Don’t do it

SOUP modified

For the past four years, says Jon, he’s been waiting for houses to cheapen. “Renting, saving and investing,” he tells me, “with bated breath.”

Finally it was all too much. “As we stand on the precipice of historic housing highs,” he says with a flourish, “alas, the idea was hatched that we moved back in with Mom – after putting on an addition and renovating the place.” Late thirties, two screamers – it seemed like a good idea. After all, the old gal lives in a good hood, and it “would show the kids that family sticks together.”

But, adds Jon, there was “a nagging feeling prompting us to assess our sanity. Hence talking to you.”

That is probably a mistake, but let’s push on. Turns out Mom has $300,000 left owing on a place worth five hundred, and Jon would personally foot the $150,000 addition. “But what happens when Mom’s pension runs dry in ten years, or when she croaks and the other three siblings want their cut,” he asks?  “Any equity we put in until then gets split?  What provisions could be made in advance to avoid squabbles down the road regarding the inheritance?  Or do we hold the course, forget the whole thing, and ship a case of depends and Purina anonymously? Can this end well?”

Jon needs to remember one of the GreaterFool cardinal rules: never invest in real estate with anyone you’re not sleeping with. That includes mothers. Your own, I mean.

The potential problems are legion. If Jon’s going to spend serious money renovating the house, he needs to be on title in order to protect that investment. But with Mom on a pension and a substantial mortgage outstanding, it looks like the house equity constitutes the bulk of her net worth. So, will the other three children come looking for their slice when she passes?

You bet they will, presuming Mom’s will divides her estate equally between the kids. So, Jon would not only inherit a $300,000 mortgage if he assumes title with her (and she lacks insurance), but he’d have to remortgage the place to suck out two-thirds of the remaining equity (including the addition he financed) in order to pay them off. Disaster.

How to avoid this? Don’t do it. In fact, Mom-with-the-$300,000-mortgage should sell and rent, since it would lower her overall living costs and give some cash to invest for an income stream she obviously needs. Hopefully she’ll live long enough to consume it all. However, if Jon truly loses his mind and goes into this unwise situation, he needs to ensure Mom’s will is rewritten to deal with the new reality. He should also pay the premiums on an insurance policy (on her life) large enough to handle the inheritances.

But the best strategy is to keep the baited breath, save, invest and rent. Because with every day that passes, we move closer to the event he has been waiting for. Most people don’t believe this, (which is why I have no friends) and a big report on debt in the last few days reinforced the popular meme.

Maybe you saw it. The Fraser Institute said there is no borrowing crisis. “Little evidence that Canadian households are being irresponsible in taking on new debt,” it said.

Really? With $1.3 trillion in mortgages and households owing more than at any point in history, with the IMF and the World Bank, all major ratings agencies and virtually every major economist – even the prime minister- warning about piggy borrowing habits, how can this be?

The think tankers make this argument: assets (mostly real estate) have risen 31% in the last five years, while debt (mostly mortgages) has increased “by just” 21%. So, whazza problem? Besides, the Fraser Institute says compared to other countries, like Norway, Switzerland and South Korea (seriously, I’m not making this up) our debt-to-income ratio don’t look so bad. (But compared to the country most like us, the US, it blows.)

Conclusion: “Canada doesn’t have that problem. Our banks have tighter lending standards and Canadians are clearly managing their debt levels responsibly with no evident strain to their incomes or balance sheets.”

Well, remember those people sitting in lawnchairs yesterday outside a sales centre in a GTA suburban field waiting to spend $2 million on a monster particle board house that increased in price $150,000 overnight? Those are the faces of debt. It is the intersection of greed and stupid. This is what risk is made of.

As Capital Economics points out, the think tankers took only mortgage interest into consideration (not debt repayment) when doing their report. They didn’t acknowledge the potential of a real estate correction, as is now gripping Alberta. And they reinforced the delusional belief interest rates can never rise.

The scariest part of this is believing that houses are more valuable because they cost more. In fact, real estate costs more because money costs less.

There is no intrinsic increase in shelter itself, just that cheap rates have allowed people to pile on epic debt and carry it for the same monthly fee. Say the economists: “While total net worth has risen by 141%, real estate has grown by 211%, contributing 55% to the overall gain in net worth. But with house prices now at record high levels relative to incomes, there’s obviously a greater than normal risk of a correction which, in turn, would hit net worth hard and, indirectly, negatively impact household spending. Since household spending represents more than half of the entire economy, these household balance sheet risks should be taken seriously.”

Jon should rent. His mom, too. Let the greater fools borrow. Just watch.

177 comments ↓

#1 First on 05.22.15 at 6:40 pm

Renting or buying?….who cares when you are FIRST!!!!!

#2 JO on 05.22.15 at 6:50 pm

good advice Garth
I am seeing so many leverage themselves to the hilt at what will be looked at as the wrong time in 5 yrs but hey prudent people have looked dumb over the last 5 years so what can go wrong

What is your opinion on Waterloo RE ?

#3 ShawnG in TO on 05.22.15 at 6:54 pm

it’s to people like Jon and siblings I say, you are poorer than you think. When price of that house falls, (but the mortgage doesn’t), there will be very little left for the four of them to fight for.

#4 ILoveCharts on 05.22.15 at 6:55 pm

Any thoughts on buying RE outside of the hot spots right now? For example, Prince George or other small towns that aren’t quite as crazy?

#5 Retired Boomer - WI on 05.22.15 at 6:56 pm

It wouldn’t be the first time there was a nasty wreck at the intersection of Greed & Stupid.

Innocent people also get crushed there.

enjoy the tune

https://youtu.be/DiWomXklfv8

#6 USDCAD on 05.22.15 at 6:58 pm

What about that Dollar action today?

I can only imagine what happens next week when BOC gets more dovish.

#7 The American on 05.22.15 at 7:03 pm

I struggle to understand this idea across Canada why one MUST on a house, lest he be dubbed a “loser.” Hell, nearly everyone I know in Seattle rents nowadays, has a great job, saving of the future, egg nest fund, no outstanding credit lines, drives nice cars, buys nice clothes, and takes VERY nice vacations. These are fronds for all walks of life and all socio-economic ranges. I’m a rarity in the fact I still own. Then I hear from Canadian friends how rent and cost of living is “so expensive” in Canada.

Really? Ive rarely encountered prices to be higher in Canada in Vancouner and Toronto for nearly all goods (except gasoline and alcohol). I’ve done my own research, and as I figured, costs of living in Seattle are much higher vs Vancouver. How much higher? 25% higher cost of living in Seattle!!! This falls just about in line with what my gut-check was. So, if Canadians *really* do in fact earn more than Americans, then why all the struggle all the time?

Look, most things really are NOT mor expensive in like cities in Canada. It sounds to me, more and more, Canadians have a spending problem – not an earnings one.

http://www.numbeo.com/cost-of-living/compare_cities.jsp?country1=Canada&city1=Vancouver&country2=United+States&city2=Seattle%2C+WA

#8 THIRD on 05.22.15 at 7:06 pm

I’m jealous of FIRST

#9 crowdedelevatorfartz on 05.22.15 at 7:08 pm

Jon, you’ve already pointed out several very good reasons why you should avoid this legal and fiscal nightmare with all your strength.
Run away and keep renting.
The real estate insanity cannot continue as it has.

#10 The American on 05.22.15 at 7:09 pm

Sorry for all the typos in my previous entry.

#11 Sebee on 05.22.15 at 7:09 pm

Oh snap…a mother joke. Seriously, who is your favorite comedian Garth? You ever do 15 minutes at yukyuk’s amateur Tuesday?

#12 Incorrect SIR on 05.22.15 at 7:09 pm

“There are 6,000,000 people in Toronto. “Foreigners” are not responsible for current prices. — Garth”

If not foreign money, then what?
Why do the prices in TO continue to climb at breakneck pace, when they don’t elsewhere in the country (excluding Van)?
1) Are interest rates cheaper in TO vs the rest of the country?
2) Is TO running out of land to build?
3) Does TO have a lower unemployment rate than the rest of the country?
4) Why such growth in TO, but not, say, Montreal?

We all await your answer Sir…

#13 How old is Mom? on 05.22.15 at 7:11 pm

Mom owes $300k on a place worth $500k and has maybe 10 years of pension left before she croaks.

She probably absorbed all the student loan debts of her offspring which is now begging her to sell the place so they can divy up the proceeds faster.

Her kids know that when she’s becoming older and maybe severely physically and mentally challenged, all that money would go towards the care in a nursing home. If she has no assets at that time, the state will pay for her care. The kids are off the hook (again!) and will have taken the last bit of wealth out of their Mom.

I am not kidding you. That is a very common logic prevailing among sibblings and their aging parents these days.

#14 T.O. Bubble Boy on 05.22.15 at 7:13 pm

Houses in Milton going for $900k+… nuff said.

#15 Paul J Inzani on 05.22.15 at 7:14 pm

“GreaterFool cardinal rules: never invest in real estate with anyone you’re not sleeping with. That includes mothers. Your own, I mean.”

Solid Comedy Gold

#16 dienekes on 05.22.15 at 7:15 pm

Garth, i think you incorrect on the foreign money.
I live in Northern Manitoba and it is difficult to hire electricains, so I advertise in the job bank. Ive had a few Ontario electricians move up and join our firm. (Note on this, I have learned Ontario Electricians suck)
The last guy was Chinese making 24 an hour in TO, we pay 39.52, so he moved up. His wife and kids stayed in their home in Richmond Hill which he has a 750,000 mortgage on it.
He told me his wifes family sends money over to help pay the mortgage. They moved to Canada 2 years ago.
I think this is typical of all the foreigners pouring in.
I have no problem with immigration, but I don’t think Canadians are buying houses for 1.5 million without help from home, wherever home is, across the street or Shenzhen

#17 Daisy Mae on 05.22.15 at 7:21 pm

“Most people don’t believe this, (which is why I have no friends)….”

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

(sob) Poor Garth….I’ll be your friend! LOL I read that article and it was plain stupid from beginning to end. And these institutions garner respect? No more!

#18 LH on 05.22.15 at 7:26 pm

With annoying us dividend withholding tax (for stocks owned in foreign accounts) I’m thinking of buying a single BRK.a share for the loooong term. Wouldn’t the tax advantage over Vanguard be overpowering in the long run, diversification be damned?

I am 31 and should have a 60+ year investment horizon, God willing.

#19 mdm on 05.22.15 at 7:26 pm

my identical twin and I bought a house together 3 years ago. it’s worked out so well for us we’re going to buy another one next year. your blog states the cardinal rule not to buy with someone you aren’t sleeping with. however identical twins could be the exception. unless your experience shows otherwise.

#20 Mic on 05.22.15 at 7:29 pm

Ah …the Fraser Institute! This, the same Fraser Institute that sent me a letter last month:

“Dear Michele,

I am deeply concerned about Ontario’s future. [blah blah blah] Please consider making a charitable donation [blah blah blah] Best regards, Michael D. Harris”

Obviously partisan …Mike Harris asking for donations LOL. You can stick your letter up your donkey.

#21 dienekes on 05.22.15 at 7:31 pm

Whats the advantage of BRK.a over BRK.b?
Votes?

#22 Nora Lenderby on 05.22.15 at 7:31 pm

Oh, Mr. T…no friends? So sad. But you do apparently have hundreds of adoring woofers who comment on this, your pathetic organ.

Good advice to Jon, and his family (not least Mrs. Jon too, although having in home childcare might be a consideration, if Jon’s mom isn’t gaga).

