How bad?

NO DOG

So, how bad could it be?

Given the Crash Tax turmoil in Vancouver and CMHC’s panicked over-valuation call on Toronto, what would actually happen if those housing markets plopped? After all, it sure looks like we’re getting closer. What next?

Some people like to shrug off corrections, thinking they’re similar to adjustments in the stock market. You know, like Brexit. A surprise event caused equities to tank by 6% and a week later they were all recovered. Whazza problem? Universally on this blog people shrug off real estate declines saying a 30% drop “would just get us back to last year” and that markets would stabilize and continue their advance.

Not so fast. If a Van crack shack appreciates by 30% from $1,000,000 to $1.3 million, and then declines by the same percentage, it drops in value to $910,000. Oops. Now it has to appreciate by 43% just to get back to where it used to be. Yes, math is hard.

Harder still is the realization that houses don’t move like financial equities. The trip up can be fast, but the trip down usually is not. First sales stagnant, followed by a plump in listings, then sellers sit on unsold houses for six months or so before they accept the reality of lower prices. It’s a lengthy process. Corrections take years. They can be very painful if you were unwise enough to buy anywhere near the top.

Here’s what I mean.

First, the GTA crash. The market peaked in a speculative orgy of multiple offers, bully bids, media hyperventilation and an ocean of hormones in the late 1980s before going into a funk in the early Nineties, bottoming in 1996 and not recovering fully until 2002. Actually when you factor in inflation, a buyer in 1989 did not get her money back unless she held on until almost 2005 – 16 years later.

Here’s the data:

CORRECTION modified

You’ll notice that house prices (the average, not the median) were down almost 28% from the beginning of the correction to the trough – which isn’t far off the 32% decline that threatened to eat the American middle class a decade ago. That hurts. But the salient feature of the correction is its sheer length, which underscores that real estate turns illiquid when markets tank and (unlike a stock, bond or ETF) cannot be disposed of in any efficient manner. That sucks.

The Canadian slow-mo crash was not unique. Take a look at recent US experience. As of this week, it’s taken 11 years form prices to climb back to their pre-flop levels. The median home price in the States last month touched $231,000, 9% higher than a year ago and just about equal to the previous record of $228,000 which was hit in the summer of 2005.

(Aren’t those cute little prices, by the way? Just about exactly where GTA values were sitting in the late 1990s. While we’ve been pushing real estate costs into the unknown, Americans have just ground through more than a decade of zero appreciation. The good news? Most people there can afford a home. Household debt has shrunk every year. And they have no Chinese Dude Crash Tax.)

If history is any guide, it’s reasonable to expect a drop in the range of 30% in house prices in Vancouver (less in Toronto where the market is far larger and more diverse). It’s also reasonable to expect no recovery for at least ten years. If interest rates normalize during that time (count on it), then values could take a lot longer to restore. Deduct realtor commission upon selling, factor in a little inflation, and today’s 30-year-old Yaletown condo buyer could be thinking seriously about retirement before her unit gives back the money she first paid. In that period of time a balanced portfolio of financial assets should (if history is any guide) have quadrupled.

Good luck.

GreaterFool does Saturday

As a public service to those sad people with empty lives addicted to this pathetic blog, The GreaterFool will now be open seven days a week. Just like the convenience store down the street. Or the new Ashley Madison. Commencing this weekend there will be alternating weekly blog postings by Ryan Lewenza and Doug Rowat, who are fancy Portfolio Managers with Turner Investments, which is where I hide out from the comments section. These guys think they know everything. They have no idea what’s coming.

174 comments ↓

#1 Randy on 07.29.16 at 5:31 pm

Blame the Liberals

#2 Victor V on 07.29.16 at 5:38 pm

B.C. land registry crashes as people rush to close deals before new tax

http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/personal-finance/mortgages-real-estate/b-c-land-registry-crashes-as-people-rush-to-close-deals-before-new-tax&pubdate=2016-07-29

“Hundreds of British Columbians head into the B.C. Day long weekend facing stress and uncertainty concerning the largest financial transaction of their lives because of the provincial government’s abrupt intervention into the Metro Vancouver housing market this week,” said Dan Morrison, the president of the board, in a statement.

Realtors had argued for an exemption that would allow previously negotiated deals to be exempted from the tax, but the Liberal government of Christy Clark rejected that request.

“The Premier’s decision not to exempt transactions where home sellers have an accepted contract in place, with a non-Canadian buyer, that will not close before Aug. 2 is needlessly causing real harm to real people,” Morrison said. “Our members are scrambling to try and help people understand how their personal and financial situations have been impacted.”

#3 Van Isle Renter on 07.29.16 at 5:38 pm

True, there is no Chinese dude tax in the U.S., but they’ve started to implement an anti-money laundering provision. Same effect; plop – fizzle.

I’m ambivalent on the foreign purchaser tax for a couple of reasons. First, I doubt that it’ll do anybody any good as the realtors will figure out some way to circumvent it and secondly, the market is already crapping out.

Besides, I have yet to figure out why high housing costs are a good thing for anyone but the realtors and the government. Nobody cheered when steak hit $10/lb or when your car insurance went up.

#4 espressobob on 07.29.16 at 5:39 pm

Index investors who do little or nothing to their portfolios enjoy the ride. Timing is futile.

Fear is the best friend the experienced invest in.

Trust me, I’m not addicted to this blog! Just in denial.

#5 Notagreaterfool on 07.29.16 at 5:40 pm

What’s your call in the 416? Prices soar or retreat in next year?

#6 rob Whistler on 07.29.16 at 5:41 pm

First!

#7 Bismack on 07.29.16 at 5:44 pm

I finally realized what I was missing from my life. Not a detached home, but a blog entry on Saturdays. Thanks for completing me Garth.

#8 Kenchie on 07.29.16 at 5:44 pm

Lol! I used the exact same numbers to explain to my friend how the math works! It’s astonishing how few people understand relatively simple math.

I see you have a succession plan. Good for you!

#9 joe smith on 07.29.16 at 5:48 pm

First!!

#10 C.y. on 07.29.16 at 5:49 pm

First – keep it to 6 nights a week. The wife needs a break.

#11 Baz on 07.29.16 at 5:50 pm

A Saturday blog doesn’t bring that much excitement (at least for me); I thought u would announce the grand opening of Turner Café at Bay and King :)

#12 rob Whistler on 07.29.16 at 5:50 pm

looking forward to saturdays. as i have nothing better to do this weekend. hopefully one day, we can get two posts in the same day

#13 Crdt on 07.29.16 at 5:53 pm

Local realtors being asked to refund deposits, deals falling through, panic cascading through the market. You can actually see the change in demeanor of local real estate vloggers. The denial, then race to the bottom has begun.

#14 mouldy in YVR on 07.29.16 at 5:54 pm

Gawd…the poor things….(Ryan and Doug that is)….hope you are enjoying your summer Garth……..

#15 Nero on 07.29.16 at 5:55 pm

Some bad R E press lately,
Probably messy in BC with the exploding heads in Vancouver offices so come on R E cartel…
toss those bloodied gold jackets in the washing machine and set to spin, spin, spin!!.

Rainbows and Skittles any time now…

Pass me my fiddle…

#16 GDP Bad... on 07.29.16 at 5:56 pm

-0.6% GDP for May of this year, largely due to Ft.McMurray.

-0.1% otherwise.

Only large dollar value growth sectors left are RE/Finance and Insurance. If Garth is correct about YVR RE, those will suffer as well.

How bad? Very bad.

Labour Force Survey next Friday…pray.

#17 Robbie on 07.29.16 at 5:58 pm

Pretty cruel to expose Ryan and Doug to those who lurk around your blog and who can’t wait to turn their illogic and wrath of their keyboard on anyone who doesn’t agree with them. Good luck, Ryan and Doug!! :-)

#18 Salutations Sally on 07.29.16 at 6:00 pm

Any dog that can’t drink and smoke while skate boarding is not worth two woofs anyway! Enjoy your weekends Mr Turner!

#19 The Wet Coast on 07.29.16 at 6:00 pm

No matter what. Houses, Gold and the Leafs suck.

#20 rainclouds on 07.29.16 at 6:02 pm

Woo Hoo
Guest Fools!

No more jonesing for the pathetic blog by us equally pathetic dogs. Going to the Red Shoe Pub in Mabou to celebrate

Did u prepare them for the insights of some of us ore loquacious eediots?

#21 Graphics Girl on 07.29.16 at 6:04 pm

Yes! Seven days a week!! Love the blog. A diversified portfolio is just as important as seeking diversified opinions. Just started following Peter Schiff.

#22 If History is Correct? on 07.29.16 at 6:05 pm

Disagree about % drops and slow-motion.

Historically, none of the past drops had such a highly indebted population and RE high prices.

The larger the bubble, the greater the fall.

Early 80s Western Canada House Price Index dropped anywhere from 20% to 40% in a couple of years.

Late 80s to mid 90s 416 House Price Index was a slow slide of about 40%.

2 historical fast drops to your 1 slow drop.

#23 windsurfer12 on 07.29.16 at 6:05 pm

Garth: long-time reader, infrequent poster, past political supporter from those bygone years.

A couple of homilies for you to chew on over this long weekend. Taking the opportunity to be the first poster, [almost wrote poser, maybe should have said hoser] but I know you have a sense of humus so please be patient with us.

‘Even a stopped clock is correct twice a day.’

‘The markets can stay irrational longer than you can stay solvent.’

There, I got it off my chest.

BTW, is there a secret password to get a free coffee at the General Store?

Thanks.

#24 The original dave on 07.29.16 at 6:07 pm

The rise in prices wasnt orderly. No one could have predicted these prices. The same goes for a decline. Welcome to the world of an asset bubble. A big decline comes with panic like a rise comes with greed. 30% is assuming that things happen orderly and with respect to value…..but all that goes out the window in any bubble. Ask the oil market.

