By Guest Blogger Ryan Lewenza
What happened to us? We Canadians used to be a practical lot where we lived within our means, and prudently managed our financial affairs. Gone are the days of “starter homes” or waiting to purchase something until we actually had the cash on hand. How novel! Now, we all want that “starter home” to be decked out in granite countertops and stainless steel appliances. Keeping up with the Jones (or is it the Kardashians?) has never been so pervasive!
Last week we heard from Statistics Canada that household debt rose to a new record high of $1,973 billion, driven by, no surprise, an increase in mortgage debt. More importantly, growth in debt outstripped income growth once again, helping to push household debt to disposable income to a new record high of 170.5%.
In comparison, the US household debt to income ratio has declined considerably since the financial crisis, to 138% currently. Think about that for a moment. We now have significantly higher debt to income levels than our more profligate friends south of the border, and have the highest debt to income ratios of any G7 nation. Yikes!
This rate of debt accumulation is simply not healthy nor sustainable. With Canadian debt levels at record highs, and interest rates at record lows, it doesn’t take a genius to put two and two together, and see the risk this poses.
Now one of the upsides of record low interest rates is that with credit so cheap, it has helped drive the debt service ratio lower, despite our record amount of debt. The debt service ratio measures total debt obligations (interest and principal) as a percentage of disposable income, and it remains at a reasonable level of 14%. That’s off the 2007 highs of 15% and is below the US currently at 15.3%. The question then is, what happens when interest rates ultimately rise, driving up debt servicing costs. While the Bank of Canada has intimated that rates will stay lower for longer given our lackluster economic growth, it is not whether they will hike rates in the future, but rather when and by how much.
Add in the fact that according to the BMO Rainy Day Survey, that one quarter of Canadians live paycheque to paycheque with little to no funds set aside for an emergency and that 44% of Canadians have less than $5,000 in emergency savings. This doesn’t leave much room for error, once interest rates start rising.
Source: Bloomberg, Turner Investments
It’s not all bad news, and I think it’s important to take a balanced view when looking at Canadian household wealth. Often we focus on the income side and overlook the asset side of the equation. On that front, Canadian household debt to assets continues to trend lower, from a peak of 19.3% in Q1/09 to 16.7% currently. Our national wealth rose by 2% in Q2 to $9.8 trillion, in large part driven by higher home values. On a per capita basis we sit at $271,000, coming in at 11th spot among 35 OECD developed nations.
There’s good debt and bad debt, and debt used to purchase assets like a home or dividend paying stocks is always preferable to debt used for consumption. At least you have something of value against the debt, rather than a bad hangover and an empty wallet after an expensive bender in Vegas. This is just what I’ve heard of course about Vegas.
On the surface the declining debt to assets ratio is encouraging. However, what happens if the assets (i.e., Canadian home values) deflate, as is our expectation? Well, then we’re stuck with a high debt load and a depreciating asset, never a good combination.
To be clear, we remain long-term bulls on the Canadian economy given our abundance of resources, our solid fiscal shape and strong rule of law. But we see all this debt one day catching up to us and there being consequences to our current reckless and ostentatious behavior.
Now I have to get back to my ebay auctions as there is a Rolex and Canali suit with my name all over it. Wish me luck!
123 comments ↓
The debt to assets ratio is of very limited value. We use a debt based system where money is created when a debt is created. Hence with the massive debt growing at rates 2-3 times underlying productivity and labour market growth , the debt inflated the nominal asset values far in excess of the underlying economic potential. It is debt being spent that is the primary driver of GDP and therefore our incomes and also the main driver of asset prices
Debt to income and debt to asset ratios simply reflect a simple picture that nontheless understates the risk we face. Unproductive debt growing consistently at a growth rate 2-3 times the underlying economy will fool people to think all is well when looking at debt ratios
At best we face a very slow muddle through and stagflationary economy occasionally slipping into recession and never trending at high GDP growth
The other scenarios require Prozac before discussion
Good luck T2
JO
Nothing will change until the BoC raises rates. They won’t until the Fed does. When people can no longer afford their houses due to the plunging dollar (which increases our cost of living) or because they can’t renew their mortgage, they will have to sell. Problem is, everyone will be trying to sell. The big question is, will there be any buyers?
Yes, purchasing dividend paying stocks at all time highs with very low yields using debt is a good idea?
Maybe it is. After all that’s what you’re selling, isn’t it?
A Rolex,? on eBay?
I’d ask for a bonus increase this year.
As stated above its the debt that is unproductive for the long term that will do nothing in the end.
Because the economy is maxed out on this, there is no money left for new investment and growth to sustain the trend going forward.
Declining jobs, industry moving south and depressed commodity prices will push more stagnation going forward.
If jobs keep trending lower, interest rates raise and housing crashes, expect long recession and new normals of low growth. Unless $100 oil comes back but it could be too late at that point if the damage is done.
“…There’s good debt and bad debt, and debt used to purchase assets like a home or dividend paying stocks is always preferable to debt used for consumption…” Kind of like arguing there’s a good way to commit suicide and a bad way. Seriously though, that statement should come with a gargantuan caveat; it really depends on how much you pay for the asset, how much it costs to service the debt and what’s happening on the revenue side of the ledger sheet.
Debt used to buy an-overpriced asset with high transaction costs, escalating maintenance costs, and high taxes can work out to be just as bad if not worse than debt used to finance a dream vacation or other ‘bad’ forms of consumption.
so the question… “Have we lost our way?”… the answer is unfortunately for most people, yes.
I wish we had a serious crisis so things would get back to normal and people would buy what they need and were forced to save up to make big purchases.
Shamalamadingdong “Yes, purchasing dividend paying stocks at all time highs with very low yields using debt is a good idea? Maybe it is. After all that’s what you’re selling, isn’t it?”
We don’t “sell” anything. We provide investment recommendations and manage client money based on our market analysis. Investors can either agree with our approach and decide to invest with us or not. But that said, my point was that debt used to make an investment, whether in stocks or real estate, is much better than debt used for consumption (i.e. credit card purchase of a flat screen TV). – Ryan L
Well, for starters, we could banish the phrase “starter” home from our vocabularies. There was a time not so long ago when couples bought a home, bred, raised a family and retired in that home.
Maybe we should stop “movin’ on up” and just stay put!
Low oil prices, reduced manufacturing, ageing population.
What developments does anyone see in the next 5-10 years to change to change the current situation?
833 SEMLIN DRIVE VANCOUVER V5L 4J6 : HASTINGS
833 SEMLIN Drive in Vancouver: Hastings House for sale (Vancouver East) : MLS(r) # R2107801banner$1,599,000Prop.
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sold this week for 160.000 OVER ask. dom 11.
What happened to us? I think President Thomas Jefferson said it best a way back when:
I received this quote in an email and am trying to find out if is truly a quote by Thomas Jefferson:
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.”
But I guess with the world falling apart all around us the above quote is not a big deal right?
Starter homes? Those are for poor people, not millennials who can live with the parents for a year and scrap together a 5% down payment. We’re richer than we think.
Most of my friends bought houses on streets populated by people 50 years +, second or third houses for the oldies. Not sure who would want that any way, I dont rent an apartment in an old folks home.
