The one-horse plan

1bride

Being its usual sunny self, yesterday this site cited a few reasons why Beaverville real estate is at risk. No, not just Trump. Or RBC’s new home loan rates. Or Wild Bill’s big hammer. Bond yields. The Moister Stress Test. The Fed. Mortgage broker havoc. Not even economic torpor. More important is the meme. When people start thinking houses might get cheaper, they stop buying. Weird, but so true.

For longer than most marriages last, this pathetic blog has been preaching two words: balance and diversification. If you don’t have some, you’re at greater risk. Because millions have ignored my advice, the country’s now exposed, since almost everyone you know has a house, a fat mortgage and precious little liquid wealth. But in the eyes of society, they’re flush. At least for the time being.

However it’s this lack of diversification – having mucho eggs in one residential basket, especially with big debt attached – that should worry us. It certainly worries the feds, the Bank of Canada, the financial regulator, CMHC, ratings agencies and every global body looking in. Now that rates appear ready to swell, and with a volatile populist in charge of America, it’s time you assessed your own personal net worth. Is too much in one asset at one address, on one street in a single city? If so, change it.

But, lots of people don’t get this caution. They never will. Yesterday someone posted this challenge in the steerage section:

“Please enlighten me about the whole “One asset strategy” here. If I understand that concept correctly, it is supposed to be wiser to have a $500,000 house with 250k in mortgage and another 250k in ETFs than to have that house fully paid right? The question is why?

“In terms of risk, if the housing market goes down by let’s say 20%, in both cases the net loss is 100k no matter the diversification. In Garth’s post, that old dude would have lost the same net value would he have borrowed against the house and invested the amount. If housing and stock market would be inversely correlated I guess diversification would then make sense, but they are not.

“So, while I get that ETFs are far, far more liquid than a pile of brick, I don’t really see a big advantage to not having a full paid house vs “diversification” (that is in terms of risk, not speaking of returns). Any input?”

Good questions. After all, the basic investment strategy of generations of little beavers has been the same. Buy house. Pay down mortgage. Retire. Hope for best. When the world was more predictable, houses more affordable, pensions more common, the economy more robust, lives shorter and the basement unfull of cash-sucking Millennials, it almost worked. But no longer.

You’re gambling if you keep the bulk of your net worth in one asset. Any asset. Especially a house. Here’s why it makes sense to channel cash flow into investments, instead of just your mortgage…

  • Houses (actually) are somewhat inversely correlated with financial assets. When interest rates rise, preferreds do too, for example. Houses drop. Economic growth that brings inflation and higher rates also usually breeds better corporate profits – but lately has not come with higher incomes, which real estate needs to thrive.  The next few years look far more promising for liquid assets than properties, which fed off cheap rates and emotion.
  • Logic tells us if you have all your faith in one thing, you’re rolling the dice. It’s why people don’t cross oceans in single-engine planes.
  • Houses cost money, portfolios make it. In years where real estate has no capital gain (such as those ahead of us), properties pose a net cost. Often huge.
  • Liquid assets don’t come with property tax, insurance premiums, maintenance bills, utility costs, closing costs to buy or 5% commissions to sell. They don’t have tenants asking for new toilets. No grass. No snow.
  • You can always rent accommodation. You cannot rent cash flow in retirement.
  • Why shovel cash into paying off a 2% mortgage when a relatively conservative portfolio can deliver 6% or more over time? If the bank was nuts enough to give you money that cheap, use it. Don’t hand it back.
  • Liquidity. Critical. Anyone who’s ever owned a house they can’t sell when they r-e-a-l-l-y need to bail knows this. Most of the time in life there are no bidding wars or multiple offers, so liquidating real estate can be incredibly slow and ultimately costly. Portfolios, on the other hand, sell in seconds. And at the end of the day we all need cash flow, not property.
  • Finally, houses are so done. Sure, some hoods in some cities will continue to experience demand, but as a nation, we’re pooched on property. Mortgage debt is epic. Ownership rates are extreme. The nation’s grossly over-invested. And now the conditions that created this imbalance are changing.
  • Invest all you’ve got in one thing? Not a chance. Until they start selling time.

179 comments ↓

#1 raincoast on 11.16.16 at 5:36 pm

Can you tell us more about T2’s Canadian Infrastructure Bank plan and how it theoretically works (or doesn’t)? There are a number of ideas within this structure that make me feel generally uneasy, like the incestuous relationship between pension funds and government or the report of bankers being generally happy with the plan so far (probably at the taxpayer’s expense).

Thanks,
raincoast

#2 Julie K. on 11.16.16 at 5:41 pm

…”some hoods in some cities will continue to experience demand”…

Pray tell, which hoods in which cities?

#VanRE

#3 not 1st on 11.16.16 at 5:54 pm

Garth there are real estate baron families in europe who have held properties for hundreds of years and they are wealthy beyond all measure.

Some are estimated to have properties valued in the trillions with a T.

RE rides the inflation curve nicely. Any pullbacks are not usually cataclysmic and people know that.

Do the baronials have floating rate mortgages and no other assets? — Garth

#4 not 1st on 11.16.16 at 5:55 pm

#1 raincoast on 11.16.16 at 5:36 pm

—–

And most curious of all – will Garth be investing in it?

#5 Sean on 11.16.16 at 5:55 pm

Liquid assets don’t come with property taxes, but the really rich don’t pay them anyways apparently.

https://betterdwelling.com/city/vancouver/9-acres-vancouver-real-estate-water-worth-1/

#6 Sean on 11.16.16 at 5:57 pm

@Julie K

Neighbourhoods that have exclusive appeal usually don’t crash as hard, they also don’t rise as quickly. An example would be Rosedale in Toronto. Most expensive homes in Toronto, slowest price gains in the city.

#7 Mr. Thankful on 11.16.16 at 5:58 pm

Not sure if I came into Canada at a good time or a bad time in January 2015, but I’ve yet to pull the trigger on a home and your advice is helpful in keeping me cautious for the foreseeable future. Thank you!

Don’t let the locals pervert you. — Garth

#8 David P on 11.16.16 at 5:59 pm

Garth, you make the 6℅ return on your money sound so easy, maybe too easy? S&P was flat last year, yet most hedge fund managers underperformed the index and lost money for their clients. Does your scenario ever include bear market like the 2 previous ones? Real estate is still the safest bet, when s.. hits the fan i want to hold some tangible, not useless paper.

Long-term returns have exceeded 6% on balanced portfolios, and over the past six years (two of them stinkers), the returns averaged just under 6.5%. But it’s not a contest. If you choose to invest in only one asset class, whatever it is, be prepared for some tears. Diversification is the defence. — Garth

#9 I live in Toronto on 11.16.16 at 6:01 pm

I live in a very nice hood in Toronto and have noticed that there seems to be a change happening. Houses are sitting, not a lot of traffic on open house days and no for sold signs in site, except for the ones sitting from months prior. I think things don’t seem to be moving. I even went and checked to see some of the asking prices of these houses that are sitting on the market and they don’t seem outlandish for this area around the 1.4-1.5 mark, which just a few months ago these types of homes got snapped up. It makes me think there is a change happening at the ground level. I also called an agent out of curiosity about a particular property. . .seems a deal feel through because the bank wouldn’t secure the financing. I believe we are about to see an abrupt change in the next few months.

#10 Shack on 11.16.16 at 6:03 pm

I bought a condo just north of downtown Calgary in 2008 for $325,000. My neighbor across the hall is selling. He just dropped his price from $314,000 to $294,000. No offers yet. My other house was just appraised at $20,000 below my out of pocket cost on the purchase and reno. Not pretty.

Not the first time I’ve seen this but I think this is going to get real ugly. Oh well. Good thing I have a reliable job.

#11 Outside the Burbs on 11.16.16 at 6:13 pm

The market in the gta is definitely changing. There seems to be pockets where nothing is selling, houses are sitting and agents seem to know it. There is definitely something happening, either people are not getting financing or people are starting to wise up and realize the markets about to crash.

#12 Andrew Woburn on 11.16.16 at 6:14 pm

Hard to believe, but some people are not Trump fans. Perhaps they see him as the “Ugly American” or “Make America Grate Again”.

– Kayak: Flight Demand to the US Drops by 30% Post Trump Victory, Searches to Russia Increase

Kayak says that their post-election data mining reveals a significant 30% global drop in searches for trips to the US. Meanwhile, there’s been a clear increase in US based international searches:

Russia: +30%
France: +29%
UK: +19%

“With 1.5 Billion searches conducted on Kayak websites every year, the impact of US elections on the USA as a destination is very significant – we’re talking big numbers here. The data demonstrates that since the election result, demand and interest in going to the States really has nosedived. And the increase in searches from the US would indicate that many who are currently based there are looking to get a break from reality.”

http://pointmetotheplane.boardingarea.com/2016/11/16/kayak-flight-demand-us-drops-30-post-trump-victory-searches-russia-increase/

#13 Londoner on 11.16.16 at 6:16 pm

A friend of mine recently sold his house in Oakville. List price was $1 shy of a million. On the weekend before offers were accepted he received a bully bid from a “foreign investor” for $1.3 mil. They held off anyways and the house eventually sold to locals for more than the bully bid. This set a new street record (almost $400k over ask). Altogether they had 10 bidders. Seems that parts of the GTA market still has some steam left.

#14 joes rentals on 11.16.16 at 6:16 pm

the difference between owning stocks and rental properties in Hamilton is that when you google the stock name you don’t find info about the stock being a pill popping welfare mom who will sleep with your boyfriend, husband, dad and brother while spending her whole welfare cheque at the bar while leaving their oldest child at home to play mommy.

#15 Brian Ripley on 11.16.16 at 6:19 pm

The nation’s grossly over-invested. Garth

I just updated my chart on Canadian Household Debt, GDP, Foreign Direct Investment and Balance of Trade:

http://www.chpc.biz/household-debt.html

Ya… net Foreign Direct Investment spiked last year in favour of offshore investments for a new historic “wide”. Check… we would rather invest in other people outside of Canada.

Now net Trade is plunging into new negative lows, that is, we are over invested in consumption.

Meanwhile edicts are dribbling out of the Trump Tower that are keeping analysts guessing….. inflation, deflation or the return of stagflation.

#16 GTA Market is Changing on 11.16.16 at 6:23 pm

On the weekend we venture out of the city (T.O) to the country side for horseback riding. For giggles we look at hobby farms, most of the farms have been listed forever, without any bites. . .256 days on the market etc. For more giggles I looked at the areas on Zolo and looked at market trends and, oh my goodness, hardly anything has sold and prices are down over $100,000 from just months ago. The market IS changing for sure! I love it, I’ll just wait and continue to watch the market slide lower. If people need to sell, they should do so now, because in a few months I think a full blown crash is absolutely where we are headed.

#17 rainclouds on 11.16.16 at 6:27 pm

No doubt the powers that be ARE soiling themselves. When this starts rolling downhill it will be messy.

Canadian Heloc outstanding Debt per GDP is 14 % . US is at 2%.

http://vancitycondoguide.com/rising-mortgage-rates-usher-in-new-era/

#18 Shawn on 11.16.16 at 6:29 pm

I hadn’t been to the west end of Oakville in a few years. I couldn’t believe it. Mini 2 story homes on small lots in tight subdivisions selling for high $800s low $900s. New construction around every corner. Townhomes and condos.

#19 Jungle on 11.16.16 at 6:31 pm

Would be nice if you could do a post on a rent vs buy right now. I believe in some areas, it’s much cheaper to rent. For those with large house gains or equity, you could sell, rent and invest the rest.

