging occurs, helping those homeowners underwater with unrepayable grants to reduce their mortgage prinicpal is the best targeted option.

Will save our few banks, and our financial system.

#246 aL pacino on 03.06.15 at 5:57 pm

You don’t think i’m a pumper, do you?
You wouldn’t happen to have reading comprehension issues, would you ?

#247 Italians love real estate on 03.06.15 at 5:58 pm

The economist magazine just ranked the most expensive cities in the world and toronto didn’t even appear in the top 100.

Tell me bubble heads , why is Toronto so expensive again?

#248 Getting old on 03.06.15 at 6:03 pm

The TV anchorettes piled on, and this week viewers were breathlessly marched through beater houses with slanty walls and pink toilets, told that they are all now worth seven figures.

So Garth, you expect the media not to sensationalize in order to sell adds? Don’t you think your asking a bit much? For some it’s hard to read it and not believe it.

#249 Exurban on 03.06.15 at 6:11 pm

#188 Nemesis

If there actually are Chinese police looking for money laundering in B.C., then they are the only law enforcement doing so. Our own so-called authorities sure as hell aren’t doing anything.

How would you know? Are you a cop? — Garth

#250 Mike S on 03.06.15 at 6:13 pm

“Tell me bubble heads , why is Toronto so expensive again?”

Nobody cares about Toronto?

#251 Mark on 03.06.15 at 6:23 pm

“When deleveraging occurs, helping those homeowners underwater with unrepayable grants to reduce their mortgage prinicpal is the best targeted option.”

I disagree. Booting them out houses they clearly couldn’t afford in the first place, and letting more worthy people buying them is a far better option. Yes, its traumatic in the short term, but it rewards success and prudence, rather than rewarding over-leverage and rewarding excess.

I think a big part of the problem is what happens to the banks who made all these loans. Under the current system, the banks have most of the risk of excessing lending to housing market participants guaranteed by the CMHC. Theoretically, the banks will benefit enormously from loan repayment at 100 cents on the dollar in the deflationary environment. Is this right, the banks taking advantage of a government program? One part of me says, “yes”, because bank shareholders invested in the banks upon the theory that the CMHC will make good on their promises. Another part of me says, “no”, because banking has enjoyed decades of excess economic returns far exceeding that of most other industries in Canada that are arguably more accretive to Canadian society than banking. I believe a future government is going to have to walk a very tight line between such groups and do not particularly envy the future Minister of Finance who has to preside over cleaning up the mess created by his predecessors.

#252 Doug in London on 03.06.15 at 6:33 pm

@young & foolish, post #75;
Yes, as you say the markets are rigged, where the smart money is always 2 steps ahead. It’s always been that way and it won’t change anytime soon. The good news is YOU and anyone else can be part of that smart money! How do you go about that? A good start is to read, right here on this blog, about investments where the most negativity is. Remember when stocks went on sale in August and September of 2011? There was an abundance of negative comments (especially about the fate of the USA) of how the economy and stocks were in freefall to hell. In mid to late 2013, there was a lot of negativity about REITs and preferred shares when they were on sale. Earlier this year there was a lot of negativity about oil when oil stocks and ETFs were almost being given away. So where is this $20/barrel oil I read about here anyways? Lately there is negativity about US stocks since they took a minor drop today. Did I hear something about buying on the dips? Lately, XEG-T and USO-NY have been getting cheaper again. I was worried sick about the future of oil yesterday when I filled up my car at the Canadian Tire petrol station. Do you sense any buying opportunities so far? I bet Warren Buffet does.

#253 Yogi Bear on 03.06.15 at 6:45 pm

#241 Mark on 03.06.15 at 5:50 pm
Usually stocks would go up with better job numbers. But in reality, the job numbers were horrible. The participation rate fell yet again. Quality of jobs “created” was in the toilet. And credit is decelerating rapidly.

Smells more depressionary, than the US being on the cusp of growth. Sell gold at one’s own peril in such an environment.

Funny, Americans think the job numbers were great. Stocks fell because this cements a rate increase by the Fed. Gold tanked, and will continue. You are blowing smoke again. — Garth

… which basically demonstrates that Fed policy, not economic fundamentals, is what is driving the US equity markets.

If this is so, US equity is a dangerous place to be right now. Unbalance your portfolios and go severely underweight US equity to avoid the cliff.