“At least you have something of value against the debt, rather than a bad hangover and an empty wallet after an expensive bender in Vegas. This is just what I’ve heard of course about Vegas.”
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And the 47 million visitors Las Vegas attracts each year. Which is the reason why I own “MGM” and “WYNN”.
Looking at average debt to assets is useless anyway. Lots of people have taken on no debt yet had their house increase in value which makes those with the debt, on average, look better off. This average does nothing to help those who have taken on the massive debt. It would be like taking the average wealth of people working in Warren Buffett’s office and declaring everyone rich because on average they are billionaires. In reality Warren Buffett’s money does nothing for his secretary so the average is meaningless for the secretary and many in the office.
The other part that makes this debt to asset comparison useless is the fact when a house increases in value it does nothing to increase the standard of living for those living in that same house. This increase in asset value is an illusion of wealth (unless sold) but the debt has increased and must be paid back. There is no increase in the standard of living which would be the goal of increased wealth.
What a nite, just woke up. Heading over to Bellagio to play poker maybe smoking man will be there. I’m glad people spend all their money, my employees will always be there Monday am! Most people are dumb and don’t get it. They deserve what they get. Glad I’m not involved in those stats. Time to play! Yes it’s hot out here!
“…now, we all want that “starter home” to be decked out in granite countertops and stainless steel appliances. …”
The problem with this statement is that it’s not true. People want ANYTHING. A crapshack teardown in a bad part of town is going for $500k. Adding granite countertops is a small fraction of that disgusting mortgage for a house you would never rent, but you’d brag about if you won the bidding war.
People have absolutely lost their way.
#2 Sheldon Cooper on 09.24.16 at 2:08 pm
Nothing will change until the BoC raises rates. They won’t until the Fed does. When people can no longer afford their houses due to the plunging dollar (which increases our cost of living) or because they can’t renew their mortgage, they will have to sell. Problem is, everyone will be trying to sell. The big question is, will there be any buyers?
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At least one. I’ll have to stop licking my gold and sell a few ounces (and related assets) to buy a house or two, or…
TCC
#12 Not a big deal on 09.24.16 at 4:08 pm
I received this quote in an email and am trying to find out if is truly a quote by Thomas Jefferson:
==================
Jefferson died in 1826. He might have encountered the concept of a “corporation” in the sense of an organization created by legislation (like the Hudson Bay Company) but not the modern business corp. I doubt he ever heard of monetary “inflation” at a time when the gold standard prevailed.
Like many Americans, though, he may not have been a big fan of banks. A lot of this antipathy revolved around real and perceived issues of hard currency debasement rather than financial engineering. The hostility to central banking has deep historic roots in the US.
We lost our way!
What happened to us?-Ryan
………………………………
I’ll tell you what happened to you, Mind Control by a rouge Alien who goes by the name of Shlong Zumanga.
I’ve recently discovered the truth on my quest and mission to find out who acutely controls the earth.
On my last trip to Vegas, I tracked down the wizard of earth, a short Columbian national who dresses up like Colonel Sanders and flys around the globe playing god. He’s just a decoy, his mind was blank when I read it. The true power of the globe is a fellow Nictonite who crash landed here in the eighteen hundred’s. He’s the bastard responsible for all the shit that’s going down now. And I have to stop him.
Globalization, Cultural Marxism, Global Warming Scam, School Curriculum, Carbon Taxes. Safe Spaces, All elements in mind control so Shlong Zumanga can get his one world government, the GOD chair and have his way with your daughters, while you bring him gold. and no way to resist the tyranny he will bestow to mankind once he’s in that chair.
Lucky for the world. Smoking Man is here to save you all. That’s why I’m using my special powers via the UCC to get Trump Elected.
Showdown with me and Shlong will take place across the river from Bull Head Arizona airport. Oct 22nd to the 26th. Who want ringside seats?
Thank you InfLewenza for bringing up eBay.
One of my biggest surprises this year was that Joking Man did not buy this shirt from me.
Maybe I should just gift to him as a community service so everyone knows to steer clear…
M42BC
http://imgur.com/a/QuBJM
Hi Ryan,
Young people are probably no different than in my day. They have seen low interest rates for 8 years and ever rising asset prices. They are acting accordingly.
The older generation has seen 20% mortgages and is therefore more fearful. Excessive borrowing will only stop when rates rise. It will be a painful transition.
What happened to us? We Canadians used to be a practical lot where we lived within our means, and prudently managed our financial affairs. ===============================
My parent’s generation was deeply suspicious of credit. They grew up with the horror stories from the Great Depression. Just like millennials seem to be of one mind that “everybody” is cool with massive credit, the war generation believed that debtors were fools. Don’t buy until you have the cash.
Not that they had much option. Post war retail credit was almost non-existent. “Lay-away” plans were common where you paid a retailer so much per week/month until you accumulated the full purchase price and could take the item home. Good luck getting a low down payment deal on a house or car.
Consumer credit for autos gradually developed in the 50’s and credit cards in the 60’s but lenders were putting their own cash at risk and credit standards were pretty high. The rot set in when syndicated debt vehicles were created. All of a sudden, traditional lenders were essentially fronting loans for a fee but not backing them with their own money. The ultimate investors bought packages of loans with high interest rates and high default rates. In today’s world, if you own a piece of a syndicated loan pool which nominally pays 19% but actually pays 12% after loan defaults, are you worried?
The result is no one cares much any more about credit standards. The system is supported by the more solvent greater fools who are bad debt managers. If they keep incurring insane monthly interest charges but actually do pay them, they cover the cash lost to defaulters. The net loan income realized is plenty high enough to keep the loan originators and ultimate investors in gravy.
There was a hit song in the 50’s called “Sixteen Tons” about coal miners becoming hopelessly indebted to the company store for the necessities of life. The takeaway line was, “I owe my soul to the company store!”. We have way more “miners” today but now they just owe their soul to MasterCard.
reply to question from CJ Bob on yesterdays posting:
A 500km line from Yarmouth to Halifax end to end of Nova Scotia. Halifax/Atlantic side gets double annual rain fall as the other side. Moncton the hub city of N.B. is an extreme snow magnet.
Comparing National News Weather reports for the Maritimes to unreported S.W./ Digby area is like watching Barrie weather forecasts to see what kind of day Pt. Peelee is having.
This year the rainfall in this area for the past three months is 1/2 of the total of the previous worst drought of 1960.
Your link shows pretty warm winter temperatures, Huh?
Yes Ryan, I too had my eye on that ebay Rolex, until I expanded the picture and notice how Roleck’s was spelled.
Damn China knockoffs.
Smoking Man for President!
Banks are on my list of least favourite and too much credit/debt is right along it. Isn’t the third anti-Christ a monster and haven’t the banks become so huge, internationally. How was Nostradamus to know at that time about banks?
Was always taught about too much credit/debt: a little can help but must be paid off but too much credit/debt does not contribute to the community. It might help yourself but that is all.
#110 Billy Bob…What I heard from Ross Kay radio show is that the Chinese government is cracking down on laundering money going out of their country. This happened about 6 or 7 months ago. Throw that into your equation of thinking.
