Self-inflicted

AUTOBIOGRAPHY modified

When I asked him, Thomas swore he knew the risks. “Sure, my head could be on the chopping block. I get that.”

He should. There are safer things than being a senior manager in a junior oil company in the summer of 2015. Thousands have been punted. Thousands more could follow. But Tom and Julie are pushing ahead – buying a McMansion with the help of a big margin loan against their investment account, and an even bigger mortgage.

“But, we’re pregnant,” he explained, with a tone that said, ‘and what part of that did you not understand?’

This little story’s included today to illustrate one point. Most risk is self-inflicted. Sure, Tom might lose his job thanks to global commodity price shifts. Can’t help that. But nobody’s making him buy a house at an uncertain time, gamble his liquidity doing so, or to take on a boatload of new debt. Maybe, I added (unhelpfully), you can protect your family best by renting for a year or two until your job stabilizes? Why not stay liquid so you can cope with any changes thrown at you?

“But we’re pregnant.” End of story.

Yesterday’s chilling charts bounce right off a mentality like this. Tom’s typical of most people. Low rates make it smart to borrow to the max. Real estate always goes up because people want it. The government won’t allow higher mortgages, or a crash. If young couples having babies can’t afford houses, the system’s broken.

Sadly, the system is breaking because of the actions of your neighbours and relatives. Epic debt has brought record house prices, and the hormonal pursuit of real estate has encouraged reckless behaviour. After almost eight years of a property mania, the sense that everyone is entitled to a place of their own is overwhelming.

So, here we are. The economy will barely grow this year (perhaps 1.5%), we’re losing jobs and exports, business investment’s in a big slide, the dollar’s sick, yet we have house prices surging 10.7% year/year in Toronto with borrowing at a new high and the Bank of Mom financing 40% of all new offers. And still, most people fail to make the connection. The extra risk being added daily is breathtaking.

It will break, of course. Canadians are becoming less liquid, more indebted, less diversified and more at peril. This housing fetish, and the result of our own actions, is also making us less tolerant. We saw that come to a head in Vancouver over the last few weeks with the anti-Chinese online petition, the #DontHave1Million Millennial campaign and now calls for an anti-speculation tax.

Similar foolishness seems to be gaining traction in Toronto, or at least the troubled hinterland. Shaan Brach of Richmond Hill has started the same kind of trash-foreigners petition as stirred the pot in BC, calling on the province to tax the poop out of people who don’t live here but wish to purchase residentially.

“This petition is meant to protect current Canadian citizens,” it says, ”including recent immigrants, from the overwhelming amount of foreign investment taking over the GTA’s residential real estate market. This wealthy foreign investment strategy is driving up prices, and lowering our standard of living as a result, as it is making it impossible for Canadians to buy homes in their own country.”

But there’s nothing to prove it. Big urban areas (this one has 6,000,000 people) always attract offshore money, and sometimes that is concentrated in certain communities (like Richmond Hill). As for ‘driving up prices’ the evidence is overwhelming that the locals are doing that to themselves. For example (and as BMO has proven) without the Bank of Mom, this housing market would stop dead in its tracks, with imminent price declines. That’s what happens when you remove four of ten potential buyers.

As of Monday this dinglenuts petition had attracted ten thousand names, asking Brad Duguid, in charge of Ontario’s economic ministry, to pass a law restricting who can buy existing GTA houses. It cites a media report that 50% of condos are foreign-owned, ignoring a CMHC study which puts the number at 2.4%. People signing this want us turned into a chilly version of Australia, where anti-foreigner laws have helped cement that country’s intolerant image and, by the way, done diddly to contain prices.

So, bashing the Chinese won’t bring down the price of an old bung in Leaside (now at $1 million). Taxing foreigners more will not reduce any prices. Speculation taxes won’t work, either. All would add complexity and cost to the system with no positive benefit.

As with Tom, most risk is self-inflicted. We did this. We still are. And the fool who follows is the greater fool.

226 comments ↓

#1 Honey Dripper on 06.01.15 at 6:27 pm

this is very exciting

#2 Yogi Bear on 06.01.15 at 6:28 pm

“But we’re pregnant.”

lol.

#3 ILoveCharts on 06.01.15 at 6:30 pm

There can only be one greatest fool; don’t let it be you.

#4 TurnerNation on 06.01.15 at 6:33 pm

Apparently I’ve already had to pledge my allegiance to god and the Queen. That’s binding right? Lol

#5 Engin3r on 06.01.15 at 6:34 pm

1st, and no way am I buying a house in this chaos. Thanks Garth!

#6 Steve on 06.01.15 at 6:35 pm

“Taxing foreigners more will not reduce any prices. Speculation taxes won’t work, either.”

Agreed in full.

But does the ultimate solution really boil down to average joe resisting the temptation of taking on more debt at these “tempting” low rates?

Garth: What about the other factors which allows the system to operate at these low rates to begin with?

#7 JSS on 06.01.15 at 6:36 pm

Some say buying a house is a risk
Some say buying Canadian bank stock is a risk

Pick your risk.

Why would you buy a single stock? — Garth

#8 Fiwwwwwst on 06.01.15 at 6:45 pm

First babyyyyyyyy

#9 West Coast on 06.01.15 at 6:46 pm

Maybe time for some self-reflection – how did we get to this – living in one of the richest countries in the world – during a time of peace (at least for the Americas) – have we really reached a point where our whole lives seem to centre around ‘how much’?
Have a look at this piece from Market Watch:
http://www.marketwatch.com/story/pope-franciss-new-climate-change-encyclical-sneak-preview-2015-04-09

#10 crowdedelevatorfartz on 06.01.15 at 6:51 pm

“But we’re pregnant”.
As the sole arguement to buy……… unbelievable.

#11 Win One on 06.01.15 at 6:53 pm

Here are some real numbers about BC’s Lower Mainland real estate market by a realtor who has crunched the numbers – both SFH and condos
Bill Coughlin confirms that most real estate that has gone up because of local buying.
http://bit.ly/1LYcvCk

#12 Retired Boomer - WI on 06.01.15 at 6:57 pm

Back from the Log Cabin, a bar in the neighboring community. Monday is a get together with the locals for a few cocktails.

RE is not an item here. Anybody who wants a place owns one, or rents reasonably. Hell, with most places changing hands for under 150K this is no TO or VCR.

Many don’t have a mortgage either, does that count? Most earn between 50K-100K that I know, save the MD. and maybe my CPA.

Most are 50+ years and more concerned with upcoming retirement, than anything else. Most have a nest egg, how BIG the eggs are is another story. I will guess 250K plus a paid for home as the median.

I find it rather strange to look at this blog and relate. While Oi find it eternally entertaining, I see a complete lack of common sense in waiting to buy. Buyu at the tiop ’cause we’re pregnant? Oh, please!! I would never give up my liquidity to buy in a stretched market, during a 7 year old bull market. They don’t live forever, but by 63/37% portfolio (almost ready to re-balance) portfolio says WHY?

My bet is a year from now, stocks, commodities, and prices in general will be lower. Can’t tell you by how much, but the trend lines are telling me, time for a break.

I owe nothing, have a decent stash, secure retirement income why should i gamble? You have little, no security, times are a changing WHY should you gamble?

Stay put, wait for your new brat, then decide ‘if’ a house is worth the risk. At least this is what the old guy did back in 1974 when his new wife, too was pregnant.

Two years later prices were down, but interest was up a bit. We bought an older story and a half cape cod. Decent house, no regrets! It was 1/4 our monthly for the payment.

#13 Spectacle on 06.01.15 at 6:57 pm

Wow,

The takeaway from yesterday’s and today’s post…

1) stop self damaging, or don’t “self-inflict” the damage any further.

The graphs from yesterday are telling of market tops.

If you sell early on the way up ( real estate ) , it is much better than trying to time the top, by selling on the way down the other side . Reminds me of the statistics of mountain climbing: people are killed on their return from the peaks, not on the way up.

Garths endless compassion and detailed persistence is rare.

Regards all

#14 PVS Inquire on 06.01.15 at 6:57 pm

Garth, I admire your persistence in repeating warnings of things to come. It is almost certain that it’s only a matter of time before a significant housing decline occurs. I hesitate to call it a crash and believe it will likely be a slow and difficult drop in values that will rock thousands of Canadians, mostly in Toronto and maybe Vancouver. Smaller communities with stable employment and a solid base of retirees with fewer new Canadians, will weather the storm much better.

The bigger problem I see is the major change in economic reality when this coming generation’s children reach working age. Our current boomers will keep things moving along for the next 10-15 years. If our political and economic paradigms don’t change in the next 5 or so years to include a more fair distribution of wealth, we are heading back one hundred years when the Charleston and its dancers enjoyed their time in the spotlight before the dark age set in.

The 1% may keep things rolling in the meantime, but when push comes to shove and the music stops, there won’t be many chairs for the current middle class, not to mention the working poor.

But alas, the “who cares” about others attitude will continue. As long as I can have my Tim’s or Starbucks and compete with my neighbor, all is well….

#15 A Yank in BC on 06.01.15 at 6:59 pm

It’s very difficult to see how the Canadian real estate market can continue to defy gravity (and all logic), when several members of the U.S. Fed are now rattling their Sabres. Folks.. this is all about to end. 33 years of steadily declining interest rates is about to reverse course. A defining moment in time.

#16 Shawn on 06.01.15 at 7:02 pm

Whither House Prices?

In any case whether house prices rose due to low interest rates (which seems likely) or CMHC or HAM, the main point is to predict where house prices go next and over the next decade.

So far the score is:

Indebted House Horny financial illiterates predicting higher: batting about 1000

Garth and many others predicting lower: batting about zero

But this game goes on forever and eventually we expect the house horny illiterates to have some bad times especially the more recent buyers.

Stay tuned…

My message has always been about containing risk through balance an diversity. So far I am simply correct. — Garth

#17 Cici on 06.01.15 at 7:02 pm

Dang, I should have listened to Smokey’s advice a couple years’ back when he recommended banking on a Leaside bungalow (then trading around the $600,000 mark).

I wasn’t sure how many JDs he’d downed that night, but I learned my lesson: when it comes to riding the speculation bubble, he’s the man.

To all anti-foreigner-speculation enthusiasts: most speculation is down by non-immigrant, born-and-raised citizens wanting to take advantage of your “we’re pregnant” (actually no, you’re not: she is) naivety and pathetic sense of entitlement.

#18 cramar on 06.01.15 at 7:07 pm

I cannot believe Thomas. How can a person be savvy enough to get into a senior management position and yet be absolutely so dumb when it comes to personal finances? I would really like to know. I am baffled! The risk he is taking on at this time given his industry’s swoon and pregnant wife is enormous. Didn’t he learn anything about risk assessment?

#19 Churlish on 06.01.15 at 7:07 pm

As you say, the same story is playing out in Sydney Australia.
http://www.smh.com.au/business/property/blaming-chinese-money-for-real-estate-prices-ignores-probity-question-20150601-gheezb.html

#20 Ponzius Pilatus on 06.01.15 at 7:08 pm

Welcome to June!
Hope you sold in May and went away.

#21 Anson on 06.01.15 at 7:10 pm

It is always easier to blame someone else then to accept responsibility for ones outcome in life.
Last time I checked we had someting callad free will and choice.
One can make a rational decision and choose not to purchase a house at these current prices
It’s called keeping up with the Joneses and it is your choice.

#22 LH on 06.01.15 at 7:11 pm

Foreign buyer restrictions didn’t stop 29 Terry, a narrow 48m2 house on 38m2 land near Sydney central station from going to ~950k, to the overseas auction winner.

That said, I am all for foreign money. Think how much canola would need to be exported to attract the same cash as a 9ft row house.

#23 Repent on 06.01.15 at 7:13 pm

Poor Garth…

It must have been while you were running CRA.

Whoever cursed you, it should have expired already.
It’s way too cruel punishment to repeat fundamentally the same, every day, for such a long time.

I am sure all your sins are paid for, and the goodness of TFSA you might have got your ticket to heaven, already.

Maybe there are enough programmer blog dogs here that they could take your archive and generate a new article a day for the next couple of years. Picture editing could be outsourced to volunteers or unpaid interns.

In a year or two the teaching has to be obvious for everyone, one way or an other – or it will never happen.

You don’t owe the world anymore, Garth, your mortgage has been paid off. The currently available, limited AI can take it from here.

Enjoy the freedom…

#24 mishuko on 06.01.15 at 7:15 pm

It’s weird… I often get comments like ‘you’re young and can handle the risk’ in regards to renting.

I view it as a defensive strategy to avoid risking all my ‘net’ worth.

I can see how it’s tempting to spend when I get a message saying I have a special rate of 1.99% on m cc… yea….

#25 LH on 06.01.15 at 7:17 pm

By the way, the charts from yesterday are convincing me.. To buy more! Trend is my friend… No hockey stick here. c01 and c02 another several years to go I reckon!
What say you smoking man?
My only worry: communist government coming soon?
I just hope Harpo pulls it off like David Cameron

#26 Larry1 on 06.01.15 at 7:20 pm

When we got pregnant we simply rented a bigger house. We pay more for child care then we do for rent.

#27 Dual Citizen In Canada on 06.01.15 at 7:24 pm

I just negotiated a two year lease with 0% rental increase. Who said rates would never go to zero? So I’m saving about $1,500 a month renting rather than owning. Who in their right mind would buy in this housing market?

#28 Ray Skunk on 06.01.15 at 7:24 pm

The funniest part of today’s blog entry is absolute dreamers petitioning Brad Duguid (he of the inept, boondoggling, hooked-on-tax-revenues, Liberal government) to implement measures that would reduce land transfer tax revenues and HST.

Let’s remind ourselves this is the guy who wants to hire an Auto Industry Czar to shine some light on why auto jobs are leaving the province by the bucketload, while at the same time his government is sending hydro costs through the roof and introducing measures like carbon cap-and-trade and the ORPP.

Delusional on so many levels.

#29 What about CMHC? on 06.01.15 at 7:29 pm

What makes home prices sky high?
Jobs – no
Salary – no
Boomers – no
Foreign buyers – no
Oil price – No
Low rates – Yes
Bank of Mom – Yes
CMHC – Yes

#30 Hawk on 06.01.15 at 7:29 pm

In a way, sadly, the greater fools are those who live responsibly for when the SHTF we’ll all pay the price for Thomas debt.

We need far more inalienable rights incorporated into the Charter of Rights and Freedoms for benefit of responsible citizenry. Some such could be:

1. Maximum constitutional limits on how much tax any citizen can be required to pay, regardless of their income or wealth level.

2. Constitutional mandate that private property cannot be seized and “bail ins” disallowed.

3. Mandatory requirement that no party can stand for election that leaves any province or the country with greater debt than it inherited.

4. Limits on credit available to any citizen, particularly for consumer (non-investment based) spending.

5. Mandatory caps on salaries, pay, pension and benefits of all level of government. These can be competitive to private sector, but not the ridiculous levels they are now.

Otherwise as Mark Steyn correctly foresees, just like America, people are going to keep voting more lollipops for themselves at the expense of the productive tax paying citizenry.