#23 Anthony G on 05.22.15 at 7:32 pm

” That includes mothers. Your own, I mean.”

Hahaha. Thanks for that Garth

I’m still amazed how house horny people are for houses in the GTA.
Where’s the ceiling?

#24 Smoking Man on 05.22.15 at 7:33 pm

Nothing more frightening than four drunken size 20 woman making small talk with you.

How do I politely get out this.

Its picture night at Senica, they have 3000 chairmen , ak losers only the top 500 got the invite to the party and pic’s on chairman cards.

My wife has a problem I’m thinking, she got invited.

Two classes of losers here, the rich 1%, and the 99% that will lose all their money.

Why do I come here all the time.

I’m a lush, here my wife let’s me get obluterated stoned and drunk.

At home I’m capped to two lousy wines a night. Need to hide pump up the jam in Micky form all around the yard.

Next life I’m marring a dumb bimbo. But I’m committed to this one.

Happy 32 year anniversary to us.. I still love her alot.

#25 GsAmazon on 05.22.15 at 7:33 pm

MY breath is ‘bated’. ;)

#26 Daisy Mae on 05.22.15 at 7:33 pm

For those thau wonder….

WIKPEDIA: “The Fraser Institute is a Canadian public policy think tank and registered charity. It has been described as politically conservative and libertarian. The Institute is headquartered in Vancouver, with offices also located in Calgary, Toronto, and Montreal, and ties to a global network of 80 think-tanks through the Economic Freedom Network.”

*blah*

#27 Quoting Capital Economics? on 05.22.15 at 7:34 pm

Citing Madani? The guy has the worst track record. Zero credibility.

#28 Leo Trollstoy on 05.22.15 at 7:41 pm

With annoying us dividend withholding tax (for stocks owned in foreign accounts) I’m thinking of buying a single BRK.a share for the loooong term. Wouldn’t the tax advantage over Vanguard be overpowering in the long run, diversification be damned?

I am 31 and should have a 60+ year investment horizon, God willing.

You could do a lot worse.

Go for it.

#29 james on 05.22.15 at 7:42 pm

#7 The American

“Hell, nearly everyone I know in Seattle rents nowadays, has a great job, saving of the future, egg nest fund, no outstanding credit lines, drives nice cars, buys nice clothes, and takes VERY nice vacations.”

Exactly who do you keep company with? Do you know what median income in Seattle is? There are frequent discussions about the rise in rental rates, and the sharp rise in home prices in the last 3 years. Many people here are not taking expensive vacations routinely.

“I’ve done my own research, and as I figured, costs of living in Seattle are much higher vs Vancouver. How much higher? 25% higher cost of living in Seattle!!!”

How so? Gasoline? Cheaper in Seattle. Most consumer goods, cheaper. House prices? Cheaper. Rents? Cheaper.

Do you actually live in Seattle, or are you just making all this up?

#30 B Riding Dirty on 05.22.15 at 7:51 pm

Garth, the kool aid has tasted good my friend (see you have at least one)

But I think the interest is going lower to 0% and prices will be going up another 5-10%

No one wants this not to happen more then me. I am Cash rich and house poor. Sold both rental homes back in October, back then there was talk of interest going up, people had time to view a home, take a second look, make a lower offer then see what deal they could negoiate (isn’t that why we hire agents?).

Today in my hood (Langley BC), 2-7days houses are sold sold sold, full ask or multi bids.

I think bank of Canada is going to drop it to the floor.

Its the only industry striving and pumping positive jobs on the west coast oh and the revised movie industry.

Dont worry Garth, I am not planning on stop drinking your purple Drank! #CashRichHousePoor

#31 Freedom First on 05.22.15 at 7:53 pm

I agree with Garth, Jon.

However, if you do go ahead with that plan, it could be worse. She could be your Mother-in-law.

#32 Smoking Man on 05.22.15 at 7:58 pm

You humans are all caught up in a game you can’t win.

Get schooled , get that dream job. The dream wife you will cheat as the loot roles in.

You try to enter the club of Rome.

We are all pawns in the game of one upmenship and a life long maze of man made bull shit.

Those that see it live in eternal hell. Those that don’t I guess that’s whats called happiness.

Just me and the devil here.

His name is Jack

#33 Spectacle on 05.22.15 at 7:59 pm

You’ve got another friend here Sir…

Real estate eventual decline of 40%-60%, read all about it:

http://globalnews.ca/news/1887724/canadian-home-prices-to-fall-40-50-per-cent-financial-author-says/

#34 Daisy Mae on 05.22.15 at 7:59 pm

“…the idea was hatched that we moved back in with Mom – after putting on an addition and renovating the place.”

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

Is this a done deal…or is there still a chance sanity will prevail?

#35 ShawnG in TO on 05.22.15 at 8:05 pm

wait a minute… if Fraser Institute is political, won’t it lose its charity status under stevie harper’s directives?

#36 Rainclouds on 05.22.15 at 8:12 pm

sticking with:

Be fearful when others are greedy
Be greedy when others are fearful

me still fearful here in Vancity……

#37 Anti-Mage on 05.22.15 at 8:17 pm

Smoking Man, being the tech guy you are, what is your take on the IPO for shopify? Do you think they have a good service which they will likely grow into the future without major competition?

#38 TurnerNation on 05.22.15 at 8:20 pm

Email from a mort-gage broker. Wretching. Sic.

Summary: Your home is a Cash-Money machine y’all. Woot woot, cha-ching. Cannot lose

“Owning a home just makes sense for most Canadians. A place to live and possibly raise a family that builds equity over time is sound financial planning. As home values continue to increase and mortgage principal gets paid down, you will see your equity grow. That equity that has been built is an ideal resource to help create greater financial security. Using existing equity to renovate your home for example, is an excellent way to add value and in many cases, a better alternative than moving.

There are many ways to access the equity in your home, sensibly. For example, a secured line of credit is a great product that has the most flexibility. You only pay interest on the amount you use when you use it. “

#39 Mark on 05.22.15 at 8:25 pm

One subtle change in banker policy that hasn’t seen a lot of attention is the whole concept of banks writing amortizations on loans that exceed a borrower’s useful life in the workplace.

It used to be, if you started out at 25 in the housing market, at best, you could get a 25-year amortization. And 5 years later, when renewal time come around, the renewal would be done at a 20-year amortization, and so on and so forth, until the loan was eventually extinguished. Maybe a few pre-payments were made along the way so one didn’t have to wait till they were 50 for the house to be paid off.

Contrast this with today, where even the “wrinklies” are renewing at 25-year amortizations. People with scant years left in the workforce on adjustable rate HELOC loans with theoretically no amortization (well, some are amortizing, but nothing that doing a quick withdrawal and then re-deposit at the bank branch or ATM can’t resolve!).

I’ve been quite vocal here — I don’t think policy/government interest rates are going up. I believe they’re going down over the next decade. However, what will be changing is lending standards, tightening considerably, particularly to retail/consumer borrowers. Those who still want (or need) credit will be paying for it — a lot more for it!

I’m thinking of buying a single BRK.a share for the loooong term.

The problem with Warren Buffet and BRK is that it is heavily concentrated in one country, the US. There are significant continuity of management issues as Buffet eventually dies and someone else takes over. And the investments made by BRK are heavily concentrated in the financial sector and many are vulnerable to being negatively impacted through severe margin compression and higher interest rates (such as the insurers).

#40 Mister Obvious on 05.22.15 at 8:26 pm

“It is the intersection of greed and stupid. This is what risk is made of.”
————————

Thanks Garth. I can see myself re-quoting that to some astonished people soon. But I’ll be sure to credit those words to you since I’ll still be wanting some friends.

#41 Billy Burrito on 05.22.15 at 8:27 pm

#152 Wowzers on 05.22.15 at 12:47 pm

Lots of laughs re this post and others comparing Canada to Mexico…..is Canada regressing to developing country status due to mismanagement?

Is a northern Sandanista-style revolution brewing? Could Garth be the next econo-Che Guevara or Cuervo Jones? Stay tuned folks, same bat time, same bat channel……

#42 Smoking Man on 05.22.15 at 8:36 pm

#37 Anti-Mage on 05.22.15 at 8:17 pm
Smoking Man, being the tech guy you are, what is your take on the IPO for shopify? Do you think they have a good service which they will likely grow into the future without major competition?
…..

Haven’t been following. Spending all my time in front of the mirror working on my bull shit..

Big interview on Tuesday, practising for some California Dreaming.

South of LA. If I get in I will become god in a few months.

I got this…….

As long as I’m between wine 2 and 3. When the happy people interview me.

#43 bobo on 05.22.15 at 8:40 pm

I would think those people lined up to spend 2 mil on a new house have at least 500k + down and a substantial income to carry 1.5m mort

Even so they could take a big hit if things correct, but they will also have 5 years of these cheap rates, so are they really risking that much?

#44 lee on 05.22.15 at 8:50 pm

Why would you want to buy in a crash? Rents will be even cheaper with desperate landlords begging for tenants as everybody jumps in to buy cheap? After a crash starts everyone will own real estate. Tenants will find it easy. Think of all the buyers waiting on the sidelines right now. Investors too scared to sell will take anything for rents to avoid foreclosure. Landlords are already finding it hard to find good tenants.

#45 The American on 05.22.15 at 8:50 pm

At #29: James, why don’t you click the link I provided before attacking the facts. Also, why don’t you read my post again. Reading comprehension, much? My post specifically pointed out rentiers, and it addresses the facts Canadians claim earning more already. It’s apparent you do not live in Seattle and are a complete moron.

#46 Lotus YVR on 05.22.15 at 8:55 pm

Re #7 The American
Prices Higher in Canada …really??
I guess that the reason so many Canadians like to cross the border is that they like to pay more for goods in the US.
Your link to the cost of living comparisons of Seattle and Vancouver.
Average Monthly Disposable Salary (After Tax)
3,335.86 C$ 4,243.96 C$
+27.22 % for Seattle
Love your link and the best part is I can edit the numbers…and anyone else can. Fun stuff!

So far as YOU suggesting that Canadians having a spending problem…. It just might be time for you to look in the mirror!

#47 Smoking Man on 05.22.15 at 8:56 pm

God damb sad , smoking man sits at his regular seat at Stir. The waitresses in a race to get me my usual.

Cost 6 bucks, they get a ten. Woo hoo.

Shit. I wouldn’t even move my ass for an epic fart for four bucks.

Where did your spices go wrong.

School is all I’m thinking.

#48 Rexx Rock on 05.22.15 at 8:59 pm

Any couple in their late 30’s,40’s and early 50’s who made huge gains in the housing market should retire early to free up jobs for the millenials.Cash in your lotto prize and live life the way you the want to.Its the right thing to do.

#49 bobo on 05.22.15 at 9:02 pm

Garth – since I make 100% of my income from renters thanks and please continue to tell all to rent, especially those who have some net worth and income as they make the best tenants.

#50 Nemesis on 05.22.15 at 9:04 pm

#AnAuldeOdeTo… #TheTomJonesOf… #BloggersWithLoudPipes…

https://youtu.be/g9iGRoH82zQ

[NoteToGT: Bumped into him once @ YeOldeWembleyStadium. Oh yes, &Strictly between the two of us… the descent into Osooyoos on the 3 was, like, way better than even Mulholland – just don’t tell LesTuniquesRouges: https://youtu.be/fPnkDd0cepg – they’re so pedantic.]