“our abundance of resources”…that line bothers me in the sense it is becoming increasingly being abused. Maybe 60 years ago one can get away with extracting, removing, etc. but with automation that extraction, removal has increased to unsustainable conditions.
Ryan, is it valid to compare debt service ratios between countries? I’m thinking no. Maybe rate of change, but even that seems a bit sketchy.
Have we lost our way?
yes we did, and i know why, music its to blame, wrong tunes all over the tv and radio internet. Last night i was picking my daughter from armouries, and as usual checked side street house, where some old guys are jamming on porch every once in a while and on top of that for free. Sad part is and very few people know about it, and stop buy to enjoy music.
I present you “unknown” old guys jamming Roadhouse Blues.
https://youtu.be/LIntBiCpfVQ
#Hammer
Some Canadians certainly have lost their way.
I look at debt obligations simply. A debtor is spending his/her future salary… today.
So if debt to income ratio has reached 170.5%, that implies that on average, Canadians have not just spent this week’s pay check, but have already spent every penny of their disposable income for today, tomorrow, and for more than the next year and a half.
170% makes it painfully clear that many Canadians cannot support their present rate of consumption, let alone ramp it up.
If I were in any business dependant on consumer spending, I would be concerned.
After all, how far from into the future can you pull iPhone sales from?
Another nail in YVR real estate coffin, yall should have sold when Garth said so. RIP debt zombies……
http://www.scmp.com/news/china/policies-politics/article/2021977/china-canada-sign-treaty-return-assets-stolen-fraud
I’d like to say a couple things in response to this blog post.
#1–people expect ss and granite in their “starter homes” because these days they’re 35 before being able to afford a home. How many people born in the 40s, 50s or 60s can relate?
#2–RBC is willing to give me zero percent interest on balance transfers until summer 2017. The Big wigs don’t think rates are going anywhere.
#10 common sense on 09.24.16 at 3:51 pm
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Well 5-10 years from now oil will be higher (carbon taxes) and ageing population will be offset by 3,000,000 immigrants witj average age of 35ish?
At what stage of this discussion Canadians start eating drywall?
I wanted to see who was in worse condition debt wise between my two countries of Oz and Can.
Turns out they both need a kick up the bum…
M42BC
https://www.theguardian.com/business/2016/jan/15/how-australian-households-became-the-most-indebted-in-the-world
Ryan, maybe you should take a little tour out of your tower. People arent gorging on TVs – they are scrambling to keep up with the inflation and currency collapse imparted to this economy by your heros at the FED/BOC and the extra taxes from brainwaves like Wynn and T2.
This is just like the US in 2006 – everybody blamed the consumer when it was just as much the fault of banks and govt which led to the crash. How about a little balance in perspective.
“Ryan, is it valid to compare debt service ratios between countries? I’m thinking no. Maybe rate of change, but even that seems a bit sketchy.”
I personally think a more valid comparison of debt between countries also includes a discussion of the nature of the debt. Canada’s consumer debt is particularly scary because it is almost entirely adjustable rate, short-term. So any sort of interest rate shock, or even spread expansion against the “consumer” can very quickly cause a severe deflationary impulse.
Contrast such with the USA where a significant chunk of debt is long-term debt in the form of RE-backed loans. The interest rate on a long-term fixed mortgage (up to 30 years) doesn’t change, so interest rate shocks aren’t generally as severe as they would be if all of the debt was adjustable.
In light of Canada’s ratios exceeding that of even the USA at the peak, and the practical non-existence of long-term fixed rate debt in the Canadian consumer economy, it logically follows that Canada may very well face a consumer shock significantly worse than that experienced in the USA circa 2008/2009 when interest rates rise.
Gee! Lower the price and people opt for more. What a surprise!
Central banks have lowered the cost of consuming today relative to. Tomorrow.
Lost our way? You are blaming the victim.
This is an example of how central banks have destroyed the informational content of prices.
It’s not a moral question, it’s not a cultural question.
It’s about the price,
Bespoke is the only way to go… Why pay top dollar for off the rack?
So Vancouver hits a wall, while Seattle gets started… http://www.seattletimes.com/business/real-estate/seattle-becomes-no-1-us-market-for-chinese-homebuyers/
One thing that has had me scratching my head is why would you wait til after the hottest season (Spring) to implement the 15% foreign buyers tax.
I understand they had to legislate it and all that but they had been talking about doing this for a while.
It’s hard to feel sorry for people lining up to overpay for real estate, but in my mind it would have been fairer for everyone if they had announced what they intended to do at the start of the year with 90 days notice and it would have been implemented before the Spring blowoff.
We always knew a lot of people were going to get caught with both hands in the cookie jar,but should you have left the lid off and in the front window…
M42BC
#32 Bottoms_Up
“…people expect ss and granite in their “starter homes” because these days they’re 35 before being able to afford a home. How many people born in the 40s, 50s or 60s can relate?”
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I can relate. I’m 65 and I bought my first house at 34. It was a dump. I stayed 25 years. Now it’s pushed down and a pressed-cornflake and drywall palace sits in it’s place with stainless and granite throughout. But it belongs to someone else. I rent now. Way better.
Ryan. 40 comments.. Think Doug did a bit better last week.
Can’t remember which one of you called for a Fed spike. One was wrong one was right.
Don’t matter. Really.
I’m not trying to cause shit :) . But I listened to the pod cast last Tues. Garth introduced you guys as partners.
What went through my foggy head at the time. Westjet commercials. The flight attendants are partners too.
An insulting rebuttal will get you more fans and comments.
Bring it bitch.
Have we lost our way???
Sure we have and much to blame has been the ignorance of our politicians; whether the municipal, provincial, or the Federal that waste so much of our hard earned taxes on the most superficial, ridiculous promotions or what have you to buy votes.
The latest 500 million on trying to buy a vote on the UN, or 200 hundred thousand on moving expenses for a selected few. Casting oil and gas as dirty even though it has paid for all these politicians to whistle away, I can go on for ever and ever, the previous government was no different. If our government does not take our hard earn wages seriously then why are any surprised that we take what we can get; it’s pathetic but that is what it has come down to. We have no leaders with dreams; as for individuals with dreams, it is slowly being sucked away but regulations and taxes.
“To be clear, we remain long-term bulls on the Canadian economy given our abundance of resources, our solid fiscal shape and strong rule of law.”
If polled, I believe that most Canadians would say that we are losing ground on all three of these points.
Abundant resources that aren’t worth near what they were. Solid financial shape only because we have three levels of government conspiring to turn us into tax slaves for almost half of each year. Rule of Law rarely enforced beyond parking or speeding tickets and continually undermined by court decisions.
Progress in Canada is defined by bike lanes, LRT’s, wind turbines and gender free washrooms in schools. None of that is bad, but that’s about all we got going for us.
Is there a plan for the economy going forward other than building more housing and expanding immigration?
So I got as far as the Brampton airport. On my quest to meet Moses at the forks to challage the 12 commandments.
I wimped out. The fear of a pack of amazon’s staring at the package with out sunglasses , knowing I would be outed as a lier.
Could not do it with out a well placed banana.