#31 Mark on 06.01.15 at 7:30 pm

“If our political and economic paradigms don’t change in the next 5 or so years to include a more fair distribution of wealth”

Its almost never been easier, in the history of Canada, to become wealthy today. The Canadian stock market is priced at a level which implies above-average returns for decades to come. You get roughly 3X more earnings from an investment in a TSX index fund, dollar for dollar invested, than you do in real estate. And if you’re not comfortable with that, Garth’s “balanced portfolio” is good for 7-8% with not that much volatility, year after year after year.

Yet what do most Canadians, especially those who complain about wealth inequality, do? They buy housing. They buy the most overpriced asset class possible. While believing it is the responsibility of others to redistribute wealth towards them because they’re not capable of creating it themselves.

The average Canadian house is what, $400k (the Realtors will quote some $450k nonsense, but that’s just because of the shifted sales mix over the past 2 years). $400k invested in a TSX index fund like XIU generates $25k in net tax-paid income that tends to grow, over the long term, at a rate above that of inflation. The same $400k invested in a house is only good for ~$10k/year in imputed rent, and a high likelihood of capital losses going forward.

Its easy to sympathize with the young, who, on account of the past decade’s horrific job market, mostly haven’t been able to accumulate any net assets (home equity excepted if they bought >4 years ago). But to see middle aged people complaining about wealth disparity, especially when their personal lives are larded up with low-returning assets such as real estate and they refuse to take anything that resembles the slightest of ‘risk’ — is like the pot calling the kettle black.

#32 Shawn on 06.01.15 at 7:30 pm

Good Outcomes despite bad decisions

My message has always been about containing risk through balance an diversity. So far I am simply correct. — Garth

*******************************
Well, I thought I read your warnings and strong predictions of a crumble in house prices and imminent rises in interest rates going back almost every day for about seven years.

Face it, those who took big risks and bought the most house they could qualify for and thus were unbalanced have generally “won” so far. That’s the nature of risk, sometimes even very bad bets pay off.

They made what would appear to be bad decisions. But it happened to pay off. Sometimes, even running across a busy freeway pays off.

As to the future, stay tuned.

#33 Rexx Rock on 06.01.15 at 7:31 pm

Toronto and Vancouver houses price will continue to go up until your average couple can’t simply afford the mortgage on a house any more.These 2 cities have high income jobs so when they decline so does the real estate market.The housing market has been going up in Vancouver since 1997,so I doubt it will ever go down 10%.In 1997 who could have bought a small house for $300,000.The wealth of Vancouver homeowners is off the charts,that why everyone in Vancouver looks so happy.

#34 Timoftrees on 06.01.15 at 7:32 pm

Any man that says “we’re pregnant…”

Now I have just had my second lad and at no time in those nine months did I ever aspire to such a noble title (or difficult condition) as being pregnant. Firstly SHE is pregnant. Its a gig I would wish on no man, and taking credit for it (or tripping over one’s self to be politically correct) is just sad.

Peeve of mine. I hear it too much. Men who say it don’t usually have much say in financial matters.

#35 Mark on 06.01.15 at 7:32 pm

“The risk he is taking on at this time given his industry’s swoon and pregnant wife is enormous.”

Gold diggers tend to chase men involved with industries that are at or near their cyclical peaks.

It usually doesn’t end too well for all involved.

#36 Freedom First on 06.01.15 at 7:35 pm

Tom, I’m happy for you. Wife, job, house, baby on the way. The Canadian dream. I wish the best for you, sincerely.

I love my life. My way. Freedom First.

#37 TRT on 06.01.15 at 7:36 pm

So why rant about this ‘law’ if it won’t have any effect?

#38 Frustrated Kiwi on 06.01.15 at 7:41 pm

Disagree with Garth on Australia’s law (even though it has not really been enforced). Should a country allow foreign investment in commercial enterprises including new home building – absolutely. But what is the benefit in allowing speculation on used residential property? Especially if the country is small relative to the rest of the world (e.g., Fiji who have recently banned non-resident buying of land within town boundaries in response to the recent speculation boom). NZ has to put up with having a currency that is in the top 10 most traded currencies (nothing to do about that) but why would a country need to allow foreign speculation in it’s residential real estate sector? I fail to see the benefit and see very few downsides to banning it (whether or not it reins in house prices).

#39 IM in C on 06.01.15 at 7:46 pm

If the influence of HAM on the Canadian real estate market in negligible, as you say Garth, then the effect of anti -speculation taxes should also be negligible. So why worry about them ?

Costly, inefficient, ineffectual and requiring far more capital to run than will ever be collected. Thee are zero reasons to do this, other than kneejerk pandering to prejudice. — Garth

#40 Babblemaster on 06.01.15 at 7:46 pm

“Sadly, the system is breaking because of the actions of your neighbours and relatives.” – Garth

———————————————

The system is breaking for a lot of reasons. Like lack of economic growth, wages, massive immigration, globalization, offshoring, etc. Wages have not been going up for a long time. So, people are resorting to debt to get what they want. A lot of debt. The governments of the world are encouraging it. Ever increasing debt without increasing wages are not a solution, but short-sighted governments don’t have another option that they can see.

#41 cd on 06.01.15 at 7:47 pm

I think one of the root causes is that in canada we manage to overpay a lot of idiots. These idiots work at jobs that unless they kill somebody they can have for life. They then don’t mind overpaying for real estate since: 1) they are idiots, 2) in canada we already overpay for most stuff anyways.

#42 Frustrated Kiwi on 06.01.15 at 7:47 pm

PS. I particularly don’t think that a country should turn a blind eye to money laundering through real estate so I applaud NZ’s new law requiring all property investors to first apply for a NZ tax ID number and bank account, which requires the supplying of their home country (if not NZ) tax information. As a side benefit of this new law we will finally have data on foreign investment to see if it as the margins (can be ignored) or moving the market (consider taxes or restrictions).

#43 seeing it from both sides on 06.01.15 at 7:52 pm

Headlines like this adds more fuel to the frenzy:

http://www.vancouversun.com/opinion/columnists/Barbara+Yaffe+Single+family+detached+homes+endangered/11100051/story.html

#44 gladiator on 06.01.15 at 7:57 pm

Canadians buy McMansions when “they’re pregnant” and then put their babies in play pens. Where’s the logic?

Or, are all of them living in one bedroom condos/apartments when they get pregnant?

It’s like the baby will fail them for not having a house when it is born.

#45 Babblemaster on 06.01.15 at 7:59 pm

#21 Anson on 06.01.15 at 7:10 pm

It is always easier to blame someone else then to accept responsibility for ones outcome in life.
Last time I checked we had someting callad free will and choice.
One can make a rational decision and choose not to purchase a house at these current prices
It’s called keeping up with the Joneses and it is your choice.

——————————————————

Just for the record, I’m not one of these folks that are financially irresponsible. I’m very conservative and doing quite well with no debt. However, I think it’s silly to blame Joe Schmoe alone for all this RE and debt nonsense. Governments have aided and abetted people in their accumulation of debt. It’s been their plan to stimulate economic activity with debt because there is no real economic growth. If government economic policy didn’t matter in modifying public behaviour, then mabey we wouldn’t need a minister of the economy.

#46 profligate on 06.01.15 at 8:03 pm

I love to read the bleating and hand wringing from the “savers”. It’s like some sort of demented church service. Did mommy and daddy tell you that savers go to heaven and debtors go to hell? Still waiting for double digit returns on your GIC?

Are you gleeful about your 7% return on investments? And you congregation members who sat on the sidelines waiting for prices in Vancouver and Toronto to fall, how is that going for you? Can you buy a house with those amazing returns on your diversified portfolio? Even with a 30% correction(which isn’t going to happen) you’ll still be living in your parent’s basement. The ship has sailed, the train left the station and you weren’t on it.

#47 Cash is King on 06.01.15 at 8:05 pm

“But we’re pregnant.” End of story.

I wonder if Thomas will tell upper management the same thing when he is provided his separation papers.

Big mortgage, Lien on the investment account. What could go wrong? If Thomas is laid off he will have EI and Julie’s Matt leave to pay the bills.

Yep, this will all work out fine.

#48 Smoking Man on 06.01.15 at 8:11 pm

#25 LH on 06.01.15 at 7:17 pm
By the way, the charts from yesterday are convincing me.. To buy more! Trend is my friend… No hockey stick here. c01 and c02 another several years to go I reckon!
What say you smoking man?
My only worry: communist government coming soon?
I just hope Harpo pulls it off like David Cameron.

The commies are coming.. but now that BOC will cut in July and possibly in the fall.

I say go for it.

#49 Iceflows on 06.01.15 at 8:14 pm

Thank you Garth.

I was having almost this exact conversation with a few friends the other day (who I directed to your blog) trying to explain that adding a tax will increase the price and that foreign ownership is direct investment into the economy.

For every $1M home bought there are countless beneficiaries that are local, regional and national!
Think of the windfall for the seller, the fees, the taxes, the commissions for sellers, the support staff in marketing and publishing, the policy makers, the bureaucrats, the retail business in appliances and hardware. Then it gets torn down and you can add a whole other industry in the rebuild!
Why discourage this?

But Garth, I have never read your thoughts on the ‘Speculation Taxes’ that already exist.

In BC you have a first time buyers grant, a home owners grant, taxes on rent, and a capital gains tax if you sell within one year. Then, (I think I read on your admirable blog) a special grant to 55+ residents of YVR to defer property taxes interest free indefinitely! (WTF!)

#50 the Jaguar on 06.01.15 at 8:26 pm

to #18 Cramer

Given Thomas’s position as a senior manager at a junior oil & gas company, we can pretty much assume he lives in Calgary. Remember the people who used to blog on here saying things like ‘It’s different here…’?
This goes a long way to explaining the behavior. Calgary has been so bright and shiny for such a long time that some people in the city can’t believe a serious downturn can really happen in the city. 1981 was 34 years ago, and Calgary is a young city with a very young workforce. Thomas wasn’t here for the last bust so stories from the old farts that were around are just that – stories. It’s also a highly competive city where everyone likes to show off their status with big houses, big trucks, expensive cars or SUVs, recreational properties, expensive vacations, etc.. A city and a populace on steroids. Underneath all of it is a bloat of personal debt taken out by oil and gas personnel who spend like drunken sailors with the smug certainty that their next big bonus will pay for it all. The good times can’t really be over, right? Guess we will see about that..

#51 the brats don't care on 06.01.15 at 8:29 pm

Got 3 of my own. When they’re newborn to about 10 or so, they don’t care how big the house is.

They do care however about spending quality time with their parents.

So please house horny and mortgage rich parents, do your kids a favor and drop the entitlement mania. Quit working overtime and 2 or 3 jobs to afford the luxury shelter.

Quality time = quality parenting / education. There’s no greater investment.

Besides the brats don’t care. Find a better excuse to tell us why you need to upgrade the house. Stop lying to yourselves.

FWIW markets are cooling in the 604. Peak insanity has come and gone.

#52 Suede on 06.01.15 at 8:30 pm

OK, Vegas has been grand but now it’s back to the the land of hockey and steering the conversation to real estate.

Not before a free double woodford and coke at the tables. That’s what I call a proper hedging strategy folks.

It’s a Monday and this city is booming. Auto gratuity for the spa is 20%. My conclusion is the USA is on fire and heading up up and up. Only a major black swan will derail this beast.

People down here have disposable income to spend. Vancouver and Toronto, not so much.

#53 Interstellar Old Yeller on 06.01.15 at 8:30 pm

Thomas, having a baby is a significant enough event that you’ll want lots of cash around, and as few other responsibilities as possible. Seriously, you do need a house to have a baby.

#54 Interstellar Old Yeller on 06.01.15 at 8:31 pm

D’oh! That should read “you do not need a house to have a baby.”

#55 Mark on 06.01.15 at 8:38 pm

And you congregation members who sat on the sidelines waiting for prices in Vancouver and Toronto to fall, how is that going for you?

Two years of flat prices in Vancouver/Toronto, while the balanced portfolio has powered forward. And lots of upside for the stocks, which are priced at 1/3rd of the price of houses, and even less than that in Vancouver/Toronto.

While homeowners get poorer in relative terms, the investors are getting progressively wealthier.

#56 omg the original on 06.01.15 at 8:40 pm

Shawn on 06.01.15 at 7:30 pm
Face it, those who took big risks and bought the most house they could qualify for and thus were unbalanced have generally “won” so far. That’s the nature of risk, sometimes even very bad bets pay off.

They made what would appear to be bad decisions. But it happened to pay off.
———————

Actually Shawn you are, well, hard as it is to say, …….correct.

We are experiencing a generational housing bull – it has been massive and now spans 4 decades. There have been a few minor pull backs here and there, and a pretty big one in TO in the 1990s but the trend has ALWAYS been up when you look at it on a 5 to 8 year basis.

On the west coast we have not really seen any meaningful pull back .

But is always reverts to the long run – predicting when it the problem. In Canada and the US 3 to 3.5 income to price ratio has been the long-run average. Its my belief we will get back to that – which means a 30 to 70% haircut on house prices in real terms.

And barring a dramatic increase in rates (and by dramatic I do not mean just 2 or 3%) the reversion to the mean could take 10 to 20 years.

Hard for those who are 27 to wait for.

#57 Observer on 06.01.15 at 8:40 pm

Head of broccoli over $4.00…..low dollar. I wonder if Poloz ever does the grocery shopping. There’s no inflation in Canada if you stay away from the grocery store and live in a tent. And he might cut again?

#58 Daisy Mae on 06.01.15 at 8:43 pm

“But, we’re pregnant…”

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

They’re BOTH pregnant? How can this be? Jokes aside, people are naïve idiots…..unfortunate and very sad.

Thanks for persisting, Garth.

#59 Stomper on 06.01.15 at 8:47 pm

23Apr2015

The Paris-Based Financial Action Task Force (FATF) on money laundering has released its report on Australia, which found that Australian residential property is a haven for international money laundering, particularly from China, and has recommended that Australia implement counter-measures to ensure that real estate agents, lawyers and accountants facilitating real estate transactions are captured by the regulatory net.

I would expect the same would apply to Canada.

http://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-Report-Australia-2015.pdf

#60 Randy Randerson on 06.01.15 at 8:55 pm

Life’s goal is not to be the idiot/greater fool, let someone else be the lemming whilst you sit back and enjoy the mojito.

#61 David McKenna on 06.01.15 at 8:57 pm

Garth! What do you think the odds are the Ontario government will follow through? The current regime likes: taxes, and government complicating things. Any actions against foreign owners would win some political points, make some money and expand government. I’d bet the odds of this under Wynne are pretty good.

#62 Daisy Mae on 06.01.15 at 8:57 pm

“My message has always been about containing risk through balance an diversity. So far I am simply correct.”

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

Exactly. It’s just common sense to pull back and re-evaluate. Move cautiously.

Oops, I agreed with Garth. Hey, Smoking Man — care to add a smart comment. Or, even something intelligent, if at all possible?

#63 Italians love real estate on 06.01.15 at 8:58 pm

All this talk about Richmond Hill as a center for foreign investment . Well, I was deleted and banned when I mentioned over two years ago that the yonge corridor between hwy7 and major Mack would blow the doors off of leaside and the annex in terms of rate of price growth.

It will continue to do so. 416 ers stand back .

#64 Bill Cormac on 06.01.15 at 9:00 pm

My wife and I are pregnant for the first time and we are still renting our 2BR apartment. There are other babies in the building too. Our landlord is very accommodating to us because we have been very good long term renters. Baby coming in 3 months.