#51 PM on 05.22.15 at 9:08 pm

The problem with Warren Buffet and BRK is that it is heavily concentrated in one country, the US. There are significant continuity of management issues as Buffet eventually dies and someone else takes over. And the investments made by BRK are heavily concentrated in the financial sector and many are vulnerable to being negatively impacted through severe margin compression and higher interest rates (such as the insurers).

And yet since it’s existence any timeline of sufficient length (he did say ‘loooong term’) it beats the market broadly. Any textbook analysis, by you or any financial talking head really, sounds sensible but in reality BRK hasn’t been wrong yet.

Predictions and analysis are only worth it if then come from someone who is right when the rubber meets the road.

#52 Andrew Woburn on 05.22.15 at 9:09 pm

A couple of days ago I noted US regulators have fined banks $155bn since 2007. I wondered what happened to all the class action suits against the suits. Today I have the answer. It amounts to “don’t bother suing”.

“Judge Sam Glasscock, at Delaware Chancery Court, ruled on Thursday that investors cannot sue as two US courts had already found that executives had adequately supervised traders.”

Adequately supervised the “London Whale” who lost $6 billion? Adequately supervised an internal control system that could allow one or a handful of people to put one of the world’s major financial institutions at risk. Accountability? That’s just some people talking.

“JP Morgan investors told they can’t sue bank over $6bn London Whale loss”

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11622530/JP-Morgan-investors-told-they-cant-sue-bank-over-6bn-London-Whale-loss.html

#53 bobo on 05.22.15 at 9:15 pm

Did you hear the new tax TO has dreamed up – its on rain water – home owners may have to now pay storm water charges not kidding!!

#54 TurnerNation on 05.22.15 at 9:16 pm

Hearty advice. Else all leads to MILFs: Mothers I’d Like to Forclose on.

#55 Shawn on 05.22.15 at 9:16 pm

The Problem with Warren Buffett and Berkshire Hathaway

Marks says:

The problem with Warren Buffet and BRK is that…

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

Most people have been doubting warren Buffett like this for over 60 years now.

But some people decided that maybe just maybe he knows exactly what he is doing and has also provided for the future of Berkshire Hathaway after he is gone.

(We have a name for the earliest group that decided this, we call them “billionaires”, and a name for the next group “centa millionaires”, and for the next “deca millionaires” and for the next group after that we call them “millionaires”. You get the picture)

Berkshire had 1.1 million shares when Buffett took it over at an average price of $14.76 in 1965. Those are the very same shares that today are called BrkA shares and are worth $217,000. But yeah, go ahead and listen to Mark about “the problem with Berkshire”.

Some learn from the best while some make excuses why the record of a man like Buffett is only due to luck and leverage or what ever.

Some get rich, some stay poor.

Wise people learn from their betters, others admit to no such betters.

We all make our choices in life.

#56 Leo Trollstoy on 05.22.15 at 9:18 pm

I’m thinking of buying a single BRK.a share for the loooong term.

You’ll end up wealthier than every blog dog on here. That’s for sure.

Heck, blog dogs can’t even afford a single share today, let alone 30 years from now!

#57 Shawn on 05.22.15 at 9:20 pm

Checked my reference he paid $14.86 on average when he took it over in 1965 not $14.76. Book value was $19.46.

#58 slick on 05.22.15 at 9:23 pm

interesting article on debt

http://business.financialpost.com/news/economy/the-debt-crisis-in-canada-if-your-paycheque-is-100000-plus-that-means-you

#59 dunkelmiss on 05.22.15 at 9:29 pm

In the spirit of Basil Fawlty’s, “don’t mention the war”, perhaps we could add , “don’t mention the HAM” to this list…..

http://www.businessinsider.com/how-to-offend-someone-from-china-2015-5

#60 Alice Bob on 05.22.15 at 9:33 pm

“Because with every day that passes, we move closer to the event he has been waiting for. ”

Garth, I believe you! Then again, your statement also holds true for http://news.nationalgeographic.com/news/2013/10/131028-earth-biosignature-doomsday-space-science/ – the real question is not whether we are moving closer, but how close we are. Do you have any recent insight to share with us? And to what exactly we are getting close, a 50% average drop or a mere 10% one?

#61 joe on 05.22.15 at 9:35 pm

I’m managing my money responsibly….I’m single.
Study that.

#62 Julia on 05.22.15 at 9:37 pm

#45 bobo
“Did you hear the new tax TO has dreamed up – its on rain water – home owners may have to now pay storm water charges not kidding!!”

That would be Mississauga, not Toronto. They are close to putting that new tax in, Toronto is only thinking of doing the same in the next few years.
It’s the “McMansion” tax.

#63 Junkieman on 05.22.15 at 9:51 pm

#49 bobo, I’m not sure if your are trolling, or been sincere. My landlord says the same thing to me, and I thank him for subsiding my rent, we have a good laugh.

#64 Jay on 05.22.15 at 10:00 pm

Well, I’ve officially joined the ranks of the house horny millennials.

Avoided cmhc with large enough down payment, mortgage significantly less than 2 years salary, one of the least expensive urban markets in the country.

See you on the other side, mates.

#65 Nemesis on 05.22.15 at 10:01 pm

“Is a northern Sandanista-style revolution brewing? Could Garth be the next econo-Che Guevara or Cuervo Jones?” – BillyBurrito…

#FunnyYouShouldSayThat…

https://youtu.be/Od1wfZe6EvE

[NoteToGT: JohnSavage played it “right”… “You get too close… You die.” On a more cheerful note… UnoPostScriptImportante: http://www.theguardian.com/world/2015/may/22/hundreds-of-thousands-to-attend-oscar-romero-beatification-in-el-salvador …Or, WhereIsSenorCabelloro WhenYouNeedHim? And let us not forget SM’s declaration of love: https://youtu.be/KF6ITeJ7EM0 ]

#66 rosie "moving forward" in the knowledge that, "this won't end well" on 05.22.15 at 10:01 pm

Toronto is Canada’s New York. Vancouver-Paris. Calgary-Dusseldorf? Moncton- Miami! and Canada is the new Switzerland. This country is just so different. Everyone gets it and housing is so cheap now you’ll kick yourself for not getting in.

http://business.financialpost.com/personal-finance/mortgages-real-estate/is-canada-the-new-switzerland-safe-reputation-abroad-seen-driving-torontos-condo-boom

#67 Bill Grable on 05.22.15 at 10:11 pm

Jon needs to remember one of the GreaterFool cardinal rules: never invest in real estate with anyone you’re not sleeping with. That includes mothers. Your own, I mean.

ROFL > classic > !!

#68 Steve French on 05.22.15 at 10:12 pm

Happy anniversary to Mr. & Mrs. Smokey!

Signed:

One of your 32 readers.

SteveO.

#69 Washed Up Lawyer on 05.22.15 at 10:16 pm

Warren Buffet and Berkshire Hathaway spotted an unbelievable buy in Alberta with its purchase of AltaLink (from SNC Lavalin), an electrical transmission company.

An absolutely guaranteed, rock solid, secure, and perpetual cash cow that Ralph Klein created with his deregulation efforts (as he was told to do by the Alberta suits when Ralph was pissed).

It was humorous to watch the other homegrown electrical transmission companies complain about US foreign investment, job losses for Albertans, profits leaving Alberta, etc.

Warren pounded them, the dummies.

#70 devore on 05.22.15 at 10:25 pm

#19 mdm

my identical twin and I bought a house together 3 years ago. it’s worked out so well for us

The relationship, and the deal, has not gone through any adverse events yet. It’s great that it’s working out for you so far. Most people, having learned from history or from experience of others, do not do business with family.

#71 Mark on 05.22.15 at 10:30 pm

“Most people have been doubting warren Buffett like this for over 60 years now.”

Look Shawn, I laid out the case as to why BRK is doomed to future underperformance. And think about it for a moment, can BRK perpetually outperform? Of course it can’t — taken to the extreme, BRK would literally own every asset in the US and world economy if it did, which is a simple impossibility.

Warren Buffet basically got lucky — he leveraged to the hilt to buy, over the past 50-60 years, some of the best performing assets in the world — investments primarily in the US financial services sector. Even in his own letters to shareholders, he advises that it is unlikely they’ll do better over the long run than simply buying a broad index fund.

Nobody, certainly not me, is saying that Buffet is a dumb guy. He’s obviously not, and is dramatically wealthier than any of us will ever be. However, there are long-term continuity of management issues which will rear their ugly heads when he is either gone or age renders him incompetent. Ever heard of the Rockefellers? The Rothschilds? The (J. P.) Morgans? They once controlled wide swaths of assets. A hundred years later, their grandchildren aren’t even represented in the list of worldwide multi-billionaires. Study the reasons for this, and realize that history is not on the side of BRK shareholders in preserving a long-term dynasty of such nature.

#72 Jman22 on 05.22.15 at 10:34 pm

http://www.theprovince.com/business/Vancouver+mayor+calls+provincial+government+bring+speculation+real+estate/11076030/story.html

#73 Mark on 05.22.15 at 10:36 pm

“Think of all the buyers waiting on the sidelines right now”

There are incredibly few buyers waiting on the sidelines right now. Ownership rates are over 70%, which is a historic high. Obviously there will always be a chunk of the population which can’t/won’t own, either because of age, lifestyle, or a severe inability to accumulate any savings.

As we see from Garth’s many posts on the topic, credit is looser than, well, . And as the employment situation continues to weaken, particularly in the dominant FIRE industry and even government, there’s bound to be lots of selling pressure.

#74 PT on 05.22.15 at 10:41 pm

@: American
If you really believing this :
” Cost of Living Comparison Between Vancouver and Seattle, WA ” ”
25% higher cost of living in Seattle!!!”
You’re beyond help! a greatest Fool of all.

#75 Entrepreneur on 05.22.15 at 10:56 pm

Thinking out loud.
On the news today they said B.C. and Ontario are the only two provinces that do not have restrictions on foreign investors. Toronto and Vancouver are the two most expensive places to buy.

Did you sign the petition on restricting foreign investors?

#76 pat on 05.22.15 at 11:01 pm

Prices in TO keep rising because of super low interest rates and brutal traffic congestion. Those who think they can afford it will pay any price for an easier commute. This fuels the illusion that real estate is a sure fire investment. The amount of leverage some people carry is staggering. Rest assured that people in Vaughan are buying using down payments saved by first generation immigrant parents.

#77 Too Much Debt on 05.22.15 at 11:18 pm

I was waiting for the good old BC Ferry the other day and I overheard a boomer parent lamenting the situation that her and her 31 year old daughter had gotten into. Apparently she had lent her daughter and new husband $30K to buy a new 800k house. They had no down payment so they came to the bank of Mom. Unfortunately the marriage didn’t last and the couple has since split up. They had no equity in the house and have put the house on the market…they can’t sell it. It has been on the market for over a year now (not sure of what city) She was saying she is not sure they could even get $750k for it. The husband wants to buy it but can’t afford it all by himself. She was thinking of doing some renos to improve the possibility of a sale. You could tell she knew she was screwed and her money was gone, it was also apparent that $30k was a large sum of money for her and this loss was going to sting. Makes you wonder how many other boomers have helped their kids only to see it go down the drain!!

#78 Nagraj on 05.22.15 at 11:37 pm

GT: “never invest in real estate with anyone you’re not sleeping with. That includes mothers. Your own, I mean.”

Recalling ELVIS PRESLEY biographical material, his mother was deeply religious and he slept with her until the age of 17. Pillow talk: I assume he got the most edifying advice a teenage boy can get, and if his ego was a mighty fortress his mother would’ve been its prime architect. When she died, he was frighteningly inconsolable.