#20 Condos Here Not Moving on 11.16.16 at 6:33 pm

Same thing in my neck of the Toronto woods. Condos don’t seem to be moving, a few months ago, things were hopping, now, open houses with hardly anyone there. The for sale signs popping up everywhere, no shortage of condos for sale, just a shortage of people wanting to buy. It’s either a dry up of mortgage funds, people not passing the stress test or people waking up from their debt fuelled hangovers. Anyway you slice it, it doesn’t look good for condo sales this month. I’m glad I just rent!

#21 Smartalox on 11.16.16 at 6:35 pm

One other reason not to concentrate on house-buying as the first (and some would say ONLY) step to retirement saving:

Time – and compounding interest – are your friends when you’re saving for retirement!

After having been ‘forced’ to diversify our investments (and rent) when we were priced out of the market in Vancouver, I started doing some spreadsheet analysis to see when (using the rule of 90) it would make sense to buy Real Estate again, and a plan emerged.

After renting and investing for the past 5.5 years, my projections show that if we save at this comfortable rate for a couple more years, we can reduce our savings to minimal levels by 2019 – our retirement will be assured simply by letting our nest egg compound over the next 20 years, until retirement.

So once we have our nest egg established, we can devote a portion of what we’re currently saving and investing, and the amount that we’re paying in rent, and use that to pay the (20-year) mortgage on our ‘forever’ home.

The retire with a paid-off home and live off returns from our fully-funded retirement portfolio, wanting nothing.

The only downside is I wish that I’d started building that nest egg sooner – we’d have more at retirement – but I had to pay off my student loans. Take it from me, get those done as soon as possible.

This strategy may seem to run counter to the ‘house first, retirement second’ strategy that is apparently favoured by most, but it’s pretty much the same strategy as the ‘Dreamer’ and the ‘Firecracker’ employed, but they took theirs to the extreme, as it suited them.

But when I see ads that feature middle-aged and greying people talking about ‘saving from retirement’ I have to laugh; compare the effect of investing $100k at 5% for 20 years, versus the effect of saving $25k per year (even at 5%) in the last 5 years before retirement, between paying off the mortgage (you hope) and stopping work.

No contest.

#22 crowdedelevatorfartz on 11.16.16 at 6:39 pm

6 months ago everyone at work was either bragging about how much their House/condo was worth or talking about buying in before it was too late…….
Now?
Crickets

#23 In the cold from Toronto on 11.16.16 at 6:39 pm

All reasons you listed for not owning RE are true Garth, but you didn’t address the main point of the question.

The person asking the question did not truly diversify their assets when borrowing 100K against the value of the house. No matter how big the % borrowed (i.e. whether 20% or 80%), they re still fully invested in the Real Estate market – and this is why their conclusion seems to fly against the diversification as de-risking

True diversification calls for one to move to a smaller house, and invest the proceeds. In such an example, imagin moving into a $250k house and investing the $250K (for simplicity, let’s assume no transaction costs). In this scenario, when the RE market goes down 20%, their loss is only $50K, their portfolio is intact, so they managed to save $50K against the situation when they stayed in the old house (and lost $100K).

In a nut shell:
*/ One owns the house and all risk associated with RE exposure whether they own the house outright or just half (and the other half is mortgaged).
*/ The only difference between the two situations is that when half the value of the house is invested in ETFs, they have an upside because an ETF should give them 5 to 6%, while the mortgage rate is around 2.5%.
*/ the proper way to diversify is to move in a smaller / cheaper house. This is when they get some protection from a drop in RE market.

Hope this makes sense,

In the cold from Toronto

#24 Painful crash is a coming on 11.16.16 at 6:44 pm

Many will go bankrupt including realtors who will never make a sale again. Happy housing crash everyone. :)

#25 Context on 11.16.16 at 6:45 pm

#7 I Live In Toronto:- The ones snapping up are called the Greater Fools and the homes sitting must cut their selling price to find the market.

#26 Brian Gordon on 11.16.16 at 6:47 pm

@7 I LIVE IN TORONTO

“I live in a very nice hood in Toronto and have noticed that there seems to be a change happening. Houses are sitting, not a lot of traffic on open house days and no for sold signs in site, except for the ones sitting from months prior. I think things don’t seem to be moving. I even went and checked to see some of the asking prices of these houses that are sitting on the market and they don’t seem outlandish for this area around the 1.4-1.5 mark, which just a few months ago these types of homes got snapped up. It makes me think there is a change happening at the ground level.”
——————————————————————–

I agree with you a 100%! I live a few block away form Shops at the donmills (donmills and Lawrence) a decent hood in Toronto and houses have, for the most part, been sitting. Months ago, this would never happen!

#27 Oakville's Weird Too on 11.16.16 at 6:49 pm

Went to visit my brother in Oakville. He lives in a nice area, tree lined street and I noticed the house beside his, is still for sale, it’s been for sale for awhile. The house is done up well, quartz counter tops- check. High end appliances – check, landscaped yard – check, hand scraped wood floors – check, stone and brick exterior – check. . .still sitting on the market- check check!

Apparently, no offers, nothing. Not a lot of showing. My brother says, maybe it’s overpriced – ya think??? People need to wake up, the housing market crash tremors have already begun. People should “Brace for Impact.”

#28 crowdedelevatorfartz on 11.16.16 at 6:52 pm

This is completely off topic and my apologies to the Moderator but…..

Has “The Donald” considered the ramifications of his Presidency affecting his bottom line?
ie : Every time he makes a statement …out come the protestors….outside the Trump hotels he owns>

Who the hell would want to book a room anywhere in the world at a Trump hotel?
‘Would you like a fire extinguisher with that Molotov cocktail mssr?”

http://www.google.ca/url?url=http://www.huffingtonpost.ca/2016/10/24/trump-hotels-new-name-scion_n_12625016.html&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjH3Or9u67QAhUJqlQKHVVTCOEQFgg4MAc&usg=AFQjCNHg_B_O2_mjdS8F67TYXI7_0_vBrA

I cant wait to see what 4 years of this man’s “foot in mouth disease” will do to his Hotel “empire”……

#29 Prairieboy43 on 11.16.16 at 6:55 pm

Friend sold his home Edmonton area. One week. Purchased 2007 $420,000.00. Sold November 2016 $ 360,000.00. Did $25,000.00 renovation. Lost $100,000.00 after fee’s.
PB43

#30 Ace Goodheart on 11.16.16 at 6:57 pm

#3 not 1st:

“Garth there are real estate baron families in europe who have held properties for hundreds of years and they are wealthy beyond all measure.”

– depends where the property is located. And what they paid for it. Again people are just getting stupid here. They buy any property, located anywhere, for any price, with the assumption that the price will increase. That is not how you make money in real estate. You have to “bet” on a property. An example is the string of properties along Weston Road just south of Eglinton that were going for under 300K back in 2012. That was when Rob Ford was doing his best to kill the little underground train that they were planning on building to Keele and Eglinton.

Some wise folks made a bet that Rob wouldn’t be successful, and then bet further that they would extend this little train all the way to Eglinton and Weston, build a huge mobility hub on the disused Kodak lands, add a UPX link and a Go Train stop, and change the density regulations so that multi storey condos are now approved.

Turns out they were right. Property values on this little strip go up by around 60K per year. Cockroach and crack head infested dumps that you couldn’t get 300K for are now fetching over 600K.

And that is a crap price. There is plenty of upside left.

That is what these real estate barons did. They bought garbage properties on a bet. They ended up being right.

What people are doing in Canada is not that. People are just paying a premium price for anything and everything, mortgaging most of it and then sitting back watching the newspapers for the percentage increase of real estate in their area every month. They then tell themselves they have “made money” (imaginary money).

That is not real estate speculation. That is just being a dumb lemming.

#31 common sense on 11.16.16 at 7:01 pm

#7 I Live…

Me thinks we will see changes to a LOT of things in the next few months..

#32 US civil war v2.0 on 11.16.16 at 7:03 pm

The biggest danger is letting US sink into civil war. Hell can emerge surprisingly fast, as seen in the former Yugoslavia, Egypt, Libya to name a few recent examples.

#33 SoggyShorts on 11.16.16 at 7:03 pm

#3 not 1st on 11.16.16 at 5:54 pm
Garth there are real estate baron families in europe who have held properties for hundreds of years and they are wealthy beyond all measure.
——————————————

If they’ve had them for “hundreds of years” they probably took them…on horseback. They didn’t get a mortgage that was going to reset higher in 5 years =)

#34 Real Cost of Home Ownership on 11.16.16 at 7:09 pm

People only see capital appreciation and then go ga ga over a home. They never mention the cost of ownership.

Besides mortgage, transfer costs, a down payment you have home insurance, property taxes, annual upkeep and periodic maintenance expenses.

People talk as if the above expenses never happen, it never ceases to amaze me. Many of those expenses ARE NOT incurred with say an index fund.

I know awhile ago you posted a link to a detailed study showing the true cost of home ownership factored into the return upon selling. It concluded better to rent especially if mobility is an issue.

Here is one I remember from the Globe & Mail from about 3 years ago:

http://www.theglobeandmail.com/real-estate/mortgages-and-rates/the-real-cost-of-home-ownership/article11668113/

bsant

#35 earlybird on 11.16.16 at 7:12 pm

To a completely financially illiterate person, RE seems simple, a first shot at wealth, a substitute for no pension, and a home. We make fun of them….because they don’t know what they don’t know…leverage can be dangerous. Diversification protects me from what I don’t know..

#36 Habbit on 11.16.16 at 7:13 pm

Sir Garth, the blue jays need some hitting now but your post today hit it right out of the park. Thanks again.

#37 common sense on 11.16.16 at 7:20 pm

#29 U.S. Civil War 2.0

Nothing to worry about….the losers are not the gun holders.

#38 Mark on 11.16.16 at 7:23 pm

‘I bought a condo just north of downtown Calgary in 2008 for $325,000. My neighbor across the hall is selling. He just dropped his price from $314,000 to $294,000. No offers yet. My other house was just appraised at $20,000 below my out of pocket cost on the purchase and reno. Not pretty.”

Sounds about right. Calgary prices peaked in 2011, after falling pretty significantly in 2008/2009. Since there is such a glut of housing in Calgary, it logically follows that housing prices will fall beneath depreciated replacement cost. Which is, itself, falling due to significant numbers of unemployed tradespeople available to the housing construction sector.

As far as this article goes, the 1990s are a great illustration of what happens when house prices fall. Inversely correlated assets take off. The TSX (known as the TSE at the time) index tripled in a decade, with a total return in the quadruple range with re-invested dividends. A mere housing downpayment, 25%, invested in 1990, by the end of the decade, was enough to buy a house, outright, in cash by the end of the decade. This was no accident especially with the nature of interest rates tending to rise as the economy heats up along with the stock market.

The TSX currently has a P/E of 15, and inflation and economic growth nominally is around 4%/annum. So the implied total return is in excess of 10%/annum. While a balanced portfolio is important, it is now time to overweight Canada in response to its underperformance in the most recent cycle.

#39 Alice on 11.16.16 at 7:29 pm

Well one argument is always that housing provides leverage. Like trading on margin, but it’s 20x vs 3x in equities.

The irony being no trader would use 3x, because it’s too risky to leverage that amount. Yet people do it all the time with a house.

#40 bb on 11.16.16 at 7:29 pm

Rent out your place and let renters subsidize your property. Remember, rents go up every year (No rent controls on most houses and condos) and you can raise any reasonable amount as you please.

300k newcomers coming every year. Plus foreign students with loads of cash from mom and dad plus an XXX number of millenials finishing college/uni/trade school and getting their 1st job. Most if not all of them will find a place to rent.

Cap rates are abysmal and net rental income is 100% taxed at your marginal rate. Bad idea. — Garth

#41 InvestorsFriend on 11.16.16 at 7:31 pm

Real Estate Barons

#3 not 1st on 11.16.16 at 5:54 pm claimed:

Garth there are real estate baron families in europe who have held properties for hundreds of years and they are wealthy beyond all measure.