I’ll try next week. Get my kid to drive… I’ll ride shot gun. The bravery of JD.
33 Bottoms_Up on 09.24.16 at 8:32 pm
#10 common sense on 09.24.16 at 3:51 pm
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Well 5-10 years from now oil will be higher (carbon taxes) and ageing population will be offset by 3,000,000 immigrants witj average age of 35ish?
….
I just hope the new imagrents are Germans fleeing insanity brought on by Shlongs quest for the one chair, a one God.
See how complex my world is.. Saving humans cause I broke the rules and fell in love with a crazy one.
Damn you Scottland…
Should have landed in Spain first.
The
Valuations are variable, Debt is constant.
I do not get the optimism about the economy or whatever is left of it.
Most of the ‘economy’ is FIRE around housing + some services + some commodities.
Commodities are depressed and will be for a while, FIRE is crashing due to over-leveraging. services as second tier depend on the above.
Paying five times more for crappy internet or cell phone services than the world or 8.49 for chicken roast dinner at Jimmy the Greek (larger meal used to be 4 $ 10 years ago) or 1.2 million for crappy shack or 60 k for glass condo does not constitute economy.
People have no money and are at peak debt. Who will drive consumption and stimulate investments?
It is clear that some nominal gains can be achieved so portfolio managers look good and earn their fees.
However I know people who consistently pay obscene fees for mutual funds while actually losing money on these funds.
Real gains are simply not possible in Canada n the years to come, so it would be very good idea to diversify investments abroad.
As for the horrific inflation, just watch out.
With ‘leaders’ like the BOC governor (non-elected official) who never worked real job in the private sector in his life and is no doubt well serving his masters at BIS (member of the board of the Bank for International Settlement) who just told us that we will never retire, things are not looking good.
The guy even does not know that bond market, not he decides on long term interest rates.
There is no doubt that people like him will kill the loonie in attempt to ‘support the markets’.
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Your having a bad night in a casino. This helps
https://youtu.be/9FCBg3GmzQM
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Need little help here. Please!
Here are two definitions for Debd-To-Income ratio (DTI) that I found:
1. DTI = Total Recurring Monthly Debt divided to Gross Montly Income. If I have 5000 income and 2000 in payments for my mortgage and car loan, then my DTI = 40%. So if I have 300k debt, and 80k gross salary (5k/montly net), then my DTI = 40%.
2. The second definition sounds like this: Take your total debt (300k in my case) and divide it to your annual household earnings after taxes. In my case 300000/(5*12) = 500% !!!! Which one of them is right? The 40% or the 500%?
Here’s the link to the first source: http://www.investopedia.com/terms/d/dti.asp?ad=dirN&qo=serpSearchTopBox&qsrc=1&o=40186
And to the second source
https://www.ratesupermarket.ca/blog/my-debt-to-income-ratio-is-higher-than-153-but-thats-okay/
If we calculate the DTI by the second source, then the 170.5% DTI is nothing.
If we calculate the DTI by the first source, then please explain me, how the hell people survive, when they have to give 170% of their net household income to repay their debts?
I am truly impressed by the quality of input here, both on the blog and in the comments. A good level of highly intelligent individuals bringing it.
Please, Gareth, Rian and Dug, keep it up.
#FinancialBogSwaggerville
#InNeedOfACureForTheYips
Call me when interest rates in Canada begin to rise in a meaningful way. I think it is very clear at this point that we are half a decade or more from that happening.
I also never understand Canadian economists argument that the debt-to-income or debt-to-asset situation in Canada isn’t so bad because the value of our assets have risen. This is almost completely the result of primary homes being overvalued due to low interest rate and an increased willingness to go deeper and deeper in debt to pay for them. As you rightly point out, this changes the minute this kind of reckless behavior hits a wall. So it is cold comfort.
“There is no doubt that people like him will kill the loonie in attempt to ‘support the markets’.”
How exactly can he “kill the loonie”? Canadian consumers are heavily indebted (ie: are short CAD$), and hence, have huge obligations to cover their shorts. This lends itself to an extremely higher loonie. “Killing the loonie” will likely prove to be extremely difficult, if not almost impossible in such context, with so much domestic buying demand for the loonie. And since very few loonies are held overseas, there is almost no selling pressure on the loonie.
Contrast this with the United States which has worked off a lot of its debt at this point (and a significant chunk of additional debt will be depreciated in the higher rate environment). And there are trillions of USD$ sitting offshore representing potential claims on the US economy which will be sold at some point in the cycle. That is why the CAD$ is set to go dramatically higher in the coming years against the USD$, even as Canadian interest rates are kept dramatically lower than USD$ rates.
I think the scariest thing is when the abnormal becomes normalized. Rates have been too low for too long, which if you have only been alive, well, about that long, you cannot imagine rates increasing. I manage a few young engineers that think the main thing to consider when putting down an offer on a home is the carrying costs. These folks are actually good at math, so what hope does the average joe tim hortons have?
I personally think we need to put a few more restriction on CMHC insurance at the very least to contain the normalization.
http://www.marketwatch.com/story/planning-for-retirement-check-out-one-of-the-scariest-charts-in-human-history-2016-09-20?link=sfmw_tw
Mr. Lewenza:
What happened to the new editorial -comment policy?
I see Smoking Man is back into the JD and headed off to outer space again… he’s incorrigible!
Slow night. Have we lost our way? I’d say so. I remember one of my first financial experiences with [email protected] about a decade ago or so fresh out of the education world into the work force. Selling me high MER mutual funds for my RRSP from the same institution she worked for. “Oh yeh, that RBC Canadian equity dividend fund is a good one to pick” with no logical explanation. Didn’t need to have one either, just another sucker at the time. But that’s the problem. At least I was saving, that was the only good part. Canadians are too busy to think for themselves. Until pain comes, expect more of the same and debt will escalate even higher. It’s just human nature and it’s never been so easy to keep up with the jones’s.
Ryan, Ryan, Ryan. Please don’t ever show off your Rolex when trying to attract clients. It’s a clear statement, you are overcharging them by so much you can afford frivolous things they would never buy. A gold Apple watch costs less, and does far more. Only a moron steeped in money he didn’t earn or have to work for would be buying a Rolex. You did so well, until you just proved you aren’t one of us, you are using us.
Good news to read and hope not some temporary bump in YVR RE.
After reading the Sept 15 post about Realtor William Wat advertising “East Vancouver Housing Market Collapsed” (he shows sell prices on 4 properties ranging from $210K to $454K below list, shows a chart of median price dropping like a rock), yours is indeed good news. See Sept 15 posting on:
https://twitter.com/timberjrackie
and ignore posters vitriol.
bsant54
DELETED
#33 Bottoms_Up on 09.24.16 at 8:32 pm
#10 common sense on 09.24.16 at 3:51 pm
——————————–
Well 5-10 years from now oil will be higher (carbon taxes) and ageing population will be offset by 3,000,000 immigrants witj average age of 35ish?
——–
All these immigrants will allow me to collect my DB pension. Bring a million a year. i already have 2 paid off homes for the family.
Something for you to read.