GT: “which is why I have no friends”

When the time comes, you’ll have a mess of new ones.

LIVING DIFFERENTLY wants great courage, is always lonely, and absent an exceptional upbringing is difficult for an individual to achieve. And it’s always risky.

#79 Shawn on 05.22.15 at 11:50 pm

Buffett

Mark said:

Warren Buffet basically got lucky…

***********************************
The statement above deserves no response.

Some people refuse to learn from their betters.

Buffett also said at his recent meeting in answer to a question about how to get people to like you:

Study people you like and do as they do.

There is SO much to learn from Buffett.

But if everyone learned from him, it would be no financial advantage for anyone. So thank goodness for all those who fail to learn.

Keep on truckin’ Mark.

#80 kommykim on 05.23.15 at 12:13 am

RE: #35 ShawnG in TO on 05.22.15 at 8:05 pm
wait a minute… if Fraser Institute is political, won’t it lose its charity status under stevie harper’s directives?

It should, but it won’t. Funny how that works.

#81 Andrew Woburn on 05.23.15 at 12:15 am

#77 Too Much Debt on 05.22.15 at 11:18 pm
Makes you wonder how many other boomers have helped their kids only to see it go down the drain!!
=========

Sadly, it will be most of them eventually.

#82 Bob is my uncle on 05.23.15 at 12:18 am

Wow, unbelievable: “Canada is seen as the new Switzerland … People do not realize how sophisticated and world-known our market is”. Read it and weep!

http://www.bnn.ca/News/2015/5/23/Real-Estate-Watch-Canada-as-New-Switzerland-driving-Toronto-condo-market.aspx

#83 Washed Up Lawyer on 05.23.15 at 12:20 am

The end of another week at the tax farm. Real estate, real estate, interest rates, debt and Garth’s day off.

Reflect a bit. I saw this man live many times. He bounced 50 goals off Gary Roberts with the Flames. Off Roberts’ head, his ass, his skates etc.

Gary Roberts said if he scored fifty, he would name his first son Sergei.

Garth, I know the Flames blog is down the hall, but Fort McMurray makes me nostalgic.

https://www.youtube.com/watch?v=zUxyitLAtt0

#84 TurnerNation on 05.23.15 at 12:27 am

Ughh B. Lamb is here at the Trump hotel’s club again. Downhill.

#85 Converted on 05.23.15 at 12:49 am

The American, pay the fools no attention. Vancouverites take pride in the fact it is expensive to live here. They are even greater fools. They do not think. They react as is proof in their rants this evening. Presenting them facts only fuels the fire of their insecurities. I have lived in both cities in the past eight years. I rented in Seatown and now rent in Vancouver. Although I did not notice a 25% cost of living difference between the two, I think it amounted for me to pay 15% more living in Seattle. That was three years ago and I understand rents have have gone through the roof in Seattle since. Both cities are expensive any way you slice it. As a renter though I undoubtedly payed more to live in Seattle. Gas is more expensive here but food is way more expensive in Seattle and so are the rents and everything else. I think I get your point which is maybe Canadians do not really earn what the stats are saying? Is this why you qualified your comments to stress the word ‘really’? If you did it makes you even smarter in my book. I earned more in Seattle even paying a higher cost for it but I had a real savings there too. I was able to,put money toward retirement and I was much happier there. No salaries for the people I know are actually higher in the US at least for the jobs I know. Now let the hate comments fly. My countrymen cannot deal with constructive criticism or anything that flies in the face of the CBC and it makes us look defensive and ignorant. I think I am beginning to understand you more. It is hard for me to admit this but I am agreeing with you more and more recently. Anyway my two cents are keep writing because I enjoy your no holds barred comments. I think more of us should hear it.

#86 David on 05.23.15 at 12:57 am

This commingling of family assets and liabilities seldom produces happy results. I have seen similar situations where one offspring gets elderly momma and poppa to take out HELOC to provide emergency financial assistance to one of the family members. Parents die and a home that was thought to be paid for years ago has a mortgage on it. Needless to say other family members who were unaware get some shocking news when the will is probated.Why an elderly person would possibly need a home expansion is beyond comprehension.

#87 Capt. Obvious on 05.23.15 at 12:59 am

Whelp, our street in Ottawa has jumped the shark. A grapevine dude just listed his SFH (detached house) at $1.2M, when comparable places have been going in the $800k to $850k range. It does back out onto a park though, so that’s got to be worth 400k, right? Lunacy. Though points for trying to cash out.

#88 leaparoo on 05.23.15 at 1:15 am

#62 Julia on 05.22.15 at 9:37 pm
#45 bobo
“Did you hear the new tax TO has dreamed up – its on rain water – home owners may have to now pay storm water charges not kidding!!”

I heard Hogtown may implement a snowfall tax as well to help fund the Babcock contract…..

#89 Another Vancity Renter on 05.23.15 at 1:16 am

As an American living in Vancouver, who goes to Washington State a lot, the only thing that I’ve found to be cheaper up here is sushi. Some goods and services seemed absurdly more expensive here when the Loonie was worth about the same/more than the USD. The recent rebound in the USD has dampened the difference, but I still think it’s nonsense to claim that Seattle has a higher cost of living.

#90 leaparoo on 05.23.15 at 1:19 am

#66 rosie “moving forward” in the knowledge that, “this won’t end well” on 05.22.15 at 10:01 pm
Toronto is Canada’s New York. Vancouver-Paris. Calgary-Dusseldorf? Moncton- Miami! and Canada is the new Switzerland”

Reminds me of that old classic joke,

Heaven Is Where:

The French are the chefs
The Italians are the lovers
The British are the police
The Germans are the mechanics
And the Swiss make everything run on time

Hell is Where:

The British are the chefs
The Swiss are the lovers
The French are the mechanics
The Italians make everything run on time
And the Germans are the police

maybe this can be tweaked to get the Canadian cities on the list

#91 kommykim on 05.23.15 at 1:25 am

RE: #18 LH on 05.22.15 at 7:26 pm
With annoying us dividend withholding tax (for stocks owned in foreign accounts) I’m thinking of buying a single BRK.a share for the loooong term.

At a price of $217K for a single share, you’d better have a pretty large portfolio because you cannot sell a fractional share. ie: Say you need 30K a few years from now. You’d have to sell the 1 share and pay capital gains on a very large chunk of change just to access the 30K. Same goes for when you retire. There will be no way to gradually draw down your portfolio and there will be a large tax bill for the year that you sell 1 share.

#92 PM on 05.23.15 at 2:32 am

On the news today they said B.C. and Ontario are the only two provinces that do not have restrictions on foreign investors. Toronto and Vancouver are the two most expensive places to buy.

The minute Vancouver limits foreign ownership I open a company that accepts foreign investment. We store jars of beans in real estate the company purchases. Foreign investors will hand over billions to me, right? And prices will still go up.

Or there aren’t that many foreign investors and I go out of business.

Either way nothing changes.

Yellen said rates are going up this year. She means it. We take awhile to follow. The hurt starts in 2 years.

#93 Say no to Yoga Pants on 05.23.15 at 2:33 am

GT: “which is why I have no friends”

that’s ok, you’d rather be right than popular!

also, could be worse

this guy has no legs

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

#94 pypesdiver on 05.23.15 at 2:35 am

Garth, you’ve got to love what they’re teaching at the Fraser Institute. Jon must of gotten his education at Fraser Institute.
Comparing Canada to Switzerland, having lived in Switzerland one must have 20% cash down to buy a home plus 7 to 12 % to cover other charges of lawyer fees and property taxes. The average cost of a home is 2.7 million don’t even think you’ll get help from a similar CMHC in Switzerland. Banks aren’t going to be as friendly as the Canadian institutions with open hands letting you build crazy debt.
Unless you are part of the 1%, foreigners may buy a home or castle in Switzerland if they meet the strict requirements and it isn’t about having cash. I’ve never seen or heard Billionaires Asians buying in Switzerland, key word is strict laws.
The average monthly disposition in Switzerland salary is about 5,740 Swiss Francs or $7462.00 Canadian dollars where as in Canada it is about $2866.00. Completed some form of higher education ( higher than a high school diploma) is at 89% in Switzerland and with less than high school completion was 55% in Canada. You must see why Canadians are great herds of followers to keep this stupidity or what you call horniest of housing going on for years.
Yes, majority of Swiss are in good debt by about 200%. The Swiss build homes of brick and concrete that last for 300 years were as Canadians buy card board boxes that must be repair every 2-5 years depending where you live. Homes in Switzerland are passed on to 3 to 5 generations on the average in Canada you’re lucky if it stays up for more than 25 years. That is the reasoning why Good Debt of homes in Switzerland is never paid off, or else they’d pay higher taxes.

#95 drydock on 05.23.15 at 3:52 am

“the intersection of greed and stupid”

That’s a nice turn of words.

#96 Leo Trollstoy on 05.23.15 at 4:44 am

Most people have been doubting warren Buffett like this for over 60 years now.

And they’re all poor! Lol

#97 uxyro on 05.23.15 at 6:12 am

Great find for the picture Garth. It really made me laugh!

#98 bobo on 05.23.15 at 6:54 am

# 63 Junkieman

Not kidding, own 50 rentals bought in the 2001 (I was 41) – retired at 50 – no problem renting, massive positive cashflow – Increase in capital over 2 mil in 14 yrs,(current ROI is around 15%)thinking of cashing out but don’t know how to safely invest.

#99 Julia on 05.23.15 at 7:19 am

I think house prices are also going up from local people upsizing. Take the equity in your current house – we’re rich! – and move up. It will always go up right?

Here in Toronto, we have at least 4 sets of friends from University – all in late-thirties/early forties, professionals, with kids – who have done just that in the last 5 years. 2 of them are on their 3rd house in 12 years. (Most of us bought our first home between 10 and 12 years ago).

Yes, they got good money selling their homes. They stayed in the city, bought large, pretty and shinny infills for a lot of money. That in itself is crazy. But I just think of the amount of money sunk in costs alone for selling and buying. I figure the ones on the 3rd house have sunk at least $200,000 in agent and land transfer alone.

It’s not need. It’s image. It’s bragging rights. Do I think those houses are beautiful? Yes. I admit I sometimes have fleeting moments of shallowness and envy. Then I come back to my senses. I seriously don’t know how they do it financially or how they sleep at night. Maybe they don’t care, they live in the moment. I really don’t know.

#100 Sheane Wallace on 05.23.15 at 8:36 am

Fraser institute? Think tank?

There are no independent Canadian institution that could objectively assess the situation. Everybody pays lip service as in Canada you can not be politically incorrect.

That’s why the crash would be horrendous but the fallout would be worse as there would be virtually nothing left of our economy except housing and related services. Housing, finance, insurance, real estate and some derived services, that’t it.

Finance sector makes some sense when resource sector and manufacturing are solid. Both are in decline.

If this is due to foreign investment let’s close CMHC. I am perfectly fine with Chinese investing millions in houses in Canada as everyone should be.

As I stated countless times the Ca interest rate will go down, the dollar will be obliterated literally and all the savers and retirees would be screwed.

My personal goal is to diversify everything I can outside of Canada both as investments and holdings and move to Europe or US.

American, you have not clue of the stupidity when thw topic is real estate here, it is absolutely amazing form of behavioural engineering.

#101 Sheane Wallace on 05.23.15 at 8:58 am

#99 Julia

Yes, they are beautifully decorated cardboard particle houses and glass condos at triple the price (real price as it should be) of good quality brick house or condo.