Some are estimated to have properties valued in the trillions with a T.

***********************************
Who are these families and how many members share that wealth

Take a look at the lists of the worlds wealthiest people and you do not see that many where the wealth came from real estate do you.

http://www.forbes.com/sites/chasewithorn/2015/03/02/forbes-billionaires-full-list-of-the-500-richest-people-in-the-world-2015/#770d16a316e3

You are down to number 27 before real estate is mentioned. There are only 7 people in the top 100 where real estate is listed as the source of wealth.

But, yes some people have certainly become very wealthy through real estate. Not sure it was through single family homes though.

#42 IHCTD9 on 11.16.16 at 7:34 pm

#6 David P on 11.16.16 at 5:59 pm
Garth, you make the 6℅ return on your money sound so easy, maybe too easy? S&P was flat last year, yet most hedge fund managers underperformed the index and lost money for their clients. Does your scenario ever include bear market like the 2 previous ones? Real estate is still the safest bet, when s.. hits the fan i want to hold some tangible, not useless paper.
———–

6% + /Ann. over the long haul in my timeframe no problemo. I’ve invested nonstop every month, seen every bust since the late 90’s – never sold off, caught every rebound. I’m a lazy mutual fund guy to boot. I also pound it into RRSP’s and reinvest the return as much as I can. I’m not near the high roller a lot of folks on this blog are, just a regular working stiff for the most part.

I also own my house, if I sold it tomorrow, I would realize maybe 1-2% cash in my pocket. Sure, it’s appreciated well over 100% since I purchased it, but once you deduct 15 years of taxes, insurance, interest payments, maintenance, and everything else, it’s pretty much a wash. This year I redid the front covered deck, next year new shingles over it, rear deck needs staining too. Every year there is something. If I paid a contractor every time, I’d still be in the red after 15 years of ownership. My house never has, and likely never will put a dime in my pocket. The costs of owning and maintaining it post mortgage go up every single year without fail.

Recently a few Canadian bubble markets and free money have made some folks think all RE is easy money, and it was, for a short while, for some. But that’s about as normal as the 15% rates you could get in the 80’s on a financial investment. Those are long gone, the RE bubble will be as well. For everyone that hit the RE jackpot, someone will burn. Most of the winners never knew that lotto ticket was coming, it was just a house until crazy folks were willing to pay 1.4 million for it. In other words, they got lucky, you’d be a fool to expect to duplicate that kind windfall.

I have both, and the portfolio is worth a lot more than my house, and there is no doubt it will continue to widen the gap over the years to come.

#43 paulo on 11.16.16 at 7:38 pm

It seems that mortgage rates are going to move up very significantly and much quicker than most would like to believe regardless of what the BOC or US Fed do: the bond market funds mortgages and will drive the increases already started, and just a sample of whats to come, add in a economy flirting with recession, all the new mtg rules, and new government tax grabs looming in Ontario in particular,and the trump factor, you have the recipe for a major real estate value correction. if you purchased in any of the P.T. Barnum zones (sucker born every minute zone) YVR/YYZ and related bedroom communities you should be carefully considering your position. remember the last correction took more than a decade to recover from. your “stress test” should consider a valuation of 20-30 % below today’s for Sfh,semi or TH and 40-50% for glass box in the sky/condo
and the likely hood of 4 to 7 % first mtg money in the next 24 months, also consider the likelihood of a decade for values to recover, and the fact that wild bill is going to put a fire under bankers feet, concerning what will be there share of losses moving forward – no more easy approvals. so do the math and make your call accordingly, if you need get out you have not got much time

#44 n1tro on 11.16.16 at 7:44 pm

I’m going to start stink bidding for a house this winter. Anyone with a listing in winter must have a reason…which I will try to exploit.

#45 Henry Morgan on 11.16.16 at 7:44 pm

Bitcoin = $1000 CND.
Its a print.

To the moon babes.

#46 George on 11.16.16 at 7:46 pm

Historically 30%+ corrections occur once every 8-10 yrs .last time was 2008…..a balanced portfolio will get slaughtered during the next correction – some folks may have wished they owned a home . Hopefully Garth can convince them to sell at the bottom… wait the 2-4 yrs to get back to even,

– who’s balanced portfolio made 6.5 % last year ? :)

In 2008-9 the TSX dropped 55% and took seven years to recover. A balanced portfolio lost 20% and recovered in one year. Investors who ignored things did fine. Market timers were slaughtered. Sounds like you are one of them. — Garth

#47 Mark on 11.16.16 at 7:48 pm

“I also own my house, if I sold it tomorrow, I would realize maybe 1-2% cash in my pocket. Sure, it’s appreciated well over 100% since I purchased it, but once you deduct 15 years of taxes, insurance, interest payments, maintenance, and everything else, it’s pretty much a wash. “

But you received the use of the house for 15 years, or you could have rented it out. So you did achieve a pretty hefty return, even if you had to re-invest some of those imputed cashflows into maintenance.

More historically normal is that housing is a wasting asset that costs money and doesn’t appreciate. A money sink. Money spent for a service (ie: shelter) rendered. Its very unusual for a house to appreciate at a rate faster than inflation over the long term.

#48 WUL's new neighbour..... on 11.16.16 at 7:49 pm

#151 Ole Doberman on 11.16.16 at 9:22 am
Does anyone have observations to share about Calgary?

I think prices still haven’t budged much.

///////////////////////////////////////

We recently sold our townhouse in calgary central for 100k lower than ‘peak’. We recently bought a modest detached in WUL’s hood (calgary heritage) for 100k lower than peak.
As we owned the townhouse for over a decade we simply moved the equity into ‘better products’ (the detached house and investments).
Thanks to Garth’s blog we made some wise decisions (at least we think we did).

#49 Ronaldo on 11.16.16 at 8:09 pm

#11 Londoner

”Altogether they had 10 bidders. Seems that parts of the GTA market still has some steam left.”
——————————————————

It tells us that there are still greater fools in some areas. Most people buying right now have no clue what is going on around them.

#50 No one can qualify for a mortgage on 11.16.16 at 8:10 pm

Buyers can qualify now for 25% less then they could just last monthing. Phones have stopped ringing and brokers are worried. Lots of panic out there

#51 Toronto on 11.16.16 at 8:11 pm

Interesting on Toronto. I am seeing the same thing. House down the street from me has been for sale for ever. I thought it must be the price, but I checked and it looked normal for this area. I thought it must be the interior, but checked and it too looked nice. On the weekend, hardly anyone at the open house. I think the market is changing in Toronto too.

#52 Victor V on 11.16.16 at 8:15 pm

http://www.cbc.ca/news/canada/windsor/400-layoffs-from-closure-of-maple-leaf-foods-plant-1.3852539

Maple Leaf Foods will close its turkey processing plant in Thamesford, Ont. by early 2018 and outsource operations to Sofina Foods’ new facility in Mitchell, Ont. The move means approximately 400 jobs will be lost.

The company blames the age of their Thamesford plant, saying it’s not feasible to maintain the facility.

“This was a very difficult decision given the impact on our employees and the community, but necessary given the substantial physical limitations at our 80-year-old Thamesford plant,” said Maple Leaf Foods’ Public Relations Director Annemarie Dijkhuis.

#53 isuckless on 11.16.16 at 8:21 pm

#29, those civil wars were started by the USA
Who is going to start theirs?

#54 8102 on 11.16.16 at 8:23 pm

Nailed it again Mr. Turner, well said.

#55 Brand new renter on 11.16.16 at 8:23 pm

Re #17 & #31 – in my North Toronto neighborhood, we just switched from owning to renting. Keeping the calculation really simple, our annual rent less the property tax the landlord is paying is approximately 2.5% of the price the landlord paid for the property. Price to rent of 40:1 is clearly in our favor.

If you want to run your own calc, this site run by the OSC came up 3rd on a google search:
http://www.getsmarteraboutmoney.ca/tools-and-calculators/buy-or-rent-calculator/buy-or-rent-calculator.aspx#.WC0Fl_krKUk

#56 NEVER GIVE UP on 11.16.16 at 8:25 pm

#11 Londoner on 11.16.16 at 6:16 pm
A friend of mine recently sold his house in Oakville. List price was $1 shy of a million. On the weekend before offers were accepted he received a bully bid from a “foreign investor” for $1.3 mil. They held off anyways and the house eventually sold to locals for more than the bully bid. This set a new street record (almost $400k over ask). Altogether they had 10 bidders. Seems that parts of the GTA market still has some steam left.
—————————————————
Listing homes at way below value and having no intention of selling at list price is a scam and should be outlawed.
Sadly Canadians are as naive as a Yankee sailor heading into a gay bar in Sydney at 3:00 am.
You can fool some of the people ALL of the time!

#57 Victor V on 11.16.16 at 8:27 pm

Sinking ship for Brad Lamb and Fortress…?

http://www.mortgagebrokernews.ca/news/syndicated-mortgage-payments-delayed-217108.aspx

#58 AGuyInVancouver on 11.16.16 at 8:32 pm

After following this blog and some others for a while, we made the decision to liquidate our Vancouver house in April 2015. In retrospect maybe we should have waited a year, but timing the market is always tricky. Having plumbing issues every month in a 80 year old house helped make the call easier! Couldn’t bring ourselves to rent, but at least our condo is mortgage free and close enough to walk downtown.

#59 Pizza the Hat on 11.16.16 at 8:39 pm

I wish I could say things were cooling down in Hamilton but they are not. Housing prices are still increasing m/m. It just blows my mind that someone would pay $700 for a 1500 s f. house in the burbs with few trees and backing onto a highway. But that’s the going rate.
Not only that, but the smugness ppl have now when they say the figure their house is worth–as if they earned it somehow!
I have no idea if prices will eventually decline in Hamilton, but if there’s even a 10% pullback, I’ll feel vindicated.

#60 The RE market in the GTA is FROZEN on 11.16.16 at 8:41 pm

Oakville’s Weird Too on 11.16.16 at 6:49 pm
Went to visit my brother in Oakville. He lives in a nice area, tree lined street and I noticed the house beside his, is still for sale, it’s been for sale for awhile. The house is done up well, quartz counter tops- check. High end appliances – check, landscaped yard – check, hand scraped wood floors – check, stone and brick exterior – check. . .still sitting on the market- check check!

Apparently, no offers, nothing. Not a lot of showing. My brother says, maybe it’s overpriced – ya think??? People need to wake up, the housing market crash tremors have already begun. People should “Brace for Impact.”
—————————————————————–

RE in the GTA has been hit HARD! by the mortgage changes. When interest rate were 4.25% which is the qualifying rate now prices in the GTA where OVER 50% cheaper. YUP that is where RE in the GTA is going. You realtors can post nonsense of immigrants and bla bla bla but NO ONE can afford or can qualify for big mortgages . People who “own” houses and want to move up CAN’T afford to buy the bigger home and or and scared to take on that much of a mortgage. Prices are coming down and will come down HARD!. Speculators are gone and those still in are trying to sell right now to a greaterfool. Get the popcorn out this markets going down.

#61 Self Directed on 11.16.16 at 8:43 pm

Lots of homes in Coquitlam sitting on the market. Look on Zolo for 1.1 to 1.5 range… lots with 45-90+ DOM or ‘reduced’. The reduced ones have already been on the market for 120+days. They all want what their neighbour got in June! All are waiting for their greater fool that won’t come. Most will be in the 2017 selling season because they are too stubborn on price. Buyers sit and wait.

Coquitlam Trends: https://www.zolo.ca/coquitlam-real-estate/trends
Selling to listing price ratio: 97% (no bidding wars)

The million dollar question: Can we expect Jan 2017 to be anything like Jan 2016? I Doubt it. I want to see how this plays out.

#62 Freedom First on 11.16.16 at 8:43 pm

Yes. Great picture Garth. Fantasy, but great. There is no such thing as a Unicorn or Faeries.