This years Ig Nobel awards just out and Canadians (Gordon Pennycook et. al., from the University of Waterloo) won their Peace Prize with this scholarly paper published in the journal of “Judgment and Decision Making”, Vol. 10, No. 6, November 2015, pp. 549-563:
“On the Reception and Detection of Pseudo-Profound Bullshit”
After having read the paper, you may deservedly add after your PhD Herdonomics designation, BS.
;-)
bsant54
Nice post Ryan.
Your favorite BMO also cites that Cdns. are loading up on luxury vehicles with ultra-long term loans (1% of total auto sales). Sales up since 2013 from 7% to 14% on brands such as Porsche, Audi, BMW and Mercedes.
Most of the purchasers are Baby Boomers.
Scotiabank reckons Cdns. feel more wealthy largely due to the value of their homes. BMO/Scotiabank concerned but of course, will gladly pass the hemlock.
This reads so much like the American consumer run-up to 2009.
Yes, we have lost our way of saving, investing and with money in hand from these activities, spoiling ourselves with creature comforts that we can pay for in cash.
Again, Cdns. giving themselves the life they believe they so richly deserve, with the money of others.
Yet, Cdns. cutting back on fruits and vegetables due to their higher cost. And, car loan delinquencies up in AB and SASK.
What a country.
All it will take is a minor economic shock to bring this house of debt tumbling down and most likely into a 2nd Great Recession…or worse, if your numbers are correct. Why I keep looking at those GDP Reports and Labour Force Survey’s; rather than, rates (10 yr US, Cdn 5 yr t-bills tell you where rates are going, nowhere).
I hope for luck and the best…but it is looking grim.
bsant54
Consumer debt will continue to rise as for a lot of people there clearly is a disconnect between what they earn and what they spend!
Who gets paid on a Friday, GOES to the bank to deposit their cheque, keeps out “spending money” then sometime in the next 2 weeks looks in their wallet and declares “Whoa, i need to lay low now, I’m broke till payday”…. Not many anymore!
Master pass, I Pay, tap cards… Far too easy to flip around spending money you don’t have. When the bill comes at the end of the month the balances are so high you make the minimum payment and continue living your celebrity lifestyle and buying things you don’t recognize you can’t afford….
#24 correction: straight line Yarmouth to Sydney.
sorry about that confusion.
“This rate of debt accumulation is simply not healthy nor sustainable. With Canadian debt levels at record highs, and interest rates at record lows, it doesn’t take a genius to put two and two together, and see the risk this poses.”
——————————————————————–
Like I said before, “I ain’t no genius”!
I have openly asked this question in prior posts: What exactly is the risk? Can you outline a hypothetical scenario of millions of people defaulting on huge debts? Notwithstanding the super-low interest rates making the cost of “debt-servicing” manageable while incomes remain stable, the sheer amount of principal still needs to be paid back. Somebody please explain to me exactly what happens when it does not get paid back. Most of these saps will be either unemployed, underemployed, broke, or dead before they have paid back their over-the-top loans. Then what?
#101 NEVER GIVE UP on 09.24.16 at 12:51 am
….”What a pathetic, morally impoverished nation we have become.
I wonder what these gangsters (Our Governments) are going to say to their maker when they reach the pearly gates?”
Given the disproportionate egos and laughable overestimation of their I.Q. (E.Q. being near or completely absent), same bs they did when they were plying their trade and hurting people.
They’ll have lived ugly, produced ugly and they’ll transition the same way.
Ugliness is so easy to define when you look at its legacy, such as treating human beings and their earnings like so much modeling clay. Or worse.
Shame we don’t deal with this ugliness more effectively when it counts most. In real time.
Yet.
@2 Sheldon Cooper
I suspect there would be a Big Bang in the RE market if that happens.
Ryan,
How can people spend money they don’t have, unless lenders give them the money?
If you are worried, with much less skin in the game, how come lenders are so relaxed with their loans?
Both for individual and corporate borrowers?
This is the question – the Rolex is just scratching the surface. As Garth would say “a distraction”.
#24 Wrk.dover on 09.24.16 at 7:10 pm
Halifax/Atlantic side gets double annual rain fall as the other side.
_____________________
Thanks for the info, my wife has never been down east and we’re thinking of a trip in the next few years. I’ll keep this in mind. As I said yesterday, it’s a beautiful part of the country.
Trump Threatens to Seat Former Bill Clinton Mistress in Front Row at Debate **UPDATE** She Accepts!
http://www.breitbart.com/2016-presidential-race/2016/09/24/trump-threatens-seat-former-bill-clinton-mistress-front-row-debate/
#52 Mark on 09.25.16 at 1:14 am
“There is no doubt that people like him will kill the loonie in attempt to ‘support the markets’.”
How exactly can he “kill the loonie”?
—————————
By ‘investing’ in housing we export less. And have less productive jobs and investment in productive sectors of the economy.
Commodities are down.
Value of the loonie depends on:
– balance of trade (negative, with strongly negative outlook)
– GDP ‘growth’ – negative
– deficit – huge and growing
– job market – only bad news
– depressed commodities
– perception – bad (many hedge funds shorting the loonie)
– outlook for rates – absolutely going down but not due to market conditions but to the actions of the BOC. Watch Poloz, the guy single-handedly talked down the loonie, he will crash it again.
We will need some major further ‘stimulus’ to keep the house of cards charade aka the economy going and it will be coming with:
– further rate cuts, including negative rates
– increase in public debt
– our own form of WE
– outright money printing
all of which will kill the loonie.
The fact that skill-less self entitled population has debt over their eyeballs won’t make the base measure for the debt more valuable. they have to kill the loonie to make that debt serviceable.
Do you think the fact that people have huge debt will make them more productive? You live on another planet.
#10 common sense on 09.24.16 at 3:51 pm
“Low oil prices, reduced manufacturing, ageing population.
What developments does anyone see in the next 5-10 years to change to change the current situation?”
…let’s add in all of the evaporating jobs. People with decent jobs have serious status now.
It ain’t going to be like 1999 again, not for a very long while- all of this debt via the titillation of low rates will have to be worked through. That could easily take decades.
Those who’ve prepared will live grandly and no amount of crushing interest rates will save the rest.
#12 Not a big deal on 09.24.16 at 4:08 pm
“What happened to us? I think President Thomas Jefferson said it best a way back when:
I received this quote in an email and am trying to find out if is truly a quote by Thomas Jefferson:
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.””
Reverse mortgage, anyone?
Ryan…when looking at the debt, why are you looking at the consumer debt alone? If one is to make associations with the impact of the debt to the economy does it not make sense to evaluate the debt of government and citizen? ie) if the government debt was unserviceable and defined benefit pension plans can’t be paid (Detroit) then that affects the economy.
Bottom line is that unless interest rates go up in the short to medium term, the Canadian bankruptcy and insolvency rate will remain flat, people will continue to pay down their mortgage debt etc. We really don’t see interest rates going up in a significant fashion anytime soon do we?
I would also argue that while we see the global currency war continue to escalate, and since Canada is looked upon one of the finest countries to invest in, we will continue to see foreign investment pour in.