#25 Correction on drops... on 07.29.16 at 6:10 pm

1 historical fast drop, 1 medium speed and your 1 slow drop.

50% probability if you use history to predict house price index drops.

Also, is your chart Inflation corrected and what is the base year?

Prior data based on 1980 as start year.

#26 VICTORIA TEA PARTY on 07.29.16 at 6:12 pm

OH, JOY….

It takes a Toronto lawyer to pour cold water on BC’s 15 per cent real estate foreign tax initiative that is supposed to ake effect next week.

Apparently the province’s decision is in violation, according to this legal beagle, of NAFTA and a host of other international trade deals including the latest trade deal with China!

Any decision rendered against BC would be levied at Ottawa where Canadian tax payers would be forced to pay the penalty.

http://business.financialpost.com/fp-comment/barry-appleton-b-c-just-violated-nafta-with-its-foreign-property-tax-and-we-could-all-pay-for-it

If Mr. Appleton is right then Canadians have even less control over their destinies than even I thought.

Obviously international trade deals steal sovereign powers and distribute them to other countries and special interests.

This is another aspect of “globalisation.”

Our pols tell us repeatedly that these big trade deals are “good for us.”

Really?

If the BC government has to back down, then what can be done to stem outrageous YVR real estate prices?

Maybe St. Garth of Timely Tribulations is right: let the markets do the walking and talking and deal with these gawdawful prices. It will take time, but time is eventually on your side, if you’re a potential buyer, and not pickled in debt.

Surrendering one’s national birthright to get to pay “cheap” prices for Chinese-made stuff, and lose local jobs forever, is an all-round crappy idea.

In other words, chasing the cheapest prices is the same as doing stupid stuff with low and lower interest rates.

All important price discovery gets lost in the shuffle and our economic status and future get twisted and perverted in ways that damage us all.

We’re to blame for all of this, y’know.

#27 Need More Garth on 07.29.16 at 6:15 pm

THANK YOU!

My Saturdays have been a lonely useless day until now.
Thank you Garth, I wish I could have you on Saturdays
but I’ll take these guys.

I would also like to start the “Order of Canada for Garth”
bandwagon. It’s not much of a wagon currently but I
think he deserves it.

Actually, I’m a lazy sob and won’t nominate him myself.
I think of all the freaks who read/write in the comment
section there must be one decent human who could figure
it all out and start the process.

Get off your lazy butts and nominate this great Canadian!

#28 Eldon on 07.29.16 at 6:17 pm

I am here in Alberta. Month end just finished where I work. Another crap month and more worry about when the company starts looking at headcount. Thank your Garth for your advice on your blog. I will be able to deal with the headwinds if that happens. Many though are in trouble. Off for a beer now. Cheers

#29 PacMan on 07.29.16 at 6:17 pm

Yay! Thanks GT for opening GF on Saturdays as well!

#30 Wetcoast renter on 07.29.16 at 6:22 pm

It’s sad, but I’m really looking forward to a Saturday post. Nothing better than discussing one’s balanced portfolio.

Note to self: get a life.

#31 Millenial on 07.29.16 at 6:22 pm

Hey Garth,

Respectfully, your mom-and-pop blog has gotten a little too corporate for me recently.

Don’t let the door hit your ass too hard… — Garth

#32 46 and 2 on 07.29.16 at 6:24 pm

Fresh meat!

#33 Contrarian Coyote on 07.29.16 at 6:24 pm

I have a friend in the Vancouver area that bought a townhouse 2 months ago. No idea what he and wife paid – but a 30% decline…ouch.

Meanwhile – I’m happily renting in the Kawarthas and saving & investing. Still plenty of locals buying and fighting with smart people from the GTA who’ve cashed out.

#34 mitzerboy aka queencitykid on 07.29.16 at 6:31 pm

nice garth thx

#35 scanner on 07.29.16 at 6:33 pm

Bought a house at peak interest in 1980 and lived through that. Bought another in ’85 just before the run-up and had a neighbour in the Real Estate business tell me in 1989 that the real estate market in Toronto would never go down. I now watch with fascination to see what will happen with all these kids with million dollar mortgages when their house is 25% underwater. Can’t just walk away from it the way they can in the US. Wonder what Sunny days will do?

#36 bdwy sktrn on 07.29.16 at 6:33 pm

what! just saturday!

we demand twice daily postings!!!! we are entitled!

on the other hand, forget it, i want my money back!

#37 ole Doberman on 07.29.16 at 6:35 pm

7 days a week! Wow gartho’s really dropping the gauntlet now against the estamishment.
He’s now the canadian version of trump

#38 bdwy sktrn on 07.29.16 at 6:36 pm

also, no crash, no melt for 604.

new community plan is adding 10,000ppl to our tiny slice of the city. hi rises coming to the drive. DO NOT SELL land west of burnaby lake!

#39 Victoria Real Estate Update on 07.29.16 at 6:46 pm

Toronto’s early 90s crash was much worse than what Garth’s average price chart shows.

If the overall average price of houses falls by 32%, you can be sure that the percent decline of individual houses was much more than that. Proof of this is can be found by comparing the amount that the average / median price of houses fell in LA, for example, to the amount that houses actually fell based on the Case Shiller Index.
The Case Shiller Index showed a much deeper price decline.

As I’ve said before, a Toronto banker told me he bought a nice house in a decent area of Toronto in the early 90s and had to sell it 2 years later for a full 50% discount. The average price doesn’t show that.

Housing crashes in the early 80s in BC and Alberta cities saw prices fall deep and steep in a short amount of time.

For evidence of how quickly house prices can fall from bubble levels consider what happened with Ireland, Greece, Spain, Iceland, Japan, etc. or any of the other national housing price crashes that have taken place in the world over the past 40 years.

The US is only one example and we can’t really say it can’t happen in Canada when we have a much bigger bubble.

An all out crash from coast to coast could easily happen in Canada, considering the size of our bubble. Very few people predicted the US crash. It wasn’t supposed to happen either.

#40 Thornton Mellon on 07.29.16 at 6:48 pm

What a virtual downer. My 416 bungalow is going up in market value about $1200 a week.

#41 TnT on 07.29.16 at 6:48 pm

House closes on Aug 2nd – fat cheque incoming – is it recommended that I sit on cash till US election over?

#42 Maybe on 07.29.16 at 6:50 pm

Oh nice! Fresh meat.

#43 RW_Z on 07.29.16 at 6:52 pm

Good post.

If your employees don’t know what’s coming, why did you hire them?

#44 Green algae on 07.29.16 at 6:56 pm

Still have the summer place on Lake Erie? Or are you too busy scooping ice cream at the store? Enjoy the summer when you can.

#45 Brian Ripley on 07.29.16 at 7:01 pm

The sudden 15% Foreign Buyer Tax prompted me to scribble out some ideas for The Need for Tax, Policy & Land Entitlement Reform:

http://www.chpc.biz/history-readings/death-taxes

I don’t expect that this post will trigger any change during my remaining lifetime.

#46 Directm on 07.29.16 at 7:05 pm

Buying a house right now would be like buying speculative stocks on margin…a fast way to earn a head of grey hair.

I think it was Garth who said “The trend is your friend until it ends” words from the wise.

#47 Warren - the lagging indicator on 07.29.16 at 7:06 pm

So Christy is not even exempting transactions with the evil Chinese already in place but not closing before aug 2. I think there might be a subtle political angle at work here… Hmmmmm.

#48 TheSpectre on 07.29.16 at 7:11 pm

Garth,
I was going to comment that you should take some time for yourself and leave the blog alone at least during the weekends until I saw we’ll have guests.

Thanks for everything Garth and take some time to relax and enjoy your life.

And why not have someone else moderating the comments?

#49 Rexx Rock on 07.29.16 at 7:14 pm

Why does the government need this tax,more in the coffers to steal?Any way When the average median income family in say Vancouver or Victoria making $150,000 can’t buy a house or condo because of affordability then the music stops and keep just let ham keep buying.Whats the big deal?

#50 Lulu on 07.29.16 at 7:15 pm

Saturday too, wow, and fresh meat for the pack… ouch!! Wait, are they both as sexy as you? Garth

Can’t wait to see what they bring.

#51 Joe2.0 on 07.29.16 at 7:18 pm

Bailouts infinity.
Devaluing our hard earned cash.
Banks print it and loan it out.
Ponzalicious

#52 TRT on 07.29.16 at 7:20 pm

I can see Garth posting and then immediately being censored.

Plus he’ll have some Glenfiddich Scotch running thru his veins.

#53 sam on 07.29.16 at 7:24 pm

Garth,
You have made a very good case that investing in houses, stocks , gold etc is all about TIMING !
This should never be forgotten by any of us.
Thank you.

#54 nonplused on 07.29.16 at 7:30 pm

Is there some way you can add an Ashley Madison type service? It would give us trolls in the comment section something to do besides post our economic theories. Ever since the hack I don’t trust the AM sight itself. I had 4 separate accounts hacked! My wife had 2!

#55 Dave on 07.29.16 at 7:40 pm

Boy is it ever slow to correct. Calgary has been hammered by job losses-many good paying-for 2 years and housing price has hardly moved at all. Apparently it didn’t fall much in the last recession either.

#56 Tronald Dump on 07.29.16 at 7:40 pm

Garth You have no idea how badly I want you to be right. People these days, my younger brother included, think that they deserve to have it all. Truck,camper,boat,trailer. Maxed credit line, carrying 7k in credit card debt. And he had the nerve to complain about mandatory 10% down in a mortgage over 500k. “Why would they make it harder for us to buy a house ?!” He whines. Haha. “So that you can’t borrow more than you already have” I respond. He was kind enough to tell me that I don’t know about real estate because I’ve never owned any……. Nor will I ,I said. Until it’s reasonably priced. #foreverrenting #refusetocommittfinancialsuicide

#57 S on 07.29.16 at 7:43 pm

Smoking Man
Wishing you well through your difficult time. I have learned a lot from many on this blog, especially Garth and you. I apologize for the delay in writing.