Also, if the picture was realistic, there would be a White Knight in it.

Which is a reminder. You can rescue a damsel in distress, but you will still just have a damsel in distress.

Today’s Post by Garth. Garth has the patience of Job.

I can see that both math and liquidity are hard.

#63 the other white meat (pork) on 11.16.16 at 8:46 pm

#29 US civil war v2.0 on 11.16.16 at 7:03 pm
The biggest danger is letting US sink into civil war. Hell can emerge surprisingly fast, as seen in the former Yugoslavia, Egypt, Libya to name a few recent examples.

An army of Hillary supporters? They’re terrified of guns but I’m sure a keyboard, when properly wielded, is a fearsome weapon.

#64 Whinepegger on 11.16.16 at 8:46 pm

#6 David P on 11.16.16 at 5:59 pm

As to questioning Garth’s claims of 6% average returns, you should have a look at this fund open to all CANADIANS. https://www.saskpension.com/investments.php#returns

Not invested myself but I have referred many friends that don’t want to learn about, or are too timid to step out and try, self investing but aren’t prepared to pay high management fees. The Saskatchewan Pension Plan average return over 30 years is over 8%. 6% is easy.

Sorry Garth, not trying to advertise or divert business from your office. Just illustrating your claim.

#65 crowdedelevatorfartz on 11.16.16 at 8:50 pm

@#41 n1tro
“stink bidding…..”
********************************************

Hmmmmmm.
I like it.
I may have to change my nom de “fume” but only if involves highrise condos with elevators

#66 WalMark of sadkatoon on 11.16.16 at 9:05 pm

A friend of mine recently sold his house in Oakville. List price was $1 shy of a million…the house eventually sold to locals for more than the bully bid. This set a new street record (almost $400k over ask).

Oakville is a messed up burb. I dunno why ppl wanna live there.

#67 IHCTD9 on 11.16.16 at 9:08 pm

#44 Mark on 11.16.16 at 7:48 pm

But you received the use of the house for 15 years, or you could have rented it out. So you did achieve a pretty hefty return, even if you had to re-invest some of those imputed cashflows into maintenance.

More historically normal is that housing is a wasting asset that costs money and doesn’t appreciate. A money sink. Money spent for a service (ie: shelter) rendered. Its very unusual for a house to appreciate at a rate faster than inflation over the long term.

——-

I guess you could look at it that way if I end up selling one day for what I put into it and therefore got to live in my own house for “free” lol.

At the end of the day, when I do sell, it will not fund my retirement. I don’t live in a bubble market, and you’re probably right in that in my area with a regular market – you pay to own, and should be lucky to break even. I like Kiyosaki’s definition of a house, not an asset because it does not put money in your pocket.

Anyone living in a bubbly 500k house that could sell for 1.5 mil that thinks the above makes sense better call ReMax asap. Once in a lifetime opportunity, and the sun is setting fast in the twilight of the last remaining Canadian bubble market…

#68 Smoking Man on 11.16.16 at 9:19 pm

Ok, Real Estate is doomed, we all knew the day of reckoning was coming. Calling the peak July 2017 then a very slow melt in 416, bit faster in the burbs.

I realized how evil the machine was a long time ago, and why the snowflakes are so dumb down. It’s deliberate. The machines goal, total breakdown down economically and culturally of society to install a one world government.

Triggering always throw me for a loop, I didn’t know why this was built in until now.

The term Triggering is a mechanism they plant in a young mind so if someone even comes close to deprogramming the brainwashed. Triggering prevents that from happing. The argument is shut down, the debate over, screaming hysteria noises the room. No chance in showing the person with this virus implanted in their brain a chance at real prosperity and .life lived not being a victim. Entruepureship destroyed. A life-long unquestioning obedient servant is what they made for the machines enjoyment.

T

#69 WUK on 11.16.16 at 9:36 pm

Unexpected housing costs. By prairie standards, my backyard in Cowtown is leafy. Nice 60 year old specimens. Mountain Ash, Maydays and Ornamental Crabs (both pink and white). Outlived their useful lives. Anticipating ~ $15,000 for the local arborist and stump grinder. Might have to risk a ladder and the Husqvarna but which limbs will be severed. Also, as I am not a certified tree faller, the neighbours houses will be at risk. Tough. $15,000 for the TFSA or the private room at le hopital. Whiskey for courage.

# 45 – Howdy neighbour!

#70 WileE on 11.16.16 at 9:42 pm

@27 ACE

Well said . Buying and selling a house for profit , requires critical thinking , foresight , and ability to maintain and improve. A little luck helps too. Your ability to legally expense and benefit from owning a property is never as easy as seen on television programs and real estate seminars. Worked for me but mostly due to timing and duration, as well as great tenants.

#71 traderJim on 11.16.16 at 9:45 pm

#10 Andrew Woburn

I was not a big fan of Trump at the beginning, he’s a blowhard and not that quick witted. But he’s deceptively clever in some ways.

Every day I become a bigger fan though, partly because the media and other anti-Trumpers whine and cry and desperately attempt to make him look bad.

I figure if they see the need to make up that much crap about him, he must be doing something right.

It’s getting downright enjoyable to watch Hollywood celebs squirm, and social justice warriors completely lose their minds.

I figure the biggest problem these elitists have with Trump is that they think he is low class. Not only is he crashing their party, he isn’t inviting them any more.

Trump eats KFC and drinks diet Coke.

He may be a billionaire, but he’s the people’s billionaire.

I’m hoping the lefties never figure it out. That should lead to another big win in 2 years, and again in 2020.

Good times.

#72 I don't know! on 11.16.16 at 9:55 pm

“Now that rates appear ready to swell, and with a volatile populist in charge of America, it’s time you assessed your own personal net worth.” – Garth

——————————————————–

Swell? By what? A measly percentage point (maybe) in the next two years. Not worried at all.

#73 TurnerNation on 11.16.16 at 9:55 pm

I would have voted Clinton over Trump but , now he’s installed I must support my brethren.
Lefties get out your crying towels. Herr Trump’s gonna rock your stock market.
And remember what your head lefty (T1) said: The State has no place in the bedrooms of this nation.

So take your lowered age of 16 and stick it you know where. >:-(

#74 Contrary Canadian on 11.16.16 at 9:56 pm

Garth or anyone else – watching BMO’s Preferred Share ETF (ZPR), which seems to be mirroring the negative movement of bonds the last few days. Since its holdings are all/mostly rate resets, shouldn’t the prospect of rising rates be positive here?

Sitting on some cash from the sale of our condo (whew) and thinking of adding to our holdings here for some nice steady distributions and potential upside from rising rates.

#75 45north on 11.16.16 at 10:04 pm

Ace Goodheart: Some wise folks made a bet that Rob wouldn’t be successful, and then bet further that they would extend this little train all the way to Eglinton and Weston, build a huge mobility hub on the disused Kodak lands, add a UPX link and a Go Train stop, and change the density regulations so that multi storey condos are now approved.

I’m thinking the wise folks knew something about Toronto City Council. Come to think maybe you do too?

I remember going to Weston Public Library:
http://www.torontopubliclibrary.ca/about-the-library/library-history/carnegie-weston.jsp

Paulo: also consider the fact that Bill Morneau is going to put a fire under bankers feet, concerning what will be their share of losses moving forward

Yuge It’s gonna be Yuge!

#76 Crowded Out on 11.16.16 at 10:12 pm

DELETED

#77 Angela on 11.16.16 at 10:20 pm

So if rental units are a bad idea and people may start ditching houses but then houses become too cheap to sell…do rents go up for a few years and then down?

#78 Smoking Man on 11.16.16 at 10:21 pm

So Facebook, Google, Twitter blaming the trump win on social media and the internet. They are now taking steps to shut down the new right.

Billion dollar companies who have no clue on why trump won.

Everyone knows about building 7. Msm does nothing. That’s were the mistrust started.

Americans, the Unschooled know they got economicly bent over. The schooled got bent over but don’t know it

The schooled worries about culture. Happy to live in 500 sqft and ride a bike.

The unschooled worry about the economy, having kid’s and raising a family.

What got trump elected was the constant hate toward him by the loathed msm.

Not the internet. ….

Why I’m I not on the board of directors of every bank bank in canada for my brain power.

Because no one has the ability to see my genius. The schooled.

#79 WUL on 11.16.16 at 10:40 pm

Oh, to clarify, by Husqvarna I mean a chainsaw. Too broke to afford one of their fine sporting firearms and too cowardly to ride one of their motorcycles. I had to stick with Browning, Ruger and Winchester rifles. Husqvarna Group is an amazing Scandahoovian company. Google it. A musket maker since the 1700s and one of the finest debate subjects around hunting campfires in the Northwoods since. I’m tearing up.

#80 Vampire Inc. on 11.16.16 at 10:41 pm

“Invest all you’ve got in one thing? Not a chance. Until they start selling time.”

http://www.nextbigfuture.com/2016/11/blood-from-young-people-have-protein.html

According to this research, assuming you can buy blood from young people, that in a way, is kind of like buying time.

#81 WUL on 11.16.16 at 10:44 pm

WUK??? Sp. WUL I meant. Next time WTF.

#82 Smoking Man on 11.16.16 at 10:51 pm

Every year since I was a kid I always get depressed this time of the year. Thank god I have no job. The bastards looking at my face would think I lost a child or more importantly my dogs. Just kidding relax. Ucc saying to me I may out live one of my kids. Not good. That’s the day I stand on the go train tracks and pretend I’m superman.

But this for some strange reason always lifts my spirits, gets me though the shit moment. I put it on the buds and walk to the lake. Stare at the moon and it’s reflection on the waves. Long before I moved to the lake I would drive here and watch. It’s a November tridition.

Shine on.

https://youtu.be/8UXircX3VdM

#83 Kona on 11.16.16 at 10:57 pm

Friend sold his home Edmonton area. One week. Purchased 2007 $420,000.00. Sold November 2016 $ 360,000.00. Did $25,000.00 renovation. Lost $100,000.00 after fee’s.
PB43

Guess what PB43? Your friend lost a lot more than that. Throw in interest on the mortgage, property tax, closing costs to get in and out and moving costs in and out and your friend is easily out $150,000. Add in the opportunity cost of the down payment and that loss climbs even more.

#84 Ponzius Pilatus on 11.16.16 at 11:13 pm

#46 Ronaldo on 11.16.16 at 8:09 pm
#11 Londoner

”Altogether they had 10 bidders. Seems that parts of the GTA market still has some steam left.”
——————————————————

It tells us that there are still greater fools in some areas. Most people buying right now have no clue what is going on around them.
———————–
Ronaldo,
Beware the Realtor trolls.
I thought you were smarter.

#85 Mark on 11.16.16 at 11:14 pm

“So if rental units are a bad idea and people may start ditching houses but then houses become too cheap to sell…do rents go up for a few years and then down?”

Rents respond to the overall availability of housing stock. Housing can switch between being ‘owner-occupied’ and ‘rental’ fairly easily. Sometimes there are minor market dislocations particularly in purpose-built rentals in housing downturns. However, these would be expected to be arbitraged away as new supply side responses take care of the imbalances. Especially with so much capacity in the construction sector eager and willing to capture any premiums that may exist.

Over the medium term, if prices decline beneath depreciated replacement cost of housing (ie: a mere fraction of contemporary prices in Toronto/Vancouver, for example), then rents can rise. However, that process takes time, as declining housing prices in a highly indebted environment usually causes absolute consumption of housing to fall on a per capita basis.

So no, there is no real upside into investing in a severely overpriced asset class. Housing bubbles take a long time to come to full exhaustion (ie: 2000-2013 in Canada), and take a long time to fully liquidate their excesses.

#86 Smoking Man on 11.16.16 at 11:16 pm

Hold the press

While listening to crazy diamonds it hits me like a bullet between the eye.