Canada nationalized their Housing sector just like they nationalized their National Debt. Canada is a Social Welfare State. They pretty much Nationalize Everything. Who knew ? Capitalism never really existed in Canada, but Crony Crapitalism does.
We are living in a time of universal deception.
In my area of King-Spadina, bounded by Lakeshore to South and Queen St to North – a narrow strip between Bathurst and Spadina – development plans have maybe 3000-5000 condo units planned.
Entire 1/2 blocks are to be razed.
Imagine the development fees to be paid and each unit generating $2000/yr in taxes.
Yet we are told this city is broke.
Chances are the subway or streetcar you ride to work pre dates your birth in this 2nd world country.
It’s all going to scam and graft for communism.
But I don’t have to think. Only what facebook is trending. Omg this just happened.
Here’s five things we know about _____.
Staged and fake news stories.
#22 David McDonald on 09.24.16 at 5:58 pm
“The older generation has seen 20% mortgages and is therefore more fearful. Excessive borrowing will only stop when rates rise. It will be a painful transition.”
Agree, and the transition is always less painful the earlier it occurs. The longer we wait, the more debt and people are piled into the mess.
Geez, the delusional millenial dipsticks are out in full force.
“”It’s the banksters fault !! They MADE us take their low interest debt money”” “”Don’t blame the ‘victim'””
Get a goddamn backbone you whiny, stupid little morons. No one is forcing you to take or spend money. LBYM, save don’t spend and SUCK IT UP.
The Entitled Generation in action.
@#8 Ryan
“my point was that debt used to make an investment, whether in stocks or real estate, is much better than debt used for consumption (i.e. credit card purchase of a flat screen TV).”
********************************************
Or a credit card purchase of groceries, a Starbucks coffee, a sandwich, etc………
Or the
“Zero down” dont pay til March 2018″ for furniture…..
Greaterfools and their easily available credit cards will never learn.
WallofWorry “Ryan…when looking at the debt, why are you looking at the consumer debt alone? If one is to make associations with the impact of the debt to the economy does it not make sense to evaluate the debt of government and citizen?
The focus of this blog post was on consumer debt. I’ll tackle government debt in a future post. But I agree that also is a huge and worrying issue. – Ryan L
When to start fretting about debts and home prices? Now is good
http://www.theglobeandmail.com/news/national/when-to-start-fretting-about-debts-and-home-prices-nows-good/article32000269/?service=mobile
Nonplused “Ryan, Ryan, Ryan. Please don’t ever show off your Rolex when trying to attract clients. It’s a clear statement, you are overcharging them by so much you can afford frivolous things they would never buy. A gold Apple watch costs less, and does far more. Only a moron steeped in money he didn’t earn or have to work for would be buying a Rolex. You did so well, until you just proved you aren’t one of us, you are using us.”
It was a joke! I was trying to hit home the point, in a humorous way, that as a society we’ve become obsessed with consumerism. I don’t own a Rolex, and we don’t overcharge our clients. I guess I haven’t perfected my tongue and cheek humour like Garth. – Ryan L
Mark “Ryan, is it valid to compare debt service ratios between countries? I’m thinking no. Maybe rate of change, but even that seems a bit sketchy.”
If they are calculated the same then yes I think you can compare DSR (and other statistics for that matter) between countries. I agree the debt composition between countries can be different therefore it may not be perfect, but its still helpful to compare countries on a relative basis. We do it all the time on different metrics (education, crime, debt etc.) so I don’t see why DSR ratios are any different. This just helps to provide some context. – Ryan L
I agree but the foreigners dissent. This from StatsCan from “Canada’s international transactions in securities” Indicator:
“Foreign investment in Canadian securities slowed for a fourth straight month to $5.2 billion in July.”
“Non-resident investors reduced their holdings of Canadian money market instruments by $2.9 billion in July, a third straight month of divestment in these instruments.”
“Foreign investment in Canadian equities was down significantly to $1.9 billion in July, following a $13.4 billion investment in June.”
Goods news, foreign investment in Cdn. Securities well up 1st six months of 2016 at $85.7 billion vs. $65.9 billion in 2015.
Seems foreign investors are not happy with Canada as of late, specifically beginning in July.
Why I do not know…but there it is…maybe the Crash Tax?
#66 #20 Smoking Man… on 09.25.16 at 3:36 am
Something for you to read.
This years Ig Nobel awards just out and Canadians (Gordon Pennycook et. al., from the University of Waterloo) won their Peace Prize with this scholarly paper published in the journal of “Judgment and Decision Making”, Vol. 10, No. 6, November 2015, pp. 549-563:
“On the Reception and Detection of Pseudo-Profound Bullshit”
After having read the paper, you may deservedly add after your PhD Herdonomics designation, BS.
………………….
Interesting fellow, wondering if his last name is made up.
Went to his website. He is researching the UCC, he knows it exists but doesn’t quite understand it.
See if he follows me back on twitter. I can enlighten him quickly. Perhaps even supply him with a book title for his next research project.
The Long Lost Art of Lying Truthfully.
Now that’s a mind twister.
#88 Ryan Lewenza on 09.25.16 at 11:27 am
Mark “Ryan, is it valid to compare debt service ratios between countries? I’m thinking no. Maybe rate of change, but even that seems a bit sketchy.”
If they are calculated the same then yes I think you can compar DSR (and other statistics for that matter)between countries. I agree the debt composition between countries can be different therefore it may not be perfect, but its still helpful to compare countries on a relative basis. We do it all the time on different metrics (education, crime, debt etc.) so I don’t see why DSR ratios are any different. This just helps to provide some context. – Ryan L
————————-
Many European countries with comparable or lighter debt have social net – national pension systems much better than the CPP here, free education, cost of living much cheaper than here.
So they are in much better shape overall.
As for the ‘government debt’ we kept counting mostly federal debt to paint a rosy picture. If we add provincial, municipal ect, we are in very, very bad shape.
Honestly if we add public and private debt I can hardly see any other country in the world that is more indebted. US is in much better shape.
And there is a reason for it – the size of our financial extraction non-productive FIRE sector is much larger compared to GDP then the US. This is why we have this monstrosity with the debt. Connected financial sector wants ‘their’ money without realising that there is so much you can squeeze from a stone.
Truly pathetic story if it was not so tragic.
Ah, and don;t forget to count these ‘mortgage insurance’ liabilities towards the future debt.
As for the ‘wealth’ (8-9 trillion or whatever stats Canada reports) measured in arbitrary coupon values, it means nothing.
How many of us can take 2 years sabbatical without working while having to support family? 0.1 %?
This is what matters, financial independence, the rest is BS, let;s stark counting the mosquitoes toward the GDP to get a prettier number.
I think I would go with the investment advisor with the Rolex over the Apple watch. A Rolex will hold its value for decades inflation adjusted. An Apple watch will be useless and worthless junk within 5 years.
Three words for the cause: Scripps Networks Interactive
Or as Garth loves to put it: House porn.
A must read for those who are trying to reconcile the current dichotomy evident in the current economic cycle. ie) why is the Fed and IMF downgrading future growth when employment and inflation are at targets, and why can’t the Fed pull the trigger on raising rates?