House’s problems start almost immediately after you buy it and condos, apart from falling glasses, after 5-10 years of occupancy.

I have seen relatively new condos with ridiculous maintenance fees.

Apparently our high building standards allow to build glass condos in the freezing north (there was frost this morning in Toronto, it is May 23rd) as well as due to our high lending standards it is perfectly normal to ‘insure’ sub-prime mortgages by CMHC.

#102 The American on 05.23.15 at 9:51 am

At #74: PT, the comparison is for people who rent. In case you aren’t aware, rents are MUCH higher on seattle than Vancouver, as are consumer goods, transportation costs, and food. Vancouver is more expensive to purchase a home, no doubt about it, but still Canadians are paying less than a third in property taxes for a like property, compared to one in Seattle. Additionally, gas certainly costs more, as do dairy goods, in Vancouber. Dude, the prices are all right there. In case you missed this little memo, housing typically accounts for the largest gaps in costs of living, and renting in Seattle is way higher than Vancouver, so this is where most of this difference stems. I live in one of the cities and frequent the other. You can’t dispute the fact the prices are right there for you to read in black and white, and they are accurate. So, again, it appears Canadians have a spending problem.

#103 NoName on 05.23.15 at 9:55 am

interesting read

http://timharford.com/2014/11/why-a-house-price-bubble-means-trouble/

#104 saskatoon on 05.23.15 at 10:07 am

#41 Billy Burrito

please do not compare garth to che guevara.

che was a mass-murdering psychopath–running death camps in cuba, executing thousands (including, by many accounts, children).

when asked about his first murder, che said (in his personal diary):

“he liked it.”

most of the older, popular “bios” about che (that say otherwise) are actually published and promoted as propaganda by the cuban government.

#105 crowdedelevatorfartz on 05.23.15 at 11:07 am

@#102 The American
“it appears Canadians have a spending problem….”
++++++++++++++++++++++++++++++++++++

Total agreement.
My personal experience with friends and co workers.
95% are in debt up to their eyeballs and see absolutely nothing wrong with it.
This, while we are at the lowest interest rates in our history.
It wont end well.

#106 Daisy Mae on 05.23.15 at 11:14 am

#99 Julia: “Maybe they don’t care, they live in the moment. I really don’t know.”

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

Obviously, they don’t think. Paying land transfer fees, realtor fees and other assorted costs….to move across the highway? Locals selling to locals.

Of course, the costs associated with these local moves are great for government coffers and realtors. We’re delusional if we think the government cares.

#107 rosie "moving forward" in the knowledge that, "this won't end well" on 05.23.15 at 11:23 am

Obesity, debt, same thing. Change the names of a few of the miscreants and you have todays housing market. The undisciplined pigging out.

http://news.nationalpost.com/full-comment/robert-fulford-to-fight-obesity-we-need-a-paranoid-theory-of-weight-loss

#108 Daisy Mae on 05.23.15 at 11:25 am

Are the newbies considering the assessments and high property taxes that will come due on these 1.5 million dollar homes?

#109 Kenny on 05.23.15 at 11:27 am

#103 NoName interesting read

#110 Vamanos Pest on 05.23.15 at 11:56 am

More applicable to yesterday, but was mentioned again today: I can’t relate to having enough money to buy a 2M dollar home, and then being willing to “camp out” for a chance to actually buy one. Even if I just made enough to afford the mortgage (which would be $7500).

We’re talking about people that have 450k cash, and can handle a $7500 after tax mortgage payment every month. I’d say entry into the club STARTS at a household income of 25k a month.

So the part I don’t get is: I am lucky and actually have that kind of scratch. But I wouldn’t camp out for anything. In fact, I don’t wait for people in general. People wait for me. To not wait for me is certainly their prerogative, then we just won’t do business. (BTW, they always wait. Greed.)

I guess I just don’t understand people that have raised themselves to the socioeconomic level that they have subjecting themselves to that. I find it really weird.

If camping out is a pre-req for home ownership, I will literally be renting until I die. Price is irrelevant, I just won’t do it.

#111 Jilldo on 05.23.15 at 12:01 pm

@89 Seattle is definitely more expensive than YVR if you rent. You should get out more. I live in Kits but I am in both cities every week. Vancouver is slightly prettier as a city but the neighborhoods and architecture in Seattle are a lot nicer. Both cities are great but anyone who spends time in both walks away knowing Seattle is king of the hill by leaps and bounds. Yes it is more expensive overall in Seattle if you are not considering purchasing a home in the equation. I expect to be ridiculed for this belief but it is my experience as well as other coworkers in my field of work.

#112 Ole Doberman on 05.23.15 at 12:16 pm

Gartho – here is the reason expensive houses keep getting expensiver. This makes sense. Not people with 80K household income buying million dollar homes:

http://armstrongeconomics.com/archives/29276

Bunk. — Garth

#113 NEVER GIVE UP on 05.23.15 at 12:27 pm

MAKE A WILL RIGHT NOW!

I know a man who left his family to war with each other even though he was dying of cancer and knew the end was near.
He never talked to his family about what they would get. (he had millions) His kids from the first marriage thought that some of the wealth should go to them because of the first wife who died was wealthy and he inherited that.
So the second wife who had one child with him got it all. They smelled a rat and got a lawyer because they thought she manipulated the will or him when he was sick.
Now the half sister never talks to the other half siblings.
I have no respect for a fool who leaves his family in disarray like this.
Anyone can see it coming.
Making a will is the easiest thing to put off but it actually is the most important and urgent thing you must do now.
Also have a family meeting and tell everyone what they would get and why so no one is surprised when you die.
They will understand if you want to protect the second wife as long as you tell them to their face.

#114 Nemesis on 05.23.15 at 12:28 pm

#MoarMischief,Or… #DesperatelyIgnoringTheGorilla…

#Gregor’sComeToJesusMoment…

[Province] – Vancouver mayor calls on provincial government to bring in ‘speculation tax’ on real estate

…”Robertson was not available for interviews Friday afternoon.

The call for a tax comes less than a week after Robertson sold his Kitsilano townhouse after 21 months of ownership, for a profit of more than $223,000.”….

http://www.theprovince.com/business/story.html?id=11076030

#NoCheeryBlossomsForYou!…

[HarvardInternationalReview] – New Wealth Seeks a “Home”: The Rise of the Hedge City

…”In the era of globalization, the challenges and contradictions of capitalist authoritarianism cross oceans and are reflected in cities half a world away. Vancouver today bears little to no resemblance to the city it was 20 years ago. Whole neighborhoods are under construction. Each year nearly 20,000 new homes go up, a number that far outpaces the city’s population growth. All this change begs the question—how long can Vancouver sustain these levels of growth and investment? And what will a sudden crisis in Beijing mean for Vancouver and other hedge cities around the world so closely tied up in Chinese politics?”…

http://hir.harvard.edu/archives/10888

#AndYetItMoves…

[SCMP] – Something is grotesquely wrong with Vancouver’s housing market, and the time for denialism is over

…”An exceptional cause must be found for an exceptional situation, and for Vancouver, that can be found quite easily in wealth migration, which exploded in the past decade.

Vancouverites still struggle to grasp the scale of this influx to their modestly-sized city. From 2005-2012, about 45,000 millionaire migrants arrived in Vancouver under just two wealth-determined schemes, the now-defunct Immigrant Investor Programme and the still-running Quebec Immigrant Investor Programme. Let’s put that in perspective. The entire United States only accepted 9,450 wealth migration applications in the same period under its famous EB-5 scheme, likely representing fewer than 30,000 individuals.

So, Vancouver has recently received more wealth-determined migration than any other city in the world, by a long stretch. This, in a city with some of the lowest incomes in Canada.”…

http://www.scmp.com/comment/blogs/article/1804916/something-grotesquely-wrong-vancouvers-housing-market-and-time

#Or,It’sGettingHarderToIgnoreTheVeryBigMonkey… #OnTheSkyTrainPlatform…

https://youtu.be/PbrikL8IjXM

#115 Shawn on 05.23.15 at 12:38 pm

Warren Buffett on the wealth gap and minimum wage debate

Buffett explains why the wealth gap exists and proposes that negative income tax for minimum/low wage earners is a better solution than raising the minimum wage to $15.

I know I am a confirmed Buffett fan, and therefore not an unbiased observer, but I believe his op-ed article of this week in the Wall Street Journal is excellent policy and I think it is also exceptionally well written.

Study the writing style for its crispness and how he packs so much information into each little paragraph.

http://www.wsj.com/articles/better-than-raising-the-minimum-wage-1432249927

Will should our reaction be? To learn or to spurn?

#116 Oot der Hoos on 05.23.15 at 1:51 pm

I would ask if our reaction should be to steal and to feel.

… and then choose not to steal. Raise interest rates 4% over 1.5 years to stop the rampant inflation, which hurts house buyers, and hurts the lesser paid, who would then not need a wage hike, and kill off Buffett’s asset inflation wealth.

Then there is no free lunch communist recipe concocted for Buffett and low wage earners.

#117 BS on 05.23.15 at 2:00 pm

Turns out Mom has $300,000 left owing on a place worth five hundred, and Jon would personally foot the $150,000 addition. “But what happens when Mom’s pension runs dry in ten years…”

When people keep asking who are buying all these house this type of story provides a little insight. People who normally wouldn’t have been able to buy in the past are buying today because the money is there for them to easily borrow.

In this example we have a pensioner holding a $300K mortgage on a $500K house. Not just unheard of in the past but not possible. Pensioners or anyone close to retirement age couldn’t get a mortgage little lone a $300K one in the past. Now days it is common to have a massive mortgage go well past the age of 65. The loose lending allows people like this to become move up buyers where in the past they couldn’t. There are a lot more people like this out there impacting the housing market than wealthy Chinese.

There is no way Canada has less subprime mortgages than the US did at its RE peak. It is just not possible to have higher home ownership rates as the US (at peak) without higher subprime lending. If you want to increase the home ownership percentage you have to move down the mortgage food chain to get there and draw in people like this. People who couldn’t get a mortgage in the past because they are subprime. Once prices decline all of this subprime lending will be exposed.

#118 Mark on 05.23.15 at 2:06 pm

http://www.vancouversun.com/health/consider+government+backed+line+credit+cash+poor+seniors/11071878/story.html

“The B.C. government is willing to consider offering a government-backed homeowners’ line of credit for house-rich, cash-poor seniors to help them live in their homes longer.

..

“I have had a brief chat with (Housing Minister Rich) Coleman about it, and I think it’s something worth looking at,” he said. “It lines up well with our priorities.”

Good lord! This should put to rest any doubts that the official policy of both the BC and the federal government is to prop up housing at all costs. Even using the government’s financial resources to participate in the mortgage market.

#119 Judge&Jury on 05.23.15 at 2:14 pm

CHANGE IS COMING!!!

#120 Mark on 05.23.15 at 2:23 pm

Buffett explains why the wealth gap exists and proposes that negative income tax for minimum/low wage earners is a better solution than raising the minimum wage to $15.

Negative income tax isn’t without its problems, namely, it severely punishes the involuntarily unemployed who have no access to such benefit of negative taxation.

I am personally a fan of a relatively high minimum wage, because it essentially is the government telling the marketplace that it is not willing to subsidize employers through the payment of social benefits to their employees. If a job cannot create enough value for a person to live on, which, nominally is at least $15/hour these days in most of Canada, then is the job really worth doing? Or should the employer be looking towards automation to perform the duties of the position?