Trudeau the dad was a rebal in Cuba. Sort of like trump these days.

Justin, His kid. , he’s young , not chirping him.

Not fair for an old rivit bucker to rain on his moment.

He will figure it out soon. Just like the stripper at Cheetahs in my biography. No sorry, the fiction novel.

#87 conan on 11.16.16 at 11:20 pm

RE #1 raincoast on 11.16.16 at 5:36 pm

Not sure incestuous relationship with the pension funds is the right term to use.

This new bank will finance infrastructure that can generate tolls or fares. It has been determined that these fares and tolls will go a long way towards providing a steady and guaranteed income stream to said pension funds.

Old style defined benefit pension plans have a big F problem as their 25 year bonds mature and roll over to the new rates. This development bank can and will offer an investment that qualifies as a bond, but pays a lot more then bonds.

The added return should save these pension funds from going under. That is why we see this partnership instead of the government just borrowing the funds themselves.

All in all a good plan. I like it, very sweet.

https://www.youtube.com/watch?v=549B76uehxo

#88 Oakville Sucks on 11.16.16 at 11:24 pm

I rent in Oakville and I can tell you houses are sitting in my neighbourhood as well ….for months in some cases. Glad I’m renting….better to be poor and rent rather than in debt and an owner!

#89 BillyBob on 11.16.16 at 11:35 pm

#68 traderJim on 11.16.16 at 9:45 pm
#10 Andrew Woburn

I was not a big fan of Trump at the beginning, he’s a blowhard and not that quick witted. But he’s deceptively clever in some ways.

Every day I become a bigger fan though, partly because the media and other anti-Trumpers whine and cry and desperately attempt to make him look bad.

I figure if they see the need to make up that much crap about him, he must be doing something right.

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

Funny, this precisely sums up my own view as well – as much as it still strikes me as ridiculous that a character like Trump could become president, I’m happy to see the smug, clueless SJW crowd lose their minds.

Reality bites. Hope they get used to it.

#90 Andrew Woburn on 11.16.16 at 11:35 pm

– No, Voter Turnout Wasn’t Way Down From 2012

“We won’t have final turnout numbers for weeks or months because some states are still counting ballots; millions remain uncounted. That means estimates based solely on votes counted so far will understate turnout — though already more presidential votes have been counted this year than in 2012 (contrary to reports that fewer voters turned out this year).”

http://fivethirtyeight.com/features/no-voter-turnout-wasnt-way-down-from-2012/

http://fivethirtyeight.com/features/no-voter-turnout-wasnt-way-down-from-2012/

#91 data on 11.16.16 at 11:37 pm

Why are people selling the new bank prefs, yield to first call just went up and if they don’t call, the strip looks even better with higher rates now???

What I am missing?

#92 Al on 11.16.16 at 11:45 pm

Ontario Finance Minister Sousa is enticing first time homebuyers with a $4K land transfer rebate while at the same time making sure that their property taxes rise by transfering the tax load from apartment buildings to homes and businesses ( an attempt to appease tenants in Wynnne’s riding).

#93 nonplused on 11.17.16 at 12:10 am

I think buying a house and paying it off is still a good strategy, as long as you can go small. Mind you this was back in the day but my first house was $175,000. Although that didn’t turn out to be a good investment because my ex-wife took that one. However my second house was also about $175,000 (CMHC had limits in those days) and I paid it off in five years, freeing a lot of money to go into RRSP’s and brokerage accounts in the years since. I had to put a lot of renovations into that second house, but I come from a family of tradesmen so I did a lot of it myself and got more than my money back out.

I actually regret selling that house sometimes. Sure it was only 900 sqft, but it had a decent lot, a heated garage, and a hot tub in a sort of greenhouse attached, and it was only $10 by cab from all my favorite drinking spots, at least the ones I couldn’t walk to. I could bike to work in the summer. I’m not sure why I traded that lifestyle in for the suburban nightmare I live now, kids, soccer practice, long drives to work, and snow blowing the driveway when I’m not spending the weekend mowing the lawn. At my old house I had a regular lawnmower a friend gave me and all I ever did to it was change the oil once a year. Now I have an orange tractor that has cost me close to a grand in repairs and it’s only got 350 hours on it. Given what these orange tractors cost I didn’t expect that. Oh well it came with the house. I think the old guy I bought it from hit a couple of big rocks. He used the cup holder quite a bit I think. But I’m not throwing stones, I do too. When it takes 3 hours to mow the lawn a rye and coke in a contigo cup is a necessity.

Anyway paying off the house is no big deal as long as it isn’t most of your wealth. And I’ve been unemployed for about a year so not having to pay rent or a mortgage worked out well. Luckily it looks like the unemployment is ending, but it’s back to the US for contract work again ain’t no jobs around here.

PS I hope Trump doesn’t shred NAFTA or I’m screwed. That would be a personal anecdote but I think it goes directly to what the whole country could experience. Without my TN Visa, I’ll have to get one of Nutley’s $15/hour jobs servicing the electronic touch screens at McDonald’s or helping them install the new electronic burger making machines.

#94 Urban Exec on 11.17.16 at 12:16 am

Happy renting a 5 bedroom house in Streetsville after cashing in on my fully paid house at $1M. Paying $2600 per month for a house worth $950K! A bargain by Garth’s standards. Thinking of moving to Markham to be closer to my office and found similar type house in size to rent for about the same as what I am paying now. When I asked the real estate agent what was the house worth, I almost choked when she said $1.8M!!! Why would anyone ever buy this place when you can rent so cheaply.

#95 Tony on 11.17.16 at 12:28 am

Balance and diversification? Remember right on this blog and more than a couple of times I stated I had all my money in one stock? Nvidia, sometimes not playing by the rules can really work out well. It was 20 dollars U.S. the first time I mentioned it and 28 U.S. the second time.

#96 No brainer on 11.17.16 at 12:35 am

http://www.theglobeandmail.com/report-on-business/economy/market-shifts-after-trump-win-may-signal-exit-from-emerging-economies-boc-official-says/article32872825/

No rate hike if USA lifts off. Told you guys. the 94% of time canada follows use bs lol

#97 Scott in Gibsons on 11.17.16 at 12:53 am

Too funny. Trump has the MSM dancing like a dog for a wiener. Knife fights, Kissinger, Breitbart, JAP Kushner and media-free dining. CNN is feeding eyeballs to Breitbart where the headline is

http://www.breitbart.com/

#98 Parksville senior on 11.17.16 at 12:54 am

Trump is likely to the left of Hilary Clinton in terms of Govt activism and interference in the economy.
The problem is that the Donald AND the US electorate have a misunderstanding about who’s future is about to get better,
And, know what, it isn’t going to be mister Mainstream with a private sector job.
If his “brains were dynamite he wouldn’t have enough to blow his nose” describes both the typical American and their new President.
Thank god for the second amendment if every immigrant, minority or leftist were to arm themselves then trump would stay locked up in his tower as the peasants rallied with torches and pitchforks.
And Mr Beer Belly redneck would be cowering beside him!

#99 Tony on 11.17.16 at 12:58 am

Re: #45 WUL’s new neighbour….. on 11.16.16 at 7:49 pm

Ever heard the adage, “Never try to catch a falling knife”? Obviously not…

#100 Scott in Gibsons on 11.17.16 at 1:28 am

Look at Trump drive traffic to Breitbart. He’s sent the zombie MSM on a suicide mission. We’re at the tipping point.

#101 Scott in Gibsons on 11.17.16 at 1:29 am

https://www.google.com/trends/explore?q=breitbart

#102 So lucky on 11.17.16 at 1:39 am

Listened to you Garth and sold my house in March this year. I’m a senior and now don’t have to worry. My kids are so glad I sold this year as my house was 40 years old and on a busy road. But it sold no subjects and for a great price. Yippee!

#103 Scott in Gibsons on 11.17.16 at 1:52 am

When you’re ready for the hard stuff try 4chan

#104 Don Regan on 11.17.16 at 1:58 am

YUUUP its Happening!

Popular VR EastSide location.

Listing R2085874
4918 Walden St.

Org Price $1,980,000
Now $1,390,000
Dif $ 590,000

Listing R2111893
209 East 39th st.

Org Price $1,600,000
Now $1,190,000
Dif $ 410,000

I know of a number of price drops re single
family homes on the east side, on av ranging
between $100,000 and $200,000. However,
it appears we are now seeing some crazy drops.

I vividly remember Garth saying get out in the spring!
How many hundreds if not thousands are going to get
burned.

#105 Freedom First on 11.17.16 at 2:08 am

#65 Smoking Man

Yes. Smokey, today many would call you a Conspiracy Theorist Nutbar. However, I agree with you. Count me in.

In fact, exactly what you wrote was written about centuries ago. The Good, the Bad, and the Ugly.

Lots of details about the dumbed down too. Only then they used the words “Fools”, “Foolish” and “Deceived”.

Thankfully, I never got the virus either. But I have to walk among them. Fortunately, people can recover from the virus, but there is no magic bullet. The brainwashed have closed minds. Extremely difficult to re-open. Hitler knew that.

007
Freedom First
Freedomonics

#106 Fortune500 on 11.17.16 at 2:57 am

We are not adding immigrants to a pile, we are adding them to a fairly leaky bucket …

A common argument I hear for further, significant real estate price growth seems to be the number of immigrants Canada brings in each year. It is worth noting that this is being done, at least partially, to help offset a few demographic headwinds we have as a country.

Yes, we are living longer, but like it or not, the Boomers are aging and many will soon be heading to more ‘permanent’ real estate. And judging from the reproductive choices of the Millennials, we are going to need much of the current immigrant influx just to keep treading water.

Of course I am basing this on the current situation. We could always see truly massive increase in the numbers we bring in, but I think overall the whole immigrant/house price argument often leaves out these points.

#107 DoomandGloomer on 11.17.16 at 6:51 am

#25 Oakville’s Weird Too

People should “Brace for Impact.”
——————————————————————–
Right. Then they need to “Duck and Cover”!

https://www.youtube.com/watch?v=N_1jkLxhh20

#108 Aegal on 11.17.16 at 6:58 am

Thank you Garth. Did not expect my comment yesterday to make it to the front page.

#21, that is exactly my reasoning.

I’m in a situation were I can clear my mortgage this December by withdrawing all of my TFSA. I wonder if hoping to make 6% return over 3% interest is worth the “risk”. For my standards, not really (3% net is close to nothing, so not worth it) but I would keep invested for a matter of diversification. But as #21 said, I dont really see the “diversification” here.

Well, maybe the risk is not about “loosing money, it’s about running out of it” but that is another concept I need to get a hold on.

Thanks again Garth.

#109 DoomandGloomer on 11.17.16 at 7:03 am

#78 Smoking Man

“Every year since I was a kid I always get depressed this time of the year.”
——————————————————————–

Hmmmm……me too.

I wonder what it is.

In 1993, it took me more than a year to get out of the funk.

Still happens, but the duration is shorter.

Maybe it’s because I’m 57 and have decided to ditch the job once and for all.

#110 IHCTD9 on 11.17.16 at 7:04 am

#76 WUL on 11.16.16 at 10:40 pm
Oh, to clarify, by Husqvarna I mean a chainsaw. Too broke to afford one of their fine sporting firearms and too cowardly to ride one of their motorcycles. I had to stick with Browning, Ruger and Winchester rifles. Husqvarna Group is an amazing Scandahoovian company. Google it. A musket maker since the 1700s and one of the finest debate subjects around hunting campfires in the Northwoods since. I’m tearing up.
________________________________________

I will Google that :) Husky is a good saw, well revered among the local wood burners, right up there with Stihl. I have a 1979 Pioneer 1074 (made in Peterborough On.) that I am bringing back into service after a long period of dormancy as I have plans to reduce T2 and Wynnie’s paycheque.