Ryan…would welcome your comments. (it is a short article).
http://www.zerohedge.com/news/2016-09-22/feds-missed-window-failed-realizations
#77 maxx on 09.25.16 at 9:34 am
#10 common sense on 09.24.16 at 3:51 pm
“Low oil prices, reduced manufacturing, ageing population.
What developments does anyone see in the next 5-10 years to change to change the current situation?”
…let’s add in all of the evaporating jobs. People with decent jobs have serious status now.
It ain’t going to be like 1999 again, not for a very long while- all of this debt via the titillation of low rates will have to be worked through. That could easily take decades.
Those who’ve prepared will live grandly and no amount of crushing interest rates will save the rest
************************
Adding to the above:
Today’s economy takes two household incomes to survive a somewhat Jonese lifestyle. If one of those incomes should disappear with limited ability to depend on savings – a crack arises. If unable to find a job in a depressed economy – due to limited choices and increased competition – stress rises and payments are prioritized. (money stress can also lead to divorce which can immediately cause financial distress). Lack of jobs or job loss is the current threat to this house of cards. (Of course there are also many international circumstances as well).
Our #1 driver off GDP is real estate. The average consumer gets squeezed or priced out. What about all those house related line of credit to keep the consumption dream alive. Fed is loosing credibility on the international stage. I am worried about what is happening on the street, not the economic indicators which only tell us have of the story.
I always wondered how some people could party all night and wake up with no hangover. I found out some were alcoholics and some were just wired that way.
Given the current unprecedented stats and the international sentiment I do not see an immediate improvement in western economies. Fear is building, slowly trickling down to main street. People at work are starting to talk about bubble, and unrealistic housing prices and the big one – who can afford to buy these houses and the best one, “you should be ok, you bought your house in 2010”
I have also noticed a fair share of luxury cars driving around with plus 55 year olds at the helm. Good for them…just hope it is not on the House LOC.
To the
#91…Sheane Wallace…
“Honestly if we add public and private debt I can hardly see any other country in the world that is more indebted. US is in much better shape.”
********************************************
I would be curious how you rationalize this position? The US gov debt is at $21 T with GDP growth projected at 2% or lower for foreseeable future? One could argue that the US has used its hegemonic status as the reserve currency to its severe advantage…and that position is clearly unwinding as global financial integration occurs. I simply do not see how you can rationalize the US as being in much stronger financial position as it relates to debt? Any tangible rise in interest rates without offsetting growth will cripple the US. Thus, is it really any surprise that the Fed can’t raise rates? Read short article in post 95. I think that is a fairly cogent argument?
Re: #40 The American on 09.24.16 at 9:23 pm
The Chinese won’t be buying any real estate in America. America is cracking down on money laundering and prosecuting the perpetrators. As well China is cracking down on the Chinese trying to park illegal money abroad. This is the end of the line for the Chinese and their real estate escapades.
It’s a machine people. It consumes souls. It needs fresh blood to keep going. That is why they peddle debt to you like it’s oxygen. If we were all debt free then why would any of us join the race? Keep everyone in debt on 25 year payment plans and keep changing the position of the goal posts. No one can ever “win”.
Solution: opt out. Why play their game? Buy a house you can afford. Don’t renovate. You don’t need a better car than your neighbor. You probably don’t need a car at all. You don’t need any of the stuff they want to sell you.
Make them work for you. Their system is flawed. They need capital. You can purchase “the man” and make him work for you.
Otherwise you’re just fodder for the machine.
Why on earth would we expect people to be rational when their institutions aren’t.
Why should people care about their own debt when their govts dont or their central bank doesn’t. T2 is out there right now trying to buy a UN seat. He also sent some unmarked 2.5 billion dollars overseas for climate change to who knows where when that could have went into our native communities. See where I am going with this.
And lets talk the US for a minute. Its debt 10 years ago was 7 trillion dollars, its now closing on 20 trillion with another 5 trillion on the feds balance sheet as well. Add in a couple hundred trillion in unfunded liabilities and the answer should be clear as day.
Out of ALL the countries on the planet, I would say Canada is number 1 in terms of finances right now. Hopefully T2 doesnt squander that.
Ryan,
I agree we have, not all, but the major segment/part of our population has. They have been sold a line of “crap” in our public schools which are mostly populated by aggressive socialists as teachers, and their parents have not taken the time to explain the other side of the arguments. The exception is our private schools and possibly the odd non socialist
( and lonely teacher ) in the public system.
I don’t know who turned the switch but the comments section has improved one or two orders of magnitude
and is much more on point and meaningful, especially the different views.
Worth my time reading now, Keep it up!!
OW
Incandescent bulb emitted near ir light and had nice calming effect on people, cfl sent people in to seizures, and led are making people crazy…
whats next?
Siminovitch said the light from early-generation LEDs “really negatively impacts people’s physiological well-being.”
https://www.washingtonpost.com/national/health-science/some-cities-are-taking-another-look-at-led-lighting-after-ama-warning/2016/09/21/98779568-7c3d-11e6-bd86-b7bbd53d2b5d_story.html
Ryan, Ryan, Ryan. Please don’t ever show off your Rolex when trying to attract clients. It’s a clear statement, you are overcharging them by so much you can afford frivolous things they would never buy. A gold Apple watch costs less, and does far more. Only a moron steeped in money he didn’t earn or have to work for would be buying a Rolex. You did so well, until you just proved you aren’t one of us, you are using us.
No, a Rolex on the wrist of a financial advisor reassures clients he or she is able to make themselves money: they are successful. This is why real estate agents drive bling cars. So their clients are reassured that they know what they are doing, and can be trusted with their money.
“To be clear, we believe that…” why does every financial advisor start sentences like this when they are making @!# up?
Great week of posts! I felt we were getting off into the weeds, but this has generated some really good discussion.
Can someone address the question asked by #54? I am interested as well.
Cheers!
~Flu
A lot of whiny dogs on here at times. Canadians need to stop blaming banks for loaning them too much money and asking government to save them. What happened to the smart, frugal Canadian with the can do attitude. If you want a good retirement don’t count on politicians to give it to you. Take some responsibility. If I sit you in front of a table full of food do you eat till you vomit or do you just eat what you require. Stop the blame game. Start early in your investments and stick to the philosophy of invest, invest, invest in good and bad times. Follow what Garth and his staff tell you, it’s solid advice.
Invest mainly in well-established, mainly dividend-paying companies.
Spread your money out across the five main economic sectors (Manufacturing and
Industry, Resources and Commodities, Consumer, Finance, and Utilities).
Be careful of the flavor of the month stocks.
Diversify in other markets besides the Canadian.
In other words use that thing that keeps your ears apart. Trust in Garth’s advice, it works.
WallofWorry “A must read for those who are trying to reconcile the current dichotomy evident in the current economic cycle. ie) why is the Fed and IMF downgrading future growth when employment and inflation are at targets, and why can’t the Fed pull the trigger on raising rates? Ryan…would welcome your comments.”