#65 A salesman ate yer lunch on 06.01.15 at 9:00 pm

Dr David Foote…Boom Bust Echo… cautioned that the increasingly tiny condo would be ‘functionally obsolete’ before the current generation could save enough equity to ‘move up’ the real estate ladder in the traditional sense.

I listened to the usual bleating of downtown couples saying ‘not us’…and when I next saw them with little dogs ( for pretend kids) I just laughed knowing Dr Foote had it right…..biology over ‘lifestyle’.

“We’ll raise our kids in the city”, they’d insist. “The street scene is an extension of our living room”. These fools spewing nonsense. This is why children should never make their own decisions.

Now…the words “Boobie’s pregnant”….is a shock…and biology sounds the clarion call to nest in tall grass.

Like shooting fish in a barrel…..from hip pretender to balding in Walmart sweatpants and crappy tattoo’s in one easy lesson.

#66 bby604 on 06.01.15 at 9:17 pm

It cites a media report that 50% of condos are foreign-owned, ignoring a CMHC study which puts the number at 2.4%.

———-
this is spin , why do keep clutching this stat? it was for purpose built rental apartment buildings….rental buildings..i say again rental buildings they dont even build them anymore ….let it go, this stat is worthless to either side

#67 Bill Grable on 06.01.15 at 9:21 pm

The House is now 62 years old. 33X120 foot lot – near UBC. My parents sold it in 1988 for $250 K.

The same house, with the same old furnace, but a new roof, just sold for $1.238 million.

No problems with this market.

Insane.

#68 bigtown on 06.01.15 at 9:24 pm

The new baby..I remember. It was 1974 and I was 19 and the little stranger arrived. She was so quiet and polite at first…I was under her spell in no time. You don’t expect them to be so amenable but she was. Of course, they grow up and forty years later I am glad she is independent. New parents beware..you will fall in love fast and you won’t want to get distracted with big mortgage payments so rent and indulge that new little stranger. Who else can you love unconditionally? That’s right. No one.

#69 Washed Up Lawyer on 06.01.15 at 9:24 pm

Even under the new NDP regime in Alberta, a wise and beneficent regulator injects confidence in the Calgary housing market and economy.

The Liquor and Gaming Commission, has for the second year in a row, allowed honky tonks to open at 8:00 a.m. during the 10 days of Stampede. As a bonus, the roadhouses can open at 7:00 a.m. on Parade Day.

Reference: Calgary Herald

Best place on earth.

https://www.youtube.com/watch?v=d7J8cioSq_I

#70 PR on 06.01.15 at 9:25 pm

I Email Mark Carney, when he was the king here. Regarding my fear about all of they above.
He reply to me via Email, that nothing to worry about, and, they have different tools, to cope with, those possible problems, if, they come. If.
So sleep well.

#71 crowdedelevatorfartz on 06.01.15 at 9:28 pm

6pm Global “News” in Vancouver June 1st

2 cyclists and a passenger in a car killed by an “allegedly” impaired driver. 3 minutes.

Vancouver Real Estate:
New Families moving into the downtown core with babies increasing. 2 minutes

Non smokers selling condos have better results. 3 minutes.

Priorities for the greaterfools

#72 Raging Ranter on 06.01.15 at 9:32 pm

A perfect example of how distorting and destructive low interest rates are. They do not boost the economy, they inflate asset bubbles. Period. Keynes called it the liquidity trap. Yet nearly all of Keynes’s modern day disciples have forgotten about that. Krugman and his ilk want low rates forever. They won’t be happy with the results, but when it finally hits the fan, they’ll just blame it on some quarter point increase in rates that happened somewhere, sometime, and say, “I told you not to raise rates yet.”

#73 Aaron - Melbourne on 06.01.15 at 9:37 pm

“People signing this want us turned into a chilly version of Australia, where anti-foreigner laws have helped cement that country’s intolerant image and, by the way, done diddly to contain prices.”

Lets be clear about Australia:
– It is a mirror of the Canadian bubble experience.
– Our Federal foreign investment laws DID NOT CHANGE, they were never enforced.
– Recent parliamentary inquiry resulted in affirming the need to apply the law as it exists.
– The Foreign Investment Review Board was stripped of its regulatory oversight on Property transaction and this was handed to the Australian Taxation Office.
– There is a window (until October) for non-compliant foreign investors to come forward, after that they will face prosecution.

Here in Victoria (Melbourne in particular) the newly elected State Government introduced surprise legislation to levy additional Stamp Duty on foreign property investors and a further levy if the property was kept vacant.

We have tower after tower going up in this city which have been 100% direct-marketed and sold to China.

We have just had an enquiry into a fire that rapidly spread vertically and destroyed 8 floors of apartments. This exposed that the aluminium cladding was non-fire code compliant. It also exposed that this was a “vertical slum” with many poor immigrant workers hot-bunking and crammed into smaller units. So while we have entire towers that are vacant we also have over-crowding. This is a failure of planning, regulation and the market.

There is nothing racist about pointing to an identifiable ethnic group of foreigners who are breaking our laws and calling them out on it.

Chinese money laundering is distorting the market.

But then so are our Tax Laws (Negative Gearing and the 50% Capital Gains Tax discount), the prevalance of Self Managed Superannuation Funds being able to leverage into property (think of it as your RRSP being mortgaged).

Australia not having a recession since 1989 has created a unique collective mindset that property is a one-way bet.

Hell, even our dingbat Prime Minister Tony Abbot just said ‘I want housing to be affordable but nevertheless, I also want house prices to be modestly increasing.’

http://www.smh.com.au/federal-politics/political-news/i-do-hope-our-housing-prices-are-increasing-tony-abbott-quizzed-on-housing-bubble-20150601-ghe3y1.html

#74 Smoking Man on 06.01.15 at 9:42 pm

#62 Daisy Mae on 06.01.15 at 8:57 pm
“My message has always been about containing risk through balance an diversity. So far I am simply correct.”

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

Exactly. It’s just common sense to pull back and re-evaluate. Move cautiously.

Oops, I agreed with Garth. Hey, Smoking Man — care to add a smart comment. Or, even something intelligent, if at all possible?
………

Still a suck up..:) just kidding.

We are on this world a short time, everything boils down to a bet. A booleen.

You want to hit it big, you got to risk big. 99% of the population is afraid of risk..

And its more of being perceived as a failer in front of your peers, than actuly lossing it all. Done that a few times no big deal.

Getting rich is more of a by product of making good bets than brains and education. Yet the world sucks up to the big betters.

But from JK and up, we are spoon fed Safe Hands. Caution. We don’t want to be the kid sent down to the principles office in front of the entire class.

That’s what holds you all back..

You want to know what living is all about..rollet, cash in everything , Red or Black. Only do it once.

Its more or less how its done..

#75 Nora Lenderby on 06.01.15 at 9:48 pm

Oh well. Can’t be helped, apparently. Thomas and his missus will succumb to the pressure from family, friends, and society, to do the same thing as they have done. Very few people seem to be able to resist anyway.

Very bad timing, though. He could probably pick up a better deal by the time the baby is old enough to need a kindergarten.

#76 Investorz on 06.01.15 at 9:48 pm

People need to know that they can own real-estate without owning a single condo. H&R REIT would pay you a 6% dividend.

– No crossing your fingers someone will rent
– No shopping for a place to buy
– If you move you don’t have to sell or manage remotely

My friends houses in Toronto are not appreciating like the stats say and it’s at last my turn to boast.

Look at Amaya, Magna, CCL, Exco, Brookfield Real-Estate. Those assets are going up way faster that house prices!

#77 Julia on 06.01.15 at 9:53 pm

#63 Italians love real estate
“All this talk about Richmond Hill as a center for foreign investment . Well, I was deleted and banned when I mentioned over two years ago that the yonge corridor between hwy7 and major Mack would blow the doors off of leaside and the annex in terms of rate of price growth.

It will continue to do so. 416 ers stand back .”

Curious to see what happens when the bottom falls out. I suspect the 416 will hold better, especially in the core like Leaside and the Annex.

#78 Leo Trollstoy on 06.01.15 at 9:55 pm

And you congregation members who sat on the sidelines waiting for prices in Vancouver and Toronto to fall, how is that going for you?

You are unfortunately correct.

Accounting for sales mix, Google shows that real estate prices in Toronto and Vancouver continue to rise and are blowing expectations out of the water. It reminds me of Willie Coyote running off a cliff before gravity kicks in.

Not sure when it will end. I’m still seeing 10 day asset turns. Which is ridiculous considering the financial standing of most buyers and the price of the asset in question.

#79 Capt. Obvious on 06.01.15 at 10:00 pm

Tonight I tuned to sportsnet expecting to catch some Jays baseball. Postponed. Instead they’re showing BAL – HOU. Anyway, they showed a shot of the sun setting and the U.S. based commentators made a comment about the couple of cranes you can see beyond the outfield silhouetted against the sky. Their comment was that man there are quite a few cranes in Houston, but nothing compared to Toronto. You’ve never seen so many cranes they’re building so many towers there!
You cannot make this stuff up.

#80 Smoking Man on 06.01.15 at 10:01 pm

Daisy May,

If Canada had a statute of limitations, I would tell you how I did it.. Use your imagination. Fill in the blanks.

After my second bankruptcy, I was pissed. Did everything right. Luck was not on my side.

Risk vs Reward.

I was good at aggracultre, had my cousins recipy. One big humungus crop. Then out.

Boy that corn field in brighton Ontario grew fast.

Now I did not have a licence to grow corn, but back then it was only a slap on the wrist for growing corn without a licence. Risk vs Reward.

Amazing how fast the mind kicks in when you have nothing to losr and your back is against the wall.

I wasn’t greedy..all in just once.

For the record this is a made up story. You all know I have a lieing problem.

#81 Final Fool on 06.01.15 at 10:11 pm

I am not waiting for the greater fool, there always is one and meanwhile prices keep rising. When will the final fool arrive?

#82 bdy sktrn on 06.01.15 at 10:17 pm

#67 Bill Grable on 06.01.15 at 9:21 pm
The House is now 62 years old. 33X120 foot lot – near UBC. My parents sold it in 1988 for $250 K.

The same house, with the same old furnace, but a new roof, just sold for $1.238 million.
——————————————
I am shocked, really.
1.2 for a lot near UBC? Looks like weakness over in the west side. Comm drive is close to that level now, but was 250/house in the mid nineties, rather than the 80’s.

#83 bdy sktrn on 06.01.15 at 10:19 pm

#67 Bill Grable on 06.01.15 at 9:21 pm
The House is now 62 years old
——————————————
also, the houses here are pushing 110 years old.

#84 Nagraj on 06.01.15 at 10:24 pm

“I’m a wife and mother.”
Good for you.
“I’m a husband and father.”
How fascinating.

Another one of my Dad’s old world memorable dicta:
“Remember son, it takes next to no brains to get married and none at all to have kids.”

Raising kids is the chore and joy of a lifetime (and I’m a proud grandfather) BUT DON’T THINK that’s a ticket to Heaven because if you try to get in by saying “I raised . . . ” to St.Peter at the Pearly Gates, I tell you with absolute certainty that he’ll respond with a cool “So what.”

Procreative proclivity defines nobody as an individual, and justifies nothing at all.

#85 As Is Old Man on 06.01.15 at 10:28 pm

Ottawa May sales are going to be catastrophic folks. Inventory way up, sales way down, DOM way up. Already Canada’s worst market according to the Teranet/National Bank index as of April (down 6% since August, and down 4% YTD. Can’t wait to read the spin that OREB tries to put on it. Just crickets at the open houses…

#86 Mark on 06.01.15 at 10:34 pm

“My friends houses in Toronto are not appreciating like the stats say and it’s at last my turn to boast.”

Very true. Actual individual houses are *not* appreciating in either Vancouver or Toronto. The only thing that has changed is that the Realtors are transacting in higher priced segments of the market than they used to. What the Realtors are selling is known as the ‘sales mix’, and changes to the sales mix are apparent in a median transaction price that has risen much faster than the mean transaction price. Anyone with even one iota of knowledge of statistics would caution someone not to generalize a rising average to an individual sample in such an environment.

“Accounting for sales mix, Google shows that real estate prices in Toronto and Vancouver continue to rise and are blowing expectations out of the water.”

“Google” is a Mountain View, California-based Internet search website. Not an authoritative source of real estate news or analysis. But nice try. And Toronto/Vancouver house prices are *not* rising.

#87 Balmuto on 06.01.15 at 10:40 pm

#221 Leo Trollstoy on 06.01.15 at 1:19 pm
“So now we add that Mark is wrong about interest rates (BoC didn’t cut) and how the 1% got their wealth.

This can go into the pile of wrong comments including (but not limited to) gold, gold miners, USD/CAD, deflation, Toronto real estate prices, how banking and insurance works. Anything else?”

The Japanese yen. That shining example of deflation-induced currency strength just hit a 12-year low.

#88 Mark on 06.01.15 at 10:42 pm

“But is always reverts to the long run – predicting when it the problem. In Canada and the US 3 to 3.5 income to price ratio has been the long-run average. Its my belief we will get back to that – which means a 30 to 70% haircut on house prices in real terms.”

Mean reversion implies periods of overshoot to the downside, for periods spent in overshoot to the upside.

So if 3-3.5 is the long-term ratio, and we’ve spent some time at 5-6X income — then its practically a certainty that, at some point in the cycle, we will spend some time far below 3-3.5. Especially in the most indebted areas which tend to be the most vulnerable to the greatest in price corrections as credit dries up and buyer exhaustion rears its ugly head (the front-end of which we’ve seen for the past couple years, with prices stagnating pretty much everywhere).

Last time this happened, the stock market outperformed the housing market by a factor of 3. From much superior metrics overall. I’m thinking the outperformance factor might be closer to 6 this time around. That is, a mere 15% down-payment invested in the TSX stock index (ie: XIU) instead of in Canadian housing, within the decade and with dividends re-invested, will facilitate a cash purchase of the same house.

#89 FRANK BURNS on 06.01.15 at 10:43 pm

But,we are pregnant…. maybe the guy has a sense of humor and has a beer gut lol

#90 Rural Rick on 06.01.15 at 10:43 pm

Way back in the 60s when my wife was pregnant and we were renting. I was chastised for spending money on a crib by the old lady upstairs. She said you should just take a drawer out of the dresser and put a blanket in it for the first few months. Today you need to buy a house?

#91 rawdiswar on 06.01.15 at 10:48 pm

No way the younger generation can support these kind of real estate prices. Nearly everyone I know younger than 30 is completely fracked and can barely make their student loan payments, much less enter bidding wars. And many people don’t have good credit at the Bank of Mom, so that can’t be counted on to keep the game going.

But people want to fit in and housing is emotional, so they’ll continue to do whatever they can to get into houses, just like in the US.

#92 flignit on 06.01.15 at 10:49 pm

Am I the only one thinking that the American is really a Canuck pretending to be an American. The caricature is a bit over the top and real Americans are much nicer and do not bloviate that much…the American’s uber-lackey supporter Black Sheep sounds like they might be the same poster under another doppelganger

#93 Cici on 06.01.15 at 10:58 pm

#23 Repent

Yeah, you’re just jealous cause your blog has 0 visitors, and you have 0 devoted Amazons and 0 rockin’ Harleys.