If an employer cannot afford to pay a worker $15/hour, I’d suggest that their business model is most likely only viable with cheap subsidized labour. These sorts of businesses are ones that we should be looking to cull from the economy, so that resources and capital are freed up for higher value uses. We really don’t need 24/7 hamburger restaurants or sandwich counters, if the only way they are ‘viable’ is by hiring a government subsidized minimum wage worker.

#121 bill on 05.23.15 at 2:58 pm

#50 Nemesis on 05.22.15 at 9:04 pm
a 3 Nemesis? as in a three cylinder motor?
I was wonder if our genial host has been out and about on his new bike? I hope that is the case!
Thats a tricky turn on the mulholland. a lot of coolant has been spilled there.
some slow and fast motion for you Nemesis…
IOM TT preview:
https://www.youtube.com/watch?v=BchapH4vzq8

#122 Nagraj on 05.23.15 at 3:49 pm

Here and now! What you’ve all been waiting for! More on ELVIS PRESLEY AND HIS MOTHER!

Elvis was the second of twins, his brother was stillborn. It is not uncommon for the mother in this tragic situation to become intensely protective of the survivor. Mrs. Presley was also a deeply committed Christian. That Elvis slept with his mother into his mid-teens wants to be understood in this light.

– y’all deserve to know this because Garth somewhat injudiciously mentioned sumpin’ about sleeping with Mom, cuz some of youse made silly remarks about that (par for the course for some of youse extreme bourgeois types), and because Nagraj has had it up to here with this blog’s now fetishistic focus on Vancouver real estate.

Unrelated: the BEA has given the green light to RE-SEASONALLY-ADJUSTING GDP which means that Garth is absolutely correct that the Fed will hike this year.

#123 fleabitten monkey on 05.23.15 at 4:05 pm

Now you have vancouver’s mayor moonbeam saying “it’s clear” rampant speculation is driving up Vancouver housing prices. Wonder where all this talk and “speculation” on what the real causal factors at play will yield and how many years from now. Will enjoy watching how “clear” they can make it appear with facts and measured stats.

#124 Mark on 05.23.15 at 4:20 pm

“There is no way Canada has less subprime mortgages than the US did at its RE peak.”

Absolutely, and I’ve argued this on practically every forum I can find. However, as a sort of marketing coup, the CMHC and the Realtors/banks/mortgage brokers of Canada have managed to somehow ‘redefine’ subprime to mean something other than its literal definition in Latin — literally loans that are less than prime, and hence, not acceptable for investment, without insurance or other enhancement, by the mainstream investment community. I even hear CMHC and/or a certain Toronto-based mortgage broker went so far as to edit the definition of “subprime” on Wikipedia to somehow bolster their/his delusion that subprime mortgages aren’t prolific in Canada.

The same ‘crowd’ also feels that mortgage credit quality is entirely ased on the at-the-time-of issuance metrics of the borrower, and that equity is not important. Couldn’t be anything further from the truth, as the statistical data from the US financial collapse told us — equity was always the most significant predictor of default, not credit score, not personal income ratios.

#125 devore on 05.23.15 at 4:42 pm

#117 BS

It is just not possible to have higher home ownership rates as the US (at peak) without higher subprime lending. If you want to increase the home ownership percentage you have to move down the mortgage food chain to get there and draw in people like this. People who couldn’t get a mortgage in the past because they are subprime.

This is precisely what “bring demand forward” means. The only way to do this is to lower standards. The type of people who wouldn’t have been able to get a mortgage 15 years ago, period, are today’s prime mortgage target demographic. No money saved, large gifts from family, little work history, government co-signing. And on the other side, people who physically wouldn’t be able to get a mortgage because they’re retiring in 10 years. Lenders just aren’t worried about the borrower’s credit worthiness or quality of collateral, because government guarantees everything.

#126 Westcdn on 05.23.15 at 5:35 pm

It has been my experience that prices collapse fast when there are no buyers. Why do buyers disappear? Lots of reasons but the biggest is the fear of loss. A poster wrote that people are not planning to pay off their mortgage debt but to flip it onto someone else. I couldn’t agree more.

That is the biggest difference between yesterday and today when it comes to mortgage debt. In the old days, debt was a curse you wanted to rid yourself because it was like being fed upon by a vampire. As a kid, my recollection of a starter home was a 2 bedroom bung of 900 sq ft with an unfinished basement and one bathroom for a family of five ( I know – cue the world’s smallest violin). Today, carrying debt is easy allowing people to live far beyond their means. All is good until you lose your sources of income. The tipping point between greed and fear is small given herd behaviour.

Eventually, the awareness that Canada has to compete through innovation and productivity will sink in. Then it will become obvious Canadians have become complacent and are living beyond our means. No one will want our stinking debt until we prove we are good for it. There are too many people that believe big government will improve our collective ability to create wealth.

It is time to introduce a provincial sales tax in Alberta or fire a lot of public servants. Let the new Alberta government put things on the line as to what it will cost to do socially responsible things by government programs. There must be a better way than just by making things bigger. The $15 minimum wage may work in Alberta as I saw a report that less than 2% of Albertans earn less.

I have always heard complaints from easterners that our restaurant prices were steep compared to their home town and our environment was lousy. My feeling was go home and quiet wasting my time trying to make you happy – IMO, higher minimum wage is not a good idea in Alberta but let’s see what happens.

#127 David #1 on 05.23.15 at 5:42 pm

Statistics Canada said Thursday. From this time last year, the CPI rose just one per cent.

I posted something about the CPI BS recently and here is the ultimate BS from BMO senior economist Benjamin Reitzes.

“You don’t really buy furniture very often, you don’t buy computers very often, you don’t buy cars very often. So, some of the bigger items that have a big weight because you’re spending a lot of money on them, even if it’s not that often, if they’re declining in price, that can offset a smaller but consistent increase in gasoline that you’re buying on a regular basis.”

HOW ABOUT FOOD ???

Don’t worry. Prices are under control (not).

http://www.cbc.ca/news/business/inflation-at-14-month-low-but-how-do-they-know-1.2971886

#128 The American on 05.23.15 at 5:45 pm

I wonder if the Fraser Institute would like to point out what the values were in the U.S. Relative to new debt taken on at the time of peak real estate values. Their so called “logic” is as stupid as anything I’ve ever heard. Let me get this straight… Values of property, the values that rise and fall, relative to the debt load somehow makes Canada okay? LMFAO!!! How about debt service relative to income instead, the real measure to know the risk of a housing market. Hell, if the key performance indicators the Fraser Institute chooses to use include the so called value of a home, why not just everyone say in unison that their home is worth $5,000,000?!?! at the rate of insanity going on in Canada, I won’t be surprised when the CREA and/or government make such a claim in order to keep it propped up. At the end of the day, a household only earns so much and can therefore only cover so much debt service, so who really cares if a home is worth even $10,000,000?!. A tiny little wind in the wrong direction, and the entire house of cards comes tumbling down. Defaults are already on the rise in Canada, this is a FACT. All it takes is a few more before momentum is underway and then critical mass. Of course it’s happening in Canada, and it is going to get a lot, LOT worse.

#129 Setting the Record Straight on 05.23.15 at 5:53 pm

@
Made in BC on 05.21.15 at 10:22 pm
http://www.coasttocoastam.com/pages/new-chile-volcano-images

I wonder if the UN should charge Chile a carbon tax. An active volcano puts out more CO2 than every car running in the world 24hours a day 7 days a week for 3 years.

$$$$&&

Do you have a reference/source?
I would like to use thus if there is a reference I can point to.

#130 Mark on 05.23.15 at 6:17 pm

“Statistics Canada said Thursday. From this time last year, the CPI rose just one per cent.
..
HOW ABOUT FOOD ???

The only food item that really strikes me as having jumped is beef, and that’s after a good decade of abnormally low prices relative to historic norms. Chicken and pork are down considerably over the past few years, and everything else seems to be pretty weak. There was a considerable spike in the fresh vegetables and fruits in January, as the shock and awe of the falling CAD$ was at its peak. However, as the contracts with the US suppliers have been renegotiated, and as pricing power on both sides of the border is incredibly weak, even those prices have come down.

So CPI YoY of 1% sounds about right, with the past few months probably being in outright negative CPI growth. CPI is likely to continue to trend lower as the CAD$ strengthens due to truncated consumer demand. This will, along with the weakening labour market, give the all clear for the BoC to lower the policy rate by another 25bp this week.

Categories of CPI that are highly discretionary appear to be in free-fall. Airfares, in particular, since 70-80% of air travel is now consumer-discretionary, not business travel.

“Their so called “logic” is as stupid as anything I’ve ever heard. Let me get this straight… Values of property, the values that rise and fall, relative to the debt load somehow makes Canada okay? LMFAO!!! “

Indeed, house prices and debt are intrinsically linked. A buble in debt also means a bubble in house prices, and vice versa. A lot of people are running around deluding they are wealthy, whether as homeowners with lots of equity, or as the GIC owners who have fat bank accounts. Both are likely to be destroyed in the rising rate/rising risk premia environment, to the benefit of ‘active’ participants in the economy (whether in the form of labour, or in the form of equity participation).

#131 Obvious Truth on 05.23.15 at 6:19 pm

Garth hasn’t even touched on the most likely causes for this to blow up in your face Jon.

What’s wrong with keeping your money? You have a place to live. Why live with your mom and have no money.

#132 IKnow on 05.23.15 at 6:19 pm

Conclusion: “Canada doesn’t have that problem. Our banks have tighter lending standards and Canadians are clearly managing their debt levels responsibly with no evident strain to their incomes or balance sheets.”

—————————————-

An ethnic chinese relative just bought a detached boxy Vancouver special for $1.4M.
The couple together were eligible for $1M mortgage (not sure if they got it from a bank or mortgage company).
They are not high-paying professionals, making at best average Vancouver income.

Now they’re living paychque to cheque.
And a new baby will come soon, add to the joy.

Do you think the Conclusion above applies?

Their purchase rationale: look at how much a tiny condo is costing in Hong Kong and Guangzhou, a detached house here can readily be worth $5M, as long as Chinese locals or immigrants keep their courage!

#133 crowdedelevatorfartz on 05.23.15 at 6:27 pm

@#113 Never Give Up

Unless, of course. The old geezer detested his kids from the first marriage as money grubbing brats that deserved nothing and left it all to the one child from the second marriage.
As for “telling everyone what their going to get”.
Wow! cant think of a better way to start a family squabble BEFORE you die.
Who needs the stress?
Leave it all to ANY charity and the family can have fun trying to retrieve “their” money.
As if they “earned it”.
They “deserve” nothing.

#134 crowdedelevatorfartz on 05.23.15 at 6:35 pm

@#123 fleabitten Monkey
“Now you have vancouver’s mayor moonbeam saying “it’s clear” rampant speculation is driving up Vancouver housing prices…..”

+++++++++++++++++++++++++++++++++++

Just another “important issue” to keep voters minds off real concerns such as transit, budget deficits, homeless, crime, bike lanes, traffic, taxes, Gregors incompetance, the canucks perpetual losing streak, etc., etc.,etc……….

#135 kommykim on 05.23.15 at 6:56 pm

RE: #129 Setting the Record Straight on 05.23.15 at 5:53 pm
@
Made in BC on 05.21.15 at 10:22 pm
http://www.coasttocoastam.com/pages/new-chile-volcano-images
I wonder if the UN should charge Chile a carbon tax. An active volcano puts out more CO2 than every car running in the world 24hours a day 7 days a week for 3 years.