#111 fancy_pants on 11.17.16 at 7:58 am

I think it is somewhat unfair to view housing entirely as an investment decision and an asset strategy. You could treat it a little more like a living expense which would negate some of the cons to having a roof over your head. Shelter is one of the basic necessities of life, I believe ETF’s are not.

I suspect your warning is directed to those who are own multiple RE with sole purpose to generate wealth and have no other diversification of investment risk. The family who own a paid off house just living a balanced life I believe are not the intended targets for such warnings. Am I wrong?

You are. — Garth

#112 Londoner on 11.17.16 at 8:01 am

#80 Ponzius Pilatus

I’m not a realtor nor am I a troll. I’ve been posting here since 2011 but usually sharing my views about economic policies. Anyways, believe what you like.

#113 IHCTD9 on 11.17.16 at 8:03 am

#101 Fortune500 on 11.17.16 at 2:57 am
We are not adding immigrants to a pile, we are adding them to a fairly leaky bucket …

A common argument I hear for further, significant real estate price growth seems to be the number of immigrants Canada brings in each year. It is worth noting that this is being done, at least partially, to help offset a few demographic headwinds we have as a country.

Yes, we are living longer, but like it or not, the Boomers are aging and many will soon be heading to more ‘permanent’ real estate. And judging from the reproductive choices of the Millennials, we are going to need much of the current immigrant influx just to keep treading water.

Of course I am basing this on the current situation. We could always see truly massive increase in the numbers we bring in, but I think overall the whole immigrant/house price argument often leaves out these points.
______________________________________

I agree with everything you’ve said. The one thing you did not touch on was that roughly half of the total immigration to Canada ends up in the GTA. Between 06-11 the GTA accounted for 72% of the population growth of the whole Province. So while we definitely are filling a leaky boat, everyone wants to move into the Captain’s quarters, and that IMHO could be a problem eventually.

The immigrant/house price thing is a fabrication of the RE industry. The average immigrant brings in less than 50K in savings and blows half of that getting settled in. The average immigrant is still behind in the wage game even after 10 years in Canada. Doesn’t even matter if he’s got a PHD – immigrants in Toronto earn nowhere near what their education should get them. 30+% of all immigrants send a good chunk of what little cash they earn back home to help their family (that usually live in a third world country). These guys are working 2,3, or even more jobs starting from scratch trying to get a life on the go. The idea that these folks waltz into the country and immediately drop 2 million on a house is a joke.

#114 Tudval on 11.17.16 at 8:04 am

Garth – Interest rates are not going anywhere fast. There are a number of assumptions about current increases that will prove wrong. There’s not going to be a 1 trillion spending spree on infrastructure in the US, there’s not going to be any significant jump in the debt ceiling etc etc… More likely we will see some cuts first, to make room for infrastructure spending. zero-sum. In therms of budget deficit, a 1 pct bump in interest rates will probably eat up most of spending power of the new administration, so they will soon realize that they have to keep rates low first and spend wisely.

@Fortune 500: Replacing natural pop. growth with immigration works in favor of big cities since what would normally be a fairly even spread out demographic increase, tends to be replaced with a much more localized increase (due to natural preference of immigrants to settle around major cities). So yeah, we could bring 1 million people a year and it will do much less for prices in Peterborough than for Toronto.

No one said rates are going up fast. But they are going up slow. Get ready. — Garth

#115 crowdedelevatorfartz on 11.17.16 at 8:12 am

@#29 US civil war v 2.0
“The biggest danger is letting US sink into civil war. Hell can emerge surprisingly fast….”
*******************************************
You sound suspiciously like Apocalypto 2016, 2017, 2018…….etc etc etc.

#116 Oakville Sucks on 11.17.16 at 8:21 am

Can someone please explain to me why when OBAMA increases Money Supply by TRILLIONS via “Quantitative Easing(printing money)” there is NO inflation but when TRUMP increases money supply in the order of 500 Billion in infrastructure spending there is going to be “HUGE INFLATION” creating HUGE INFLATIONARY PRESSURES resulting in interest rate hikes.

What am I missing???

#117 fancy_pants on 11.17.16 at 8:32 am

#75 Smoking Man on 11.16.16 at 10:21 pm

building 7. ah. short a plane? meh, well take it down anyways. the MSM toe the line well… actually they represent the line, a damn crooked line. But I, like many others, choose to ignore facts, nod my head and live.

plug ears (and nose) la, la, la… ♪ ♫

#118 Bat Flipper on 11.17.16 at 8:43 am

Way to sum up the whole demise of our Canadian economy in a few short sentences.

“No, not just Trump. Or RBC’s new home loan rates. Or Wild Bill’s big hammer. Bond yields. The Moister Stress Test. The Fed. Mortgage broker havoc. Not even economic torpor. More important is the meme. When people start thinking houses might get cheaper, they stop buying. Weird, but so true.”

Next year, when people start having that oh shit moment, jobs will be tight. Lots of people out of jobs (real estate, mortgage, construction, trickle down, Trump closing down imports/manufacturing in Canada), higher rates, higher mortgage qualifications, and the need for boomers to sell to finance retirement, this is too much for the market to handle.

Even though it is different here. I think that 2016 has been a bad year, but the effects will be felt in 2016. Get your greenback though, USD will be going through the roof. Also, try to get a job that pays in USD. You will appreciate the 40% raise.

People want to get out of the US. Why? It seems like a good time to get in. Unless you need Obamacare.

#119 Scott on 11.17.16 at 8:48 am

79 Kona: You seem to sure relish the fact that someone had a tough go. Anyways all those expenses are negated as he would have to lived somewhere during that period.

#120 Penny Henny on 11.17.16 at 8:57 am

What happened to CPD? Down 3% last two days!

Up 6% since July, plus the fat divvy. Stop whining. — Garth

#121 McLovin on 11.17.16 at 9:03 am

“In years where real estate has no capital gain (such as those ahead of us), properties pose a net cost. Often huge.”

In the Trump era, that should now be written as ‘YUGGGGE….’

#122 GFD on 11.17.16 at 9:12 am

DELETED

#123 Angela on 11.17.16 at 9:19 am

RE: #81
Thanks Mark. I’m happily renting now, mostly wondering if I will be able to rent more for less at any point.

#124 prioritymeister on 11.17.16 at 9:22 am

Here is what is wrong with Canada

Japanese PM heads to US to meet Trump…….meanwhile boy wonder Justin Trudeau arrives in Cuba, meets with President Raul Castro

Priorities, priorities….

Nuff said!

#125 prioritymeister on 11.17.16 at 9:25 am

#115 Penny Henny on 11.17.16 at 8:57 am

What happened to CPD? Down 3% last two days!

Up 6% since July, plus the fat divvy. Stop whining. — Garth”

Garth, looking at the 5 year chart, it is down 30%,…what say you?

Buy preferreds for a tax-efficient dividend, not capital gains. Interest rates swooned, and are now restoring. These are totally worth owning. — Garth

#126 Penny Henny on 11.17.16 at 9:35 am

#115 Penny Henny on 11.17.16 at 8:57 am
What happened to CPD? Down 3% last two days!

Up 6% since July, plus the fat divvy. Stop whining. — Garth

//////////////////////////////////

Who is whining?
Just wondering why the 3 % drop in two days?

#127 Eks dee Sipal on 11.17.16 at 9:42 am

So, a friend called me up today and complained about her landlady giving her a hard time with a rent increase. She said that she was thinking of contacting the City to report her landlady’s monthly cash income of the many illegal suites in the home (top, middle and basement comprising about 6+ suites) in order to discourage the rent increase. Many, many, many situations like this to start popping up in a neighbourhood near you, in light of the new rules by Moroneau, and considering that close to half the properties in the GTA are illegal multiplexes.

RENTS ARE GOING DOWN. HOUSING IS FINISHED.

#128 Alex on 11.17.16 at 9:43 am

#25 Oakville’s Weird Too

Nice tale bro, good imagination!

Actually prices in Oak/Burl still on the rise and correctly priced house (that’s +15-20% for last year price) gone in few days. Saw several listings in my hood last few weeks, all sold within a week and all more then asking.

#129 Eks dee Sipal on 11.17.16 at 9:52 am

An elderly lady who owned several properties in the Caledon area had passed away a few days ago, properties worth over 20 million dollars, no kids, no family but she didn’t have enough cash on hand to pay for car repairs. Poster lady for house-rich, cash-poor. Survived for years with cancer on suspiciously obtained weed oil from BC, supply line disrupted for several months and she could not cope with complications of her symptoms and passed away, unfortunately. True story, such is life.

#130 traderJim on 11.17.16 at 10:22 am

I’m all for renting instead of buying. I’ve been trying to convince a relative to sell his place (now worth 5 to 6 times what he paid for it) and rent.

He doesn’t disagree, he just hopes to squeeze a couple more years out, as moving is a PITA and you can’t deny that.

If it were me I’d be selling though…yesterday.

But I’m a do as I say not as I do type, since I still own a lot of RE. But my excuse is that my hobby is renovating, and I would be bored silly if I was not building something.

That’s how I ended up owning property in South America, when by far the smartest thing to do is rent if you are outside your home country.

But, it keeps me active and I speak Spanish like a bricklayer now.

Still, my STRONG advice to anyone retiring outside of Canada: RENT RENT RENT Sorry for shouting, but I have a lot of experience in this now, and I cannot say it loudly enough. So many advantages to renting. So many disadvantages to buying.

p.s. As if you didn’t already know, ALL the people touting that you should buy a place in Paradise are either Realtors or people desperate to get out.

#131 trōl/ noun, synonyms: goblin, hobgoblin, gnome, halfling, demon, monster, bugaboo, ogre on 11.17.16 at 10:27 am

#94 Tony on 11.17.16 at 12:58 am
Re: #45 WUL’s new neighbour….. on 11.16.16 at 7:49 pm

Ever heard the adage, “Never try to catch a falling knife”? Obviously not…

///////////////////////////////////////

Well Tony darling,
Considering all our new neighbours are drooling over the fab deal we scored (which is probably much more than a $100k peak discount) and our old neighbours are facing a massive special assessment and we extracted equity for our portfolio, AND I get to rub shoulders with the WULS….
uh yah, I caught the falling knife, right between my teeth.

Ever hear the adage “it’s a win-win-win”?

We didn’t try to catch the knife, rather we made patient and informed choices based on research, not emotion.
Sure, the perfect scenario would have been to sell 24+ Months ago and rent until about now but no one has a crystal ball and we are still much better positioned now, can’t you be happy for someone doing ok? Obviously not…..

Thanks again to Garth and to the blog pups that shared several very helpful tidbits. There are some good eggs here!

Tony, Scurry on back now, the peace bridge awaits you.

#132 Ole Doberman on 11.17.16 at 10:31 am

“Canada’s housing watchdog says a sudden increase in borrowing costs could lead to a 30% drop in home prices, and even the failure of a financial institution.”

http://www.bnn.ca/cmhc-warns-sudden-rate-rise-more-damaging-than-quake-oil-at-us-20-1.610236

How would you like to wake up to a headline like this in the morning? Totally different than previous months where most headlines were “record sales and prices”

I work a lowly desk job Mon-Fri 9-5, you know, and a lady calls me yesterday asking if she can take money out of her pension for a down payment on a house.
She went on to say she’d like to buy a house but doesn’t have a down payment.

After a slight pause I thought – wow indeed these people out there are for real, this blog hasn’t been kidding the whole time.

#133 Brokerizer on 11.17.16 at 10:35 am

Friends are asking me why Canadian lenders are raising rates, when it’s the U.S yields that went up first:

“Rob McLister, founder of RateSpy.com, said he expects the other big banks will quickly move in lockstep because of a massive sell-off in the bond market that has made it more expensive for banks to get access to cash.”