#94 Andrew Woburn on 06.01.15 at 10:58 pm

#65 A salesman ate yer lunch on 06.01.15 at 9:00 pm
Like shooting fish in a barrel…..from hip pretender to balding in Walmart sweatpants and crappy tattoo’s in one easy lesson.
====================

Brutal.

Brutally accurate.

Almost nobody, and certainly, very few men, realize what parenthood actually brings, even if one comes to enjoy it.

I suspect an effective male contraceptive has already been developed but has been ruthlessly supressed by an unholy alliance of government finance departments and minivan manufacturers.

#95 dienekes on 06.01.15 at 11:03 pm

“But we’re pregnant.”
The only people who talk like that are emtional weirdos.
Same as when I hear girls say ” I’d do him. ”
Ladies, you didn’t leave anything behind. He did.

#96 Chris on 06.01.15 at 11:05 pm

Wait a second Gartho – you can’t have it both ways. If there are almost no foreign buyers who are speculating and not living in the places they borrow, then taxing them won’t be a big deal – you said yourself there are almost none of them. If people are actually moving here, they would not be taxed right? So if there are almost no speculators moving the market, why not allow a tax on them? I don’t know if there are or aren’t and don’t really care, but I don’t follow your argument that foreign speculators don’t exist, yet taxing them is wrong. Who said speculators had to be foreign anyway?

#97 Paul on 06.01.15 at 11:09 pm

All the talk about where the biggest drop in prices will be?
Yes say 30% in the 905 and 25 % in the 416 as a infamous politition said what differance does it make at that ( this ) point!
Buy for a million drops 30% = $300,000 not counting the HELOC’s and fee’s

#98 Randy Randerson on 06.01.15 at 11:13 pm

Spoke to my 70 year old retired neighbor. He was busy with his garden when we spoke. He belongs to the “House rich, cash poor” club, since he brought it up (I was just surprised that he knows the phrase).

He’s thinking of downsizing, selling his SFH for a cool million dollars, and maybe rent and travel more with his wife. His pension isn’t keeping up with inflation, plus tending a huge yard is a lot on a 70 year old man.

#99 Wildnutz on 06.01.15 at 11:19 pm

“Well that didn’t work: an autobiography”

A sneak preview of Smokey’s book?

#100 Herf on 06.01.15 at 11:28 pm

“But we’re pregnant.”

So, whose fault is that? You used your penis as compass and lost your sense of direction.

(As Garth said “End of story.”)

P.S. Also as previously noted here by Garth, whether you raise your kid in a house that you think you own or in a shoe-box apartment that you rent, the kid won’t know the difference or care, at least for the first few years of his/her life. Millions of Europeans who live in high-density housing prove this, particularly in eastern European countries that emerged from under communist rule in the early late 80’s/early 90’s. I know; I witnessed teenage kids in Bratislava, Slovakia who were much better behaved and had respect for their seniors compared to the past several generations of entitled, disrepectful brats we’ve managed to raise in this country. The Slovak kids would stand and give up their seats on the streetcars and buses for an older person without being asked. It was an automatic reflex. Slovakia, where most of the population is housed in medium and highrise apartments that looked very utilitarian from the outside. I saw some apartments that on the inside were decorated and furnished very nicely – one wouldn’t have suspected how nice they were judging from how utilitarian the outside appeared. The people took pride in making their apartments respectable homes, within their economic means, while somehow managing to raise their kids with some sense of stability and positive societal values.

#101 DisgustMadeMePost on 06.01.15 at 11:31 pm

https://www.biv.com/article/2015/4/property-sales-spike-sparks-money-laundering-fears/

Duhaime, who was awarded the 2014 Corporate International Global Award for a Canadian law firm in business crime law, is convinced that Fintrac will be looking more closely at Vancouver real estate transactions in the future.

“Real estate agents and developers in B.C. are the group that, by far, reported the least number of large cash transactions to Fintrac,” she said.

Mulroney, Canada’s ambassador to China from 2009 to 2012,argues that Canada needs to take tougher measures to block the influx of “hot money” pouring into real estate, particularly in Vancouver.

Interesting article. Not sure if it was posted before, but I hadn’t seen it. These aren’t real estate agents trying to scare you into buying.

Though clearly Canadians are taking on huge debt and bidding up real estate, I would love to see a clamp down on this money laundering.

#102 profligate on 06.01.15 at 11:51 pm

Mark on 06.01.15 at 10:34 pm

“My friends houses in Toronto are not appreciating like the stats say and it’s at last my turn to boast.”

Boast? You missed the greatest real estate price run up in Canadian history and you feel like boasting? Get your head out of your *cloud* man!

Very true. Actual individual houses are *not* appreciating in either Vancouver or Toronto. The only thing that has changed is that the Realtors are transacting in higher priced segments of the market than they used to. What the Realtors are selling is known as the ‘sales mix’, and changes to the sales mix are apparent in a median transaction price that has risen much faster than the mean transaction price. Anyone with even one iota of knowledge of statistics would caution someone not to generalize a rising average to an individual sample in such an environment.

“Accounting for sales mix, Google shows that real estate prices in Toronto and Vancouver continue to rise and are blowing expectations out of the water.”

“Google” is a Mountain View, California-based Internet search website. Not an authoritative source of real estate news or analysis. But nice try. And Toronto/Vancouver house prices are *not* rising.

Nor is the Canadian dollar, despite your incessant assertions to the contrary. How can such an eloquent, well educated individual be so consistently incorrect?

Mark, are you a professor with a PhD?

Smoking man vs Mark

https://www.youtube.com/watch?v=YlVDGmjz7eM

A clip from “Back to School” starring Rodney Dangerfield

#103 Palpatine on 06.01.15 at 11:55 pm

I am 4 months pregnant with my third and I am continually amazed by the number of people whose second comment after finding out is “Are you going to buy a house?”
Canada seems to have quite the homogenous culture.

#104 len on 06.02.15 at 12:17 am

Day after day, we are given a helping of pretty conservative explanation: individualistic choices and individuals are the problem. Technically speaking yes but individuals do not live in a vacuum.

We have a systemic problem and need to start talking about systemic solutions.

No one consulted me regarding the size of CMHC’s balance sheet. No one asked me if it is OK to shovel channel cheap money into the financial system. These policies are in place because they work amazingly well in concentrating wealth in the hands of those who hold concentrated power. Period.

As for the constant argument regarding foreign ownership and the insignificant impact: if it is insignificant then it should not cause much of a problem – Australia may be taking steps in this direction, why not Canada? Cost to the system? The government is already collecting ownership information as part of the money laundering legislation – not too long ago we signed a detailed disclosure just for this reason. What other costs are associated with publishing this information and adding transparency?

You keep saying there is no evidence for foreign ownership (CMHC hack self serving voluntary survey does not count) – the other side of the coin is that there is no (credible) evidence in the other direction.

People are doing their best in a very sick system. Will they be stripped mined of whatever little they have left? You bet – always have been and always will be but the preaching choir is a bit much.

#105 Ponzius Pilatus on 06.02.15 at 12:32 am

Thomas is a Senior Manager in a Junior Company.
Big fish, small pond vs. small fish, big pond theory.
Gotta love Organizational Behaviour 101.

#106 Aaron - Melbourne on 06.02.15 at 12:33 am

Self inflicted is is? Racist is it?

“Criminals are targeting Australian real estate as a safe haven to launder money and hide the proceeds of crime, according to the national money laundering watchdog.

As politicians and policymakers debate the danger or otherwise of a big city housing bubble, a new report shows that holes in probity regulations make bricks-and-mortar a favoured hiding place for ill-gotten gains.”

“Criminals buy high-value goods such as real estate as a way of laundering or concealing illicit funds,” the Australian Transaction Reports and Analysis Centre said in its report, Money laundering through real estate agents.

http://www.austrac.gov.au/money-laundering-through-real-estate

Austrac media release: http://www.austrac.gov.au/media/media-releases/real-estate-agents-and-lawyers-vulnerable-money-laundering-risk

Meanwhile the long-awaited report on “affordable housing” got released last friday afternoon:

http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Affordable_housing_2013/Report

#107 Made in BC on 06.02.15 at 12:39 am

There is no Justice. Its Just Us…..the New York Bankers.

http://kingworldnews.com/gerald-celente-new-spring-2015-trends-journal-broadcast-interview-available-now/

But the USA is booming….buy buy buy !!!!

#108 BS on 06.02.15 at 12:51 am

32

Face it, those who took big risks and bought the most house they could qualify for and thus were unbalanced have generally “won” so far.

How did they win? They could have lived in the same house/condo for a lower cost by renting. Unless they sell they have still lost compared to renting. If they do sell to realize the gain then they have go through a big hassle of moving to realize that gain and still end up renting in the end. Then they have huge transaction costs buying and selling which wipes out much of the gain. They likely could have made the same or more money invested in ETFs with a lot less hassle.

#109 Colin on 06.02.15 at 12:52 am

I spend a lot of time in the Philippines,as much as I’d like to buy land there and build a retirement home in the tropics…not possible…foreigners can’t own land…condos can be owned with restriction..up to 40% foreign ownership per condo development only….60% has to be local money….here’s a third world country with restriction to protect its local population….perhaps we can take a lesson here….and by the way they don’t have infrastructure,parks a emenities to compare to this country but yet they have foreign ownership restrictions in place to keep things affordable for thère citizens….I give them a “10” on this playing field….there countries not for sale to the highest bidder….I’m not sure the exact amount of real estate being bought up by foreigners here in Canada but however much it is isn’t helping matters…people really think it’s high and that’s helping add fuel to the fire!
People contemplating getting into this market should really wake up before they to become a debt slave…

#110 Vanreal on 06.02.15 at 12:56 am

#67 Bill Grable on 06.01.15 at 9:21 pm
The House is now 62 years old. 33X120 foot lot – near UBC. My parents sold it in 1988 for $250 K.

The same house, with the same old furnace, but a new roof, just sold for $1.238 million.
——————————————
I am shocked, really.
1.2 for a lot near UBC? Looks like weakness over in the west side. Comm drive is close to that level now, but was 250/house in the mid nineties, rather than the 80’s.
———————————————————

It should have gone for over 2,000,000. Whoever sold it got ripped off.

#111 Joe2.0 on 06.02.15 at 1:01 am

In the past 6 years property values have doubled in my N Van hood.
Why I asked our neighbour a high profile RE MAX used house sales person.
Wanna guess.
Foriegn investors.
Buying fixing renting parking$

All over the place.

#112 nonplused on 06.02.15 at 1:01 am

Oh and I forgot to mention yesterday, BC already has discriminatory property tax laws. Non-residents pay almost 10 times the property tax a resident pays in cottage country. I’d never own a second property in BC unless it was a boat. Just the property taxes will pay for a hotel for the amount you use it.

And the locals all think it’s good. As it was explained to me, “if you want to come here and enjoy my land then why shouldn’t you pay for my kid’s school and hockey?” It doesn’t seem to dawn on them that once you buy it’s your land too. They have a very “I was born here, so I own it” mentality. When the BC folks move to Calgary to try and get a job they expect different treatment of course.

Best place on earth my ass. Just a lot of clear cutting.

As for the pregnant guy, well, men don’t get pregnant and I am increasingly convinced they should join the MGTOW movement. It’s too late for me so I am soccer coaching along with some other fellows and support from it appears all of the parents (well, we’ve had a winning season so far but I’m not holding my breath) so I go along with it. But what’s in it for me? The kids of course but holy heck that’s a lot to pay. I should have just gone my own way but it’s too late for me. It’s not too late for the young men out there. Young men, go your own way. You don’t have to sign up for a life of paying some woman’s mortgage. She’ll probably cheat on you anyway so just say no. Get a motorcycle and go for a ride.

#113 PM on 06.02.15 at 1:51 am

But nice try. And Toronto/Vancouver house prices are *not* rising.

Bullshit. I’ve seen it myself. CREA records say so. Prove otherwise

#114 diharv on 06.02.15 at 1:51 am

“But we’re pregnant”
Cue Garth bashing his head repeatedly on his desk for 30 seconds. Then get up and without a word ,open the door and show them out.
You can’t help them if they won’t help themselves.
You can preach to stupid but you can’t fix or change stupid.
“Next !”

#115 James on 06.02.15 at 1:57 am

#86 Mark
And Toronto/Vancouver house prices are *not* rising.

My gut agrees, but how do YOU know that for sure? Facts?

#116 Victoria Real Estate Update on 06.02.15 at 2:17 am

# 33 Rexx Rock

“The housing market has been going up in Vancouver since 1997,so I doubt it will ever go down 10%.”

You sound like a realtor.

You must not have read this information:

In 2008-09 prices in Vancouver fell at a rate of 14.2% PER YEAR (for 10 months) until EMERGENCY interest rates were brought in.

. . . . . Vancouver House Prices. . . . . .
. Percent Below July 2008 Price Level . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. .0%. . .*. . . . . . . . . . . . . . . . . . . .
– 1%. . . . . . . . . . . . . . . . . . . . . . . .
– 2%. . . . . . . . . . . . . . . . . . . . . . . .
– 3%. . . . . . . . . . . . . . . . . . . . . . . .
– 4%. . . . . . . . . . . . . . . . . . . . . . . .
– 5%. . . . . . . . . . . . . . . . . . . . . . . .
– 6%. . . . . . . . . . . *. . . . . . . . . . . .
– 7%. . . . . . . . . . . . . . . . . . . . . . . .
– 8%. . . . . . . . . . . . . . . . . . . . . . . .
– 9%. . . . . . . . . . . . . . . . . . . . . . . .
-10%. . . . . . . . . . . . . . . . . . . . . . . .
-11%. . . . . . . . . . . . . . . . . . . . . . . .
-12%. . . . . . . . . . . . . . . . . . . . * . . .
—————————————————————-
. . . . . .July. . . . December. . . . May. . .
. . . . . 2008. . . . . 2008 . . . . . 2009. . .

(source: Teranet’s index)

Prices in Vancouver would have continued to fall in 2009 if interest rates hadn’t been suddenly slashed from near-normal to emergency levels.

Canada’s housing market is the most overvalued in the world (biggest housing bubble) and Vancouver is near the top of the list of the world’s most overvalued cities.

A price correction of 10% will prove to be only the beginning for Vancouver.

This time it will be impossible to slash rates from near-normal to emergency levels to stimulate the housing market and stop falling prices.

Vancouver’s housing bubble will deflate.

It’s always different until it isn’t. This was the case in Phoenix, Miami, San Francisco, Los Angeles, Las Vegas, San Diego…

They thought it couldn’t happen in the US, and then it did. The same can be said about Ireland, Greece, Spain, Iceland, Japan and many other countries.

Vancouver will experience a major, multi-year price correction.

#117 Hanging On In Calgary on 06.02.15 at 2:36 am

#50 the Jaguar

I was here in Calgary back in 1981 and 1982 and I remember what it was like. It wasn’t pretty. Yes everyone here today seems to have big trucks, BMW’s, Mercedes, vacation properties, expensive trips and big houses too – some even have more than two. The debt is huge here in Calgary but also remember there are people here who have made lots of money in real estate. There is equity in their homes.

Not everyone here is Calgary works in oil & gas and not everyone is rich. There are many families that are struggling to make ends meet everyday.