#58 Self Directed on 07.29.16 at 7:50 pm

#3 Van Isle Renter on 07.29.16 at 5:38 pm
“Besides, I have yet to figure out why high housing costs are a good thing for anyone but the realtors and the government. Nobody cheered when steak hit $10/lb or when your car insurance went up.”

Agreed! This is because everyone is financially illiterate. They treat houses like commodities or shares because they watch too much HGTV. Everyone becomes a “weekend warrior”. Reno. Flip. Repeat. Nobody wants to lose money on real estate. It is the Holy Grail of ROI. So when the downturn comes, there’s going to be a lot of panic.

#59 Arfmooocat on 07.29.16 at 7:53 pm

There have been 18 sales over $1million in the past 30 days, which is the largest number I can remember seeing. One of those was for $3.5million and a few were close to $2million. I think it’s safe to say the luxury market is inflating the average price of single family homes at the moment.

Interesting… you know luxury sales aren’t up because the economy is booming. Probably some luxury steals over the past months as more white collar upper management get the punt.

http://edmontonrealestateblog.com/2016/07/weekly-update-2916.html

#60 F.dover on 07.29.16 at 7:57 pm

Real estate is not supposed to rise, but it is A.O.K. in fact, expected like the ticking of a clock that the Dow is up 12.5% from a slump over 1/2 a year, while the TSE is up more than 20% from its January slump although earnings are down and companies losing money borrow more to pay dividends

I come to this site to find out why. Why?

#61 Self Directed on 07.29.16 at 8:03 pm

#41 TnT on 07.29.16 at 6:48 pm

House closes on Aug 2nd – fat cheque incoming – is it recommended that I sit on cash till US election over?

—————–

I’m trying to figure that out myself. Most of the stuff I wanted to buy on the markets is at an all time high. Trump is an idiot and just might become President, so I expect things to get a bit shaky.

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – Warren Buffett

I was tempted to just stay away from everything except REIT’s and Preferreds. Everything else looks scary. Don’t try cherry picking stocks… unless you have the stomach for it. You could wind up a loser… fast. My wife would murder me if I lost everything on Dollarama Inc (TSE:DOL).

I’d like to hear from more blog dogs about what to do with all that House equity… today… and during the housing downturn.

#62 cramar on 07.29.16 at 8:13 pm

#189 Metaxa on 07.29.16 at 6:04 pm

————-

Would that all millennials were like what you have experienced. The country would have a might brighter future!

I know a few like that myself. Sadly they seem to be in a minority.

#63 Self Directed on 07.29.16 at 8:17 pm

#16 GDP Bad… on 07.29.16 at 5:56 pm
-0.6% GDP for May of this year, largely due to Ft.McMurray.
-0.1% otherwise.

————–
Crash Tax… and now negative GDP growth. Recession coming? US firing on all cylinders… Canada sputtering.

Garth is deficit spending going to get us back in the black, or could we still go into a Recession?

#64 Bro exit on 07.29.16 at 8:19 pm

Lewenza & Rowat….sounds like a fleet of fancy cars. What is this a financial blog? or a car show…

I think I will sleep through Saturday just so I don’t have to go read this blog, as that’s all that is left in my life lol.

#65 NEVER GIVE UP on 07.29.16 at 8:21 pm

Brian number 45.
I believe the reason why no government will implement the automated payment tax it’s because the people who will really be paying the taxes are the 1 percenters. The banks the big businesses and the big money movers and shakers. They’re moving way more money around than us little peons . That’s why it seems so cheap for everyone else because real money that’s moving around is by people we don’t even know! They’re in the big leagues and they’re the ones that pull the strings with governments and Banks. So don’t hold your breath I’ve learned to live with a world that’s not fair.

#66 NEVER GIVE UP on 07.29.16 at 8:30 pm

Rexx rock #49
What’s the big deal?
——————–
I’ll tell you what’s the big deal.

If you raise a child in this country it costs $250,000 to age 18 don’t let anybody be at you and say it costs less it really costs $250,000 per child to bring them up to pay at age 18

#67 Old Man Too on 07.29.16 at 8:30 pm

So how many hits did you have on Saturdays from us desperately delusional people with nothing else to do on the weekend? Did you get Ryan and Doug from the NEW Ashley Madison? Where they on the shelf or did you have to special order them?

#68 BG on 07.29.16 at 8:32 pm

Garth you look sooo badass on the picture on TurnerInvestments.ca.

#69 Smoking Man on 07.29.16 at 8:35 pm

#57 S on 07.29.16 at 7:43 pm
Smoking Man
Wishing you well through your difficult time. I have learned a lot from many on this blog, especially Garth and you. I apologize for the delay in writing.
….

Its not a difficult time for me.. He was 99 years old. Broke his hip. Extreme pain. Dementia he can’t even tell anyone how much it hurts. We witnessed it all in his face.

I thank the Dr for using his up moraine without asking for my permission.. Cause I would say no.

He’s with Helen now. He’s body in a fridge.

I’m at wedding now. My God daughters…

My father would not let be fry ants with magnifying glasses as a kid.. He loved everything. What the Nazis did him is all I’m thinking.

Perhaps his love of everything got the door left open by his gaurds so he could escape.

Every one my dad met loved him…

Hard ass nurses at the nursing home balling there eyes out…. They don’t do that that often..

I was so lucky to have him as my dad…

#70 DON on 07.29.16 at 8:39 pm

#47 Warren – the lagging indicator on 07.29.16 at 7:06 pm

So Christy is not even exempting transactions with the evil Chinese already in place but not closing before aug 2. I think there might be a subtle political angle at work here… Hmmmmm
*********************

This tax was rushed – it gave the appearance of the gov on the run trying doing something. If this backfires and causes equity to decline to much, some homeowners will be angry. In a downturn fingers are pointed at the gov of the day. Plain human nature.

It appears the downturn in Alberta is deepening by the month. Good luck all.

#71 NEVER GIVE UP on 07.29.16 at 8:41 pm

Sorry I accidentally hit send. To continue
In my case which is rather unusual I have 7 kids and I can tell you with a straight face I’ve spent nearly 2 million dollars raising them to age 18. Actually I have a 12 and a 14 year old still in the house but by the time they’re done that’s what it’ll cost.

My theory when I decided to have children in 1985 when I started planning a family was where am I going to raise these kids so they don’t leave town. So I chose Vancouver has what I thought was the best most logical city in the world to raise them and keep them there. I have known a lot of people whose children have left town for a better City to make a mere 20 or $30,000 more a year in income. That leaves the parent who wants to visit possible grandchildren and their own children permanently at the mercy of airfares and the child themselves don’t have family support during critical times like funerals car accidents family members in the hospital etcetera etcetera Mom and Dad falling I’ll. The family emergencies that require families to be together. This is just my theory others don’t care.
There was a point in my life when I was a single father with 5 children that i had come extremely close to uprooting those five children and moving them to Alberta for a better life. But something stopped me and I managed to pull it out of the bag and I remarried had a couple more kids and my children all have Roots here. We can’t move under any circumstances. Even if we had to live in some skidshack shanty town. We’re committed forever. there is no moving from Vancouver Lower Mainland. However I fear that if my kids can never get a home here one or two of them may leave. To me that would be a disaster for others no problem.

#72 juno on 07.29.16 at 8:41 pm

the reason for the extra day blog is because things are getting exciting. Garth know this is the beginning of a long downslope process. Unlike the 80’s crash, people have never been so over extended and so indebt

Back then people still had savings. Also never before has realestate been our main industry. Back then we had mining and other industry.

Wonder if anyone have stats on what out debt ratio was back then compared to now

#73 Toronto1 on 07.29.16 at 8:45 pm

Back in the 90″s much less leverage was at play, back then interest rates were in the 7% range and unless you had 25% down you didnt own period.

With homes prices in gta close too 800-1 million even a 25 fown mortgage means a lot of leverage. Not the king nd of money that the average over indebted person can make up or cut out of their budget, even if they cut cable, cut their cars and eat cat food it still wont be enought to cover the mortgage.

Thats why the govt, banks are all terrified, they know the real numbers, incomes, debt of canadians. A minor correction of even 10-15% will wipe out 30-40% of the market. There is no elasticicity in that market.

At that point, who is left to buy the distressed properties? How many credit worthy people are left in Gta or van city to buy? I mean actual credit worthy folks who can fit into the metric.

I remeber 08-09, house prices were dropping 20-30% with no end in sight before they introduced emergency rates.

Everyone thinks there is a floor but in reality that floor is a lot lower then most can imagine just like the top is a lot higher them most people can imagine.

#74 TurnerNation on 07.29.16 at 8:45 pm

Let’s see if they can stand the skunky morass – this comments section.

What’s funny one week before this blog mentioned new Blog Dog Ryan I was reading my daily Advisor Analyst email update thinking about posting something like Hey who’s this up and coming chartist at RJ.
Decided not to mix business with pleasure. One week later on we see it.

#75 DON on 07.29.16 at 8:46 pm

@ Smoking Man

Sorry for your loss. I lost my mother earlier this year…the person who knows you best…

Time to embrace your remaining family.

Good Luck Man!

On lighter note: Take a look a this

https://theintercept.com/2016/07/29/a-famed-hacker-is-grading-thousands-of-programs-and-may-revolutionize-software-in-the-process/

#76 WUL on 07.29.16 at 8:46 pm

Garth:

Time for my quarterly or semi-annual thanks for your work. An O.C. is certainly warranted.

I am pleased with the news about a Saturday alternating blog by Cory and Trevor.

Deecent!!

#77 tkid on 07.29.16 at 8:47 pm

Yeah, your guys know of financial matters, Garth, but what do they know of cauliflower and laundry and hiding JD in the back yard?

I thought so. We’ll have ’em for breakfast!

#78 Jimmy on 07.29.16 at 8:49 pm

Guess who is going to be FIRST on the FIRST ever Saturday?