Lender CEOs would see their earnings per share go down if they didn’t raise mortgage rates… so they do. They don’t care about your payments going up, they want to see their stock options go up in value. Wouldn’t you do the same?

Buy the banks. Buy $ZEB.TO.

#134 mike from mtl on 11.17.16 at 10:36 am

RE: #92 No brainer on 11.17.16 at 12:35 am
http://www.theglobeandmail.com/report-on-business/economy/market-shifts-after-trump-win-may-signal-exit-from-emerging-economies-boc-official-says/article32872825/

No rate hike if USA lifts off. Told you guys. the 94% of time canada follows use bs lol
——————————————————————

Exactly. BoC now doesn’t have to lower rates to smash CA$. FED will do that for them. Yay I guess?

Their comment that BoC can do whatever they deem beneficial to Canada and not necessarily follow the US is exactly correct. I am putting my thought that BoC will do nothing until at least 2020.

#135 Eks dee Sipal on 11.17.16 at 10:38 am

#112 fancy_pants
But I, like many others, choose to ignore facts, nod my head and live.

plug ears (and nose) la, la, la… ♪ ♫

Yes, most people are cowards who believe that “living” is equal to ignoring truth. That is Smoking Man’s entire philosophy: Lying to get ahead. Which surprises me about Smoking Man, why would he care about building 7? Strange.

#136 Context on 11.17.16 at 10:41 am

#119 prioritymeister:- Explain to us all why T2 should fly and meet Trump who is not even a Head of State?

#137 Tim on 11.17.16 at 11:03 am

The main preferred ETFs CPD, ZPR and HPR are all down again this morning. But the Canadian 5 year bond yield has been rising steadily, up about 20 basis points over the past week (to 0.94% yesterday). I would have thought rate-reset preferreds would go up with a rise in the 5 year bond yield, in an inverse relationship to bond funds (which are going down, as expected when interest rates start rising).

#138 Anon. on 11.17.16 at 11:21 am

Good Morning Garth,

I would appreciate some advice.

My parents have recently finished paying off their home in Etobicoke (427/Rathburn) which they originally payed around $420k for in 2004. My younger sibling and I currently live with them as well and it is convenient for our work locations/general situation.

They have also recently purchased one of those new paper-mache townhouses pre-build in Oakville for around a low $600k range which should be finished mid next year against my recommendation.

Other than that I believe they may have maximum around $200k in retirement accounts/company stock.

What’s the best plan of action here? I’d think selling the paid off house ASAP and moving into the new one once it is built? Or sell both ASAP, in which case tax will have to be paid?

They know close to nothing about having a balanced portfolio which is what I am trying to get them informed about. Or at least to consult with a fiduciary as they are past the 50 year mark now, and haven’t really planned anything for retirement.

#139 Context on 11.17.16 at 11:22 am

The odds for a FED rate hike are now 96% and have some bad news for those who didn’t sell the condo in Toronto. You will have no high rise apartment of quality to move into now as they have been taken by those who read this blog. There is always the waiting list or perhaps the mother-in-law has a place for you, and she will want to know who is responsible for this mess. The wife will point to her husband and your life will become a living hell.

#140 Mattl on 11.17.16 at 11:39 am

“since almost everyone you know has a house, a fat mortgage and precious little liquid wealth”

Either this is a myth, or I run in the right circles. Cause most everyone I know has a house, a mortgage they have no trouble paying, a large amount of equity, and strong income. Are they very liquid – no, but who is in their 30s. We are plowing money into RRSP’s to offset high incomes so being liquid isn’t as important as offsetting high taxes.

So I call BS on the fact that everyone is stretched to the last dime. I know tons of people and can only think of a few that would be crushed, and that would take a 35-40 percent correction. You underestimate how many people got in early and have enough equity to carry through a big correction. Speculators will get killed but most of us will make our payments, go to work, and be mortqge free in the next 10-15.

Learn to read. I said ‘precious little liquid wealth’ which has nothing to do with real estate equity or income. Nor did I make any reference to people being ‘stretched to the last dime.’ But some have a bad attitude. — Garth

#141 InvestorsFriend on 11.17.16 at 12:35 pm

Predicting Inflation

#111 Oakville Sucks on 11.17.16 at 8:21 am observed and asked:

Can someone please explain to me why when OBAMA increases Money Supply by TRILLIONS via “Quantitative Easing(printing money)” there is NO inflation but when TRUMP increases money supply in the order of 500 Billion in infrastructure spending there is going to be “HUGE INFLATION” creating HUGE INFLATIONARY PRESSURES resulting in interest rate hikes.

What am I missing???

***************************************
You are missing any facts on the total money supply which is money in circulation plus bank deposits. Quantitative easing was supposed to spur bank lending which creates bank deposits (money). Did bank lending and total money supply increase? Need facts.

Trump infrastructure would spur actual activity in the economy.

But as for inflation: predictions are difficult, especially when they involve the future.

#142 Ole Doberman on 11.17.16 at 12:39 pm

More great news for Vancouver – BC is passing the 1% empty house tax

#143 InvestorsFriend on 11.17.16 at 12:48 pm

Rate Reset Preferred Shares

A few comments here that these are down or have not risen as they should based on a big gain in the 5 year Canada bond yield which is sustained leads to a higher reset rate.

Why not trust your own thinking and buy? The market most assuredly is not always right. Also consider what is the worse that can happen? Could you live with just collecting the dividends if these fell in price? What is the best that can happen? A quick capital gain and you sell?

Is there room for some or more of these rate reset preferred in your (possibly balanced) portfolio?

There are never any guarantees in the market. But do things that seem sound based on the probabilities and you will ALMOST certainly do okay in the long run.

#144 traderJim on 11.17.16 at 12:55 pm

Immigration and housing.

I did a full 4 minutes of research and found out the following:

Number of immigrants to Canada in 2014: 260,000 (so about 65,000 families of 4)

Number of housing starts: 192,000 units.

So, immigrants would be looking to perhaps buy a maximum of 65,000 units (probably more like 1/4 that number), leaves about 127,000 units to make up for domestic population growth and the aging of old properties.

Doesn’t look to be too out of whack to me.

Believing that immigration is pushing house prices up is a pretty shaky argument, clearly.

And yes I know all about geography. I drive by miles and miles of new housing developments along the 400, #7, Taunton Road, etc etc. it’s endless. And even more endless room to expand.

I do think the extreme of amount of MONEY flowing in from China is having an effect on the higher end, seems obvious.

But artificially low rates are what’s driving the bubble. The Chinese money is just adding the extreme aspect to it.

#145 COW MAN on 11.17.16 at 12:57 pm

#132 Tim

Good point. I was wondering the same thing. Kind of challenges the balanced portfolio theme. If bond values are dropping why are preferred resets not rising.

#146 soost on 11.17.16 at 1:02 pm

Love the post Context

As a GTA husband I am responsible for putting off buying a house (its all on me… I’m the expert) and if we jump and the market dips…. guess who takes the blame?!

Does anyone have a chaise and an hour?

#147 Mark on 11.17.16 at 1:07 pm

” I know tons of people and can only think of a few that would be crushed, and that would take a 35-40 percent correction.”

People tend to run in their own circles. If you’re smart (with money), then you probably surrounded yourself with people smart (with money) as well. The statistics tell us that there are a lot of people, particularly in that age range, who are leveraged to a crazy extent.

There’s also the problem of correlation. Many, and I mean many jobs in the economy have seen elevated incomes or prospects over the past decade or two because of high real estate prices and low interest rates (ie: government employees have benefitted dramatically from low rates!). These people tend to be the ones who binged on housing, rather than sat back and were more careful and diversified with their money. Believing the proverbial “party” can last forever (much like it was a competition within the offices of Nortel to see who could accumulate the most Nortel shares in the tech bubble!). So as the RE bubble falls apart, these people face what could be a quadruple whammy. Falling RE equity. Increasing cost of finance due to their occupational correlation to RE. Falling personal incomes (including bonuses). And falling replacement job prospects.

#148 Mark on 11.17.16 at 1:09 pm

“Believing that immigration is pushing house prices up is a pretty shaky argument, clearly. “

I’d even go as far to say that immigration drives *down* house prices as immigrants, when they arrive in Canada, mostly arrive without money and are almost immediately pressed into looking for work. The construction sector is an enthusiastic employer of recent immigrants, and the immigrant labour pool provides a significant input to the supply side of RE. Hence, over time, suppressing prices.

#149 Victor V on 11.17.16 at 1:14 pm

http://www.theglobeandmail.com/report-on-business/sudden-rise-in-rates-could-send-home-prices-reeling-cmhc-warns/article32883563/

A sudden sharp rise in interest rates that could cause Canadian home prices to plunge 30 per cent would trigger more than $1-billion in losses to the country’s government-backed mortgage insurer, according to the results of stress tests released today by the federal housing agency.

Canada Mortgage and Housing Corp. released the results of internal modelling that show how vulnerable its mortgage insurance and securitization business is to a variety of severe economic shocks. The agency, which began publishing its stress tests last year, described the process as “searching out extreme scenarios that have a very remote chance of happening and planning for them.”

#150 Mark on 11.17.16 at 1:15 pm

What’s the best plan of action here? I’d think selling the paid off house ASAP and moving into the new one once it is built? Or sell both ASAP, in which case tax will have to be paid? “

The principal residence qualifies for tax-free status, and the new build shouldn’t have much, if any gain associated with it since RE has stagnated for the past 3 years or so. So there’s really nothing much in terms of tax associated with it if sold today. Clearly they should sell at least one of the properties at the earliest possible opportunity. If they’re lucky, they’ll extricate themselves without suffering a loss. Its increasingly looking like that might not be possible over the coming years, although if they received enough of a discount on a pre-construction, they might have been able to lock in a low enough price such that RE declines won’t put them into the hole.

The ‘problem’ that people run into in situations like these is when the unit isn’t delivered (ie: the developer defaults), or the unit is underwater at the time and they’re either forced into an immediate liquidation because they can’t finance, or they take the underwater unit and dither on whether to liquidate it or ‘wait’ for RE to ‘recover’. With the way that prices are so crazily elevated (but now falling) in the GTA, getting out intact should basically be viewed as a gift.

#151 Victor V on 11.17.16 at 1:23 pm

http://www.theglobeandmail.com/real-estate/vancouver/vancouver-council-approves-canadas-first-ever-vacant-housing-tax/article32882347/

Vancouver council has approved Canada’s first-ever tax on vacant homes, despite hearing from a raft of people who say it will penalize owners of modest second homes who use their properties regularly instead of pure investors.

The city’s mayor defended the tax as an essential part of the response to the region’s housing crisis. Mayor Gregor Robertson has argued the tax will encourage owners of empty units to rent them out while allowing the city to raise money for new housing through the tax.

“I think the way it is proposed is going to achieve thousands of units in the short term,” said Mr. Robertson, adding that the tax is just one measure needed to tackle Vancouver’s extreme housing crisis.

The debate over housing in the city has focused in part on the theory that speculators have been buying up houses and apartments and leaving them empty. A city analysis conducted earlier this year estimated there were 11,000 homes in the city that had been empty for 12 or more months in 2014 and 2015; 90 per cent of them were condos.

#152 Context on 11.17.16 at 1:25 pm

#133 Anon: Your dad had his reasons for moving to Oakville which became a given factor. He should have blown off the main residence for tax free dollars and moved into an exclusive apartment building there. The new contract to purchase the townhouse has become a trap that he will regret as its too late now – best of luck.

#153 Smartalox on 11.17.16 at 1:29 pm

@ Mattl #135:

Read my post at #19:

You’re doing it wrong. If you build the lump sum of your investments early, the compounding of interest means that it takes a lot less of a nest egg to fund a comfortable retirement, compared to buying a house first, channelling cash into paying off the mortgage, and THEN trying to save for retirement. Especially if you make ongoing RRSP contributions to offset taxes, as you go.