Things about Calgary:

1. Thank God – I am still working here in Calgary. More layoffs may still be coming in the oil company that I am working for. Corporate spending for lunches, stampede events, Christmas parties have all been cancelled. No more spending at all. We are all quite nervous……

2. A buddy of mine that works at a firm that does mapping for oil wells – has been cut back to a 4 day work week in order to keep his job.

3. The Second Cup in the Bow Valley Square downtown Calgary has laid-off two full-time staff due a slow business.

4. Murrietas’ downtown Calgary you can walk-in and get a table anytime during the lunch hour. No reservations needed anymore.

4. More and more stores closing here in downtown Calgary and the Chinook mall.

5. Why are there so many out of province plates here in town now? Lots from Quebec, Ontario and BC.

6. House prices do not seem to have come down – places are still selling it seems.

I have a feeling that this is just the calm before the storm and hopefully it won’t be too bad and it won’t last too long.

Having babies is great – congratulations and good luck to you Thomas!

A big “thank you” to you Garth for all your great advice.

#118 nubbers on 06.02.15 at 4:29 am

Final Fool @81

‘I am not waiting for the greater fool, there always is one and meanwhile prices keep rising. When will the final fool arrive?’

This reminds me a lot of Buffet’s allegory with poker: ‘If you don’t know who the Patsy is, you’re the Patsy’.

#119 rampant inflation on 06.02.15 at 5:55 am

#72 Raging Ranter on 06.01.15 at 9:32 pm

A perfect example of how distorting and destructive low interest rates are. They do not boost the economy, they inflate asset bubbles. Period.
________________________________________

absolutely correct.
along with boosting bank CEO pay…

the economy is like a crack addict now. it needs lower and lower rates to function. it’s a complete myth.

a normal economy needs SAVINGS to function. all low rates do is distort the economy

when the economy stalls again, what exactly are the central banks going to do? they’re completely out of luck.

the job of a central bank is to make sure their member banks remain solvent and follow the rules.

#120 ANON on 06.02.15 at 6:55 am

“All would add complexity and cost to the system with no positive benefit.”

Dude makes a darn good argument about complexity being what we’re pretty good at, and it has already happened under our noses, so no use crying over spilled milk, or worrying about the extra drop. His argument explains the observations, also, which is an extremely weird thing in this day and age.

#121 Steve French on 06.02.15 at 7:13 am

this is a serious question…

Why would the requirement to show a Canadian or Australian passport before purchasing a new house or condo be a “costly and inefficient” regulatory burden ?

Because it has to be recorded, checked, archived and coordinated with property rolls, tax administration and be deemed legally correct. That takes time, people, resources and lotsa money. All of which is funded by you. For absolutely no net benefit. Give your head a shake. — Garth

#122 kam on 06.02.15 at 7:29 am

http://www.marketwatch.com/story/supreme-court-hands-defeat-to-struggling-homeowners-2015-06-01

#123 Italian love real rstate on 06.02.15 at 7:31 am

#77 Julia on 06.01.15 at 9:53 pm
#63 Italians love real estate
“All this talk about Richmond Hill as a center for foreign investment . Well, I was deleted and banned when I mentioned over two years ago that the yonge corridor between hwy7 and major Mack would blow the doors off of leaside and the annex in terms of rate of price growth.

It will continue to do so. 416 ers stand back .”

Curious to see what happens when the bottom falls out. I suspect the 416 will hold better, especially in the core like Leaside and the Annex.
———-
Well I guess only time will tell for sure Julia but my suspicion is different from yours.

Much more house on offer in richmond hill than leaside and annex and with yonge street, the natural center of the city intersecting two major hwys there (407and 7) me thinks demand continues.

By the way the madness of the crowds at bathurst and major Mack , mentioned last week on this blog as a subject,for 1.7 mill homes on 50 footers has a lot to do with that

#124 Bottoms_Up on 06.02.15 at 7:32 am

#92 flignit
——–
Agree, any American that cares that much about Canadians has something wonky going on inside the noggin’. Like how would he know the McDonalds sign has a tiny maple leaf in the Centre?

#125 Steve French on 06.02.15 at 7:45 am

smokey made his fortune all from 1 crop of corn??!!

Jesus…

#126 George S on 06.02.15 at 7:46 am

#67 Bill

“The House is now 62 years old. 33X120 foot lot – near UBC. My parents sold it in 1988 for $250 K.

The same house, with the same old furnace, but a new roof, just sold for $1.238 million.

No problems with this market.

Insane.”

Well…
1988 to 2015 is 27 years. 7% average return (many mutual funds and other investments have done way better) turns $250k into $1.55M. Real estate’s investment advantage (and extreme disadvantage) comes from being a highly leveraged investment. On top of everything else the person that bought that house for $250k likely paid $600k interest on the mortgage over 25 of those 27 years.

#127 Sean on 06.02.15 at 8:15 am

Question for Mark, and others…

Agree with the logic of the 15% d.p. growing into cash purchase… same thing happened with a gold investment versus US real estate, starting about 2001.

But I see a circularity problem… a bit of a negative feedback loop. We are not just looking at negatively (or uncorrelated) assets here, at radically different points in their cycle. As Canadian housing collapses, we have to remember the unprecedented impact /component of the economy that is FIRE.

Surely FIRE destruction will drag the economy down considerably. Where will the economic strength come from to support the valuations and growth in TSX stocks? Oil?.. questionable. Mining?… you know, I have traded mining stocks for so many years, and the truth there is that these things underperform chronically due to poor management.

Curious as to what sectors people think are going to lead the way going forward.

Sean

#128 crowdedelevatorfartz on 06.02.15 at 8:28 am

@#98 Randy Randerson
“He belongs to the “House rich, cash poor” club, since he brought it up (I was just surprised that he knows the phrase)…..”
++++++++++++++++++++++++++++++++++

He’s 70.
Not a doddering drooling idiot.
Like North Burnaby Realtor

#129 Holy Crap Wheres The Tylenol on 06.02.15 at 8:50 am

#125 Steve French on 06.02.15 at 7:45 am

smokey made his fortune all from 1 crop of corn??!!

Jesus…
_________________________________________

Green corn, with seven little leaves?
We all came home with a brand new plan.
https://www.youtube.com/watch?v=xvaEJzoaYZk

#130 Q2 Duplex Drive on 06.02.15 at 9:03 am

‘“But, we’re pregnant,” he explained, with a tone that said, ‘and what part of that did you not understand?’’

My parents married in June 1950 and rented an apartment in Ville St. Laurent in Montreal. I was born first in November 1953 and my brother in October 1955, and that was it. We stayed in that apartment until September 1958, when my father finally bought a house in Lachine. What is this idea kids have nowadays that they gotta buy a house ‘cuz ‘we’re pregnant’? My parents didn’t feel they had to take on ‘epic debt’ just because they had started a family – what is going on?

#131 Jared on 06.02.15 at 9:16 am

What do you guys think about buying in Barrie? I can get a newer detached house for about 300-350k. I work in Toronto but my company lets me work from home 4 days of the week. Should I look into this or continue renting my 1 br condo in Toronto?

#132 Steve on 06.02.15 at 9:25 am

#121 Steve French on 06.02.15 at 7:13 am
this is a serious question…

Why would the requirement to show a Canadian or Australian passport before purchasing a new house or condo be a “costly and inefficient” regulatory burden ?

Because it has to be recorded, checked, archived and coordinated with property rolls, tax administration and be deemed legally correct. That takes time, people, resources and lotsa money. All of which is funded by you. For absolutely no net benefit. Give your head a shake. — Garth
__________________________________________

…and now we are going to require people to get passports so that they can purchase real estate? About 57% of Canadians have a passport and the home ownership rate is around 70%.

I am with Garth on this issue. There is plenty of opportunity to create ineffective and costly bureaucracy that has no measurable affect on the intended ‘problem’, and there is already enough of that in the world. Doing so where the problem has been mis-identified is even worse.

Despite it happening all too often, imlpementing a solution that has little or no effect on the thing to be solved is misguided, irresponsible and outright insanity! Let’s not advocate following our bad behaviour in our housing market with reactive bad behaviour in our government.

#133 MF on 06.02.15 at 9:36 am

#131 Jared

How come you can’t decide on your own?

Follow Garth’s rule of 90 when deciding to buy RE.

Take into account income and job security as well.

Personally, I would continue renting and avoid this joke market completely. Make sure you invest the difference though. Follow Garth’s guidelines here too.

Ignore the RE pumping morons as best you can.

MF

#134 MF on 06.02.15 at 9:46 am

#46 profligate

Wrong. Do you even read the blog?

Stock market has been on a tear post 2008/09. Like someone else said a while back on here, you could close your eyes and throw a dart at a stock chart and make out like a bandit post 2008.

People have made a killing there. It is mostly the rich smart enough to understand this though. Not your fault, you are a typical Canadian like I was at one point.

I suggest you actually read the blog once in a while.

MF

#135 bdy sktrn on 06.02.15 at 9:53 am

#90 Rural Rick on 06.01.15 at 10:43 pm
Way back in the 60s when my wife was pregnant and we were renting. I was chastised for spending money on a crib by the old lady upstairs. She said you should just take a drawer out of the dresser and put a blanket in it for the first few months.
——————————
i used one of those big rubbermaid storage boxes, worked great. just be sure to get one with a semi-clear lid to keep the sound down while still sort of being able to see baby ;)

had a dream last nite of the dow falling +1000.

#136 TB on 06.02.15 at 10:07 am

Garth, I agree with most of your opinions however,

I would love more discussion around the math of this housing insanity.

Here’s my math and why I disagree with the theory it is locals buying at ever higher prices:

The average Canadian family earns 70,000$. The cheapest house in Vancouver is Over a million. If they put down 10% that’s $100,000 down and a $900,000 mortgage. At current rates that’s a $5000 month mortgage. $70,000 salary after tax is about $5000 month, the entire income goes to mortgage. How do they get approved by a bank for this? And if they do, shouldn’t they be bankrupt in 6 months?
Following the rule of affordability, putting only 30% to housing, you need to bring in $15,000 a month to afford a 900,000$ mortgage. You know who makes that? Less than 1% of the population. You know what you can buy in Vancouver for a million dollars? Nothing. This math is why I don’t believe it’s locals driving up prices, the math just doesn’t add up. What am I missing?

#137 Rational Optimist on 06.02.15 at 10:11 am

68 bigtown on 06.01.15 at 9:24 pm

That’s the most beautiful post in a very long time.

#138 The American on 06.02.15 at 10:18 am

Flignit and Bottoms_Up, I assure you I am American, living in the U.S. in Seattle. Born in the U.S., too.

#139 The American on 06.02.15 at 10:25 am

At #124: Bottoms_Up, LOL… I’m assuming you were being facetious about the McDonald’s sign and the maple leaf in the middle of every one of them, right? Anyone who has traveled to Canada would notice it, unless they are blind or Canadian.

#140 bdy sktn on 06.02.15 at 10:36 am

http://www.cnbc.com/id/102725989

Fed member sees no q2 rebound .
Is it still winter in q2?

#141 Shawn on 06.02.15 at 10:38 am

Well, Actually, That DID Work

Signed: Almost everyone who bought a house with 95% to 100% debt since approximately forever.

Doing so in the past decade in particular was very risky, probably profoundly stupid, but it happened to work out well for most. So far at least.

Only it if carries on, and the ‘winners’ are astute enough to collect their equity. — Garth

#142 waiting on the westcoast on 06.02.15 at 10:39 am

Given the significant levels of liquidity in global markets, I wonder if higher multiples for equities and home price to income ratios will become the norm. Maybe not the home P/I levels in Van/GTA but closer to 4-4.5x instead of the historical 3-3.5x.

And if these inflated multiples are due to the extreme levels of liquidity today, how long will it take to unwind? 2, 5, 10 or even 20 years…???

#143 profligate on 06.02.15 at 10:42 am

#134 MF

I do read the blog my good person, where we differ is in the reading comprehension department. The honourable GT advocates a balanced portfolio with rebalancing 4 times per year (if I’m not mistaken) which has returned an average of 7% per year since 2008. A wise strategy to preserve your principle and keep ahead of inflation. If you can provide a link to the blog entry that refers to “throwing a dart ” or “making a killing ” please do so because I’ve never heard him advising people to take that kind of risk.

#144 Vanboy99 on 06.02.15 at 10:47 am

Garth. In my opinion you make a point, and statistics show that our current state of affairs is self inflicted. Do you think that there should be any discussion as to the source of the funds that foreigners use in their Canadian House acquisitions? That is, for regular Canadians, there are checks and balances in place that deter people from using laundered cash. Any comments?

#145 Mark on 06.02.15 at 10:56 am

“Stock market has been on a tear post 2008/09. Like someone else said a while back on here, you could close your eyes and throw a dart at a stock chart and make out like a bandit post 2008.

People have made a killing there.

Nice theory, but the only problem with it is you ignored the fact that most investors lost substantial amounts in the stock market in the 2008 crash. In Canada, the TSX still hasn’t fully recovered from the 2008/2009 crash excluding dividends. The US indices, slightly better, although still not keeping up with inflation. So unless one was one of the very few investors who had almost no stock exposure going into 2008/2009, and suddenly loaded their portfolio 100% up — it hasn’t really been “making a killing” time at all.

The TSX is interesting from an investment point of view right now because the cyclicals have moved from being priced at the top of their historic range, to mostly levels dramatically cheaper. Especially for the resource sector, its quite shocking how long investors have gone without a return. This might just turn out to be the “lost decade” for the TSX if P/E multiples continue to compress.

#146 Mf on 06.02.15 at 10:58 am

You mad bruh?

It was a poster in the comments section. That was what I meant by “someone else”. If Garth was the subject of that sentence I would have said Garth.

Looks like your comprehension is the problem.

MF

#147 bdy sktrn on 06.02.15 at 11:09 am

#108 BS on 06.02.15 at 12:51 am
32

How did they win? They could have lived in the same house/condo for a lower cost by renting. ———————–
our (now gone) mtg payment was never higher than the rent we currently get from the basement.

Unless they sell they have still lost compared to renting.
——————————–
50k down now 1m+value. even with a 50% drop renting a golden goose would be the only comparison

——————————
If they do sell to realize the gain then they have go through a big hassle of moving
——————————–
BIG BIG hassle of moving. which we would have had to do 5 or more times (if renting) instead of 0 times since 96.

#148 VL on 06.02.15 at 11:09 am

“But we’re pregnant.” The Greatest fool.

#149 Alex N Calgary on 06.02.15 at 11:12 am

They always get you after you take vacation, day I got back (yesterday) from two weeks of a frugal vacation in oregon, I got the chop. We’d all been speculating for months on when and who would get cut, already seen 40% or so go, but I thought they’d keep IT on a bit longer? although I always knew they could outsource it for cheap, typical, at least the waiting and wondering is over.

BTW I haven’t been to Vancouver\Victoria for a while, went there last week, its Asian money being flashed all over the place, I don’t know about housing, but it sure is around. I saw a MAYBE 18yr old 110lb Chinese kid drive up to the Victoria beach in a 2 day old Corvette with his tiny Girlfriend, its kind of digusting.

Good ole Oregon, used trucks, friendly people, reasonable real-estate, what a great state!