#79 TurnerNation on 07.29.16 at 8:58 pm

Starve those pensioners. I do see a day whereby people will go hungry, starve and freeze all the while uniformed, armed sunshine-listers robocops stand guard over our forests and piles of ‘condemed’ food. With the stroke of a pen we will suffer.

A tax upon a tax for the benefit of basic heat in this cold-weather clime. Can’t use a fire either, soon banned due to “carbon”. Cutting down a tree will be akin to taking life of a person.

“Yakabuski says to make matters even worse, consumers will pay the HST on top of the cap-and-trade costs, which he says amounts to “a tax on top of a tax.””

http://www.cp24.com/news/no-line-item-on-natural-gas-bills-to-show-cost-of-ontario-s-cap-and-trade-plan-1.3007544

– Soon it will be jail time for this type of murder:

http://www.cp24.com/news/tory-wants-very-significant-fine-handed-out-in-clear-cutting-of-dozens-of-trees-1.3006592

“A developer who cut down dozens of trees without a permit in North York should face a “very significant fine,” Mayor John Tory says.”

#80 G Man on 07.29.16 at 8:58 pm

Thanks for keeping this blog going 7 days a week! That is awesome! Thank you!

#81 Interstellar Old Yeller on 07.29.16 at 9:02 pm

Looking forward to the Saturday posts, but glad you’re not adding more to your plate, Garth. Hope the new guys will be moderating the comments too, so they can enjoy the, uh, finely reasoned discussion that’s likely to arise from their posts…

#82 ROCK BEATS PAPER on 07.29.16 at 9:06 pm

Garth, I am glad you had a change of sentiment from a couple of months ago when you were contemplating shutting down the blog altogether. Expanding, onward and upward.

Smart guys at GMO (Jeremy Grantham et al…) are forecasting practically 0% returns going out 7 years. This makes sense with the stock market and bond market (like R/E, Art, Gold ) at obscene levels.

So, this idea of quadrupling sounds extreme given the decades of debt binging.

#83 Damifino on 07.29.16 at 9:07 pm

Ryan Lewenza and Doug Rowat are both gentlemen with real class. I’m not so sure its a good career move for them to be hanging around here in the slums.

#84 45north on 07.29.16 at 9:24 pm

If history is any guide, it’s reasonable to expect a drop in the range of 30% in house prices in Vancouver (less in Toronto where the market is far larger and more diverse). It’s also reasonable to expect no recovery for at least ten years.

your chart shows the decline and subsequent rise of real estate in Toronto from 1989 to 2002. I believe that we are at the start of a new decline in real estate but I think this decline will be a lot different.

First of all, it doesn’t feel like 1989. There is a move away from reasonable. We see this with Donald Trump and with Christy Clark in Canada. Christy Clark has moved away from reasonable with her new tax on foreign buyers. Yesterday’s post shows that we have left reasonable:
The market interference is epic. The damage done to Vancouver, BC, the Canadian real estate sector and to our image as a stable, modern country is severe. After wobbling so incredibly high, the market has the potential to shoot lower – posing a dramatic equity shock in YVR, and helping make CMHC’s national 9-1-1 warning prophetic.

Second the debt levels are higher. the chart Household Debt Ratio shows that between 1990 and 2015 the debt levels have just about doubled.

http://www.greaterfool.ca/2016/06/05/why-they-worry/

If we add 1989 at one end of the chart and 2016 at the other, I think we can say debt levels have doubled. This means there is less room for a rise in interest rates. I mean the banks can absorb the loses but a lot of people cannot.

So I’d say it may be reasonable to expect a drop of 30% but we have left reasonable when Christy Clark dropped her new tax on foreigners.

#85 Frank on 07.29.16 at 9:26 pm

Awesome news on the Saturday addition. Looking forward to it!

Question: what metric should someone have used in 90s to know when to purchase?

#86 WUL on 07.29.16 at 9:26 pm

I hit Submit before I included the link to the CV’s of Garth’s stand-ins on Saturdays. Here.

https://www.youtube.com/watch?v=XwqIw9YFXmE

#87 TCContrarian on 07.29.16 at 9:36 pm

“You’ll notice that house prices (the average, not the median) were down almost 28% from the beginning of the correction to the trough – which isn’t far off the 32% decline that threatened to eat the American middle class a decade ago. ”
G. T.

********//////////////*************///////////

If we’re to learn from history, the most over-heated markets in the US (ie. Florida, Arizona), dropped 65% from peak to trough.
Why shouldn’t we expect similar action in our most over-heated areas here (ie. YVR, GTA)?
Any less than -50% in 604 would be surprising…

I bought my 1st house in Bby in late 1999, for $305k (a foreclosure). The previous owner (an over-extended builder), had paid $385k 2-3 years earlier – so a 21% drop from a very mild over-valuation.

We now have a massively larger problem. Stay tuned…

#88 not 1st on 07.29.16 at 9:42 pm

Garth, cant believe you missed this article today. You are slipping.

http://business.financialpost.com/personal-finance/family-finance/couple-has-gone-all-in-on-b-c-real-estate-but-a-secure-retirement-will-mean-getting-out-at-the-right-time

#89 Harbour on 07.29.16 at 9:42 pm

Right on… the weekends were long without a Saturday Fool edition

Please don’t fill it with Joe and Jane stories.

#90 TurnerNation on 07.29.16 at 9:45 pm

Got it. What will finally tank Ontario housing market. A mandatory “Green audit” to sell. You may not transact commerce without this mark.

Audit compliance, after a grace period might entail tens of thousands in repairs. Or render a dwelling offside – and it will be torn down. Families, pensioners crying and pleading let us live in our house. Armed Sunshine listers will beat them away. Think I’m joking?

This “climate change plan” [sic] is the new religion. Follow, or be stoned (just like they said they would)

We are to be economicly bombed back into the stone age.

#91 Stealth on 07.29.16 at 9:50 pm

Good evening,
What will the new blog contributors be writing about?

#92 Self Directed on 07.29.16 at 9:54 pm

#78 Jimmy on 07.29.16 at 8:49 pm

Guess who is going to be FIRST on the FIRST ever Saturday?
——————————
Wow Jimmy, you are good at spotting an opportunity.

#93 Funky on 07.29.16 at 9:55 pm

Mr. T.,

Your sense of humour is second to none. Ever consider another career in stand up? Thanks very much for your perspective.

#94 Yuus bin Haad on 07.29.16 at 9:55 pm

Does Ryan realize this is a test?

#95 My dog has issues on 07.29.16 at 9:56 pm

Excellent! Looking forward to their new Saturday posts. Read some good books lately that I will recommend. “First fifty years in investing” By John Bogle, all about low cost index investing. The second is ” There’s always something to do, The Peter Cundill investment approach” by Christopher Risso-Gill. Very good read. Now I’m waiting for some Benjamin Graham books from the library, hopefully will learn something there!

Have a great weekend everybody

#96 Jon on 07.29.16 at 10:21 pm

Greaterfool, like my Vietnamese barber phat, open 7 days a week! Best lousy haircut and advice in town.

#97 Andrew Woburn on 07.29.16 at 10:25 pm

If you are still wondering why “Chinese dudes” flock to buy Canadian real estate, this should help.

“A senior banker at a British private equity firm recalls his surprise at a recent meeting with five of his Chinese peers — “all money managers, serious amounts of money, impressive track records in Chinese equities and all looking to diversify away from China”.

In one sense, the Chinese money managers are simply part of the “great wall of money” flooding out of the country as the world’s second-largest economy assumes its place in the global mergers and acquisitions arena. But it was when the conversation took a personal turn that the British banker realised that his fellow dealmakers “were also looking to diversify their kids away from China — they all wanted to send them to study, work and settle overseas”.

“I said to them, ‘Why would you want to do that?’ And one of them said, ‘So they can be free’. This was the most accomplished money manager in the room!” ”

http://www.ft.com/cms/s/0/ccd94b46-4db5-11e6-88c5-db83e98a590a.html#axzz4FerJF17S

#98 Andrew Woburn on 07.29.16 at 10:26 pm

U.S. to Expand Tracking of Home Purchases by Shell Companies

“More than a quarter of the all-cash luxury home purchases made using shell companies in Manhattan and Miami were flagged as suspicious in a new effort to unearth money laundering in real estate, the Treasury Department said Wednesday. As a result, officials said they would expand the program to other areas across the country.

The expansion of the effort to identify and track the people behind shell companies, begun in March, means that there will now be increased scrutiny of luxury real estate purchases made in cash in all five boroughs of New York City, counties north of Miami, Los Angeles County, San Diego County, the three counties around San Francisco and the county that includes San Antonio.

The examination, known as a geographic targeting order, is part of a broad effort by the federal government to crack down on money laundering and secretive shell companies.”

http://www.nytimes.com/2016/07/28/us/us-expands-program-to-track-secret-buyers-of-luxury-real-estate.html?

#99 BOOM! on 07.29.16 at 10:27 pm

Ryan & Doug… either it is part of their ‘benefit’ of working for Turner Investments, a succession plan, or Garth would like to ‘expose’ these two to the on-line blog
discussions here, from mildly distracting to downright vitriolic.

No matter some dogs will think, “Ah, fresh meat!!” Others will read the posts, decide based on the content.

It shall prove interesting, to say the least. Yes, there have been some Saturdays when an entry would have been most welcome by this writer.

Welcome to the Great Fool Blog, gentlemen. May you amply fill the time with thoughtful prose!

Then we’ll tell you what we really think!

M64WI

#100 salmom rear end arm on 07.29.16 at 10:29 pm

What would the Chief do

#101 Craig on 07.29.16 at 10:37 pm

Interesting read on the Euro Bank stress tests results today.
https://ca.finance.yahoo.com/news/italian-irish-spanish-banks-worst-210500607.html

#102 Mike on 07.29.16 at 10:44 pm

7 DAYS A WEEK?!? Haven’t Ryan and Doug already paid their dues?

#103 BobC on 07.29.16 at 10:51 pm

#26 Vic tea party

Beginning to understand the Trump thing?