Rent and save for 5 years, maybe a couple more to cover your down payment. Then while you’re paying off your mortgage, you’re liquid wealth is silently growing, growing, growing. The ongoing RRSP contributions help, but their really just a cash-flow solution in the present, not a long-term plan.

If you’re in your 30s now, when you’re in your 60s you’ll have both the nest egg and the house fully funded.

#154 Smoking Man on 11.17.16 at 1:52 pm

#130 Eks dee Sipal on 11.17.16 at 10:38 am
#112 fancy_pants
But I, like many others, choose to ignore facts, nod my head and live.

plug ears (and nose) la, la, la… ♪ ♫

Yes, most people are cowards who believe that “living” is equal to ignoring truth. That is Smoking Man’s entire philosophy: Lying to get ahead. Which surprises me about Smoking Man, why would he care about building 7? Strange.
….

I knew people that died in towers, had it happend a month later . I would be on that list too. And the world would never get to read my ridiculous book. And learn the meaning of life in a comical fiction delivery.

#155 For those about to flop... on 11.17.16 at 2:05 pm

People like to come here and give Janet Yellen and Stephen Poloz a hard time,but they weren’t just standing around doing nothing.

Turns out, they invented the mannequin challenge…

M42BC

#156 Rexx Rock on 11.17.16 at 2:07 pm

I may be wrong but I’m still certain will have no choice to follow Japan and keep rates forever low.1.5% to 2% for 5 and 10 year fixed are still coming.Why not?

#157 Context on 11.17.16 at 3:03 pm

I just got the shock of my life as was looking for any listing for a High Rise condo or Townhouse in the Village of Port Credit near Hwy. 10 and Lakeshore leading down to the St. Lawrence Drive Park along the lake. There are Townhouses as far as one can see by the dozens. I did an adjustment over $1 million and not one was for sale.

#158 Doug in London on 11.17.16 at 3:08 pm

@COW MAN, post #140:
So why aren’t preferred resets not rising? They’re holding off to give a chance for more investors to buy them while they are still on sale.

#159 traderJim on 11.17.16 at 3:09 pm

Loonie continues to fall today, woo hoo.

Lesson I learned 3 decades ago: The trend is your friend.

(Especially true of currency moves)

Still waiting for Mark’s guesstimate of the loonie’s future path.

#160 Penny Henny on 11.17.16 at 3:26 pm

#138 InvestorsFriend on 11.17.16 at 12:48 pm
Rate Reset Preferred Shares

A few comments here that these are down or have not risen as they should based on a big gain in the 5 year Canada bond yield which is sustained leads to a higher reset rate.

Why not trust your own thinking and buy? The market most assuredly is not always right. Also consider what is the worse that can happen? Could you live with just collecting the dividends if these fell in price? What is the best that can happen? A quick capital gain and you sell?

Is there room for some or more of these rate reset preferred in your (possibly balanced) portfolio?

There are never any guarantees in the market. But do things that seem sound based on the probabilities and you will ALMOST certainly do okay in the long run.

/////////////////////////////////////////

Sound advice Shawn, I got some more.

#161 james on 11.17.16 at 3:28 pm

#149 Smoking Man on 11.17.16 at 1:52 pm

#130 Eks dee Sipal on 11.17.16 at 10:38 am
#112 fancy_pants
But I, like many others, choose to ignore facts, nod my head and live.

plug ears (and nose) la, la, la… ♪ ♫

Yes, most people are cowards who believe that “living” is equal to ignoring truth. That is Smoking Man’s entire philosophy: Lying to get ahead. Which surprises me about Smoking Man, why would he care about building 7? Strange.
………….
I knew people that died in towers, had it happend a month later . I would be on that list too. And the world would never get to read my ridiculous book. And learn the meaning of life in a comical fiction delivery.
………………………………………………………………
Well good for you Smoking Man except that not a single soul died in building seven. It was completely evacuated. Building 7 came down due to a fire, as plain as your face! My uncle worked on building seven when it was converted to multiple level floors in the late 80s. He was a Civy Eng called in to establish the integrity of the install for new power plants and it became an engineering nightmare. He told me the building had been so modified since it was built in the 60’s that it was crazy. He said it was not blown up! Let the whack jobs know, get it though your head. Who are you going to believe some internet idiot conspiracy web sight trolling alien take-overs, God are you really that gullible? He was subpoenaed along with a 1/2 dozen other high ranking engineering companies to give testimonies regarding that building and to perform (FMEA) reports. That happened to be the last job he did before he retired. Think about it now Smoking Man are you going to believe the likes of crazy idiots without any credibility to their names at INFOWARS, ATS, or CONSPIRACYCAFE, or the guys that make sure you can safely cross a bridge, fly a plane or live in a high-rise 60 stories up. Give your head a shake man for gods sakes you sound like a simpleton.

#162 Victor V on 11.17.16 at 3:30 pm

Worry about supply — not demand — in Canada’s overheated property market, says former BoC governor David Dodge

http://business.financialpost.com/personal-finance/mortgages-real-estate/worry-about-supply-not-demand-in-canadas-overheated-property-market-says-former-boc-governor-david-dodge

#163 Smoking Man on 11.17.16 at 3:56 pm

Wow lots of scientists bailing on climate change.
Wonder if the trump win gave them confidence to go rough.

http://www.climatedepot.com/2016/11/15/skeptics-deliver-2016-state-of-the-climate-report-to-un-summit-everything-you-been-told-about-global-warming-is-wrong/

#164 isuckless on 11.17.16 at 4:12 pm

“meanwhile boy wonder Justin Trudeau arrives in Cuba, meets with President Raul Castro”
Because he knows something you don’t: Trump won’t be selected by EC, no need to ruffle feathers with Hillary

#165 Thousands of empty condos to rent DT toronto on 11.17.16 at 4:21 pm

My buddy hasn’t been able to rent his condo for cash flow positive in three months . His condo sits empty with another 12 condos in his building go unloved.look for condo “owners” to feel massive financial pain.

#166 Wassup on 11.17.16 at 4:51 pm

Most people who decide to not buy a house, also end up not investing anything. They spend it all. So they’re broke, and their rent keeps going up. Don’t get me wrong, this site is great in telling people that they need to save invest their excess income, but buying a house seems to be a “forced” savings plan, whereas you need willpower to save money and not spend it. My brother never save anything, and has a small income, but just sold his Vancouver home for $1million, which he purchased in the 70’s for $16k.

#167 Don't Believe The Hype on 11.17.16 at 5:04 pm

Excellent post, Garth. It should be required reading in schools everywhere from coast to coast to coast (East, West and Arctic).

#168 Grey Dog on 11.17.16 at 5:09 pm

Smartalox, Matti
That strategy worked perfectly for our family. When you are young, automatic withdrawal from paycheque to mortgage payments plus RRSPs. Try to make certain mortgage is paid off by mid 50s cause that is the popular time to be laid off forever…I’m now trying to think of one family I know that did not happen to! Not so easy getting a new job at that age.
In our case hubby landed a new gig, for last 6 years living off pensions and most of current income being shovelled into investments. Full retirement next spring. No debt, no mortgage, and an abundant investment account.

Mind you we lived lean years, bag lunch, few restaurants, no Starbucks. You can still have fun living lean, it was certainly worth it.

#169 Ricky on 11.17.16 at 5:18 pm

DELETED

#170 maxx on 11.17.16 at 5:24 pm

Doh! Canada…

#171 Context on 11.17.16 at 5:33 pm

#156 james: How can you explain away the following about building 7? The leading demolition experts in the world saw the video evidence and agreed it was a controlled demolition. BBC announced ahead of time on TV that building 7 had fallen yet it was still there as she was speaking. The owner Mr. Silverstein is seen in an interview saying we had to pull it which is the code word for a controlled demolition.

#172 conan on 11.17.16 at 5:34 pm

#158 Smoking Man on 11.17.16 at 3:56 pm

I changed my mind now. Your site has ads for Russian mail order brides… that makes it legit I guess.

These wing nuts over at NASA though…. screw them and their sciencey stuff. Science …. even the name is dumb.

http://climate.nasa.gov/

#173 That's odd on 11.17.16 at 5:34 pm

i have 6 rental properties in greater Toronto and have no issues with lack of tenants . Location location location !!…no ‘Masaive financial pain ‘…

#174 Climate Cult on 11.17.16 at 5:48 pm

#158 SM

Wow lots of scientists bailing on climate change.
Wonder if the trump win gave them confidence to go rough.

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

This is akin to the split of the church back in the middle ages. The result was one of the bloodiest wars on the European continent and lasting 30 years to “settle” the score.

Prophet Justin is bamboozling the people with his schemes for higher taxation and soon Canadians will pay just to be breathing.

No chance in hell that the US will sign up or sign anymore climate related legislation which threatens the economic welfare.

Has Justin called The Donald yet? I can’t imagine how that conversation goes. What is there even to say? Talk about Yoga or shirtless moments on certain parades?

We, that is all of us Canadians are in such a predicament now because of the former drama teacher come Prime Minister. We are going to suffer badly in the next 4 years, possibly 8 years if T2 gets reelected.

Trump will have 2 terms, guaranteed.

The EU is breaking up before our very eyes. Nobody other than the elite is interested in delaying the inevitable. It was a nice dream but it has turned into a nightmare. Nationally the Europeans are not in favor of climate politics. There are maybe 10% to 15% of supporters in every country.

The climate deals are bank deals. The schemes are financial schemes.

Canada with the carbon tax is digging its own grave.

#175 SWL1976 on 11.17.16 at 6:16 pm

#158 Smoking Man

Wow lots of scientists bailing on climate change.
Wonder if the trump win gave them confidence to go rough.

=========

All that research is likely funded by the Kroh brothers who’s main interest is continued control over our petroleum driven planet. I’m surprised someone with a self proclaimed intelect and connection of your UCC cannot see and understand this?

Enjoy our global warming

For both this and your ignorance towards the subject is very real

#176 conan on 11.17.16 at 6:22 pm

Re: #169 Climate Cult on 11.17.16 at 5:48 pm

“Nationally the Europeans are not in favor of climate politics. There are maybe 10% to 15% of supporters in every country.”

Where are you getting your information from? The Europeans are huge on protecting the environment.

Find me one article that proves what you just said….

Here is one of many articles that disproves what you just said.

https://www.thinkglobalgreen.org/IRone.html

Can we not use a Carbon tax to change human behavior and influence innovation in this regard? Can we not use proceeds from a carbon tax and use it create a basic income? Or, something else useful to society?

You guys are all the same. either ignorant of the situation or you are plugged into financing from big oil or religious nut cases. The same peeps who think the Earth is for Man’s pleasure and that “Sky Daddy” will save us from our destruction of it.

#177 isuckless on 11.17.16 at 6:52 pm

Protecting the environment is NOT equal to supporting “Climate change”
The latter is invented to mask screwing with the former and to stop people protesting increased pollution

#178 isuckless on 11.17.16 at 6:56 pm

“Can we not use a Carbon tax to change human behavior and influence innovation in this regard? ”
YES, but will we?
Al Gore is the best example what will happen with that money
I believe that if we invest in alternative energy (without corruption) that will create new jobs and wealth (plus inevitable taxes)
What I see now is only corruption and tax robbery

#179 Mattl on 11.17.16 at 6:57 pm

Smartalox – house will he paid in my 40s, maxing out my RSPs and TFSA. Not sure how liquid RSP’s are more than a house yes but at my tax bracket I consider them locked. My point was its hard to have a lot of liquid wealth of any kind in your 30s. So slamming young folks for not having lots of free cash is pot meet kettle.

And getting into the market early was the right play for me and my family. The renters that are on the sidelines will be just getting in when I’m burning my mortage. Buying a house you can afford and staying put is never a bad idea.