#150 rosie "moving forward" in the knowledge that, "this won't end well" on 06.02.15 at 11:16 am

Well, you can always just move away.

http://www.vancourier.com/opinion/is-it-time-to-leave-vancouver-1.1953813

#151 Mark on 06.02.15 at 11:17 am

Surely FIRE destruction will drag the economy down considerably. Where will the economic strength come from to support the valuations and growth in TSX stocks? Oil?.. questionable. Mining?… you know, I have traded mining stocks for so many years, and the truth there is that these things underperform chronically due to poor management.

I like using the model of the 1990s as for what is likely to happen in Canada as housing prices continue to decline. With a twist — instead of experiencing the inflation we experienced in the 1990s, and the quagmire of national disunity — we are likely to experience the opposite, deflation.

What happens during deflation is that while money remains chronically cheap, due to central bank policy action, risk premia grinds higher on loans. Higher risk premia is to the benefit of intermediaries such as banks, which use the newly created credit of the Bank of Canada, to keep their funding costs low. The banks will likely continue to do all right.

However, just like Nortel and the technology sector was the deeply cyclical sector that rose out of the ashes in the 1990s and powered Canada’s economy — I believe its going to be Canada’s precious metals mining sector this time around. And this will largely be based on global demand for its products. This is what will really power the TSX forward, given its relatively high allocation to precious metals mining.

As for criticizing management of the mining stocks, there’s a few issues there. First, its an incredibly difficult industry in which to operate, with pricing that is hard pressed to pay for all of the activities and inputs that go into mining. This isn’t the fault of managerial quality. Secondly, precious metals mining stocks aren’t bought to be very long-term buy and hold investments — they’re bought to be hedges against very specific conditions occurring in the economy. They will likely only perform well once every 30-40 years or so — but when they do perform well, it will be during a very severe period of economic slow-down and the strength of such, including severe gains will allow one to re-balance a portfolio to acquire other out of favour asset classes that are being liquidated by their owners desperate to repay debt. Goldbugs (just like anyone else with a one-asset class strategy) almost always destroy value over the long term, but the stocks are incredibly useful hedges at the right time and place.

I tend to believe the rest of the TSX, of course, will face significant headwinds due to a rising CAD$ (eventually all the way to $1.5 USD$) that deflation will cause. So much of the TSX’s gains will either come from the precious metals sector and/or be derived through P/E multiple expansion. Since very few in Canada actually work in the precious metals mining sector (unlike, say, the housing industry where employment was ubiquitous, or the tech sector, where businesses everywhere were hiring IT workers throughout the 1990s), the BoC is likely to run very accommodative policy for a long time to come and I don’t see (policy) interest rates doing much for the next decade or two.

#152 Italians love real estate on 06.02.15 at 11:25 am

Admission : I am the biggest ” brick licking, house humping and most importantly LAND HORDING individual this site has ever seen( as an Italian Canadian it is simply in my DNA ) so skip past the rest of my post if that bothers you BUT

I still say that in a low interest world such as we have today , a multi unit rental in the GTA 905 or 416 ,will reward buyers immensely, even if a buyer today is paying what is perceived to be dear for it.

#153 Daisy Mae on 06.02.15 at 11:26 am

#49 IceFlows: “Once you receive your property tax notice, you may be able to apply for a low interest loan to pay your current year property taxes on your principal residence if you are one of the following:

55 or older during the current year (Regular Program)
A surviving spouse of any age (Regular Program)
A person with disabilities (Regular Program)
A parent, stepparent or financially supporting a child (Families with Children Program)

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

‘Low interest’ loan! Almost as dangerous as reverse mortgage….

#154 Mark on 06.02.15 at 11:26 am

“Given the significant levels of liquidity in global markets, I wonder if higher multiples for equities and home price to income ratios will become the norm. Maybe not the home P/I levels in Van/GTA but closer to 4-4.5x instead of the historical 3-3.5x.”

The historical 3-3.5X is based on the sort of labour inputs required to build a house — roughly 3-3.5X man-years of average labour, depreciated accordingly. “Excess liquidity” can, at least for the short term, increase asset prices beyond their replacement cost, but eventually the construction industry engages in arbitrage between a selling price which is higher than the cost of construction, and delivers new product to market at a profit.

A permanently elevated multiple is hence impossible, unless something has been done to physically to housing to shift the cost of supply, expressed in man-years, higher. For example, if the building code were modified to mandate a higher level of earthquake proofing, then Vancouver’s ratio would permanently rise as it would obviously take more man-years to construct an earthquake resistant structure than not. However, that’s not to say there wouldn’t be overshoot to the downside at some point in the asset pricing cycle.

#155 Daisy Mae on 06.02.15 at 11:29 am

#49 IceFlows SAID: “Then, (I think I read on your admirable blog) a special grant to 55+ residents of YVR to defer property taxes interest free indefinitely! (WTF!)”

#156 DM in C on 06.02.15 at 11:35 am

Tom and Julie.

Babies don’t care if you rent or own. And it doesn’t matter at least until they start school. What if you buy in an area where there is a lottery for residents to attend the local school? Have you checked into that? What then?

Rent until the baby is 4, then you’ll know if your job is more secure, and you’ll have that much more nest egg. Renting also gets you through the mat leave year(s) with less stress.

Why buy now? The kid won’t even remember it’s first 4 years, no matter how cute you paint their room.

We rented til the kids were 4 and 1 — and only bought when it was time to enroll jr in school. AND THEN decided to drive him to private K in another town anyway, so we were stupid, even then. Should have stayed renting.

Think man. Babies don’t care.

#157 Bottoms_Up on 06.02.15 at 11:39 am

#136 TB on 06.02.15 at 10:07 am
———————————————-
While I agree that there is foreign investment in Vancouver’s real estate market, and that no one knows just how rampant it might be, I do think you are missing a couple things.

The average family income” family is not buying SFHs. They are buying condos or townhouses.

Also, there are lots of people that have lots of equity in their houses. Move up buyers (not first time buyers).

In general, first time, ‘average family’ buyers are not buying SFHs in vancouver unless they are independently wealthy.

#158 Mark on 06.02.15 at 11:40 am

“I still say that in a low interest world such as we have today , a multi unit rental in the GTA 905 or 416 ,will reward buyers immensely, even if a buyer today is paying what is perceived to be dear for it.”

Really? You would think that with how nuts people, especially the investor class have been for real estate, that all assets of the sort are ‘fully valued’, if not severely overvalued.

Mind sharing some numbers of a building or two you’re looking at?

#159 Bottoms_Up on 06.02.15 at 11:43 am

#131 Jared on 06.02.15 at 9:16 am
———————————————
That’s a fairly general question. If you’re asking about the future of house prices in Barrie, they will likely be flat for a long while.

The other factors only you can decide (ie, lifestyle), job security, proximity of friends and family etc.

#160 Shawn on 06.02.15 at 11:50 am

Mark – Fact versus unsubstantiated opinion

From Mark just above:

The historical 3-3.5X is based on the sort of labour inputs required to build a house — roughly 3-3.5X man-years of average labour, depreciated accordingly.

*************************************
Mark, why do you make up stuff like this and post it as fact. Meanwhile financial theory is clear that the value of any income producing asset rises as interest rates go lower.

Your contention seems to omit the fact that the majority of City house prices is based on land location and therefore land value. (Witness tear-downs going for a million dollars) How much labour does it take to make a new well-located City lot?

How does your contention factor in the fact that that it takes also productive capital to build a house these days such as lumber factories, window factories, trucks, backhoes, cement plants and on and on. Each of those has a labour component but also a capital component. What percentage of the cost of a house is labour?

And anyhow where is the link to this alleged 3-3.5X figure with data and when did this apply?

Mark you are clearly addicted to this site and to commenting on the internet in general.

So am I but to a MUCH lower extent.

Far fewer and more fact-based comments might be better. Also opinion is fine but not so much when stated as fact.

#161 bill on 06.02.15 at 11:52 am

Hi Garth and Dogs
I just sent an email off to Pete Mcmartin in the Vancouver Sun.
He asked some questions that should have been asked years ago.
perhaps some of the Blog Dogs would like to put in their 2cents worth….
[email protected]

http://www.vancouversun.com/opinion/columnists/Pete+McMartin+have+enough+facts+about+foreign/11100494/story.html

#162 praire person on 06.02.15 at 12:00 pm

Given the source, I’m not sure of the accuracy of the figures or their interpretation but as I’ve mentioned a couple of times, the doom and gloom re Victoria on this board by one person in particular about the Victoria mkt was simply not justified, at least not from my amateur observations. Every place I went in the city there were sold signs, new houses being built, new condos. Not sure what is driving it. Victoria is anything but a happening place. A wave of retirees? Hard to believe it is a wave of HAM. Buyers are coming from somewhere.According to the latest numbers from the Victoria Real Estate Board, more than 900 properties sold in May – the highest number of sales since May of 2007.

That’s up considerably from last month, which was also a good month for real estate in the Capital Region, and a staggering 27% increase from May of last year.

#163 Mark on 06.02.15 at 12:11 pm

“Mark, why do you make up stuff like this and post it as fact. Meanwhile financial theory is clear that the value of any income producing asset rises as interest rates go lower. “

I don’t make anything up. Lower interest rates, at least initially, push up asset prices. However, over time, the supply side for assets delivers more assets to market against such elevated pricing, hence, suppressing the price of assets. The equilibrium point itself is not altered, however, there is invariably overshoot from the cheap-money-induced “high”, to the low which is caused by the resulting over-stimulation and over-supply of assets.

This is what we are seeing in the Canadian RE market at the moment. Interest rates are lower than they ever have been, but since home ownership rates are now >70%, there are simply few available buyers to even maintain current prices, let alone push them up. Additionally, the few “buyers on the sidelines” who remain basically have large numbers of housing vendors, new and used to choose from. Prices are falling as a result of this plethora of supply (stimulated by low interest rates), relative to a relative dearth of demand.

Low interest rate policy, hence, cannot levitate asset prices forever, and in the long run, actually serves to reduce prices by inducing a strong supply-side response.

#164 Bottoms_Up on 06.02.15 at 12:13 pm

#121 Steve French on 06.02.15 at 7:13 am
——————————————————
I think getting statistics is a most important first step to even see if there is a ‘problem’.

Implement a requirement to list birth country and proof of Canadian citizenship (if you have one), as well as how many pieces of real estate you own in Canada, on every purchase transaction.

All final sales could then be submitted to Statistics Canada, and we could tabulate extent of foreign investors, plus Canadian-born individuals owning multiple pieces of real estate. This could help identify cases where a resident is used to purchase real estate on behalf of foreign investors.

But as Garth said, this would also require resources to implement.

In terms of long-term cost/benefit, I think something like this would be a worthwhile initiative. Canadian GDP is something like 3% of world GDP. It wouldn’t take much outside influence to move a local property market.

#165 Mark on 06.02.15 at 12:25 pm

“Your contention seems to omit the fact that the majority of City house prices is based on land location and therefore land value. “

This is a self-limiting phenomena as well, especially since land constraints in Canada mostly don’t exist. Yes, there are coveted locations in the major cities, but most buyers have alternatives and do not need to be located on these most desirable pieces of land if the cost exceeds the NPV of the alternatives. Most businesses have alternatives. A negligible amount of land in Canada’s major cities is devoted to its current highest value use (ie: high-rise condominiums or office towers), so it is pretty hard to argue that we have reached any sort of limits on the productivity of land that might imply permanent shortages.

So essentially we’re back to cyclicality. During some phases of the economic cycle, investments like land are in favour. During others, they’re severely out of favour. We happen to be in one of those very much “in favour” periods, but cyclicality tells us that eventually such will go out of favour. Over the long run, structures cost a heck of a lot more than land does. And if money remains permanently ‘cheap’, would that not also push up wages as well? After all, a limiting feature on land prices is the rent that can be extracted from land, and such rents are ultimately limited by wages. Hence, absent severe density such as seen in Hong Kong, it seems unrealistic that land prices relative to wages can be permanently elevated either, as land prices are a function of wages.

#166 Holy Crap Wheres The Tylenol on 06.02.15 at 12:30 pm

#139 The American on 06.02.15 at 10:25 am

At #124: Bottoms_Up, LOL… I’m assuming you were being facetious about the McDonald’s sign and the maple leaf in the middle of every one of them, right? Anyone who has traveled to Canada would notice it, unless they are blind or Canadian.
__________________________________________
What there are Maple Leafs in the center of McDonald’s signs? Wheres my dam white cane and dog!

#167 waiting on the westcoast on 06.02.15 at 12:31 pm

#154 Mark on 06.02.15 at 11:26 am
“The historical 3-3.5X is based on the sort of labour inputs required to build a house — roughly 3-3.5X man-years of average labour, depreciated accordingly. “Excess liquidity” can, at least for the short term, increase asset prices beyond their replacement cost, but eventually the construction industry engages in arbitrage between a selling price which is higher than the cost of construction, and delivers new product to market at a profit.”

Mark – I need to do some research on prices being tied specifically to build time. I think there are a number of factors like location, land scarcity, etc as well as build effort.

Maybe part of the reason for higher multiples is due to higher value products incorporated (larger homes with more goodies/bathrooms/etc). Then again, a lot of homes feature lower quality build in them.. Chip board, etc.

So back to low interest rates and global liquidity pushing asset prices up. Does anyone have a guess at how long it will take for that liquidity to be absorbed and return to normalcy. Also – what will absorb it? I get that rates will go up globally but how does that mop up the money already loose upon us.

#168 waiting on the westcoast on 06.02.15 at 12:41 pm

#161 praire person on 06.02.15 at 12:00 pm
“Every place I went in the city there were sold signs, new houses being built, new condos. Not sure what is driving it. Victoria is anything but a happening place. A wave of retirees? Hard to believe it is a wave of HAM. Buyers are coming from somewhere.According to the latest numbers from the Victoria Real Estate Board, more than 900 properties sold in May – the highest number of sales since May of 2007.

That’s up considerably from last month, which was also a good month for real estate in the Capital Region, and a staggering 27% increase from May of last year.”

I have been watching the Victoria/Saanich/Metchosin area for farmland for two years now and I have seen prices fall by ~10-20% on asking for a number of properties. There are also many that just sit and do nothing. It would be awesome to have Zillow up here.

I think the surge everywhere this spring is due to the last gasp of buying. People may have started noticing that prices have flatlined in Victoria over the past few years and are buying on better value. It could also be due to more welders, pipefitters, etc swinging back from the patch.

I think your observations for this spring are accurate but Victoria RE Update has been spot on about the longer term trend that has been going on in the Capital Region.

#169 Mark on 06.02.15 at 12:44 pm

“How does your contention factor in the fact that that it takes also productive capital to build a house these days such as lumber factories, window factories, trucks, backhoes, cement plants and on and on. Each of those has a labour component but also a capital component. What percentage of the cost of a house is labour?”

The 3-3.5X typical multiple includes the labour inputs to all of those subcontracted-out materials/goods/etc. The physical construction aspect itself may only take 1 man years worth of on-site trades labour.

In the 80s and 90s, I knew guy in my old town who built (yes, built, with a real hammer, wood, and nails) and sold a SFH every year or two, basically as his ’employment’. So sounds about right. Obviously he had to purchase stuff like concrete, wood, etc., but typically purchased supply inputs were 1/3 to 1/4 of the final sale price of the house. Land and concrete were the big ticket items, but after everything was said and done, with all inputs paid for typically he walked away with 30-40% of the final sale price of the house in his bank account — or roughly 1-1.5 man years of labour (ie: compensation for his labour + compensation for risking his capital in the construction process!). Surely a big-city developer with economies of scale, more refined supply chains, bulk land purchasing, and better project management could drive the costs down further.