#104 Owe Canada on 07.29.16 at 11:01 pm

Latest household credit numbers for Canada (to the end of June, 2016):

http://credit.bankofcanada.ca/householdcredit

Latest business credit numbers for Canada (to the end of June, 2016):

http://credit.bankofcanada.ca/businesscredit

#105 Shawn on 07.29.16 at 11:08 pm

Faulty Logic…

45 North said:

If we add 1989 at one end of the chart and 2016 at the other, I think we can say debt levels have doubled. This means there is less room for a rise in interest rates. I mean the banks can absorb the loses but a lot of people cannot.

******************************************
Actually a double in debt means there is plenty of room for rates to rise just as soon as lenders get scared and/or scarce.

Kids here don’t remember 1980 when rates were through the roof at a time when MANY Ontario home owners were losing their houses and the Canadian government debt and deficits were at then records.

The market will not care a whit as to who can’t afford a higher rate. In fact the more people and companies and the more countries that can’t handle a rate increase the higher it will go when lenders finally get scared and scarce.

Markets are unpredictable. Never say never about rate increases or anything else.

#106 Shawn on 07.29.16 at 11:19 pm

When to Purchase in the 90’s?

#85 Frank on 07.29.16 at 9:26 pm

Awesome news on the Saturday addition. Looking forward to it!

Question: what metric should someone have used in 90s to know when to purchase?

*******************************************
This does not apply to 2016 but the answer for when to buy in the 90’s was as soon as a young family needed a house and could afford the payments. No matter when anyone bought in the 90’s including just at the start of the decline, it has all worked out well if they were able to make the payments. The fact that their home equity may have evaporated for a few years was of no consequence in the end as it roared back.

#107 Blacksheep on 07.29.16 at 11:21 pm

“If history is any guide, it’s reasonable to expect a drop in the range of 30% in house prices in Vancouver” – Garth
——————————————-
A 30% drop in Van prices is now reasonable, even expected.

OK, documenting this statement and date for future review.

I was a big crash believer back in 2008, but the system just never let it happen. Who thinks that if the RE market was to start to seriously tank, that the gov is going to watch and do nothing?

The world is now changing very fast and looking backwards for bench marks like rate normalization, is archaic thinking. The current rates ARE normal for our shit growth conditions. Just like 15% rates were required by Volker when inflation was threatening the $ and inflation was running into the double digits.

Here and now I will state my belief, that there will be no crash (for now) cause the rest of the world is in just too much turmoil. Is Van special? Not a chance, problems are here like everywhere, just most are quite minor compared with what’s happening with the rest of the planet.

Strangely, the vitriol (too strong?) in today’s post and comments has brought on sudden images from my youth when the Grinch swiped the gifts from the Who’s in Whoville.

He waited at the top of the mountain with is ill gotten sleigh of loot, for the desired tears from the citizenry below, but hears nothing but a pleasant song of peace.

https://www.youtube.com/watch?v=hqOOUJFv1n0

Guess time will tell….

#108 TRT on 07.29.16 at 11:22 pm

Early listing numbers suggest the new tax was a flop. No effect., just as the BC Liberals wanted.

So no pop in listings means business as usual.

Because the smart money knows its foreign money behind this boom, not foreign buyers. Foreign money of Permanent residents and recent Canadian Citizens.

That was funny. — Garth

#109 TurnerNation on 07.29.16 at 11:30 pm

To some (not me) tomorrow will be known as the
black sabbath :-)

#110 Snowboid on 07.29.16 at 11:34 pm

US real estate history…

CAD value Arizona home in 2005: $ 315,000
What we paid in CAD Dec 2010: $ 130,000
Estimated CAD value today: $ 290,000 (gross)

Is this the future trend for Canadian real estate?

BTW, this is what a comparable property would cost today in Kelowna, BC – $ 600,000

Bonus BTW, regular fuel at our local Arizona fuel stop is $ .658 CAD today – but $ 1.15 a litre at our local Kelowna station!

#111 Kootenay Ma on 07.29.16 at 11:56 pm

Welcome Doug and Ryan !

Mix it up a bit, I am happy to continue my ongoing financial education…..

Bring it on :)

#112 Andrew Woburn on 07.30.16 at 12:34 am

#176 No Dominos on 07.29.16 at 2:53 pm
Why does everyone think that a tax in metro van will increase prices in the rest of the Province? The surrounding markets on the island and interior were only going up because of Vancouverites cashing out and fleeing Vancouver. It was a domino effect from foreign purchades in Van. If those dry up from the tax, prices will actually recede in those surrounding communities – not go up! Foreign capital, namely Chinese like to live amongst their established ethnic enclaves. There are noethnic enclaves in the rest of BC outside of metro van. Its not rocket science…
——————

I thought the same thing when I heard the stories about Chinese buyers in Nanaimo. After being so spoiled in Vancouver, there are no Chinese restaurants in Nanaimo that I would patronize so I doubt there are any to satisfy the more discriminating Chinese palate. There is only one small store serving Chinese foods and staples.

Since then three Chinese families have moved onto my street at least one of which is definitely direct from mainland China. Realtors are advertising here in Chinese characters. Perhaps they are refusing to conform to stereotypes. Perhaps they are just like us.

#113 Ronaldo on 07.30.16 at 12:35 am

#73 Toronto1 on 07.29.16 at 8:45 pm

”Everyone thinks there is a floor but in reality that floor is a lot lower then most can imagine just like the top is a lot higher them most people can imagine.”

Keep in mind that there are a lot of people in Vancouver and Toronto who are sitting on a huge amount of illusionary equity. When the demand for these overpriced houses dries up and prices start to fall, people who have a lot of this illusionary equity and realize it and must sell, they will have no problems in dropping their prices even 10% and more to get that sale. This I believe will be the big factor in the prices coming down. People that have to sell for one reason or another. Many of those could be the parents of the boomers or couples who have separated or divorced, etc. I personally recently accepted an offer on my home in the Okanagan that had been on the market for exactly 1 year with no offers. When the offer came in at 3% below ask, I grabbed it. I would have grabbed it at 10% below asking because of the large amount of equity that has built up. To leave it vacant for another year and having that much equity sitting there doing nothing coupled with the expenses related to the home such as taxes, insurance, etc. and loss of opportunity would not make sense. The timing could not have been better. So happy to have unloaded it. Having been witness to what happened in the 70s, 80s and 90s, I believe what is about to take place with housing in the lower mainland and Toronto will be much much worse than previous times. A lot of people who bought in the past 5 years are going to be very very sorry.

Now, where to stash the cash?

#114 Say What? on 07.30.16 at 12:38 am

“If interest rates normalize during that time (count on it), then values could take a lot longer to restore.” – Garth

————————————————-

You are consistent, Garth. I’ll give you that.

#115 Chapped on 07.30.16 at 1:02 am

I agree that it’s the Liberals who are desperate to keep these real estate shenanigans going while they balk and scramble to appease the green blob lobby who want to kill all Canadian resource industry and disguise the ‘economy’ as buoyant by issuing multi billions in bonds to keep immigrants and civil servants employed.

The people getting killed right now are the renters…no longer is it cheaper to rent than buy….rents have skyrocketed as we have seen many anecdotal stories of families and seniors being thrown out into ther street with no place to go. In some cases up to a hundred or more applicants for one moldy basement suite while ‘the owner’….( origins elsewhere) decides to flip the property sans occupant.

Thank the Trudeau Liberals for doing nothing to help Canadians while supporting the myth that HAM doesn’t exist.

#116 Love My Kia on 07.30.16 at 1:21 am

Welcome Ryan and Doug!

I hope you’ll like gold a bit better than Garth does.

#117 Ace Goodheart on 07.30.16 at 1:24 am

Re #88 not 1st:

Garth, cant believe you missed this article today. You are slipping.

http://business.financialpost.com/personal-finance/family-finance/couple-has-gone-all-in-on-b-c-real-estate-but-a-secure-retirement-will-mean-getting-out-at-the-right-time

This is an example of the stupidity of the investment climate in Canada right now.

Everyone has decided to hold real estate.

Not short it.

Not buy and sell it.

Hold it. Ie, go long.

What in the world is going to happen, when everyone goes long on the same asset?

At any rate, for those of us who are still sane, there are some pretty awesome deals in equities and fixed right now. As usual, people are giving their stuff away (probably so they can buy houses?).

I continue to purchase many very solid securities and equities, for prices that are close to or below book value, with distributions in the 5% to over 10% range.

So I’m happy. But I don’t understand what everyone else is up to. But then, I never do……

#118 Thks for 7 days/week on 07.30.16 at 1:29 am

You are a part of my morning staple read catching up on world and financial news Garth.

I could not be happier with an everyday blog. Great advice, diverse opinions and clever/astute writing by yourself and most of the steerage bilge.

Your blog helps me make sense of the headlines that affect my finances. I then talk to friends and I then realize just how informed I have become because of your blog.

Many thanks for that and continue on.

#119 Smug on 07.30.16 at 1:41 am

” But the salient feature of the correction is its sheer length, which underscores that real estate turns illiquid when markets tank and (unlike a stock, bond or ETF) cannot be disposed of in any efficient manner. That sucks.”

RE is not an investment in the same sense as stocks and ETF. Why would you “need” to sell your house in a hurry. It is not as if all of us need to emigrate to Mars or something. You have to live somewhere, all that this means is that people will not be upsizing,downsizing or otherwise flipping at the same rate.

Relax and live. Stop dissing RE. Find another passion.

#120 Sheane Wallace on 07.30.16 at 1:47 am

Let’s be clear here:

1. Drop of 30 % in Van and less than 30 % in TO will bring the prices levels down to what they were 2.5 years ago which is nothing.
Justified price drop is 70 % + in both markets.

Why was that talk and warning about if prices after the crash will end up increasing 150 % in GTA compared to 2004?