Cars are responsible for 12% of total EU emissions of CO2.
“Transportation” accounted for about 27% of total U.S CO2 emitted.
The rest comes from industry, farming, electricity generation, etc.
So it’s a bit of a misleading statement about volcanoes, if it IS even true, to compare it just to CO2 emitted from cars.

#136 Nemesis on 05.23.15 at 7:01 pm

#YouTubeFunJustForBill… #Or,HighWayThreeExplained… #Approach&DescentInto… #ChiefClarenceLouie’sValley… #AncestralHomeOfTheNobleOsooyoos… #TheirMotto:”SuckItUpKemosabe,WeWereHereFirst”

https://youtu.be/jRZd_IOMToI?t=3m29s

[NoteToBill: Sorry I couldn’t find something Italian doing that road justice…]

#137 Godth on 05.23.15 at 7:08 pm

#129 Setting the Record Straight on 05.23.15 at 5:53 pm

Quite complaining, invest in carbon trading schemes and profit. Imagine the potential. Industrial civilization operates entirely on burning fossil fuels in absolutely every respect. All these carbon taxes will create a whole new layer of financialization that can be gamed to the hilt. You should adopt the proper level of cynicism and profit instead of complaining.

There’s no doubt that these carbon credit schemes won’t put the carbon back in the ground, or stop us polluting, but the largest, most powerful corporations will benefit as they can afford to pollute. Adapt or die. Or adopt and die anyway. We love silly games.

#138 joblo on 05.23.15 at 7:18 pm

from McMansions to micro condos up next for Kanada
fractional ownership, get to stay a portion of the year and spend the rest in your van down by the river eatin NDP Govt cheese.
Oh! Kanada :(

#139 PM on 05.23.15 at 7:52 pm

“There is no way Canada has less subprime mortgages than the US did at its RE peak.”

*Fewer.

Why not? We don’t take mortgages, package them with others and sell them off as freely. Ours stay on lenders books better. So we’re much less likely to make a loan when the credit is shaky. I don’t think you’ve got Walmart greeters here getting mortgages.

Our housing is bonkers but we’re not the US circa 2007.

#140 wearehere on 05.23.15 at 8:22 pm

Vancouver residents have had enough. There is a rally tomorrow

https://www.facebook.com/events/419315721574615/

The anger and resolve to get something done has taken our politicians by surprise and the Mayor has come out with a watered down idea suggestion to tax speculators, supported by the condo King of Vancouver Rennie.

However the Province has even vetoed that

The anger will grow until the politicians feel they have to do someting

How naive can you be? — Garth

#141 Entrepreneur on 05.23.15 at 9:21 pm

I believe in what #128 American says…but the herd mentality has only one goal…buy a house and keep breeding. Why else would mom and dad help out (far worse than kicking a 24 year out of basement or is it?). Some of us are a lot smarter and will not subject our own to such pressure.

Are we in a place in time where only certain people will carry forward on this earth? I think so. Maybe that is what foreign investors are thinking too, survival on this earth & whatever it takes. Time to take stats and quit be so gullible.

#142 Fed-up on 05.23.15 at 9:34 pm

#138 joblo on 05.23.15 at 7:18 pm

from McMansions to micro condos up next for Kanada
fractional ownership, get to stay a portion of the year and spend the rest in your van down by the river eatin NDP Govt cheese.
Oh! Kanada :(
—————————————————————————–

And we’re all going to amount to jack squat!!!

#143 mathman on 05.23.15 at 9:37 pm

Subprime: Defn Canada

1. not being able to afford your home, so you rent your basement to a complete stranger
2. not being able to save a penny so the bank of mom and dad are your down payment
3. qualifying for a mortgage only because the amt is 30 years and you were an exceptional saver that came up with 5% down
4. living in a box in a sky, with a perpetual payment every month and that will be worthless in 10 years
5. thinking your mtg broker and re agent have your best interest in mind, so if they say a 500k mtg is no problem you believe them
6. CMHC,CMHC,CMHC…
7. Barley making your mtg payments with 23 years left to go on the amt and in the lowest interest rate environment in history

we have lost all sense of the value of a dollar. People making 40k/year leasing 40k POS 3 series BMW’s, C Class MERC’s etc. allowing your parents to risk their financial future by giving you a down payment because you are entitled to that home. How do folks sleep at night.

when the gasbag bursts it is responsible cdn’s that will have to pony up. you can’t fart in toronto without hitting a mtg broker or re agent, or someone employed in some way through RE. Every day we get deeper into this mess.

#144 The American on 05.23.15 at 9:38 pm

At #140: Wearehere, my apologies in advance…. The demonstration will be in vain. Remember 99% in the U.S.? What came about of that with every city demonstrating, picketers on every corner, raids, barricades, and hundreds upon hundreds the times the size of the demonstration that will take place in Vancouver? Oh yeah… Nothing. After weeks and weeks on end, eventually everyone realizes they have to go back to the office to continue paying for the mounds of debt they have amassed. Or, they realize the politicians are going home everyday to their warm abodes, while the demonstrators are outside cold and wet. The change has to come from within the person, to accept he or she may not be able to afford to buy a home right now, and simply because the economic fundamentals are out of whack that it is not the job of government to make it right. Instead, I would suggest his demonstration begin demanding TRANSPERANCY into the Canadian system, which has been the true culprit all along. Lack of transparency allows Realturds, Media, Government, Banks, CREA, CMHC, and so on all to withhold information, lie about information, or do nothing at all. Believe it or not, having just a simple system in place like Zillow or Trulia will begin the undoing of lies and deceit. I will allow for a cohesive snapshot of the property’s history, market trends, real estate taxes, estimated value of a home, and the comparatives most close to it. Of course, this is not everything needed as part of the solution, but good information begets good information, which in turn educates consumers, and in turn does in fact greatly impact a market.

#145 Sheane Wallace on 05.23.15 at 9:46 pm

#139 PM

You are complete idiot.

Securitization of mortgages is much more lucrative when they are insured by CMHC.

We were US circa 2007 and worse in 2009 when house prices declined 15 % and F introduced 40 years zero down ‘insurance’ for mortgages.

In the last 7 – 8 years US had the correction while we keep blowing.

Our real estate prices compared to cost of opportunity to deploy capital elsewhere for better use are overvalued by 2.5-3.5 times depending on the location, maybe 3-4 times on Toronto and Vancouver.

#146 Sheane Wallace on 05.23.15 at 9:47 pm

41 The American

Transparency in Canada? True oxymoron.

In what world do you live my friend?

#147 Sheane Wallace on 05.23.15 at 9:48 pm

#143 mathman

renting basements is true canadian invention.

#148 MATHMAN on 05.23.15 at 9:49 pm

RE: PM #139

– Wrong- our banks offload the majority of residential mtgs on the taxpayers. Everything “subprime” is with CMHC or other insurers

– the walmart greeter in canada does have a mtg, his or her parents may be the co-borrower or gave them the down payment – people here can’t outright lie about income, but they can skirt the rules in a multitude of ways

– people are kidding themselves about our high and mightly lending standards, if you have a heartbeat you were able to get a mortgage up until very recently

– remember the 40 year amt with 5% down, those must be prime borrowers.

#149 Jerry Lee Fudgepacker on 05.23.15 at 10:00 pm

Sell to who? Our system is predicated on a market that will cycle through generations. But with the employment market crashing for full time job hunters….and wrinklies liquidating their holings faster than ever due to zero returns…..what will the end game be for an investor tomorrow if the music stops?

http://econimica.blogspot.ca/2015/05/the-fed-encouraged-packing-tnt-round.html

#150 Mark on 05.23.15 at 10:07 pm

“Our real estate prices compared to cost of opportunity to deploy capital elsewhere for better use are overvalued by 2.5-3.5 times depending on the location, maybe 3-4 times on Toronto and Vancouver.”

Oh definitely. We disagree on a lot of stuff, but I’ve shown, extensively, the ‘math’ for the above statement to be absolutely true. The justifiable P/E of an asset class that grows over the long term at the rate of inflation is only around 8-10. Canadian residential RE is trading at a P/E ratio of around 35 today, so 3-4X overvalued sounds about right.

Compare to the stock market, which typically grows at inflation + a substantial fraction of real GDP. Its priced at roughly 15X trailing earnings. The slightly higher multiple is justifiable given that there’s typically more growth out of stock earnings over the long run than there is in net RE rents.

#151 NEVER GIVE UP on 05.23.15 at 10:12 pm

#133 crowdedelevatorfartz on 05.23.15 at 6:27 pm

@#113 Never Give Up

Unless, of course. The old geezer detested his kids from the first marriage as money grubbing brats that deserved nothing and left it all to the one child from the second marriage.
As for “telling everyone what their going to get”.
Wow! cant think of a better way to start a family squabble BEFORE you die.
Who needs the stress?
Leave it all to ANY charity and the family can have fun trying to retrieve “their” money.
As if they “earned it”.
They “deserve” nothing.
—————————————————————-
Not sure if you have kids or if you hate them?
Anyway the lawyers love guys like you. The courts are full of this kind of thinking.
Many of us die unexpectedly and did not even think about who should get what if anything.
If you feel that your kids do not deserve anything then tell them you feel strongly about supporting a charity when you die and that you want your kids to be strong and make their own way.
What ever you do don’t leave them squabbling when you die. They love you and do not need the added stress when you pass on.

#152 Henry on 05.23.15 at 10:15 pm

“GreaterFool cardinal rules: never invest in real estate with anyone you’re not sleeping with. That includes mothers. Your own, I mean.”

So if you’re sleeping with your mother you’re OK. Mom and I are glad to hear that! We’re big time investors. LOL

#153 BS on 05.23.15 at 10:26 pm

Why not? We don’t take mortgages, package them with others and sell them off as freely. Ours stay on lenders books better. So we’re much less likely to make a loan when the credit is shaky. I don’t think you’ve got Walmart greeters here getting mortgages.

The mortgages are guaranteed through CMHC by the government of Canada so why would the banks want to sell the debt or care if the persons credit is shaky. They have the credit risk of a GoC bond with a higher yield. All that matters is CMHC guarantees the mortgage. There is zero risk for the lender so your points about lending are irrelevant.

If the US required X% of its mortgages to be subprime in order to reach a 70% home ownership level how could Canada be different to go past that level? Canada’s housing prices are higher on average today than the US had at peak, our incomes are lower and our home ownership % is higher. Demographics are similar. Our economy is weaker and less diversified. It does not add up that we could have less subprime mortgage debt as a percent of the total mortgage debt. How could it?

Our housing is bonkers but we’re not the US circa 2007.

Canada is worse off.

1. We have no fixed rates for 30 years like the US. Most mortgage rates reset after 5 years or less.

2. A higher percent of our economy and jobs are based on housing compared to the US. A housing downturn will have a bigger impact on lost jobs, reduced incomes and other spin offs to the economy in Canada than it did in the US.

3. We are already at rock bottom interest rates. The US had room to lower rates after the crash. Canada will not have that luxury.

4. All other metrics are worse in Canada like the average house price, price to income, price to rent, household debt, home ownership rates, etc.

It won’t be different in Canada.

#154 Janey Hanesbury on 05.23.15 at 10:32 pm

HAM NEWS FLASH…..more influential people are speaking out. You know what they say about “where there’s smoke there’s fire”.

http://www.vancouversun.com/business/system+cool+housing+bubble+Vancouver+immigration+lawyer/11070100/story.html

Tax attack suggested as ‘deterant to outside crooks looking to launder money in Vancouver real estate’.