Lance Roberts, author of that report, is really good and I’ve been reading his material for some time. Based on the Fed’s dual mandate of full employment and stable prices, they should be tightening. Unemployment rate is 4.9% (historically that would be considered full employment) and core inflation is 2%. So they should be hiking rates and should have done it a few meetings ago. But given that this recovery has been one the weakest recoveries in history, the Fed wants to err on the side of caution and wait until they see more robust growth. Why has the recovery been so weak? I think two key reasons. First, the high global debt is providing a headwind to growth. Second, I think the financial crisis had a huge impact on individuals and businesses confidence which has resulted in less investment and spending. For example, non residential investment (i.e. capital spending) has been very weak in this recovery and so has over spending, as seen by the decline in money velocity which Lance references in his article. – Ryan L
I agree with Garth on some of his ideas and I keep coming back here for the comments. I tend to disagree with his ideas as to a huge real estate crash he is expecting in Toronto. I have no idea what is going on in Vancouver. I figure Toronto’s market will fizz a bit at the top, have a soft “plop” and then keep plugging along at the usual high prices that are just barely affordable.
Toronto has entire condo villages now. A detached house is like gold. On the average size detached lot you could actually build one of those tall condos that house hundreds of people.
There is no more land available.
We are going to have low interest rates for some time.
Our governments have seriously devalued our currency.
We are going to get a lot of new Toronto residents.
Anyone who happens to own a detached house in Toronto south of highway 401 is likely sitting on a piece of Gold that is going to increase in value exponentially for the foreseeable future.
That is just the way it is going to be. There will be no crash. The market will likely peak and recede but the prices for homes in Toronto proper will never again be affordable.
This situation has happened in Cities around the world. Density is a killer of affordable detached housing.
Where did I ever say there will be “a huge crash” in Toronto’s real estate market? I did not. There won’t be. — Garth
#108 Ace Goodheart on 09.25.16 at 3:10 pm
Then i will say it. Toronto should crash about 50%.
There were immigrants in 1989 as well…with less debt and way better job prospects.
The debt driven joke that is this market will end it. Then everyone who has six rental properties (which are constraining the market and giving the illision of zero inventory) will sell as capital gains stop, and values plummet.
MF
#108 Ace Goodheart on 09.25.16 at 3:10 pm
Oh and interest rates will rise when the CB’s manipulating the whole system get obliterated during the next downturn, which is inevitable.
MF
One thing that has never been covered in any debate or blog post that I have read is the air/reward miles for travel or bobbles . This seems to me a case of a spoonful of sugar makes the medicine go down . Recently we were shopping for our veg when asked again for air miles card . It was morning . With at vast crowds of greys in every line . I then said to the cashier ” no dear , we don’t carry enough debt to get enough air miles to drive around the block ” at which point the greys behind us burst into laughter . And here I thought we were the only ones clued in . We have relatives that brag about their travels while being up over their eye balls in debt .
Where did I ever say there will be “a huge crash” in Toronto’s real estate market? I did not. There won’t be. — Garth
*******************************************
huh? You wrote a post telling people to get out of real estate while they can?
VYR. My final caution was issued three weeks before the Chinese Dudes tax for those specific groups of readers that I referenced. Pay attention. — Garth
Was at bellfoubtain today Garth . You did a nice job with the store.
Now with all your preaching about financial prudence and discipline, perhaps you can ditch the 3 dollar a doggie cookie stand as it flies in the face of all that is prudent.
My buddy bought one and ate it himself. No way any dog needs such an ostentatious luxury .
The loonie will remain worthless because the Canadian economy sucks. No need to ‘kill’ the loonie cuz it’s already dead
Where did I ever say there will be “a huge crash” in Toronto’s real estate market? I did not. There won’t be. — Garth
The ingredients are there for a crash in the GTA. So, while it may not be the base case scenario, you cannot be so sure There won’t be. Much of the factors that influence this outcome are either unknowable in advance or cannot be altered domestically.
Commentary On Central Banking
Our uncomfortable ride with central bankers who can’t take us home again
http://www.cbc.ca/news/politics/money-policy-interest-rates-central-banks-1.3776817
“Nervous me” wants to “lick the bullion” and “Bold me” wants to use this free money to snorffel down a luxury home.
Normal me has always saved but this does not seem very normal.
#109 MF on 09.25.16 at 3:27 pm
#108 Ace Goodheart on 09.25.16 at 3:10 pm
Then i will say it. Toronto should crash about 50%.
————————-
This is actually pretty mild, considering my expectations..
I already gave examples with people with minimum income – 50 k taking on huge mortgages – 650 k+ in very crappy locations – e.g. Brampton, Mississauga.
Toronto has become absolutely unlivable with this traffic and all these (glass) condos are absolute joke.
We are looking at at least 3 times elevated prices than incomes and economy justify in Toronto, at 4-5 times increases of SDH in 15 years.
Of course it will crash. Immigrants coming here have no jobs and no money (30 k per family to enter Canada).
Anybody thinking that we are attractive as country with no economy to the rich and wealthy foreigners is absolutely delusional.
If that was the case we wouldn’t need CMHC and the ultra-subprime mortgage crises here.
It is going to be an absolutely horrible crash. It already was and that from levels 60 % of the current valuations in 2009 before they introduced the 0 down/40 years idiocy.
Smoking man for as much as he gets deleted, has most of the calls right. He called Vancouver and Toronto to run on years after people thought it would crash. He called the fed out too.
I am looking at his other call…Trump. I think he is right again. People want a strong looking leader warts and all. Hillary looks weak by comparison. She might faint in a meeting with the Saudis or Iran or China. If a mental midget like GWB can be president for 8 yrs, no reason guy like Trump cant either.
118 not 1st on 09.25.16 at 4:45 pm
Smoking man for as much as he gets deleted, has most of the calls right.
He got Gerald Butts figured out…
Where did I ever say there will be “a huge crash” in Toronto’s real estate market? I did not. There won’t be. — Garth
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Damn it.
I was consider selling and buying back after the crash.
It needs the prospect of good return to take the risk.
Now with all your preaching about financial prudence and discipline, perhaps you can ditch the 3 dollar a doggie cookie stand as it flies in the face of all that is prudent.
My buddy bought one and ate it himself. No way any dog needs such an ostentatious luxury.
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You buy the $3 doggie cookie, give it to the doggie and say it out loud, “because you are worth it”.
You must do it with love in your heart.
You and your dog live only once. You should not waste it on a buddy who eats doggie cookies, no matter how much it cost.
Some info on how preferred shares work and what to expect http://www.theglobeandmail.com/globe-investor/investor-education/why-you-cant-trust-the-yields-on-preferred-etfs/article26231003/
Not quite. A misleading, sloppy article that’s also out of date. A little Googling can be a dangerous thing… — Garth
RE: #117 Sheane Wallace
The problem I see with Toronto’s RE market south of highway 401 is that the single family properties are being bought and developed into condos. In the neighbourhood where I live single family detached houses are consistently being purchased as tear downs and replaced with either multi unit apartments or condos. So while there may be a “crash” how do you crash 50% from pre-condo value, when someone builds a six plex condo unit on a lot formerly occupied by a single home, that they purchased for 800K as a teardown? Each condo is worth like 400K around, times six. How do you crash back down from that? Even 50% won’t be enough to get anywhere near 800K again.