2. Diversified market in GTA with semis in Mississauga and Brampton north of 650 k going to 475?

That is possible ONLY with loonie at .35 cents.

#121 Tony on 07.30.16 at 1:48 am

From what I see on youtube not only is it a 15 percent tax on foreign buyers but it’s also a 15 percent tax on vacant homes in Vancouver.

Source: https://www.youtube.com/watch?v=LpeFjXvt09A

#122 Tony on 07.30.16 at 1:59 am

Newsflash, the middle class American is basically shut out of the real estate market due to high prices. The ownership rate is now falling to the lowest level ever on record and continues to fall. The dead-cat bounce in 2012 was skewed by institutional investors who “thought” they were picking or seeing the bottom of the real estate market. They thought wrong.

#123 Tony on 07.30.16 at 2:14 am

Re: #2 Victor V on 07.29.16 at 5:38 pm

The dumbest of the dumb or the greatest fool would be someone rushing to avoid the 15 percent tax rather than breaking a deal and saving a fortune. Finally this is the end the bubble bursting.

#124 Mark on 07.30.16 at 2:45 am

“This makes sense with the stock market and bond market (like R/E, Art, Gold ) at obscene levels. “

I know this isn’t a gold blog, but how can you throw gold into the ‘obscene levels’ category when it is barely even priced at its cost of production, and very few miners are significantly profitable?

Usually we don’t think of things as being ‘obscenely priced’ unless their price is completely disconnected with their cost of production. Vancouver housing, for example.

#125 macroman on 07.30.16 at 3:10 am

I hope Ryan or Doug are closet bullion lickers or else I’m finding a cat blog on Saturdays.

Up another outsized percentage today…

#126 jane 24 on 07.30.16 at 4:01 am

Hey 71 Never Give Up

How is it possible to want to be so controlling of your adult childrens’ lives. The will do and live wherever is best for their own families and their spouses preferences. You will have to pack up and visit when convenient for them. This is life. Be careful of the guilt trip you are laying on your children. You say that it cost me so much to raise you so don’t you dare leave town just because your wife wants you too!! Parents are sadly always the past and this is how it should be. such is life. Birds fly and make new families.

If they have a good education and financial smarts then yes they will get the hell out of Vancouver and you will have to follow.

We raised our four to be the best they could be and follow their own star and two live here in London and Oxford, one in France and one in China. All following their dreams and maximising their careers.

The result is that us, the retired parents, are moving to be closer to the London and Oxford families as we can move at this stage in our lives whereas our kids are building their careers. We need to be accommodating of them and not the other way around.

If you don’t cut those strings then your adult kids and their spouses will start to cut them for you.

#127 Fry 'em with garlic budda on 07.30.16 at 4:44 am

If yer ‘stars’ belch up the same 5percent balanced malarkey as you them bring ’em on. I just put new blades in the blender after beating KKK’s returns by 300 per cent you. Snack time .

#128 Dan.T on 07.30.16 at 5:03 am

Hey Garth, looking forward to the Saturday blog.

Just a quick observation about BC real estate. I am there visiting usually at least once a year, sometimes more for a few weeks and for at least the last eight to ten years the only topic you are guaranteed to talk about if you live anywhere in the lower mainland or Van (probably Okanagan now too) is real estate.

Maybe you should bring in a psychologist to do Saturday posts because after you are there about a 2-3 days it is easy to fall into the mania (HGTV, 24/7 Housing News mainstream, front page real estate news common, etc.).

After only a few weeks, you even start to feel like you should “Get in now- starting from the low 800’s” for a piece of junk where you can commute 90 minutes to work just as long as you get any piece of property, and you are in the game. If not…poor you! “Oh you don’t own any extremely overpriced BC real estate- that’s is so sad”.

It is a weird phenomenon. Even visiting you get sucked into the BC bubble vortex. It takes a week or two of getting out before you stop researching MLS listings and realize that almost every one there is insane when it comes to real estate. Or maybe they are all just millionaires in BC?

Anyhow, I m sure its the same in GTA and other heated markets. I really hope it DOES come to an end soon. Real estate has defied logic years and years now. It seems like the mania will never end.

I guess that is what virtually free money, extremely lax lending practices, 0 down, 40 year amortization(not anymore I know), vested interests setting policy, HGTV, real estate sponsored news, and a combo of foreign money will do to a society….again, bring in a psychologist:).

Sorry got off topic. Looking forward to reading Saturday posts!

#129 Emma Zaun - GreaterFool Unpaid Intern #007 on 07.30.16 at 8:01 am

WTF!!??

Now 7 days a week of unpaid work?

We are convening an emergency meeting of the union and you will be advised shortly.

Emma Zaun
Shop Steward
CUPE (Canadian Union of Peelers and Exhibitionists)

You are SUCH a prick, Garth!!!!!!!!!!!!!!!

#130 Herb on 07.30.16 at 8:19 am

#115 Chapped,

apply Vaseline to the affected parts, and thank the Harper Conservatives for forming this real estate tornado in the first place.

Ever hear of 0/40, or years of cheap money?

#131 Matt on 07.30.16 at 8:55 am

This is gotta be a climax of this bubble. My street (Mississauga) was a $400k street 7 yrs ago, $800k 2 years ago, last year the highest sale was $940k, this spring it was$1.2M, yesterday a house sold for $1.5M (I get it from tosolds.ca) . All houses are similar size, with different upgrades. All buyers were mainland Chinese, I’m sure the ones who bought it yesterday are Chinese too. I’m contemplating putting my house on the market next spring hoping it lasts that long, this is pure craziness

#132 Bigglesworth on 07.30.16 at 8:59 am

I regard the criticisms of the Chinese off-shore buyers as racism and I think as a country we should be ashamed of yet another instance of mistreating others who don’t fit into the right “category”. For shame!

I believe that one great quality of this country is how it has benefitted from the influx of people from around the world. It was the influx of Italian immigrants in the 50s and 60s that virtually built Toronto at that time, resulting in most of the significant architecture that we have today.

In the 1960s in Vancouver, there was a threat mounted by the city manager Gerald Sutton Brown. He wanted to route a major highway (similar to the aborted Spadina expressway plan in Toronto) into the heart of Vancouver.

The strongest protest, and the impetus for the launching of a new municipal party, came from the Chinese business people who were joined in their efforts by unions, academics, architects, and lawyers. Gerald Sutton Brown suffered the same fate as Bob Rae (he was toast) and Vancouver was able to prevent highways from going through the city proper. In turn, this led to the city using federal highway money for public transport.

Can we not just put aside this racism and welcome all who want to come here? What are we trying to preserve that is so important that we would deny others a life in this great country? We will be, in the long run, much better off if we open the doors.

#133 easternhosers on 07.30.16 at 9:12 am

Let me cue my inner Leonard Cohen…..

“First they take Manhattan,,,,and then they take Cape Bretonnnnnnnnnn.”

http://www.theglobeandmail.com/life/travel/destinations/eastern-promise-is-cape-bretons-inverness-poised-to-become-canadashamptons/article31153641/

How long before the global great unwashed masses flock to this undiscovered paradise prompting an emergency Maritime head tax…

I got one word for them there foreign folk…stay where ya be or will come where yas at…..okay it was a bit more than one word….

#134 Zen Headspace on 07.30.16 at 9:39 am

“Eternal Return” dictates that all phenomena recur perpetually for all eternity.

This is to say that our experience and existence as humans throughout the infinite boundlessness of time is actually a predetermined cycle without any significant progress, with the same events arising perpetually, and doomed never to alter or to improve.

We must all realize and accept that we are subject to the infinitely cyclical repetition of all things and situations with respect to a finite universe.

So don’t kid yourselves…this lofty market will crash. But it will also come back…eventually (maybe not in your lifetime though).

What goes up must come down. Spinning wheel got to go round.

Enjoy the crash.

Don’t lose any blood sweat and tears over this.
Just go ride a painted pony while the spinning wheel spins.

It doesn’t get any cornier, I know. Sorry.

#135 Aggregator on 07.30.16 at 9:45 am

Meanwhile in Calgary… preliminary sales-to-listings ratio for condos just crashed to 15%, or in other terms, there was only $86 million in condo sales for $569 million worth of listings.

Now you's can't leave

#136 El Presidente Trump on 07.30.16 at 9:46 am

Those canucks are killin’ us…..

Donald J. Trump ‏@realDonaldTrump

American homeownership rate in Q2 2016 was 62.9% – lowest rate in 51yrs. WE will bring back the ‘American Dream!’

#137 NoName on 07.30.16 at 10:06 am

Now that black sabbath is mentioned…

https://www.youtube.com/watch?v=LQUXuQ6Zd9w

https://youtu.be/riwxbh_n_WM

https://youtu.be/hkXHsK4AQPs

https://youtu.be/5s7_WbiR79E

#138 Ole Doberman on 07.30.16 at 10:22 am

OMG I knew this would happen, HAM coming to Calgary:

http://calgaryherald.com/business/real-estate/b-c-tax-could-drive-more-chinese-buyers-to-calgary-realtors-say

““I’ve already seen it happen. I’ve had inquiries already from other provinces and other cities,” said Hong Wang, a Calgary realtor who deals primarily with immigrants and foreign buyers. “It’s not going to affect mega-money individuals, but I think it will affect ordinary investors. A 15 per cent tax is quite a lot of money for some people.””

“Juwai.com, China’s top international real estate website, has seen the number of inquiries about Alberta properties on its listing service increase “significantly” since the first half of last year, and especially in the last six months.”

I think it’s time to throw in the towel.

#139 Sheane Wallace on 07.30.16 at 10:30 am

#131 Matt

1.5 mil.? In Mississauga? And Garth is talking about moderate decrease in prices in GTA?

So happy with moving all my assets abroad and leaving very, very soon (counting down the days).

BTW:
1. The buyers in Mississauga are not mainland Chinese
2. the real ‘price’ of the houses in Mississauga is 1/4 of what they sell for now.