#170 4 AM Sunrise on 06.02.15 at 12:47 pm

For all the jokes about brick licking and granite humping, I do understand their appeal. I’m renting in a fortysomething year old building and I’ve learned that porous surfaces + bathroom/kitchen = NO. To scrub or not to scrub? I don’t know what damage I’m doing when I do, but dust and gunk build up when I don’t. Heck, my parents’ house is the same age and their bathroom has a nonporous counter that’s held up perfectly all this time! Maybe I’ll talk to my property manager about paying to replace my painted wood(?) toilet seat. He usually gives me unsolicited dating advice (“don’t say in Craiglist that you like to travel or men will think you’re a gold digger” – ???), so I’m sure he’ll love this conversation.

#171 Alistair McLaughlin on 06.02.15 at 12:55 pm

@#151 Mark: …instead of experiencing the inflation we experienced in the 1990s, and the quagmire of national disunity — we are likely to experience the opposite, deflation.

Mark, we didn’t experience inflation during the 1990s, unless you’re talking only about the first two years of the decade: 1990 (Avg CPI=4.8%) and 1991 (Avg CPI=5.6%). Inflation died in 1992 (1.4%), rising above 2% just once for the remainder of the decade (1995, Avg CPI=2.2%). These stats are easy to verify online.

http://canadianinflation.com/historical-canadian-inflation-rates/

You should probably try that, instead of just making things up to suit your prognostications.

#172 Mark on 06.02.15 at 1:06 pm

“So back to low interest rates and global liquidity pushing asset prices up. Does anyone have a guess at how long it will take for that liquidity to be absorbed and return to normalcy. Also – what will absorb it? I get that rates will go up globally but how does that mop up the money already loose upon us.”

Liquidity is a funny thing — it exists in spades for a while, but at some point, a point of revulsion is experienced, and people simply stop lending. In previous episodes, it typically was a single discrete event that pretty much popped the bubble.

Nobody can really say for sure what it might be as there are a plethora of ‘black swans’ out there. It could be anything from the impending Greek default. To a variety of other geopolitical events. Or it could be as simple as another bubble in some other asset class gaining traction and destroying investor enthusiasm towards fixed income.

As for ‘normalcy’, that’s a hard thing to define as well. I know a lot of people, nostalgic for the past, might define “normalcy” as 8% interest rates, 10%/annum returns on their pension funds, etc., but that would actually be an example of historically abnormal. The past 30-40 years of abnormally high returns in fixed income assets and abnormally high interest rates have created a lot of unfortunately distorted expectations. Perhaps we are a lot closer to ‘normal’ today than most people think.

#173 april on 06.02.15 at 1:13 pm

#113 – … and you believe CREA….???

#174 bdy sktrn on 06.02.15 at 1:18 pm

#161 praire person on 06.02.15 at 12:00 pm
… the doom and gloom re Victoria on this board by one person in particular about the Victoria mkt was simply not justified
—————————-
lately she is spending pages and pages to tell us all about how vancouver re has sucked too!?!

oh, those poor unlucky sods who bought in 06/07 :(

…………..

here is a fact – look at ALL the surveys on liveability on the ENTIRE PLANET, van is the ONLY place always at the top of the list, without restrictions (sometimes extreme) on offshore buying.

china’s economy has grown by +1000 billion usd(about 55% of canada’s total) every year since 06.

roughly 5 new canada-sized economies created in under 10 years.

van will remain a favourite of the wealthy in china for many decades yet. eventually vic and nanaimo will be hot targets too.

#175 Edith on 06.02.15 at 1:20 pm

Vancouver real estate hot hot hot in May. Especially SFH’s. Prices up, new listings way down, inventory down and sales up up up.

http://www.yattermatters.com/2015/06/records-and-feelin-the-blues-in-vancouver/

#176 The American on 06.02.15 at 1:28 pm

At #165: Holy Crap Where’s The Tylenol, here is a link that depicts the maple leafs in the middle of the Canadian McDonald’s signs across your nation, including the Canadian flag waiving off the front of many of the stores.

https://www.google.com/search?q=canadian+mcdonalds+signs&client=safari&rls=en&tbm=isch&tbo=u&source=univ&sa=X&ei=B-dtVf7BCMuPyATczIGQBw&ved=0CB4QsAQ&biw=1434&bih=761

http://logos.wikia.com/wiki/McDonald's_Canada

#177 Randy Randerson on 06.02.15 at 1:38 pm

#141 Shawn on 06.02.15 at 10:38 am

A risky play that pays off does not make it a good strategy. Don’t confuse the two.

If I take all my money to play a game of roulette in LV, it’s a stupid move, whether I win or lose.

#178 Smoking Man on 06.02.15 at 1:49 pm

Fed’s Brainard: global troubles weighing on U.S., may delay rate hike

http://ca.reuters.com/article/businessNews/idCAKBN0OI1P820150602

……..

There is only one Smoking Man

God I’m good…

#179 Blacksheep on 06.02.15 at 1:51 pm

Itshere,

Good job reviving this great, Ray Dalio video.

I’ve posted on the 70 year debt super cycle having peaked, many times.

Reduce debts we must and Ray’s hoping it can be done “beautifully.”

Unfortunately, I’m a little less confident in the lever pullers.

Definitely worth watching.

https://ww.youtube.com/watch?v=PHe0bXAIuk0

#180 Mister Obvious on 06.02.15 at 1:55 pm

#152 Italians love real estate

“I still say that in a low interest world such as we have today , a multi unit rental in the GTA 905 or 416 ,will reward buyers immensely”
————————–

You have long espoused the idea that buying a SFH at any price is always a good move. For that you’ve been roasted many times (with proper cause, I’d say).

Now you trot out something quite different. Namely, ‘the landlord game’, where the “reward to buyers” comes from revenues generated, as opposed to the never ending capital gain expected by greater fools.

If your statement above is to be disputed, it must be done by a different metric, since I doubt anyone would choose to buy a multi-unit rental just for a place to live.

The current speculative dynamic making single family homes very risky might have a future potential to make ownership of rental accommodation attractive.

I put stress on the word ‘future’ and the word ‘might’. It hasn’t happened yet. Not in Vancouver, and I doubt in the GTA either. Landlords continue to subsidize tenants in both places.

You should should decide on which you prefer, apples or oranges. They are never in season together.

#181 Mark on 06.02.15 at 1:58 pm

” Inflation died in 1992 (1.4%), rising above 2% just once for the remainder of the decade (1995, Avg CPI=2.2%). ”

So did demand in the economy. As 1992 was a pretty significant recessionary year with the malaise continuing pretty much until the tech sector got red hot. And the CAD$ went on a long-term descent towards 63 cents, truncating Canadians’ import capabilities and consumption significantly.

We made it through that era with austerity, and the strength of a deeply inversely correlated sector, Canada’s tech industry. Bless their souls, if it were not for the exports created by Nortel/Bombardier/et al, Canada’s economic sovereignty would have been substantially impaired and the Canadian dollar probably would have experienced a death spiral.

#182 Waterloo Resident on 06.02.15 at 1:59 pm

For anyone who is thinking that today’s U.S. economy is picking up steam and all is good again, go and do a Google Search for a chart on the “MONEY SUPPLY VELOCITY” and you will see how the current flow of money through the economy is now MUCH WORSE than it was during the great depression of the 1930s. This is scary stuff because it shows that there is nothing to back up this debt-based house of cards that could fall down at any moment. And when it does fall down, the great depression of the 1930’s will look like a period of economic prosperity by comparison.

So what does that mean for Canadian housing prices?
Well, your guess is as good as mine.

We don’t need no depression. We have you. — Garth

#183 Pete on 06.02.15 at 2:01 pm

All of those calling for new taxes on speculation, etc. are just doing themselves in. They will be the ones who end up paying the extra, not the almost non-existent foreign buyers.

#184 Julia on 06.02.15 at 2:02 pm

#123 Italians love real estate

“Much more house on offer in richmond hill than leaside and annex and with yonge street, the natural center of the city intersecting two major hwys there (407and 7) me thinks demand continues.”

Sure. But some of us do not want more house. We want less commute and more neighborhood amenities without having to drive.
You and have had this discussion before and we just have different preferences where it comes to our definition of quality of life.

#185 Victoria Real Estate Update on 06.02.15 at 2:08 pm

So far in 2015, SFH sales are running significantly below Victoria’s long term average.

2007 was an average year for SFH sales in Victoria and 2015’s (January to May) total is significantly below 2007’s (January to May) total (population adjusted for an apples to apples comparison).

SFH sales in Victoria should be shattering records with today’s record-low mortgage rates but that isn’t happening. We aren’t even seeing average sales totals.

Where are the buyers? They should be coming out in record numbers, but they aren’t.

It may be that buyers are sitting on the sidelines and waiting for prices to fall more. It’s no secret that there are many near-peak buyers with underwater mortgages in Victoria who have been eliminated as move-up buyers. Potential buyers may be aware of this and are trying to avoid the same situation themselves.

Whatever the reason, below average SFH sales at record-low mortgage rates is a weak performance by any housing market.

That this core area (Victoria) condo has been sitting on the market lonely and unloved for some time at 12% below assessed value makes it clear that Victoria’s housing market is unhealthy, especially when record-low rates are taken into consideration.

— # 403 – 25 Government Street (Victoria) —
— Listed at 12% below assessed value —

* # 350853
* mountain view
* waterfront on ocean
* 2 beds, 1 bath, top floor
* located here

There are a number of other examples of condos in Greater Victoria that are sitting on the market unloved.

#186 Mark on 06.02.15 at 2:15 pm

“For anyone who is thinking that today’s U.S. economy is picking up steam and all is good again, go and do a Google Search for a chart on the “MONEY SUPPLY VELOCITY” and you will see how the current flow of money through the economy is now MUCH WORSE than it was during the great depression of the 1930s. “

Wasn’t the problem at the time the fact that the monetary base could only really grow at the rate of growth in gold reserves? As it was necessary for the Treasury to hold enough gold in reserve to redeem every dollar for 1/20th of an ounce?

The contemporary US central bankers don’t have that limitation? Or do they have some other limitation that would substitute for such in its place in their effort to revive demand?

#187 Made in BC on 06.02.15 at 2:17 pm

DELETED

#188 Godth on 06.02.15 at 2:19 pm

Fed Mouthpiece Jon Hilsenrath Furious “Stingy” US Consumers Refuse To Buy The “Recovery” Propaganda
http://www.zerohedge.com/news/2015-06-02/fed-mouthpiece-jon-hilsenrath-furious-stingy-us-consumers-refuse-buy-recovery-propag

Hilarious.

Bonus understanding:

In Denial: We Pursue Endless Growth At Our Peril
A requiem for planet Earth
http://www.peakprosperity.com/blog/92776/denial-we-pursue-endless-growth-our-peril

#189 Outpriced forever on 06.02.15 at 2:22 pm

Mark says: $400k invested in a TSX index fund like XIU generates $25k in net tax-paid income…

————–

Mark, can you explain how you can make that happen, since XIU yields about 2.7% = 10k? Unless you are simply selling another 15k/year no matter what the market does – I shall assume you don’t possibly mean that.

#190 Bby604 on 06.02.15 at 2:31 pm

http://www.cbc.ca/m/news/business/topstories/house-prices-may-stay-high-in-canada-here-s-why-1.3095421

Uhh ohh someone diasagrees with you Garth… And he on cbc

Is that supposed to impress me? — Garth?

#191 Cdn Flier on 06.02.15 at 2:40 pm

Waterloo resident is good at predicting gloom and doom. Remember this one?

#112Waterloo Resident on 10.13.14 at 11:18 pm
Remember back in the Summer I told everyone that this Ebola stuff was going to be the thing that ended the world as we know it. WELL…… guess what’s happening ???

Ebola in Western Africa has faded out of our consciousness. It was a non-event.

#192 The Real Victoria on 06.02.15 at 2:41 pm

#185 Victoria Real Estate Update said:

“So far in 2015, SFH sales are running significantly below Victoria’s long term average.

2007 was an average year for SFH sales in Victoria and 2015’s (January to May) total is significantly below 2007’s (January to May) total (population adjusted for an apples to apples comparison).”
—————–
Quit making up stuff. And using one listing and unreadable stats to justify your rediculous cause. Real estate is doing just fine in Victoria. It’s a healthy balanced market. SFH’s sales are strong and prices are back near their peak. There was a cooling from the over heated days a few years ago.

So non-stop your pleading to hold off purchases because of the impending Victoria real estate crash that never happened. And it won’t.

Compared to the lofty gains of Alberta, metro Vancouver and Toronto, Victoria has already had its soft landing.

Welcome to reality.

https://househuntvictoria.wordpress.com/

#193 Holy Crap Wheres The Tylenol on 06.02.15 at 2:42 pm

#176 The American on 06.02.15 at 1:28 pm

At #165: Holy Crap Where’s The Tylenol, here is a link that depicts the maple leafs in the middle of the Canadian McDonald’s signs across your nation, including the Canadian flag waiving off the front of many of the stores.

https://www.google.com/search?q=canadian+mcdonalds+signs&client=safari&rls=en&tbm=isch&tbo=u&source=univ&sa=X&ei=B-dtVf7BCMuPyATczIGQBw&ved=0CB4QsAQ&biw=1434&bih=761

http://logos.wikia.com/wiki/McDonald's_Canada
___________________________________________
Je étais drôle or perhaps Estaba siendo divertido!

Its weird I have been to almost every state in the nation except WA, ID, MT & ND. I have never been to your part of the USA, the only thing I recall about Seattle is Jimi Hendrix was from there and the scenery is nice. Well I’ll put in on the bucket list! Oh yes thanks to uncle Sam I did get to see Vietnam, Thailand, the Philippines, and my favorite Australia.

#194 Holy Crap Wheres The Tylenol on 06.02.15 at 2:46 pm

#178 Smoking Man on 06.02.15 at 1:49 pm
Fed’s Brainard: global troubles weighing on U.S., may delay rate hike
http://ca.reuters.com/article/businessNews/idCAKBN0OI1P820150602

……..
There is only one Smoking Man
God I’m good…
________________________________________
I thought you were God? Wheres The Dam Book?

#195 Mark on 06.02.15 at 2:47 pm

“Mark, can you explain how you can make that happen, since XIU yields about 2.7% = 10k? Unless you are simply selling another 15k/year no matter what the market does – I shall assume you don’t possibly mean that.”

XIU’s P/E ~=16, so 400k / 16 = 25k. Obviously not all is paid out immediately as dividends, but is rather re-invested in what management of those firms believes is accretive investment. In addition to depreciation, which is also re-invested.

With the sort of P/E multiple compression we’ve seen over the past decade since the 2000 peak, it might not seem that an investment like XIU is making much money. But underneath it all is a basket of companies who have dramatically stronger balance sheets than they did 15 years previous, or even 7 years previous when the TSX was last at the 15,200 level. Eventually to a patient investor, this will be reflected in dividend growth and capital gains. Actually the TSX is so out of favour right now that its current dividend yield (not even earnings yield) is greater than that of 30-year GoC bonds! That’s just how hated Canadian stocks are!