In a growing economy with sustained job growth, robust profits and rising consumer confidence, there is no cliff. — Garth

#254 Darryl on 03.06.15 at 6:52 pm

wow
I got deleted for smoking man . lol. I cant read French . is that it? I thought it was funny. The guy keeps changing.

#255 Darryl on 03.06.15 at 7:01 pm

All I know is YAH BABY ….I GOT DELETED :)
Time to change my name to something dark and sinister .

LOL

#256 Poutchli on 03.06.15 at 7:15 pm

US 10-year bond yield +6%

If you don’t think that matters to us, take a look at RIOCan, H&R, and AAR.

And Canada’s building intentions: -13%

#257 Yogi Bear on 03.06.15 at 7:23 pm

In a growing economy with sustained job growth, robust profits and rising consumer confidence, there is no cliff. — Garth

Crap jobs and massive over-valuation obscured by mountains of debt-fueled share buy backs.

As for consumer confidence, take one look at the confidence of consumers in the Vancouver and Toronto real estate markets and your own views on what happens next. Or the fact that this “confidence” is helping to fuel sub-prime auto loans that are looking mighty fragile right now. Consumers are dumb.

Admittedly, the “cliff” might be on the small side followed by a long, slow grind downwards (sound familiar?), depending on how the Fed unwinds its balance sheet, but cutting exposure to US equity is the smart play if you believe the Fed will raise rates in June.

There is better potential in other markets now that everyone else is racing to cut their rates and/or implement their own rendition of QE. Front-running central banks is the new normal.

#258 FIGuy on 03.06.15 at 7:23 pm

@ Mark 117: agreed that Cmhc mortgages are basically sub prime. However, we have a situation where borrowers are able to obtain either higher than 80% mortgages without insurance. Many of these mortgages are sub prime but not insured. As well, borrowers are not meeting Cmhc guidelines. Stated incomes, high tds, etc.

Credit union’s don’t seem to know jack. Check out this article on DUCA: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2014/06/duca-brokers-this-should-be-good-3.html

Brokers underwriting their own product!

#259 FIGuy on 03.06.15 at 7:34 pm

@158 Hot Alberta Money

Home trust, equitable, credit unions, MICs, pension funds, mutual funds, leveraged private trusts, etc.

A lot of the decline business is sold to others. So, if A big bank has a deal it can’t fund or commit to, it sells the commitments to other parties who might consider the deal.

#260 Exurban on 03.06.15 at 7:40 pm

How would you know? Are you a cop? — Garth

Because local authorities never catch anybody, while U.S. law enforcement prosecutes them regularly. When that happens, only then do we learn about their activities and holdings in B.C. Here’s a classic example:

‘Crooked’ bankers stash loot in Richmond and Vancouver

#261 DisgustMadeMePost on 03.06.15 at 7:56 pm

http://www.cbc.ca/radio/thecurrent/the-current-for-march-6-2015-1.2984153/refugees-pay-more-income-tax-to-canada-than-millionaire-migrants-1.2984201

CBC story this morning on the Current.

Getting an investor program tweaked with incentives that benefit both investor and Canada seems to be the difficulty.

I thought the immigration lawyer started out with a lot of circular double talk but agreed with his final personal words.

Also, if US raises rates , what does this do to US denominated debt worldwide?? Going to be a lot of pain if debt payments are harder to make.

#262 Italians love real estate on 03.06.15 at 8:04 pm

#247 mike.

So the economist magazine a few months ago ranked Toronto as number 1 city in the world to live in yet it doesn’t even make the top 100 most expensive cities for RE in the world.

Yet you all seem to think that the housing market is over valued and ” no one cares ”

Interesting

#263 crowdedelevatorfartz on 03.08.15 at 11:23 am

@#262 Italians love real estate.
Could you provide a link to The Economist ranking for Toronto as “the #1 city in the world to live in”?

Did the The Economist mean “livability” which calculates crime, affordable housing cost, pollution, transportation, etc,etc.etc.
Or
#1 in expensive housing?

Either way I find it very hard to believe Toronto ranks #1 in anything other than “the city with the most insufferable navel gazing bores bleating about how “great” their city is……”

#264 Julia on 03.09.15 at 3:21 pm

Wait, I thought that a downpayment was supposed to be cash (not borrowed) unless you could show it was a gift from family?
Why would anyone want to borrow for a downpayment, let alone doing it via a subprime loan?