The solution? CAD going to .35 combined with nice severe depression due the biggest credit bubble in housing the world has ever seen.

The big short movie is naive compared to our reality.

The problem is what are people going to do with shrinking wages, exploding prices and diminishing currency,

PHDs and MBAs on minimum wage retail jobs? It is reality already.

#140 Nelley on 07.30.16 at 10:31 am

#132Biggle-you are very generous with other peoples money.

#141 meslippery on 07.30.16 at 10:56 am

That sign is” Welcome to Ontario No Fun Allowed”

#142 crowdedelevatorfartz on 07.30.16 at 11:19 am

To Ryan and Doug.

I believe the Biblical quotation ,
“Forgive them for they know not what they have done…” ,
should give you some indication of what comes next……. ;)

#143 Kelowna on 07.30.16 at 11:26 am

Thanks as always Garth for your objective and logical comments. Great news on the 7 day column – at times I just want to thank you on behalf of all your readers for putting up with us!!

#144 Metaxa on 07.30.16 at 11:31 am

Lost at the end of yesterday’s post but my one steady reader might enjoy this little page from the NYT.

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?partner=digg&_r=0

US oriented but fun to play with.
A buy/rent calculator with little sliders so you can adjust the variables.

#145 MF on 07.30.16 at 11:34 am

#132 Bigglesworth on 07.30.16 at 8:59 am

Good post but also a few points that were left out.

The Italians were one of many waves of European immigrants who came here to the GTA last century, and who helped build it. There were Ukranians, Poles, Jews, and the Irish and others. The big difference is all of them faced an extremely hostile environment when they came here. Nobody mentions it anymore but these groups had to fight to survive and were forced to become “anglicanized”. There were no “immigrant welcome centres” and there were zero economic incentives or benefit programs until recently.

MF

#146 roial1 on 07.30.16 at 11:35 am

Looked at the photo of the principles of “Turner Investments”

The bookends look okay, BUT that guy in the middle???????

Needs time with his dog. Lott’s of time.

#147 MF on 07.30.16 at 11:44 am

#136 El Presidente Trump on 07.30.16 at 9:46 am

Mock him as much as you want but:

-The statistics are cooked. It’s not a secret anymore. After trillions of dollars of “stimulus/debt”, years of QE, and a near decade of “emergency” interest rates, what do we have to show for it all? The growth rate is pathetic and anemic.
-Race relations look like they did in the early 1990’s with the Rodney King riots in California.
-The US is seen as weak internationally and the mideast is very destabilized.

If anyone dislikes Trump they should dislike Clinton for all the same reasons and more.

MF

#148 MF on 07.30.16 at 11:46 am

#130 Herb on 07.30.16 at 8:19 am

You weren’t complaining in 2008/9 when the whole world was on the verge of economic depression and we were humming along business as usual though eh???

Yes you were thanking Harper at that time.

MF

#149 Victor V on 07.30.16 at 12:18 pm

Hostility toward rich, Chinese newcomers has left many asking the same question: Why is Canada willing to take our money, but then belittle us?

http://www.theglobeandmail.com/real-estate/vancouver/meet-the-wealthy-immigrants-at-the-centre-of-vancouvers-housingdebate/article31212036/?service=mobile

#150 Shawn on 07.30.16 at 12:22 pm

American Home Prices

“American homeownership rate in Q2 2016 was 62.9% – lowest rate in 51yrs.”

And one can buy with a 30 year locked in rates that are just about the lowest in history

And American Home prices are relatively low.

So any guesses where America Home prices are headed? I believe the answer is up and have placed my bet in that direction by owning an American home builder stock as well as two American banks.

#151 GTA engineer on 07.30.16 at 12:57 pm

Woo 7 days a week! Make sure those guys throw in the requisite grumpy orneriness we’ve come to know and love and we will welcome them as part of the flock!

#152 TurnerNation on 07.30.16 at 12:58 pm

Maybe warn us if Saturday entry contains trigger words like “gold”, “silver”, or “margin loan”.

#153 AB Boxster on 07.30.16 at 12:59 pm

From Financial Post:
http://business.financialpost.com/news/fp-street/rating-agency-dbrs-keeps-negative-outlook-on-big-canadian-banks-as-ottawa-moves-ahead-on-bail-in-regime

“The Canada Deposit Insurance Corporation (CDIC) will also need new powers to carry out a bail-in by converting the eligible debt of a non-viable bank into common shares. This would enable the CDIC to resolve a failed bank by taking temporary control to carry out a bail-in conversion, according to DBRS.”

Yep, that’s going to work out well for bondholders and share holders. And I’m sure that they won’t touch depositors money, despite specifically refusing to say that.

Nope, no Liberal government that I’ve lived through would ever do anything like that.

I mean, it’s almost as ridiculous an idea as arbitrarily changing the electoral system in one of the most politically stable and once-prosperous countries in the world.

Just not gonna happen, right?

And the fact that the Canadian economy sucks, that the entire world (even Canada) agrees that our housing market is one mighty gasbag bubble just primed to pop, it’s all just coincidence that feds are pushing to get bail-in legislation passed.

No depositors money will ever be involved in a bail-in, nor will bond-holders. The securities eligible for conversion will be segregated. — Garth

#154 SWL1976 on 07.30.16 at 1:06 pm

FANTASTIC!!! Blog and forum you have created Garth.

Good for you for taking some time off while still keeping this beast alive. This disfunctional family of a comments section would be lost had you finally lost your patients and given up dealing with us all.

Good to see that rather than less, there will be more.

Thanks Garth

Now, Ryan and Doug. If you think you know it all, you will fit right in here. We do.

#155 hope & ruin on 07.30.16 at 1:16 pm

You know how we know that Canadians are racist?

Because it’s always about the Chinese immigrants. The chinese money. The chinese, chinese, chinese.

As opposed to all the other ethnicities that like to immigrate here. We’re a big ass country with a low population density. Who cares where they come from.

#156 Herb on 07.30.16 at 1:17 pm

#132 Bigglesworth,

O sancta simplicitas!

#157 hope & ruin on 07.30.16 at 1:47 pm

For all the isolationists and brexit supporters out there.

Why voters don’t buy it when economists say free trade is good. NY Times

http://www.nytimes.com/2016/07/31/upshot/why-voters-dont-buy-it-when-economists-say-global-trade-is-good.html?_r=0

#158 MF on 07.30.16 at 2:14 pm

#150 Shawn on 07.30.16 at 12:22 pm

My guess is nowhere.

The US went through the bubble phase we are in then got wacked and people have not forgotten. Interest rates are already at “emergency” levels, and they have had useless CB stimulus with nothing to show for it.

MF

#159 Context on 07.30.16 at 2:15 pm

Any statement without context by definition is worthless. What we have before us is the history of two past bubbles with a better graph which gives us all a different perception. One can see the progression of velocity, growth, average home prices, and momentum over time periods for Toronto. It is necessary to factor in population and residential units during each time period as a density factor, wage growth, and buying with debt. The current bubble is massive in relation to past history and when it blows its down 50% more or less depending on location and housing types.

#160 Sunnyside on 07.30.16 at 2:26 pm

After over 1,200 blog entries I’ve enjoyed reading Garth, I’m finally going to comment! No sense in commenting on the 99% times you are right, but on this one issue, it’s a big gap that is needlessly bleeding credibility.

It’s a about the % of foreign buyers in the Vancouver market and this impact on prices.

The recent 3 week study pointed to 5%, and this figure has been pointed to a number of times on this blog to support the notion that foreign nationals have not strongly contributed to the rapid, significant, unrelenting price rises…

From a common sense perspective, and aside from other solid points commenters have raised, if that were the case, why has there been such overwhelming reaction from the real estate folks in B.C / Vancouver? If it was truly only 5% (and including Canadians ‘buying’ for non-Canadians), it would blow over. The magnitude of the response suggests a number far bigger.

You have great instincts. I’m just really surprised you are sticking to your guns on this one. Acknowledging a change of heart in this kind of situation gains, not loses respect.

#161 robert james on 07.30.16 at 2:41 pm

http://hibusiness.ca/2016/06/28/be-warned-canada-australia-introduces-a-new-tax-rule-that-slaps-chinese-investors/

#162 AB Boxster on 07.30.16 at 3:00 pm

#157 hope & ruin on 07.30.16 at 1:47 pm


For all the isolationists and brexit supporters out there.

———————————————————

The comments to this article are more enlightening than the article itself.

The peons of the US have been consistently told by economists that unfettered free trade is good.
Well maybe ‘trade’ is good, but what we have seen over the past 40 years is not.

Lower incomes, offshoring of jobs, lower standards of living, recession, high unemployment, etc. etc.

But the economists are saying that this is good for you.
No, it is good for some.
It is great for a few.
For many, it sucks.
Too bad they have the vote.

Trade ‘is’ good.
Uncontrolled, absolute, unplanned, free trade has for many, been a disaster.

It’s like trying to defend the the fraudulent, unethical actions of all of the firms that caused one of the greatest financial crashes of the 20th century in 2009.
Deregulation and lack of oversight were huge issues.

With huge global ramifications of job loss, social upheaval, government debt. Entire generations in some countries are floundering.

Why should we be concerned? It’s just capitalism and free enterprise and these are all good, right?
Some made out very well so this must be a benefit then, right?

What it is is just another bind adherence to stupid ideology without evidence or balance.

Ideology #1
Uncontrolled Free Trade – good
Unregulated Capitalism – good
Low taxes – good
Government – bad

Ideology #2
Government intervention – good
Higher taxes – good
Huge government deficits -good
Immigration – good
Government – good

Blind ideological policies without evidence of proof, or consideration of negative results, will get you Brexit and it will get you Trump. In Alberta it will get you the rise and soon fall of Notley.
In Europe it will mean the end of Merkel and Hollande the rise of Le Pen.

The fact that neither side can formulate intelligent policies that can operate outside of their narrow ideological blind spots, means that we will continue from one economic and social mess to another.