#196 Crying Native on 06.02.15 at 2:50 pm

#149 Alex N Calgary – “BTW I haven’t been to Vancouver\Victoria for a while, went there last week, its Asian money being flashed all over the place, I don’t know about housing, but it sure is around. I saw a MAYBE 18yr old 110lb Chinese kid drive up to the Victoria beach in a 2 day old Corvette with his tiny Girlfriend, its kind of digusting.”

–As disgusting as an old white man leering at a young Asian Couple driving a reasonably priced sports car I would assume.

You’re attitude is disgusting. How did this one get past you Garth?

#197 lee on 06.02.15 at 3:03 pm

If people around the world are investing in Canadian real estate to protect their investments, what are these same people and others in a similar situation going to do when they realize the Canadian economy is faltering and our governments are going bankrupt? Will they think their brick money is still safe then? Those that just want safety for their capital will stay but those who want a real return will be upset.

#198 rosie "moving forward" in the knowledge that, "this won't end well" on 06.02.15 at 3:06 pm

Vancouver #46 when you include affordability.

http://www.moneysense.ca/canadas-best-places-to-live-2015-full-ranking/

#199 Italians love real estate on 06.02.15 at 3:12 pm

#158 Mark on 06.02.15 at 11:40 am
“I still say that in a low interest world such as we have today , a multi unit rental in the GTA 905 or 416 ,will reward buyers immensely, even if a buyer today is paying what is perceived to be dear for it.”

Really? You would think that with how nuts people,
especially the investor class have been for real estate, that all assets of the sort are ‘fully valued’, if not severely overvalued.

Mind sharing some numbers of a building or two you’re looking at?
———
We have been looking at numbers on this site for years and for years they have continued to point to lower RE prices and yet they have continued to rise. Listen Mark, I can’t write like you and probably not as smart as you except maybe just a little street smarter or maybe not. In any event , this dumb italian will continue to buy.

#180 mister obvious. Yes you are correct different metrics but me thinks same outcome in the future for RE

#184 Julia – yes I know you have made your opinion very clear . As evidenced by extreme price increases in Rich Hill, many many others seems to feel otherwise . Like I said to you before , you live where you want to live .

#200 Josh in Calgary on 06.02.15 at 3:27 pm

#136 TB,
You’re wondering how the “average” Canadian making the “average” wage of $70,000 can afford the “average” house.

First of all you’re doing the math wrong. Since only 70% of Canadians own, you should be looking at the average of the people who actually own. Since it’s a fair guess that people who don’t own are likely on the lower end of the pay scale (on average, I realize there are rich folks who rent), that number is likely higher. You also assume that everyone is buying into the market at today’s prices. There are plenty of folks who have bought in years and years ago. Their pay may not justify the current price of their home, but if they bought 20 years ago it doesn’t matter.

So what you need to look at is the average wage of the people who bought in the last 5 years or so. My guess is it will be substantially higher than $70,000.

#201 Congrats... on 06.02.15 at 3:34 pm

Congratulations,

To everyone that made money over the last ten years in:

Canadian Real Estate.

The Stock Markets.

A Balanced and Diversified Portfolio.

LET’S SEE YOU DO IT AGAIN. Get ready for losses or very low returns.

#202 Entrepreneur on 06.02.15 at 3:39 pm

Looks like to me the show consist of “kids” of the Bank of Mom and foreign investors. The first-time buyers are out of the picture & the average income earner.

#101 Disgust Made Me Post…when Mulroney says “to take tougher measures to block the influx of “hot money” I think the time is asap.

At first it may be too expensive but we do have computers which will save a lot of repeat work. We did have the Gun Registry & we all know how expensive that was, plus what a waste of time (the bad guy will get his weapons one way or the other).

Canadians taxpayers have been burden with many unnecessary programs. Turning a blind eye is not the answer. As soon as a recorded system is in place then watch the retraction of illegal money.

#116 Victoria Real Estate Update…this year will be the telling time.

#203 bill on 06.02.15 at 3:55 pm

#183 Pete on 06.02.15 at 2:01 pm
your asking the herd to think …. its not their strong suit ,eh?
Hence the call for taxing all those speculators and pesky foreigners….
-classic shot in the foot

#204 Andrew on 06.02.15 at 4:03 pm

The 2015 recession is going to cause housing prices to go way down. Just wait until Statistics Canada officially declares it.

#205 bdy sktrn on 06.02.15 at 4:03 pm

2015 Corvette Z06 Coupe – $125995
——————
reasonably priced?

#206 Outpriced forever on 06.02.15 at 4:04 pm

Mark on 06.02.15 at 2:47 pm: Oh, I get it… basically, yield *could* be 25k/year, but because companies are not giving all profits back as dividends, it is only 10k/year. This doesn’t really matter, and for investing purposes, it is really just like yield is 25k/year. Excellent.

It seems that, by that logic, real estate that yields only 10k/year *could* yield 25k/year if landlord was not subsidizing the tenant, so really, your 400k real estate investment is just as good by this interesting and pretty useless way of talking about income that an investment gives.

To the rest of us, talking about stocks and how much income they give, is talking about current dividends, not speculating on future appreciation that seems largely based on the fact that current dividends could be bigger before putting the company in the red.

#207 Shawn on 06.02.15 at 4:09 pm

Risky Business

#177 Randy Randerson on 06.02.15 at 1:38 pm
#141 Shawn on 06.02.15 at 10:38 am

A risky play that pays off does not make it a good strategy. Don’t confuse the two.

If I take all my money to play a game of roulette in LV, it’s a stupid move, whether I win or lose.

*************************************
Yeah, I said it was risky and probably stupid to buy a house with 95% to 100% down at any time in the past decade (at least)

BUT the risk did not materialize. Those people won.

Bad decisions led to good outcomes. It can happen. It did happen.

Bleating (as some have) that the house equity has not been realized in cash is just sour grapes and/or delusional. Wealth is MEASURED in dollars. But it need not be in dollars to be real wealth. Most wealth in fact is not in the form of cash.

The future is yet to be told, but for now, those apparently stupidly leveraged and usually (financially)unbalanced home buyers have won. Many have seen their tiny slice of equity grow at least ten fold i.e. 900%. (say 5% down and the house price doubled)

#208 Broke Dick on 06.02.15 at 4:10 pm

#86 Mark on 06.01.15 at 10:34 pm
“My friends houses in Toronto are not appreciating like the stats say and it’s at last my turn to boast.”

Very true. Actual individual houses are *not* appreciating in either Vancouver or Toronto. The only thing that has changed is that the Realtors are transacting in higher priced segments of the market than they used to. What the Realtors are selling is known as the ‘sales mix’, and changes to the sales mix are apparent in a median transaction price that has risen much faster than the mean transaction price. Anyone with even one iota of knowledge of statistics would caution someone not to generalize a rising average to an individual sample in such an environment.
++++++++++++++++++++++++++++++++
Mark you could have signed that comment as “Clueless in Calgary”

#209 Shawn on 06.02.15 at 4:16 pm

Earnings vs. Dividends

Mark is correct on that. Warren Buffett, for example has always looked to corporate earnings. Warren values dividends but always said he valued the retained earnings of companies in which he owns shares just as much or more than the dividends since he trusts those managers to invest the retained earnings at good returns. Else he would not buy or hold those stocks.

When you can safely predict the company to grow over the years (say CN rail) it is not much of a speculation given say a five or ten year time frame.

Dividends come from earnings and cash flow and it is the earnings and cash flow that are more important than the particular share of cash flow spit out as dividends.

#210 Shawn on 06.02.15 at 4:22 pm

Correct in Calgary

Josh in Calgary said:

So what you need to look at is the average wage of the people who bought in the last 5 years or so. My guess is it will be substantially higher than $70,000.

*************************************
Absolutely correct. It has probably never been the case that the average wage earner could afford to buy the average house. It was faulty logic to assume they should be able to especially in a rising market. We just need the ACTUAL buyers to afford the actual prices, which pretty much by definition they have, albeit with family help or whatever. Point is they did it. So never mind your average family that did not in fact buy the average home sold this year.

#211 Doug in London on 06.02.15 at 4:26 pm

When I was a kid our family moved around a lot so many of those years we lived in a rented house. Oh, the horror of it all!!!!!! I was so traumatized by it all that I’ve been going for psychiatric help from about age 10 to the present. I don’t know if I’ll ever fully get over it.

#212 Bottoms_Up on 06.02.15 at 4:35 pm

#182 Waterloo Resident on 06.02.15 at 1:59 pm
———————————————————–
The chance of depression has come and gone my friend (year 2008). The house of cards was backed by bailouts and quantitative easing and low interest rates.

The US economy is growing.

#213 TRT on 06.02.15 at 4:35 pm

Vancouver prices break yet another RECORD HIGH!!!!

Damn locals! Where they getting $2 million a piece?

#214 pwn3d on 06.02.15 at 4:38 pm

And the fool who follows is the greater fool.
——–
And his name shall be called Mark.

#215 Mark on 06.02.15 at 4:49 pm

“It seems that, by that logic, real estate that yields only 10k/year *could* yield 25k/year if landlord was not subsidizing the tenant, so really, your 400k real estate investment is just as good by this interesting and pretty useless way of talking about income that an investment gives.”

Ummm, that’s not really how it works. Earnings are what actually happens in a business. Not hypotheticals.

You can think of the process of retained earnings like a multi-unit landlord deciding every year, after properly accounting and reserving for depreciation (ie: the roof wearing out, the carpets needing replacing, the interior needing updating), putting some of the year’s profits aside to acquire/build another unit.

Over time, that additional unit acquired with retained earnings by the landlord will contribute to the landlord’s overall earnings on his investment. And thus, will create even more earnings which can either be retained, or paid out as a cash dividend.

The implicit assumption made with retained earnings is that management knows best whether its actually accretive to re-invest earnings, or to pay them out to shareholders. There are obviously some well cited examples of mal-investment, but historically, and on average, successful businesses usually have a pretty good idea as to the returns available on new investments. Thus, its a pretty good assumption that every dollar of net earnings made today by a business will eventually be returned, in the form of dividends, to the shareholders. And that over time, the shareholders will end up with shares that represent an ownership interest in more valuable assets than what they started with, as the physical and intellectual assets of the business are expanded with retained earnings.

It has probably never been the case that the average wage earner could afford to buy the average house.

Actually that has been the historic norm, that the average wage earner could afford to buy the average house. Since we’ve seen such dramatic overshoot to the upside, we’re likely to see dramatic overshoot to the downside. In that, in the future, not only will the average wage earner be able to afford to buy an average house, they’ll probably be able to afford to buy an above average house. That is, if they aren’t burdened with the debt burden associated with buying a house at the top of the market.

For instance, in Florida, in Arizona, many areas of SFH and condos dropped to less than 1X average local earnings. Why did this happen? Because potential local RE buyers (and their bankers) were so engulfed with previous debts that they had no financial capacity to pay (or lend) anything more.

#216 Shawn on 06.02.15 at 5:07 pm

Mark…

Actually that has been the historic norm, that the average wage earner could afford to buy the average house.

For instance, in Florida, in Arizona, many areas of SFH and condos dropped to less than 1X average local earnings.

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

Any data whatsoever for the first claim? (Did you learn nothing from Josh’s post?) Or data for the second claim for that matter, though it may be true.

And did you buy in Florida at that time? A retired family member of mine did several years ago at the bottom. The smart pounce.

Florida houses are rising quite nicely in price now, see Case Shiller Index.

Seek help!

#217 @Mark on 06.02.15 at 5:17 pm

Sold a house I bought 2 years ago for a $150,000 gain. Same house Mark.

Also, when you look at google map or the Lower mainland , do you ever think that there is something called the ALR? Didn’t think so.

#218 cramar on 06.02.15 at 5:20 pm

#205 bdy sktrn on 06.02.15 at 4:03 pm
2015 Corvette Z06 Coupe – $125995
——————
reasonably priced?

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

You picked the highest priced model. Might have been a basic one—only $91k Canadian!

#219 Charles Ponzi on 06.02.15 at 5:29 pm

In today’s New-World-Order, nobody is responsible for the consequences of their actions.

#220 Shawn on 06.02.15 at 5:41 pm

I’m Gone

Not that anyone cares but I hereby pledge to not post any comments to this blog until at least July 1.

It’s too intoxicating and its a huge waste of time.

Bye…

Enjoy Mark

#221 would-be buyer on 06.02.15 at 5:58 pm

I wasn’t completely sold on the HAM theory until I read this:

http://www.scmp.com/comment/blogs/article/1815597/vancouvers-housing-crisis-no-not-and-not-anywhere-else-except-hong

#222 Leo Trollstoy on 06.02.15 at 6:15 pm

You should probably try that, instead of just making things up to suit your prognostications.

Blog dogs are catching on that Mark makes crap up. At least the smart ones.

#223 bill on 06.02.15 at 8:19 pm

#205 bdy sktrn on 06.02.15 at 4:03 pm
absolutely that is a reasonable price for the ”super cars”
and as cramar suggested there are more reasonably priced corvettes. especially the used ones.
one should compare that to Ferrari and Lamborghini etc
double or triple the price of a lowly vette.
and while we are on the subject of ‘hot cars’ a bit of perspective is needed…
one of those mitsubishi evo’s or subaru sti version of the impreza would be the best buy of all as far as performance for the buck goes.
they dont give up much to 200 thousand dollar + exotic cars.
and on a tight track evo or sti will chew them a new one.
https://www.youtube.com/watch?v=k6mEirkQN8o
https://www.youtube.com/watch?v=2To_5XjIaMk
and a bit of humour
https://www.youtube.com/watch?v=Ees2aZcDUn8

#224 bill on 06.02.15 at 8:25 pm

more car fun..
https://www.youtube.com/watch?v=VVt1IjIdLxY

#225 Aaron - Melbourne on 06.02.15 at 9:47 pm

@ Garth Turner

121 Steve French on 06.02.15 at 7:13 am
this is a serious question…

Why would the requirement to show a Canadian or Australian passport before purchasing a new house or condo be a “costly and inefficient” regulatory burden ?

Because it has to be recorded, checked, archived and coordinated with property rolls, tax administration and be deemed legally correct. That takes time, people, resources and lotsa money. All of which is funded by you. For absolutely no net benefit. Give your head a shake. — Garth
**********************

Garth, do our respective Governments not record check and archive mine and your financial details already? Do they not coordinate these databases to levy taxes on us? So why then should non-resident, money launderers go unchecked? As I stated above, the FIRB was found soreley lacking and hid behind the excuse of being under-resourced as some sort of rationale for not undertaking a single prosecution of a breach of the investment rules. So I’m happy to fund the ATO to take on the responsibility.

The net benefit is that we take an entirely speculative element out of the market. We take out absentee property owners who diminish our housing stock by keeping it vacant or knocking it down. We restore houses as homes to resident families. That’s a benefit right there.

I’m not saying I’m in the market for a $52M home, but I am saying that Chinese investors are dodgy.

http://news.domain.com.au/domain/real-estate-news/point-pipers-altona-mansion-sale-dodged-foreign-investment-laws-20150603-ghfheb.html

#226 FutureExpatriate on 06.02.15 at 10:42 pm

“But we’re pregnant”.

Whose fault is that?