BTW…big demonstration scheduled for Vancouver tomorrow in fron tof courthouse on Robson…come one…come all.

#155 bill on 05.23.15 at 10:38 pm

#136 Nemesis on 05.23.15 at 7:01 pm
hwy 3! I have many fond memories of that road.Hope to Blairmore is one twisty road…and bereft of mounties the last time I was through. Not that I was speeding or anything.
Fancy an Italian bike eh? well that would be fun for sure.
On our way to Calgary one summer we passed a guy on a very early Victory motorcycle,just past the Hope slide ….
It looked a lot like an old ‘Indian side valve’. sounded like one too.
He wasnt very fast on that steep uphill windy bit before the Allison Pass ,so we were stuck behind him for a bit in our Civic.
slow as he was [ we passed him in a civic!] I can safely say he was having more fun than I was.
The Victory sounded great by the way!

#156 espressobob on 05.23.15 at 11:13 pm

Warren Buffet is an icon and rightly so. Owning individual equities like the oracle could prove disastrous since most can’t afford the losses that come along with the risk associated with common stock. Unless you a portfolio like his?

Modern investment vehicles like ETF’s provide a wide array of diversification across many different asset classes and countries and continue to improve continuously with lower costs, DIY’s paradise.

John Bogle seems to have a better approach to long term investing through indexing instead of the high volatility of stocks.

It’s a choice?

#157 ShawnG in TO on 05.23.15 at 11:18 pm

the new Burger King coupon have arrived. Guess what? everything is priced higher. single burger, 10% higher, 2-can-dine 5% higher, family meals 6% higher, compared to last month’s coupon.

according the StatsCan Apr inflation numbers, food is up a lot, water and electricity is up, heating oil and gasoline is down. what is the impact on your “good debt” mortgage owners?

#158 Lobster Man on 05.23.15 at 11:21 pm

#118 Mark on 05.23.15 at 2:03 pm

I have a question regarding the statement by Mackenzie in the linked Vancouver Sun article: “at issue is that 50 per cent of B. C. seniors live on $24,000 per year or less, she explained.”
Now, how can this be? Any seniors in that income range should also be collecting GIS, in addition to the OAS. The combined total of such should be a lot more than $24,000 a year.
Am I wrong? Or, none of these seniors could qualify for OAS/GIS?

#159 Smoking Man on 05.23.15 at 11:46 pm

Nothing to write about tonight.

No energy , no drive. No ambition.

Bozze is taken its toll..

Or realizing that I got a hell of a lot more life behind me than in front of me.

Its kind of depressing.. Plus I’m out of bozze.

#160 kommykim on 05.24.15 at 12:22 am

RE: #158 Lobster Man on 05.23.15 at 11:21 pm
50 per cent of B. C. seniors live on $24,000 per year or less, she explained.”
Now, how can this be? Any seniors in that income range should also be collecting GIS, in addition to the OAS

Maybe the $24K includes the GIS.

#161 Ponzius Pilatus on 05.24.15 at 12:32 am

#157 ShawnG in TO on 05.23.15 at 11:18 pm
the new Burger King coupon have arrived. Guess what? everything is priced higher. single burger, 10% higher, 2-can-dine 5% higher, family meals 6% higher, compared to last month’s coupon.
————-
2-can-dine for 10 bucks sounds like a good deal.
But you have to bring your own wine and candles.

#162 federico mojito on 05.24.15 at 12:37 am

“#104 saskatoon on 05.23.15 at 10:07 am
#41 Billy Burrito
please do not compare garth to che guevara.
che was a mass-murdering psychopath–running death camps in cuba, executing thousands (including, by many accounts, children).”

Yeah but they both love(d) motorbikes and Garth would also look good wearing a beret on a Che-style t-shirt….maybe the caption on the shirt could say “Nobody’s fool”

#163 Mark on 05.24.15 at 1:06 am

“Any seniors in that income range should also be collecting GIS, in addition to the OAS. The combined total of such should be a lot more than $24,000 a year.
Am I wrong? “

OAS + GIS is most certainly not more than $24k/year.

http://www.servicecanada.gc.ca/eng/services/pensions/oas/payments/tab1-1.shtml

Pretty extraordinary, IMHO, that the government basically guarantees an income of $16k/year to everyone over 65.

Marginal tax rates sometimes exceed 100%, especially if other government benefits (ie: seniors housing, health plans, etc.) are added. No wonder so many retirees and almost retirees “save” every last dime in tax-free house ownership and other personal chattels rather than invest in stuff that can actually grow the economy.

#164 Steve French on 05.24.15 at 1:43 am

Smokey:

Remember: “Long is the way, and hard, that out of hell leads up to the light.”- Milton

Lay off the booze for a bit. Go for a walk with your dog. Keep your mind sharp, limber and clear. (And be careful of usin’ so many of those cuss words).

Some literary inspiration:

“Life is as infinitely great and profound as the immensity of the stars above us. One can only look at it through the narrow keyhole of one’s personal experience. But through it one perceives more than one can see. So above all one must keep the keyhole clean.” -Kafka

#165 Al on 05.24.15 at 2:02 am

Re: 154 – HAM News Flash; I guess the buying will move to Toronto.

#166 Mark on 05.24.15 at 2:26 am

“Unrelated: the BEA has given the green light to RE-SEASONALLY-ADJUSTING GDP which means that Garth is absolutely correct that the Fed will hike this year.”

I’ve always been on the record as believing that the US is far closer to the ‘hiking’ moment than Canada. With Canada likely to lag many years behind the Federal Reserve in hiking, simply because deflationary pressures have yet to really run their course in Canada. And the past 7-8 years have been anything but a demand truncated period, unlike in the US where there is emerging pent-up demand.

Additionally, overseas demand on the Canadian economy is minimal simply because there is very little Canadian dollar-denominated debt in existence outside of the borders of Canada. Meanwhile, the amount of USD$ debt held outside the USA is fairly extreme, and as momentum for the USD$ starts to accelerate to the downside, there will be a panic to start fading the bubble and move into something else. This, in turn, creates demand on the US economy, and demand means inflation, and inflation means higher policy rates, and so on and so forth.

Throw in selling of USD$ long-term obligations (due to the higher short-term rate environment), and you have a recipe for significant calamity in the stock and bond markets. Very positive for precious metals and the stocks of legitimately capital constrained industries, the higher interest rates. Terrible for businesses which heavily are levered to the domestic consumer.

How does Canada relate to this? Well the BoC will probably cut, to zero. When the zero bound is reached, well, the CAD$ is likely to be rising quite significantly by then. The bank has a de facto obligation to support whatever the GoC’s bond market liquidity requirements are (and with falling house prices, issuance of CAD$ GoC debt might be significant, to pay off the banks). But as Garth always claims, those who are liquid, not overweight deflating assets, and who take a balanced view to things should do quite well. Very high end consumption-related industries will do well in Canada as well. The housing market made the masses relatively wealthy. The stock market, a far more exclusive “club” relatively speaking, will make a small number of people incredibly wealthy. In extremus, the TSX could even trade at a P/E of 45, which is similar, adjusted for growth, as the contemporary housing market being at a P/E of 35. Some stocks, particularly the very deep cyclicals, could enter completely looney-tunes territory price-wise. Nortel was once worth $300B USD$ against a far smaller monetary base — could Barrick or Goldcorp be $1T companies at the height of a mania? Absolutely!

On that note, anyone have any thoughts about Valeant (VRX)? It seems to be putting on 2% a day pretty constantly, has already multiplied my money 15X in the past couple years, but as its part of an index fund holding, I am not sure what, if anything, to do. Anyone with an opinion?

#167 TRT on 05.24.15 at 3:40 am

Depressed Snoking Man??

How do you think most of the people on this blog feel? They missed the once in a lifetime run up in house prices. Only got to look forward to a correction/melt but no crash.

#168 TRT on 05.24.15 at 3:41 am

Investor alert:

Do everything the opposite of what Mark says.

Sorry man but you don’t make any sense most of the time.

#169 TRT on 05.24.15 at 3:43 am

And my third post of the night says Loonie going to 60 cents (and hopefully retire with this bet), rates going to 0.25% in Canada

#170 Mark on 05.24.15 at 4:18 am

h/t to “popbottle” on RFD:

http://www.urbanfutures.com/foreign-unoccupied-pdf/

Should put to rest the idea that “foreigners” are big participants in the YVR RE market.

“”Given recent discussions about dwellings occupied by foreign/temporary residents in this region, it is productive to commence with consideration of how we compare to other census metropolitan areas (CMAs) in Canada. Dwellings occupied by foreign and/or temporary residents in the Vancouver CMA represent 0.8 percent of the dwellings in this region, about the same (insignificant) share as they do in other major metropolitan regions in Canada. In considering the 19 metropolitan regions in Canada with populations of at least 200,000, the Vancouver CMA was right in the middle of the pack with the Saskatoon and Regina CMAs (0.9 percent), and
the Montreal and Victoria CMAs (0.8
percent).”

#171 Daisy Mae on 05.24.15 at 4:26 am

#144 American: “Lack of transparency allows Realturds, Media, Government, Banks, CREA, CMHC, and so on all to withhold information, lie about information, or do nothing at all.”

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

Gee, that sounds like our council!

Corruption at every level… ;-)

#172 Sheane Wallace on 05.24.15 at 8:55 am

#166 Mark

You touch many points but the conclusions seem dangerously wrong.

BOC cutting to zero will kill the loonie and please note this is still in blowing the bubble, not in managing the fallout of it. Hence I came to 0.35-0.45 however low this might sound now.

You have potential hit on gold down the road, Barik and GolgCorp could repeat apple re-evaluation but 1T is too much.

Putting 15 k in each or 10 k in junior miners now might be a good retirement plan 15 years from now.

#173 Underhoused on 05.24.15 at 9:29 am

#144 The American

“Instead, I would suggest his demonstration begin demanding TRANSPARENCY into the Canadian system, which has been the true culprit all along.”

Thank you!

#174 crowdedelevatorfartz on 05.24.15 at 2:14 pm

@#136 Nemesis and 155 bill.

Ever heard or ridden the Cabot Trail in cape Breton Nova Scotia? Ranked one of the better bike rides in the world.

http://www.google.ca/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&uact=8&ved=0CB4QtwIwAA&url=http%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DGBCOon71TXo&ei=nhNiVa7vMorvoATa_4HABQ&usg=AFQjCNEsGUCWy2B96MfdRV0OfgHA6EQuRQ&bvm=bv.93990622,d.cGU

Just dont go off the road…..or you’re dead.

#175 bill on 05.25.15 at 12:44 am

#174 crowdedelevatorfartz on 05.24.15 at 2:14 pm
I have been up the east side of Bras d’or which was quite scenic.
The Rock offers some great riding as well.

#176 robert james on 05.25.15 at 8:18 am

Rally tweets from Vancouver.. https://twitter.com/search?q=%23donthave1million&src=tyah

#177 Frank le skank on 05.25.15 at 12:19 pm

I’ve lived in the Centre of the universe (yes Toronto) for 16 years and will be relocating to the Maritimes for a number of reasons:

1. First and foremost, moving my family closer to our relatives.
2. In TO, a combined income of $150K means you’re poor.
3. Infrastructure that is 20 years out of date.
4. Youth unemployment is through the roof.

Don’t get me wrong, I love this city and all it has to offer but the premium on housing and other elements affecting costs of living are just too high.