Our leaders, on both sides of the spectrum are pathetic.

And the voters are always right.

#163 Shawn on 07.30.16 at 3:03 pm

Sheane Wallace said:

“PHDs and MBAs on minimum wage retail jobs? It is reality already.”

*****************************
Big deal. The supply of PHDs and MBAs exceeds the demand.

As one who holds an MBA degree, I have always been aware that an MBA is a masters degree in name only. The MBA has never required a business or accounting undergraduate degree and there fore should not be considered a masters degree at all.

Calling the MBA, a masters degree was a marketing success but an abuse of what should be the definition of a masters degree (post graduate studies after a bachelor level degree in a certain field of study).

In the past 30 or more years and increasingly over the years universities flooded the market with shortcut executive and various accelerated MBA programs that both flooded the market and devalued the product.

Meanwhile professional designations like the CMA and CA greatly increased the difficulty of obtaining their designations including experience requirements.

Who you gonna hire? Joe with the two-year part-time executive MBA from some third-rate university with the undergraduate in art history, or Frank with the professional accounting designation that has rigorous national exams and experience requirements?

Many MBA graduates, like myself, went on to add professional accounting designations so that we had something more concrete and not watered down.

If some MBAs are working at minimum wage it may be because that is how the market values their skills in a flooded market.

Ask the MBA schools why they flooded the market with pretend masters degrees.

#164 Damifino on 07.30.16 at 3:10 pm

#160 Sunnyside

“…why has there been such overwhelming reaction from the real estate folks in B.C / Vancouver? If it was truly only 5% (and including Canadians ‘buying’ for non-Canadians), it would blow over. The magnitude of the response suggests a number far bigger.”
———————————–

For years the RE agents in Vancouver have been using the threat of foreign buys gobbling up all the good stuff as a reason to “buy now or be priced out forever”.

Remember the helicopter over Whiterock full of bogus mainland Chinese house hunters? Those local agents masquerading as rich overseas buyers? Lineups of hired ‘Asian looking’ people at condo presales?

The recent actions of the Liberals have put a serious dent in the maintenance of that charade. It could cause problems netting more paranoid home-grown greater fools. That’s what most of the noise is about.

#165 MF on 07.30.16 at 3:11 pm

#157 hope & ruin on 07.30.16 at 1:47 pm

Overall decent article. Thanks for the link.

I agree with the idea that economists are absolutely clueless/useless and have not figured out that the average person believes what is good for their nation’s economy is most likely good for them too.

However i disagree with the idea that the there is a correlation between education and rejection of globalism.

Study after study has proven incomes to be stagnant, debt higher, benefits lower, and a shrinking middle class. It all seems to coincide with this idea of open markets/free trade. Educated folks (actually all people) are now realizing blind free trade undercuts the average joe and benefits a few at the top. All anyone has to do is look around the western world to see the economic reality, with the EU failure leading the pack (huge debt, negative rates, endless stimulus, with anemic growth to show for it all.

MF

#166 Shawn on 07.30.16 at 3:16 pm

Bank Bail-Ins

No depositors money will ever be involved in a bail-in, nor will bond-holders. The securities eligible for conversion will be segregated. — Garth

***************************************
I would agree that depositors will not lose money to bail ins or have deposits converted to equity.

Canadian banks are highly unlikely to require a bail out given CMHC insurance and given that they can issue additional common shares at the first sign of trouble. Canadian Western Bank already did so this year.

In fact the bail-ins will be specifically designed to protect the depositors.

The purpose of bank regulations is top protect depositors.

But senior debt (bonds) could definitely be bailed in if subordianted debt is insufficient. Or at least they could lose money in a bank failure.

If the subordianted debt ear-marked for bail in is not enough then it’s not enough. Someone else then has to lose.

And by the time a bail-in would be needed common share values would have plummeted due to losses causing the bail in and due to the coming dilution.

Common equity provides a cushion that should be wiped out before any debt investor loses a penny. There are hundreds of years of liquidation practice and law and court rulings that support this.

Check Wachovia and Washington Mutual, the common share holders were wiped out entirely. I don’t think any depositor lost a dime.

#167 DON on 07.30.16 at 3:48 pm

#148 MF on 07.30.16 at 11:46 am

#130 Herb on 07.30.16 at 8:19 am

You weren’t complaining in 2008/9 when the whole world was on the verge of economic depression and we were humming along business as usual though eh???

Yes you were thanking Harper at that time.

MF
************

It is always good to remember context. The 2008/2009 crisis flooded the world with stimulus and the commodity boom continued and Canada averted a decline. Now the World is back in the same position – low growth and the Canadian commodity boom is fizzling out.

Harper/Trudeau who cares. We matter they don’t.

#168 DON on 07.30.16 at 3:50 pm

To Ryan and Doug.

May the force be with be you with respect to the comment section.

Welcome aboard – looking forward to your analysis/thoughts.

#169 westcdn on 07.30.16 at 4:03 pm

Me witblob:827C0DF0-C5BE-45F6-905E-145A14D2598Fh of the godchilds.

#170 Mark on 07.30.16 at 4:11 pm

“Question: what metric should someone have used in 90s to know when to purchase?”

I don’t have perfectly valid historical information (ie: if someone has better information pertaining to this topic, please speak up), but going from memory, the TSE started the 1990s at a P/E ratio in the low teens. Housing, in 1990, was at nosebleed prices which implied a P/E ratio well into the 20s.

Over the next decade, these ratios effectively reversed. The TSX (or the TSE as it was known then) peaking at approximately 33X earnings. And housing reverting to the low teens as a P/E ratio.

The stock market should naturally have an E/P (ie: inverse P/E) of approximately 3-6% higher than the housing market (which normally just tracks inflation). This is called the equity risk premium.

So whenever you saw this equity risk premium being expressed into the present-day valuation, ie: by the E/P ratio being 3-6% greater on housing than on the stock market, it probably was time to sell your stocks and buy housing.

Today, the P/E of the stock market is 15. The P/E on Canadian housing is approximately 35 (assuming average = $400k). So E/P on stocks is approximately 6.7%. E/P on housing is 3.9%. So the ‘model’ tells us to sell housing and buy stocks.

In ~2000, the P/E of the stock market was 32 or so, an E/P of 3%. The P/E on housing was around 12. So 8.3% earnings yield. It was thus obvious that it was time to rotate into housing from stocks. Those who did enjoyed a 13 year bull market and did quite well for themselves.

#171 Mark on 07.30.16 at 4:19 pm

“Canadian banks are highly unlikely to require a bail out given CMHC insurance and given that they can issue additional common shares at the first sign of trouble. Canadian Western Bank already did so this year.”

Its also worth noting that Canadian banks have 40% of their “assets” in short-term investments that can be rapidly liquidated and/or the interest rates adjusted. This was in contrast with the situation with most other banks around the world which had relatively small chunks of their asset base under such conditions.

If a Canadian bank were to experience trouble and needed liquidity, the first thing they’d do would be to raise the interest rates applicable to those borrowers.

The borrowers would hence have two options. Either pay the higher rates, or repay their loans in full.

If its just one bank that has this ‘problem’, then effectively such a system would rapidly de-leverage the bank, and the crisis would be averted. But chances are, such would be a correlated systemic crisis, and the Bank of Canada would be forced into some sort of policy action.

Either way, the bank’s adjustable rate borrowers would suffer extremely (hypothetically, the banks could raise the adjustable rates to levels limited only by the Criminal Code) before any Canadian bank would be at meaningful risk of a bail-in. This is the quid pro quo that adjustable rate borrowers accept in exchange for “cheap” financing — that they are the bank’s liquidity backstop if a short-term crisis at the bank system were to develop.

#172 45north on 07.30.16 at 8:24 pm

Andrew Woburn: talking about Chinese money managers:
“I said to them, ‘Why would you want to do that?’ And one of them said, ‘So they can be free’.

Xiaoyuan seemed adverse to moving back

Ronaldo: When the demand for these overpriced houses dries up and prices start to fall, people who have a lot of this illusionary equity and realize it and must sell, they will have no problems in dropping their prices even 10% and more to get that sale.

some people. It’s not like homeowners are a club. People who own their house outright can decide to lower their price leaving the people who put 5% down. It’s what happened in the US.

Toronto1: Thats why the govt, banks are terrified, they know the real numbers, incomes, debt of canadians. A minor correction of even 10-15% will wipe out 30-40% of the market. There is no elasticity.

so why didn’t they tell Christy Clark?

#173 jess on 07.31.16 at 10:34 am

the outsized financial sector
#157 hope & ruin on 07.30.16 at 1:47 pm
#162 AB Boxster on 07.30.16 at 3:00 pm

Why Tax Havens Are Political and Economic Disasters

Seeking prosperity through lax business and tax regulations leaves countries worse off.

http://www.theatlantic.com/business/archive/2016/07/tax-haven-curse/491411/

=
Retraction Watch

Tracking retractions as a window into the scientific process
Weekend reads: What lurks in clinical trial databases; plagiarism by Russian ministers; why journals shy away from fraud allegations

http://retractionwatch.com/2016/07/30/weekend-reads-what-lurks-in-clinical-trial-databases-plagiarism-by-russian-ministers-why-journals-shy-away-from-fraud-allegations/

#174 observer on 07.31.16 at 4:53 pm

You got to feel of the immigrants….

Kindof bias. Hate to say. All these cases are sending their kids to the best schools in Vancouver. I love the excuse for the vacant house thing.

Reality is they want their foot in the door so they can get citizenship down the road. And be eligible for pension. Bypassing the 50% tax burnden rich Canadians faces. And sending their kids to school for free. I know many who (not only Chinese) which leaves their kids here to be taken care of by realitives while staying in their homeland to continue making money.

http://www.theglobeandmail.com/real-estate/vancouver/meet-the-wealthy-immigrants-at-the-centre-of-vancouvers-housingdebate/article31212036/